§ Mr. Merlyn Rees (Leeds, South)On a point of order, Mr. Speaker. There is a small point that I wish to put to you. In the discussion of the Bill on the first part of the guillotine we want to separate amendments Nos. 5 and 6. It may be that the form of the debate will separate them. We want to ensure that we can treat amendments Nos. 5 and 6 separately because, in the minimum of discussion that we shall have, they should be dealt with separately.
§ Mr. SpeakerI shall do my best to help the right hon. Gentleman as we go along.
Lords amendment: No. 1, in page 2, line 38, at end insert
, to secure increases in the capital of subsidiaries
§ The Secretary of State for Energy (Mr. Nigel Lawson)I beg to move, That this House doth agree with the Lords in the said amendment.
§ Mr. SpeakerWith this it will be convenient to take Lords amendments Nos. 2, 3, 4, 5, 6, 7 and 8.
§ Mr. LawsonI shall deal with the amendments in the group separately and as clearly as I can. If, as I understand from what the right hon. Member for Leeds, South (Mr. Rees) said, the Opposition want to make separate points on amendments Nos. 5 and 6, when I reply to the debate I shall reply separately to those two debates within the debate. I hope that will be for the convenience of the Opposition and the House.
These amendments are somewhat complex and occasionally rather opaque. They fall into three categories. First, they seek to establish beyond doubt that the participation agreement between BNOC and Britoil can be put in place as part of the scheme. Second, there are a number of technical amendments concerning the preparation of accounts of Britoil and its opening balance sheet under the scheme. Third, there are some minor drafting improvements simply to clarify the scheme-making provisions. In order to see the effect of the amendments more clearly, subsections (3) and (4), as revised, have been set out in their entirety.
Two important changes introduced by these amendments take account of major concerns expressed on more than one occasion by Labour Members during the earlier stages of the Bill. These were that the participation agreement should be in place well before the flotation of Britoil, and that the Bill should allow any commencing debt under clause 4 to be passed to Britoil. I hope that in meeting these concerns the amendments will be welcome to the House.
The first four amendments fall into the category of minor drafting improvements. The amendment to 454 subsection (1) makes clear that BNOC has the power to increase the capital of subsidiaries as well as to establish subsidiaries for the purpose of facilitating an eventual disposal. The substitution of "specified" for "prescribed" in amendments 2 and 4 facilitates the detailed drafting of the scheme. The last minor change, the deletion of "or" between paragraphs (a) and (b) of subsection (2), is to make quite clear that the scheme can adopt either or both the approaches set out in those paragraphs.
Amendment No. 5, in which the Opposition have indicated that they have an interest, is more important. It largely repeats the present subsection (3) and paragraph (a) of subsection (4). The introduction of the words
for the purpose of dealing with matters arising out of or relating to the transferhas important policy implications. It is these words that enable the participation agreement between BNOC and Britoil to be put in place as part of the scheme. While the Government originally envisaged that the participation agreement would not form part of the scheme, I have carefully considered the points made in debate, particularly those in Standing Committee by the hon. Member for Merthyr Tydfil (Mr. Rowlands).The amendment ensures that not only can there be no doubt about Britoil's participation commitments to BNOC but also that the arrangements can be put in place at the time of the transfer of assets to Britoil, and hence well before flotation. This underlines the importance we attach to these arrangements and the contribution participation oil makes to our security of oil supplies. The hon. Member for Merthyr Tydfil may have specific points to make to which I will do my best to reply fully towards the end of the debate.
The other amendment mentioned specifically by the right hon. Member for Leeds, South was amendment No. 6. I should first like to make it clear that the underlying objective of clause 2 is unchanged by the amendment. It still provides for BNOC's oil-producing assets to be transferred to Britoil in preparation for the disposal of shares. The objective of providing for continuity between BNOC's and Britoil's accounts in respect of the assets and liabilities transferred is unaltered.
The amendment serves three main purposes. First, it introduces the concept of consideration into the scheme-making powers as set out in the new paragraph (a) of subsection (4). This simply brings together two transactions which, under the Bill as originally drafted, would have been separate events. The first is the transfer of the oil-producing assets to Britoil. The second is the issuing by Britoil of securities to BNOC. The linking of these events—the issue of securities in return for the transfer of the oil-producing business—will help to place Britoil's accounts on a more normal footing. The House will appreciate that for Britoil to have received the oil-producing assets without offering anything in return as part of the deal would have resulted in a highly unusual situation. It would also have created technical problems with its future tax liabilities. The concept of consideration helps to overcome these problems.
Secondly, the securities that Britoil would issue in return for the assets are widely defined—in a later amendment, No. 45—to include shares, debentures or bonds, which could take the form of loan stock. This therefore takes full account of the point raised in discussions in Committee, particularly by the hon. Member for Merthyr Tydfil, that it should be possible to 455 transfer any commencing debt as defined under clause 4 to Britoil. No decisions have yet been taken, but we are making sure that the flexibility is there.
§ Mr. Dick Douglas (Dunfermline)One of the questions that was put in the other place was that of the possibility, indeed probability, of this transfer creating what was tantamount to a share premium account in Britoil's account. In view of the statement made today by the Financial Times that we are well on the way to seeing this privatisation measure taking place before the end of the year, can the Secretary of State confirm that such an account would be in place in Britoil's account?
§ Mr. LawsonI shall come to that point in due course. It would help the House if I could take the amendments in logical sequence. I shall come to the question of share premium accounts.
Thirdly, the amendments allow for the creation of reserves in Britoil's balance sheet, part of which may be made available for distribution to shareholders. The objectives are, once again, unchanged, but the method of achieving them is modified to take account of the fact that the acquisition of assets in consideration of the transfer of shares will lead to the creation of a share premium account on the books of Britoil. This would be the difference between the nominal value of the shares issued in consideration and the net value of the assets transferred from BNOC, after taking account of any debt imposed on Britoil.
The amendment then goes on to enable a part of what would have been the share premium account to be set aside in a reserve that would be available for distribution to shareholders. This reflects the element of retained profits usually found in a company's balance sheet. Paragraph (c) of subsection (4) therefore provides that this reserve should not exceed BNOC's accumulated realised profits. And paragraph (d) provides for any distributable reserves to be deducted from the share premium account.
The other provisions in the amendments, particularly those in paragraphs (b) and (e), refine the objective of continuity in the treatment of assets between BNOC's and Britoil's accounts. They allow the value of the assets, which would have been given in BNOC's books, to be repeated in Britoil's opening books. This, together with the concept of consideration, greatly simplifies the technical complexities which otherwise would have occurred in drawing up Britoil's balance sheet.
The remaining two amendments come at the end of clause 2. The first, amendment No. 7, is consistent with the principle established by the earlier amendments of maintaining continuity between the two sets of accounts. It is chiefly to enable the assets to be transferred at book value without the application of the normal company law principle that where shares are issued in consideration of the acquisition of an asset the true value of the asset determines the value of the shares issued, which would be inappropriate in this case.
Although it may seem slightly strange to be waiving the normal legal provisions in this case, amendment No. 7 essentially reflects the fact that the transfer of assets under the scheme-making powers in clause 2 is not a normal occurrence in company law. It is therefore not surprising that provisions need to be made to overcome the unusual problems created by statutory investing. I am sure that the hon. Member for Dunfermline (Mr. Douglas) will be 456 aware that in the other place, when this was discussed, that eminent Law Lord, Lord Wilberforce, examined this carefully and was satisfied that the effect was limited and appropriate.
The last amendment, No. 8, gives the definitions of "statutory accounts" and "prescribed" which are two of the new terms introduced into clause 2. I have already mentioned that the other new term, "securities", is defined in a later amendment.
Finally, I should add that parallel amendments are proposed to clause 10 of the Bill in relation to the gas provisions.
I appreciate that the amendments to subsection (4) are of a technical nature and deal with detailed and sometimes abstruse issues concerning the accounts of both Britoil and BNOC, but I hope that I have adequately described their purpose and effect which can be summarised as providing continuity and flexibility in establishing Britoil's capital structure.
I hope too that the proposals to put the participation agreement in place as part of the scheme, which is a rather more important element in this group of amendments, and the provision to enable the transfer of any commencing debt to Britoil will be welcome to Labour Members.
§ Mr. DouglasOn a point of order, Mr. Speaker. In view of the statement made by my right hon. Friend the Member for Leeds, South (Mr. Rees) on the way that the Opposition would prefer to treat these amendments, I trust that it will be in order, after the Opposition Front Bench spokesmen have spoken on amendment No. 5, for you to call Back Bench speakers on that amendment, and when Front Bench spokesmen have spoken on amendment No. 6 I hope that Back Benchers may speak on that amendment, in order not to confuse the issue.
§ Mr. Deputy Speaker (Mr. Ernest Armstrong)As Mr. Speaker said, we shall try to help as we go along. I shall bear that point in mind.
§ Mr. Edward Rowlands (Merthyr Tydfil)The case for splitting the discussions on these amendments was illustrated by the speech of the Secretary of State, not because we disagree with parts of it but because of the complexity and the separate nature of the issues raised in the amendments. I should like to concentrate almost entirely on amendment No. 5. I agree with the Secretary of State that it concerns a matter of considerable importance because it paves the way for providing a participation agreement as an integral part of the scheme of things under clause 2. It was a point that we hammered at throughout the Committee.
We shall want to consider amendment No. 6 separately. The Secretary of State will not be surprised if we do not buy him on amendment No. 7, and the explanation that he gave. What is more, he quoted Lord Wilberforce, who on amendment No. 7 said:
We shall see it popping up in all sorts of contexts which may be much more far-reaching that the present one."—[Official Report, House of Lords, 21 June 1982; Vol. 431, c. 806.]The House should realise the precedent that might be created by amendment No. 7.I wish to probe the Secretary of State about what he envisages the participation agreement will be about. The whole purpose of amendment No. 5 is to pave the way for 457 putting participation agreements into the scheme of things under clause 2. The most relevant aspect of the amendment and the changes made by it are the words
for the purpose of dealing with matters arising out of or related to the transfer".It is those matters that I hope to probe.It is worth reminding ourselves—because we could lose the general issue among the details and the complexities, the "opaqueness" to which the Secretary of State referred—what participation agreements are. They are the means by which we ensure that there is national control over the majority of our oil supplies and their destination. Therefore, these are not just marginal issues; they are matters of detailed policy and are fundamental to the question of ownership and control over our oil supplies. They are a vital part of the national control of our oil resources. Our contention is that any weakening or undermining of the participation agreement weakens the nation's control over its oil supplies.
It is also worth reminding ourselves of the role of the British National Oil Corporation as it was, still is, but will not be if the Bill is enacted, in those participation agreements relating to the control of our oil supplies. BNOC was the instrument for that control—as a trader in participation oil from other countries and, most importantly, as a major equity holder in interests throughout the series of licences from which its participation agreement and control stem.
If the vandalistic act of breaking up BNOC is carried through, there will be considerable danger of losing control over the destination of our oil. That has been one of our arguments during the many weeks that we have debated the Bill here and in another place.
Unless a new, comprehensive and effective participation agreement, without loopholes, is signed between BNOC and British Oil before flotation we shall be continually anxious about the loss of control over our oil supplies as result of the breaking up of BNOC. Any agreement must ensure that there is no loss of control over every barrel of oil over which we would have had control through the various arrangements made under the first to fourth round licences, participation agreements and equity involvement under the fifth and sixth round licences. Those are the principles on which the Opposition have argued about the nature of participation agreements. There must be nothing partial in any agreement between BNOC and Britoil.
I appreciate the generous spirit in which the right hon. Gentleman introduced amendment No. 5. The amendment enables such an agreement to be part and parcel of the scheme-making powers in clause 2. It establishes the vital importance and significance of participation agreements as an essential part of the whole process of devising a scheme for the division of the spoils between Britoil and BNOC.
Any scheme under clause 2 will not be subject to any form of parliamentary supervision or control. That is why I shall spend some time in dealing with the various aspects of the amendment. The Opposition have continually tried to introduce a form of parliamentary supervision over any scheme under clause 2. There is no such control. No order has to be laid. A scheme does not have to be laid before Parliament for approval. But the right hon. Gentleman 458 stated that an integral part of the scheme, and one of its most important elements, will be the participation agreement between Britoil and BNOC.
Today's debate will be the last chance for the House to pick over the bones of the Bill, to put forward arguments, or to seek assurances from the Secretary of State about the nature of the participation agreements. It is, therefore, right that we should probe the right hon. Gentleman on exactly what the participation agreement will be, and to secure the assurances that we believe to be essential.
The Government and Opposition recognised, during the long days and nights of debate in Committee and in another place, that there were three basic aspects to any participation arrangement. A participation agreement had to cover the existing oil coming from existing licences—the first to fourth round licences on oil already in place and covered by participation arrangements. In the fifth round licences the participation agreement is of a different kind. It is not based upon an understanding or a right by BNOC to acquire oil. It is underpinned by its 51 per cent. equity holding on every licence in the fifth round. That is the significant difference between the participation arrangements under the first to fourth round licences and the fifth round licences.
The sixth round is different again. That contains provision for a 51 per cent. minimum, and a series of other interests were introduced—carried interest, put options, and so on—which I shall deal with shortly. There is a fourth aspect to the participation agreements on information rights that I shall deal with briefly later.
Will the Minister assure us that in any participation agreement signed between Britoil and BNOC there will be a comprehensive arrangement for existing oil under the first to fourth rounds? In other words, will the Minister guarantee that the participation agreement will cover all the licences in the first to fourth rounds as an integral part of the scheme? It should not be organised on a licence-by-licence basis. There must be a full and comprehensive arrangement.
The Minister has given us assurances that I shall not repeat as I am sure that he does not challenge them. He is genuinely concerned about the nature of the participation arrangement. He has accepted our view that a major comprehensive participation agreement is an integral part of protecting the nation's oil supplies following the breaking up of BNOC. I therefore seek the simple assurance from the Minister that an integral part of an agreement will be that the whole of the first to fourth round licence interests and the BNOC rights of participation will be comprehensively secured in any participation agreement and that there will not be piece by piece negotiation, licence by licence. Anything of that nature will be a grave withdrawal from the Minister's commitments throughout the various stages of the Bill.
To summarise, therefore, I hope that the first to fourth round licences will form part of a comprehensive agreement envisaged as an attachment to or part of any scheme that is devised under clause 2. Moreover, I hope that the Minister will ensure that as part of that agreement there will be a total arrangement between BNOC and Britoil on the first to fourth rounds.
When the right hon. Gentleman introduced the amendment he said, significantly, that he accepts the principle that a comprehensive participation agreement should be an integral part of a scheme prepared and completed prior to flotation. I ask the right hon.
459 Gentleman to confirm that the first to fourth round licence oil—that is, existing oil because there is nothing coming from the fifth to sixth round licences—will be an integral part of the participation agreement. I hope that that will be done before flotation so that everyone will know what is happening.
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I ask for a simple assurance on that point, and I hope that the right hon. Gentleman will give it to us. I hope that there will not be a licence-by-licence approach, which will drag on when the Government have lost all the negotiating power that they now have over Britoil and BNOC. They should drive that bargain very clearly.
§ Dr. J. Dickson Mabon (Greenock and Port Glasgow)I am trying to follow the hon. Gentleman's argument. He has said that Britoil and BNOC should not adopt a licence-by-licence approach. What about the third parties? Will they be consulted?
§ Mr. RowlandsIt is not for me to present the Government's case. The Secretary of State can do that. As part of this envisaged comprehensive participation agreement, for which the amendments pave the way, and as a part of the scheme before flotation, we hope that part of the comprehensive agreement will cover the first to fourth round licences. Such an assurance should be put on the record.
A very different set of issues arises over the fifth round licences, as we continually pointed out on Second Reading and in Committee. In that case, participation agreements will, in effect, be the equity interests of BNOC. We notice the slightly weasel words of the Minister in the other place when he talked about the fifth and sixth rounds. He said that the Government will sign an agreement for 51 per cent, of Britoil's oil. However, when the equity interest is handed over from BNOC to Britoil, which was the basis of the participation agreements under the fifth round, and there is only a 51 per cent. participation agreement, it really means that there will be a 25 per cent. participation oil agreement because that is the mathematical logic of the proposition. Unless something in addition is included, we shall lose significant control over fifth round oil.
If one loses the 51 per cent. equity interest, which was the basis of participation oil under the fifth round licences, and signs a 51 per cent. participation agreement with Britoil, the State will have control of only 25 per cent. of the oil that comes from those licences. We therefore need something in addition.
Up to a point, the Secretary of State has accepted that proposition. On more than one occasion he has said—it was repeated in another place—that something is probably needed. What will be the top-up? Rumour has it that the Government will ask Britoil to sign a 51 per cent. arrangement with BNOC. In addition, there will be a special option on the remaining 49 per cent. If that is so, what are the qualifications or conditions by which that option will be exercised? If there is to be an optional right by the Secretary of State to make a claim on the remaining 49 per cent. of the oil transferred to Britoil through transfer of the equity, what conditions will be attached to those rights? Considerable significance will then attach to the whole question of flotation. Every valuation that I have seen is based upon how much oil there will be. If there is to be an option on top of the 51 per cent., one will never quite know how much oil Britoil is entitled to have at any time.
460 The House has a right to know. It is not a question of placing something in the Library in six months' time. The participation agreement between Britoil and BNOC is of far greater significance than the average type of participation agreement which historically has been signed. A major division of the spoils is envisaged in clause 2.
A simple 51 per cent. participation agreement between Britoil and BNOC under the fifth round licences will simply give the nation a right to control 25 per cent. of the oil coming from those licences. The right hon. Gentleman has on a number of occasions hinted that there should be something in addition. What will it be? Will it be a 49 per cent. option? If so, what conditions will be attached to such an option? What are the circumstances in which the Secretary of State will have the right to exercise such an option? Will the circumstances be unconditional or will specific conditions apply?
Although I raised some of the issues concerning the sixth round licences, I have thought about them since we debated the matter in Committee. I now wish that I had dealt with the arguments in much greater detail. In Committee, I lumped the fifth and sixth round licences together. That was a mistake, because the sixth round presents another set of arguments about participation arrangements, the division of the spoils and matters arising out of the transfer that is an integral part of the amendment.
Sixth round licences produce a host of new ideas and arguments. The fifth round licences were concerned simply with the 51 per cent. figure. In this case, a series of other things were added. I refer to licence block No. P297 as a typical example, because it is illustrative of the issues that arise in respect of the sixth round licences. This was an agreement between Occidental, Allied Chemical, BNOC, Getty and Thomson Scottish. The interest in that licence was 16.4 per cent. Occidental, 9 per cent. Allied Chemical, 55 per cent. BNOC, 10.5 per cent. Getty and 9 per cent. Thomson Scottish. But that tells only part of the story.
If the line were drawn there, BNOC would have a 55 per cent. right to all the oil under that licence. That 55 per cent. will now be transferred to a private concern. In addition, the Government of the day invited companies to offer other incentives to join the licence. Under this licence, Occidental offered BNOC 100 per cent. of all its oil, as did Allied Chemical, Getty and Thomson Scottish. Therefore, BNOC—the nation—had an automatic right to 55 per cent. of the oil from that licence as a result of its equity holding, but as a result of the option offered by the other companies BNOC was offered 100 per cent. control over the oil from that licence. Until the Bill was introduced, the nation had a right to 100 per cent. of the oil arising from the licence that I have just quoted.
What will be the participation agreement in the sixth round licences? BNOC will lose its automatic 55 per cent. right because Britoil will get the 55 per cent. equity interest. The other 45 per cent. was offered to the nation, the State, BNOC, voluntarily by the other parties to the licence. What will happen to those rights? I could quote the other licences to demonstrate that this licence is not unusual. What will be the participation agreement between BNOC and Britoil in the sixth round licences? First, the Government intend to weaken the 55 per cent. right because they transfer the equity from which that right 461 derives to a private outlet. Lord Mansfield said that there would be a 51 per cent. right in the licences. That is a grave dilution of existing rights.
The nation has a right to 100 per cent. of the oil in the mixture of equity and other options that were agreed by the private companies when they took out the licence that I quoted. The 100 per cent. right exists in many of the sixth round licences. If the Government are trying to secure only a 51 per cent. on the participation agreement they are giving up the right to control the other 49 per cent. It may be suggested that one way to solve the problem is to persuade Occidental, Allied Chemical, Thomson Scottish and Getty to sign an agreement, as was the case in the licence I quoted, to get all their oil, which amounts to 45 per cent. One would therefore need only 6 per cent. from Britoil. The right hon. Gentleman has yet to deny that he entertains the idea of a participation agreement on the sixth round licences whereby if the other licencees add up to 45 per cent. he will try to secure a 6 per cent. participation arrangement with Britoil. The issues are serious. They are rights that the nation have, through BNOC, to control future oil supplies.
I thought that the right hon. Gentleman had agreed under pressure that he would passionately maintain the participation rights. The right hon. Gentleman shakes his head. Perhaps he would like me to go through block 301 in which Gulf gives BNOC 100 per cent. I could go through all the licences. One or two give the nation slightly less than 100 per cent. The majority, however, give the nation a 100 per cent. right. They are financially valuable rights. They are important as they control our future oil. Their importance is highlighted when one realises that the oil coming from the fifth and sixth round licences will come into effect in the late 1980s and 1990s when the country could return to deficit and existing oil fields are in decline.
Will the right hon. Gentleman assure us that he will not dilute the nation's right to determine future oil supplies? We know that 51 per cent. rights are secured in the seventh round licences. We have no argument with that. We seek an assurance with regard to the fifth and sixth round licences. Until we get it we shall not know whether the Bill will weaken and undermine participation agreements, as we fear that it will. With that comes a weakening and undermining of the nation's control over its own oil supply.
§ Dr. J. Dickson MabonOn a point of order, Mr. Deputy Speaker. I do not understand how it is possible to take the two groups separately. I understand that we may only speak once, unless we are given permission to speak a second time. It is difficult to debate this group with the subsequent group unless we all get permission to speak twice.
§ Mr. Deputy SpeakerI am trying to help the House. My first inclination was to call the two Front Bench spokesmen, but time is limited. The right hon. Gentleman is right. No Member may speak twice. We shall proceed, and the right hon. Gentleman must make his judgment about what to say.
§ Mr. Gordon Wilson (Dundee, East)I shall deal only with amendments Nos. 5 and 7. I shall pass over 462 amendment No. 6, which is complicated. The Minister endeavoured to explain it, but he left me and other hon. Members straggling behind.
Amendment No. 7 is one of the most remarkable to come from the other place. Notwithstanding the rule of law or the provisions of any enactment, it will cause parliamentary eyebrows to rise. Indeed, it may spell the death knell of the other place. That phrase may be used by future parliamentary revolutionaries if they survive in any political party. Do the official Opposition intend to press the matter to a Division, or do they regard it as a Trojan horse, which should be left on the statute book for use in more exciting times, along the lines perhaps of the Iranian regime? I shall vote against amendment No. 7 on principle. It is highly dangerous, and I am surprised that this Government of all Governments have advanced it.
I shall now deal with amendment No. 5. I accept much of what the hon. Member for Merthyr Tydfil (Mr. Rowlands) said. Participation rights are extremly important. It is interesting that the Government have admitted that they have had to change their arrangements. One change deals with the integration of participation agreements within the overall scheme. Another would prevent the incurring of some tax. That two important changes have been made at this stage does not inspire confidence that there will be no harmful provisions elswhere in the Bill that will affect participation oil and the rights that are now vested in BNOC.
I have heard on several occasions that the separation of BNOC into a participation trading group and equity oil interests could lead to an overall loss of commercially valid rights. The hon. Member for Merthyr Tydfil rightly sought further information about the fifth and sixth rounds and the full right to participation oil.
I wrote to the Minister of State, the right hon. Member for Ross and Cromarty (Mr. Gray), who I understand cannot be with us as he is fulfilling ministerial duties abroad, thus preventing us from offering our congratulations to him on his promotion to the Privy Council—together with the usual barbed remarks with which such compliments are generally accompanied. I took the opportunity yesterday to telephone his office when I realised that some of the points regarding commercial rights were likely to arise today in relation to the Lords amendments. Although the Minister will have a copy of the letter, for the sake of those who have not seen it I shall briefly restate the points on which I seek information from the Government.
First, will meetings of BNOC and Britoil, in their capacity as operators in relation to participation oil, continue in Glasgow, or will they be dropped in the light of hostility from some oil companies disinclined to make the journey?
Secondly, what additional information will have to be provided by BNOC or Britoil to private operators as a result of the change in character of the organisation? That is a specific item, although the House will have noted that the hon. Member for Merthyr Tydfil raised the subject of the provision of information in relation to participation agreements.
Thirdly, what changes in voting now open to BNOC in relation to offtake of participation crude, as an operator in equity oil development and a participant in equity oil consortia, will take place? Who will cast the votes? If the votes are intended to lapse, what other area of control will take their place? This is a matter of general principle, but 463 it has a bearing on the specific point rasied by the hon. Member for Merthyr Tydfil about the quantity of participation crude that would be available.
My final three questions are brief, but important. Fourthly, what will happen to farmed-in interests? Fifthly, what will happen to carried interests arising out of the sixth round? Sixthly, what will happen to pre-emption rights?
These questions will come up at a fairly late stage. One of the problems which faced us in relation to this legislation was that, although we knew that we were dealing with the creation of an equity oil subsidiary, which would be called Britoil, there was no reference anywhere in the legislation to that arrangement. Effectively, it was all done behind the scenes with vague references to "schemes", "orders" and "directions". That problem faced the Standing Committee and, as the hon. Member for Merthyr Tydfil rightly said, today is our last opportunity to look into this kind of deal, because, once the Bill leaves the House of Commons, BNOC will be split up and the operation will be carried out in a way which will allow virtually no further parliamentary scrutiny or questioning.
It is therefore important that we take the opportunity today to obtain more information from the Government as to what will happen to the commercial rights that I have mentioned. Will they go to Britoil or BNOC, or will some fall out of sight in the creation of this organisation? We need that information so that we may have a more round appreciation of the Government's intentions. It is all the more important now, because we understand that the Government intend to rush precipitately into disposal of the Britoil shares in the late autumn, whether or not oil prices have recovered to a level which would give an adequate return to the country.
§ Mr. DouglasI shall pay much more attention to amendment No. 6 than to amendment No. 5. I begin, however, with a brief word about amendment No. 5 on the subject of participation. My hon. Friend the Member for Merthyr Tydfil (Mr. Rowlands) covered this extensively, but there are certain points on which I must press for further information. The Earl of Mansfield, leading for the Government on this in another place, was very circumspect, but he stated plainly that
The amendment is designed to make clear that the participation agreement … can be put in place as part of the scheme."—[Official Report, House of Lords, 8 June 1982; Vol. 431, c. 131.]I assume, therefore, that the participation agreement—or argreements, as there may be more than one—would be part of the prospectus. I see the Secretary of State shake his head, so I assume that there will be one participation agreement between the newly formed Britoil and BNOC.As my hon. Friend the Member for Merthyr Tydfil indicated, there are difficulties with the licence terms of the fifth and sixth rounds. It is to the nation's advantage to keep all these participation agreements in hand. Paragraph (a) of amendment No. 5 seeks to insert the following words:
provide that any prescribed rights or liabilities on the transferor shall be enforceable either by or against either party or by or against both".I take that to mean that the participation agreement, which will be the "State's" right against Britoil, ought to envisage all the rights that BNOC now has. Otherwise, certain things follow in relation to amendment No. 6. If the State in one way or another is to give up some of those 464 rights, that will affect the valuation of Britoil in terms of the market. Indeed, there was an extensive discussion about this in another place.The hon. Member for Dundee, East (Mr. Wilson) referred to amendment No. 7, which is one of the strangest amendments ever to be seen in this place. It seeks to insert the words:
notwithstanding any rule of law and the provisions of any enactment".As Lord Wilberforce said—I think that he was somewhat misquoted by the Secretary of State—there are fears that this may not just be a precedent in one sense but that it may pop up in other statutes. Which other statutes have used this? Given the provisions dealing with this in the Companies Act 1981, especially sections 36 to 40, why do the Government feel the need to write amendment No. 7 into the Bill? What is so unique about this that the Secretary of State must create a situation in which, in terms of Britoil accounts, what might be tantamount to a share premium account should be available for disposal to the recipients of the holding in the new company?I am especially concerned about this because in its accountancy policy BNOC has paid particular attention to retaining profits. The balance sheet at 31 December 1981 shows that retained profits that year were £165.3 million. If an ordinary private company, which this will not be, went to the Stock Exchange and was getting a premium for the shares, these would come into a share premium account which under the Companies Act 1948 and even in certain circumstances, I assume, under the 1981 Act would not be disposable in terms of dividends. There would be great restrictions on that share premium in terms of disposal.
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The Secretary of State takes the view that because of accountancy practices this is a useful device to put the books in order. I do not necessarily quarrel with him because it would have to be done if one took the Government's view that what is in public ownership must be transferred to the private sector. He takes the view that it is a pure accountancy device. But, taken one stage further, the valuation is being made on the basis of a national asset which has been built up by the retained profits of the national corporation. The retained profits have been based on certain provisions in relation to access to the national oil account. Many Tories complained about that. It could be argued that those profits had been earned partly because of the softness of Government fiscal methods. I see that the Secretary of State is smiling and I would not quarrel with him if he said that that was the case.
If the profits should accrue to anyone they should accrue to the nation. The Secretary of State might counter my argument by saying "If they are sold at a particular level in the market place the profits, in terms of market evaluation, will be examined by the market and therefore, at one stage removed, will accrue to the nation". However, that presupposes that we do not have an Amersham International. The assumption is that we do not undervalue the shares. If the Secretary of State behaves in the manner that he has behaved in previous instances, the market will examine the prospectus and see in it profits in terms of share premium that ought to have accrued to the nation, but can accrue to the market. They will accrue to the nation only if we have a proper evaluation of the assets.
465 I have argued all along that we should not do this at all, but in order to do it statutes which severely control private enterprise are being swept aside by amendment No. 7, including the rule of law in Shearer v. Bercain and in Companies Acts from 1948 to 1981. The Secretary of State cannot justify that unless he gives us a copper-bottomed undertaking that the prospectus of the organisation will be debated on the Floor of the House. That is the only undertaking that will suffice.
The Secretary of State is sweeping aside statutes and the rule of law. We should not allow him to sell a public corporation down the river. Therefore, I ask the Secretary of State to give an assurance that when the participation agreements that be part of the prospectus of the corporation will come before the House to be debated we can be assured that there will not be another selling down the river, to follow the examples of Cable and Wireless, British Aerospace and Amersham International. I trust that the Secretary of State will be able to give a better explanation of the chicanery that has occurred in the other place than has been given so far.
§ Dr. J. Dickson MabonI find it astonishing that we should be spending less than two hours debating this group of amendments. There are at least two substantial intrinsic problems in the various groupings and a massive constitutional point in amendment No. 7, which was barely touched on in the other place. Lord Elwyn-Jones described it as dealing with the Bill in a lazy way. That has been the character of the Bill all through the proceedings.
The Government have inherited all these participation agreements which impinge on the earlier rounds up to the fourth round. There are also the other matters touched on by the hon. Member for Merthyr Tydfil (Mr. Rowlands) in rounds five and six. I am sorry that the Secretary of State has not chosen to intervene because he might have been able to give answers to the questions raised by the hon. Gentleman. It would be remarkable and alarming if only half of what the hon. Gentleman says is true. I have no reason to doubt that most if not all of what he has said is true.
We are being invited—the Secretary of State thought that we were going to thank him for it—in amendment No. 5 to say how grateful we are that a copy of the agreement between Britoil and BNOC will be put in the Library before the disposal of BNOC's assets to Britoil is taken to the market place. That is an interesting point. When will the document be put in the Library, given that there will be a race to the market early in the autumn? The House will probably rise at the end of July and will not reconvene until October. Will we be able to debate the participation agreement before then?
§ Mr. T. H. H. Skeet (Bedford)As I understand it, the participation agreements will not be put in the Library in their full form. They will be simply a precis.
§ Dr. MabonI know that. I used to pledge to the hon. Gentleman and to other hon. Members that each participation agreement—there must be 60 or more—would be placed in the Library not in absolute form but in a heads of agreement form. I do not object to that. But if it has been promised in another place that the 466 document will be placed in the Library—I assume the Secretary of State will endorse it—I hope it will be in sufficient detail for us to have an intelligent debate.
This is a massive agreement. It covers all the rounds up to the sixth round and will cover a large number of companies. I take exception to the view that none of the companies involved will not seek some form of litigation. I say that with regret but I know how devious and difficult some of the legal advisers to the companies are. There has been reference to a grouping of four or five companies—it is a respectable grouping and I do not suggest that those companies would ever litigate against the Government—but only one party, however small its percentage holding might be, could question the validity of the Britoil—BNOC agreement. The Secretary of State is sweeping that away by amendment No. 7. In an astonishing debate in the other place the former Lord Chancellor, Lord Elwyn-Jones, made a plea to the Minister to think about the amendment and to seek in some other way to put in overriding provisions in each of the paragraphs of clause 2(4). In response to the plea the Earl of Mansfield said the he would think about it but said that:
I do so without any firm commitment."—[Official Report, House of Lords, 8 June 1982, Vol. 431, c. 141]There has been no undertaking.
§ Mr. Gordon WilsonWould the right hon. Gentleman accept that if we lived in a country where the courts exercise a constitutional oversight of legislation the type of prescription contained in the amendment would be struck out as unconstitutional?
§ Dr. MabonI agree. May I say, as a fellow Scot, that in the ancient traditions of the Scottish Parliament we would not have allowed this type of amendment to stand, but in the English Parliament, whose rules and traditions we have inherited, omnicompetence is allowed. That being the case, the Secretary of State, in a slipshod way, is putting in a provision of a monstrous constitutional nature to set aside all law, all contract and every legal protection open to either a company or an individual if the intention of the participation agreement between Britoil and BNOC is offended.
I do not know on what amendments we shall be voting but I think that we must vote on Lords amendment No. 7. Their Lordships and the country generally will expect us to do so. It draws our attention to a monstrous way of making law. I do not blame the Department of Energy but I blame its Ministers, who should have thought through the Bill more carefully, taken more time in so doing and properly prepared the early stages as well as this final stage.
What can we do but agree or disagree with the amendments? If we disagree with them, in what state will we leave the Bill? It would have to be returned to another place and then returned to this place. That is our ping-pong arrangement. Under the guillotine we have only a short time to go into the substance of these issues.
Opposition Members have made many excellent points about the participation agreements and I shall listen carefully to the Minister's reply. I do not understand entirely the argument of the hon. Member for Merthyr Tydfil that there is a transference from the BNOC to Britoil and thereby a diminution in the rights of the corporation as a trading organisation over the disposition of 51 per cent. of the oil. Whatever the arguments about the possession or saleability of the oil, I hope that the 467 Secretary of State will give us the assurance, which I thought was intrinsic in the Bill, that at least 51 per cent. of the oil taken from the North Sea under the licences will be at the trading disposition of the BNOC and, therefore, at the Government's disposition. It should be remembered that the corporation has 7 per cent. of the oil. The hon. Member for Merthyr Tydfil referred to the dispositions in the sixth round and the voluntary surrenders. He referred also to the fifth round in his examples.
I look forward to hearing the Minister's answers to the detailed questions asked by the hon. Member for Merthyr Tydfil about all the contracts. The hon. Gentleman is seeking specific undertakings. I cannot understand how it is possible to subsume every participation agreement in one great compendium of an agreement between one of the parties and a fresh party.
The agreement was signed by the Government, by the Secretary of State or myself for and on behalf of Her Majesty's Government, and by the chairman of BNOC, who is now one of the two contracting parties. It was signed not by the consortium, whatever that may have been at any given moment, but by each individual member, however minor, of the consortium. I am extremely concerned that the Government are prepared blithely to say that they can make an agreement with Britoil and the corporation that can supersede and override all interests. I am not against the intention but I am worried about the security and safety of this way of proceeding.
At the end of the day the Government will claim that everything turned out well. They will say "Everything ran smoothly and what we did in Parliament was perfectly all right. We did not need Parliament's advice at any stage and everything has been done successfully." What will happen if one, two or a dozen of these serious matters legally blow up in the face of the Government and Britoil finds itself in difficulties, or even the BNOC, over the legal disposition of these assets, understandings and agreements? I believe that we are entering a thicket of legal difficulties that have been spawned by an inadequate preparation of the Bill and an inadequate thinking through of the transference of these assets, rights and legal understandings. It is too late to turn back now. I believe that the Secretary of State has taken the wrong path and that he will regret it.
§ Mr. Peter Hardy (Rother Valley)I hope that the Secretary of State will respond favourably, if that is possible, to the argument of my hon. Friend the Member for Dunfermline (Mr. Douglas). The right hon. Gentleman suggested that security of supply will probably be enhanced by the amendments. It may be that the character of the arrangement that will apply as a consequence of the amendments will be superior to the weaker level of security of supply envisaged originally by the Government. As my hon. Friend said, that security may be more in peril in future if the amendments are made than if the existing arrangements continue. On the other hand, some of us might believe that the existing arrangements are inadequate. The Secretary of State seems to be approaching this issue on the basis of current consideration.
The participation agreements, to which my hon. Friends cling, and security of supply do not adequately provide—nor does this group of amendments—a proper degree of wisdom for dealing with the pace, quality and 468 exploitation of our offshore oil. Yesterday I studied the international oil production figures for 1981. One stark fact should not be ignored. In 1981, only seven or eight countries produced more oil than the United Kingdom. Even some Conservative Members will acknowledge that more than 20 countries have larger crude oil reserves than we have.
It seems that the Government are obsessed with the idea of privatising our oil and are giving no proper consideration to the need for a sensible depletion policy. If we continue to exploit North Sea Oil at the 1981 rate, we may be providing adequately for next year's balance sheet of Britoil's profits, but we shall not be serving the country's interests. The Secretary of State is concentrating on security of supply, and that suggests that he is being remarkably short-sighted.
Over the past three years the Government have been preaching to local authorities and trade unions. I hope that local government, regardless of the nature of its political control, and the trade unions will read Lords amendment No. 7 and note how easily a Conservative Government can use phrases such as
notwithstanding any rule of law".At this time of instability, and with many people gravely anxious, the Government display utter disregard for wisdom and balance in the British way of life. I hope that they will regret using phrases such as the one to which I have referred.There is nothing within the amendments to relieve one anxiety which was expressed clearly in Committee and on Report about the level of extraction. The participation agreements that were drawn up in the 1970s and those that have been drawn up subsequently do not adequately take account of this factor. In Committee, evidence was provided that companies have reduced the level of take in particular oil fields and intend to leave millions of barrels of oil under the sea bed because they wish to reduce the level of capital investment that a larger take would require. The Government have failed to give the slightest consideration to that serious danger.
The national interest requires not merely that these pathetic and inadequate amendments should be reconsidered quickly, but that the Government should come clean, present the proper prospectus for Britoil, provide Parliament with time to consider it, and review the grossly unsatisfactory nature of their North Sea policy.
§ Mr. Merlyn ReesI am conscious of the fact that because of the way the guillotine is operated, if we are not careful, we shall not be able to vote on the most important amendment, amendment No. 7, to which precious little time has been given. However, we can express our feeling against the amendment very briefly by saying that it is in the East German tradition of many parts of the Bill. For that reason, we shall vote against it and I shall not develop my reasons further.
Important as they are, I shall not dwell on paragraphs (b), (c), (d) and (e) of amendment No. 6 for the same reason—lack of time. As the Secretary of State said, those provisions are extremely complicated, but they are also extremely important in relation to the basic issue of the commencing debt, with which I am most concerned.
Using, for obvious reasons, much the same words that were used in the other place, the Secretary of State told us what had been done in conjunction with amendment No. 57 to clause 35. But all he said was that the 469 Government had taken account of a point that had been raised in the other place about the possibility of transferring any commencing debt under clause 4 to Britoil. The Earl of Mansfield said:
No decision on this has been taken but we are making sure that the flexibility is there".—[Official Report, House of Lords, 8 June 1982; Vol. 431, c. 131.]We are not sure in what way the Government intend to be flexible. In Committee, I gathered that we were talking of a commencing debt of about £150 million. It was one of those moments of light humour, but later I was not sure in what sense that figure was being bandied about. However, that figure is on record and it is the one that I use. We need to know what the Government have in mind, because we are discussing the entire role of this rump, BNOC.It is a trading arm. How is it to be treated? Is it to have an external financing limit? There will still be a corporation after the split that is planned, I think, for 1 August. The potential losses are vast. With the oil price fluctuating rapidly it is inconceivable that losses will not be sustained by a trading company. Many publicly owned utilities make losses because of inflation and the nature of the job that they have to do, but we are setting up a trading company which will almost certainly make losses straight away. One cargo of oil of ¼ million tonnes would sustain a loss of about $2 million on the movement of just $1 in the price per barrel.
How is the corporation to be set up and what commencing debt will it have? How are we to judge whether the corporation is efficient? The media will immediately take the short announcement of the losses made as a sign of inefficiency, but the losses are built into the company's structure. In Committee, to his credit, the hon. Member for Bedford (Mr. Skeet) saw, as did the directors of BNOC at one stage, that the company should not have been split. However, the Government are taking the liability. The commencing debt is the most important part of the company's structure but we do not know enough about it. What options do the Government have in mind?
§ Mr. LawsonSeveral complex points have been raised and I shall do my best to answer them. If there are any that I am unable to answer in the time available, I shall be happy to write to the hon. Members concerned.
Much of the early part of the debate revolved round the participation agreements and amendment No. 5. The hon. Member for Merthyr Tydfil (Mr. Rowlands), in particular, asked several complex questions about participation and the agreement—it is one agreement—to be concluded between BNOC and Britoil. In Committee, he warned me that he would watch with considerable interest to see how well I championed the State trading arm's rights and responsibilities. The amendment should reassure him that I am fulfilling that job diligently and in a manner that is fully consistent with what he conceives, and I agree, to be the national interest in the participation agreement system.
I shall try to deal with as many points as possible, but it might be helpful to begin with a summary of the policy approach that we set out in Committee. It is easy for misunderstandings and confusion to arise. Indeed, there may have been one or two misunderstandings during this brief debate. I should make clear the distinction between the corporation's existing participation rights against third 470 parties and the new rights that will be created against Britoil under the participation agreement that it will conclude with BNOC. The distinction is important to any understanding of amendment No. 5.
The House will appreciate that no participation agreement between Britoil and BNOC has yet been concluded. There are discussions in hand about the form that it should take, but I cannot give any details of any final agreement, because no final agreement exists. The same applies to the scheme that will transfer BNOC's oil-producing business to Britoil. I make no secret of the fact that work is in hand—a point raised by the hon. Member for Dunfermline (Mr. Douglas)—and we are anxious to start formal consultations with the corporation about a direction on the scheme as soon as possible. However, nothing is final and several important issues are still outstanding.
I turn to the corporation's existing rights against third parties. For the moment, I shall put on one side the participation agreement that is to be concluded between Britoil and BNOC. I shall require the corporation to submit to me a scheme that transfers its oil-producing business to a subsidiary, Britoil, but retains the participation trading role for the corporation and ensures that it has the necessary powers to carry out that role effectively.
Subsection (2) creates the power to make the scheme and states the purpose for which the power is to be exercised. Subsection (3)(a), as amended, states that the scheme may provide that prescribed rights and liabilities shall be enforceable by or against both or either of BNOC and Britoil. In practical terms, the rights and liabilities mentioned in those subsections are at present to be found in licences and agreements to which BNOC is a party.
The hon. Member for Merthyr Tydfil separated the first to fourth rounds and then the fifth and sixth rounds. It might be helpful to do the same. First, I shall deal with the licences and agreements that arise under the first to fourth rounds of licensing. We have made abundantly clear our intention that the existing participation agreements should be fully retained by BNOC. I shall want to be fully satisfied that the scheme achieves that before I approve it. I hope that that is the assurance that the hon. Gentleman sought.
Where rights and liabilities are to be transferred to Britoil, it will be necessary for the scheme to provide for the relevant licences and agreements to be read as if Britoil were party to them, not BNOC. In more difficult cases—and there are some—only one licence or agreement contains rights and liabilities that relate both to equity interests, which are to be transferred to Britoil, and to participation interests, which will be retained by BNOC. In those cases, it will be necessary to identify the rights and liabilities that are needed for equity or participation purposes under the scheme to provide, under subsection (3)(a), for them to be enforceable by or against BNOC or Britoil, or both.
Under the scheme, BNOC will retain the rights that it currently holds for access to information and attendance at operating and management committees related to licences, pipelines and terminals. We were all delighted at the appointment of my right hon. Friend the Minister of State, Department of Energy to the Privy Council. He explained the position on access to information in Committee on 23 February.
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The hon. Member for Dundee, East (Mr. Wilson) asked what would happen to the interests that BNOC has farmed in. They will be treated like the corporation's other equity interests and pass to Britoil under the scheme.
§ Mr. RowlandsI referred to information rights. What will happen to the Statfjord field—a cross-border field with the Norwegians—where BNOC derives its rights on the committees from its equity interest which will pass to a private concern? Will it maintain an important participation oil right from oil in an important field? Will that position be covered?
§ Mr. LawsonI have a number of points to cover and little time in which to do so. If new points are raised, it will make matters difficult. The Statfjord field is subject to a number of agreements between the United Kingdom and Norwegian Governments and between the partners to the United Kingdom and Norwegian licence interest because it straddles the median line. There will have to be talks between the Governments and partners to perfect Britoil's title to the equity interest and ensure that BNOC can possess its participation share of Britoil's oil. We shall want to ensure that BNOC continues to have all the information that it requires.
I turn to the fifth and sixth licensing rounds. There are no producing fields there and there are no participation agreements, but BNOC owns an equity interest in each licence. In the fifth round the interest is generally 51 per cent. In the sixth round the interest is 51 per cent. or more. The corporation owns certain important additional rights. We shall ensure that the scheme reflects the same policy towards the interests in those licensing rounds as towards interests in earlier licensing rounds. Equity interests go to Britoil and BNOC retains the benefit of those interests which are more akin to participation.
The corporation holds special rights under the sixth round. Those interests which are clearly equity-related will be transferred to Britoil. That includes the right to be carried for all or part of its exploration costs up to the development stage. In some cases the corporation has the right to increase its equity share. It is common for licensees to have the right of first refusal if a partner wishes to divest himself of a licence interest. Accordingly, we regard analogous rights held by the corporation as complementary to its interests, and those, too, will be transferred to Britoil.
We consider that the right to call for oil from the share of certain of its partners is related to BNOC's role as a trader in participation oil. We shall want the benefit of those rights to remain with the corporation. That is the point that the hon. Member for Merthyr Tydfil raised in Committee. He gave the impression, as he has done today, that there were 100 per cent. call options in all sixth round licences. That is not the case. We considered carefully what he said in Committee in developing our policy.
On the point raised by the hon. Member for Dundee, East, I cannot think of any additional information that BNOC will have to give to private licensees. I have made clear that it is our intention to avoid any loss of information to BNOC which is essential to its participation trading business. The hon. Member for Dundee, East spoke about the question of BNOC's vote on licences when the corporation is split. We shall apply the same general 472 guidelines as apply to other interests. Votes stemming from participation will remain with the corporation; votes stemming from equity will be transferred to Britoil.
The operating agreements between licensees in which those rights are incorporated differ in detail, and it will clearly be necessary to examine carefully each individual agreement where the corporation currently has both a participation and equity role to see how the two components of the vote can best be separated. We shall expect the corporation to deploy its residual voting powers in as neutral a way as possible. Control over matters relating to each participation agreement has been and will continue to be obtained not through its vote but through its participation agreements with other licensees. We shall consider carefully the practical operation by the corporation of its rights, but that is a separate matter from the question of what rights it should retain under the scheme.
Finally, let me come to the participation agreement that is to be concluded between Britoil and BNOC. The Opposition have expressed a clear interest in that. On Second Reading, I explained that in general I shall seek public sector access to about half the production from each licence. I shall not seek access to more than 51 per cent. of Britoil's oil from licences awarded in the first four rounds, but in the fifth and sixth rounds, depending on the detailed provisions applying to each separate licence, that policy may require BNOC to have options on more than 51 per cent. of Britoil's oil.
In answer to the hon. Member for Merthyr Tydfil, I confirm that the scheme and participation agreement between BNOC and Britoil will cover Britoil's equity oil interest in the first to fourth round licences and will create participation rights against Britoil across all those interests.
On the fifth round, the hon. Member for Merthyr Tydfil pointed out that 51 per cent. of 51 per cent. is 25 per cent. Leaving aside the decimal point, he is quite right. I have already referred to my statement on Second Reading that, in general, I shall seek public sector access to about half the production from each licence. That clearly implies more than 51 per cent. of Britoil's oil in fifth round licences. I cannot give greater detail, because no final decision or agreement has been reached. The idea put forward by the hon. Member for Merthyr Tydfil is a possibility. At no time under the previous Government did either Ministers or BNOC define the precise circumstances in which they would or would not exercise options to participation oil.
On the sixth round interests, we intend BNOC to retain the benefit of the call options to which the hon. Member for Merthyr Tydfil referred. The hon. Gentleman somewhat exaggerated the extent of the rights across the licensing round. About one-third of the licences gave no substantial, special rights to BNOC. The basic point is that those call options will not be available to Britoil. They will go to BNOC. I cannot say any more on that at present as no final agreement exists. When an agreement has been concluded, a summary—that point was made by my hon. Friend the Member for Bedford, (Mr. Skeet}—will be placed in the Library in the normal way in accordance with the Participation Agreements Act 1978. If it is the wish of the House, I shall do my best to ensure that that is done before the House rises for the Summer Recess.
There are three further points that I should make. First, we now consider that, with the revised wording in 473 amendment No. 5, the scheme can be used to put the participation agreement between Britoil and BNOC in place. I regard that as a significant improvement to the scheme. It will still not be possible to use the scheme-making powers to impose new obligations of substance on third parties. I think that this answers the point made by the right hon. Member for Greenock and Port Glasgow (Dr. Mabon). My right hon. Friend the Minister of State explained this more fully in Committee and I refer hon. Members to the debate on 23 February. As he said on that occasion, some important aspects of the BNOC-Britoil agreement already form part of the corporation's rights. In particular, secure access to petroleum requires BNOC to hold an interest in the relevant licences. BNOC is already on the licences either as an equity partner or through other participation agreements. We begin with an important step already established.
We attach major importance to this participation agreement between BNOC and Britoil. It is of the first importance. I agree with all hon. Members who have spoken to this effect. We shall not allow discussions to drift or to drag on interminably. By the time that I come to approve the scheme I shall want to be satisfied that the participation agreement is in its final form, is ready to be put in place without delay and conforms fully with Government policy.
Before leaving the issue of participation agreements arising from amendment No. 5, I should like to make one final point. Opposition Members have been inclined to suggest that my right hon. and hon. Friends and myself, and the Government generally, are not sufficiently concerned about participation and the participation agreement system. Nothing could be further from the truth. Indeed, had that been true, we would certainly not have been going to all this trouble—it has been immense trouble to devise a means of cutting this great Gordian knot—to split the corporation and to keep the trading arm in the public sector. It is an enormousely complex exercise. Our plans for privatisation would have been very much easier if we had simply decided to sell shares and to float off the corporation as a whole. It was because of the importance that we attached to the participation agreements that we decided to preserve the trading arm in the public sector as 100 per cent. State-owned and to secure, in this manner, participation policy.
I should like now to turn to other matters that were raised, especially amendments Nos. 6 and 7. I think, if I understood him correctly, that the right hon. Member for Leeds, South (Mr. Rees) was a little confused over amendment No. 6 which is concerned basically with the commencing debt of Britoil and the financial structure of the trading arm which will remain. We discussed fairly fully in Committee the nature of the arrangements that we would be making to ensure that the trading arm could fulfil its functions adequately and fully. There is, of course, a risk of loss with large amounts of oil being traded. But it is no greater than the risk inherent in the existing arrangements. BNOC is 100 per cent. owned by the Government. It is made slightly more visible. Arrangements have to be made for coping with that. There is, however, no reason to believe, taking one year with another, that there should be such losses.
474 A great deal of excitement appeared to be raised by amendment No. 7. I understand that the Opposition wish to vote on the amendment. I should like to make clear at the outset that the words
notwithstanding any rule of law and the provisions of any enactment".are nowhere near as wide-ranging as they might appear at first sight. Not only does the amendment have two clearly defined objectives but its effect is also strictly limited to those provisions in the scheme by virtue of subsections (3) and (4) of this clause. The reference to "any rule of law" addresses a well-known principle established in the case of Head v. Ropner Holdings, Ltd., recently confirmed, I understand, in the case of Shearer v. Bercain. The principle is that where shares are issued in acquisition for an asset, the true value of the asset must be brought into the books of the company issuing the shares. Such a principle, if applied to Britoil, would be contrary to maintaining continuity in the treatment of the assets transferred between BNOC's and Britoil's accounts. This continuity has always been one of the objectives of clause 2 and accepted by the Opposition.6.15 pm
Secondly, the words
the provisions of any enactmentrefer mainly to the provisions of the Companies Acts. In particular, section 56 of the Companies Act 1948 requires thatWhere a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to on account, to be called 'the share premium account.'There are a number of restrictions on a share premium account, notably that it should not be available for distribution. I have already explained in introducing the amendment to clause 2(4) that we wish to establish Britoil with a fairly conventional capital structure including provision for both distributable and undistributable reserves. These words enable this to be done. Hon Member will appreciate that the examples I have given of the effect of amendment No. 7 are highly technical and consistent with the objective of establishing continuity of accounts. Equally, the effect is specific in support of the provisions set out in subsections (3) and (4).I have mentioned, like other Members, the discussions that took place in another place where Lord Wilberforce, a most eminent legal luminary, said:
Speaking entirely for myself, I find histhat was a reference to my noble Friend the Earl of Mansfield—explanation in relation to the case of Shearer v. Bercain totally satisfactory".He went on to saySumming up, I do not personally regard this clause in its context as having any very dire effect."—[Official Report, House of Lords, 21 June 1982; Vol. 431, c. 805–806.]The plain fact of the matter—
§ Dr. J. Dickson MabonWill the Secretary of State read out the next sentence?
§ Mr. LawsonThe hon. Member for Merthyr Tydfil has read out the next sentence so there is no reason for me to repeat it.
I realise that a number of hon. Members, including the hon. Member for Dunfermline who always takes a keen and well-informed interest in our proceedings—this is deeply appreciated on the Government Benches—were 475 concerned to know why it was necessary to include in the Bill provisions to override the decision in the case of Shearer v. Bercain when sections 36 to 41 of the Companies Act were enacted to give relief from the effects of that decision. The short answer—I am sure the House will be glad that it is short—is that the reliefs contained in those sections do not extend to embrace a situation that is addressed in the Bill. That is the situation of a corporation created by statute, which is quite different from a company incorporated under the provisions of the Companies Act. It is a corporation created by statute transferring a part of its business to a subsidiary company in consideration of the issue of certain securities in that subsidiary. Sections 36 to 41 deal with certain transactions between companies in this context. The word "company" has the meaning given to it in the Companies Act 1948 which is that of
a company formed and registered under this Act or an existing companyThat definition does not and could not include BNOC. Therefore, the provisions of sections 36 to 41 of the Companies Act 1981 do not cover the proposed transaction between BNOC and Britoil.As I said earlier, it is not very surprising, and it should not surprise Opposition Members, that as what we propose in subsection (2) is not a normal occurrence in the normal course of business, provision needs to be made to overcome the unusual problems created by statutory vesting. It would do no one any good to leave those problems. That would do no good to Britoil or to BNOC, as I am sure Opposition Members would agree.
I shall sum up briefly by saying that I hope that, on reflection, Opposition Members will see that we have gone a long way to meet the worries that they expressed in earlier proceedings on the Bill, and in particular their concern to have a fully satisfactory and watertight system of participation agreements in place before the flotation of Britoil. That is what the amendment would achieve, and it is the Government's firm intention to do that.
§ Question put and agreed to.
§ Lords amendments Nos. 2 to 6 agreed to.
§
Lords amendment: No. 7, in page 4, line 7, at end insert
notwithstanding any rule of law and the provisions of any enactment".—[Mr. Lawson]
§ Question put, That this House doth agree with the Lords in the said amendment:—
§ The House divided: Ayes 148, Noes 92.
477| Division No. 243] | [6.21 pm |
| AYES | |
| Arnold, Tom | Carlisle, John (Luton West) |
| Aspinwall, Jack | Carlisle, Kenneth (Lincoln) |
| Atkinson, David (B'm'th, E) | Carlisle, Rt Hon M. (R'c'n) |
| Bendall, Vivian | Chapman, Sydney |
| Benyon, Thomas (A'don) | Clark, Hon A. (Plym'th, S'n) |
| Berry, Hon Anthony | Cope, John |
| Bevan, David Gilroy | Costain, Sir Albert |
| Biggs-Davison, Sir John | Cranborne, Viscount |
| Blackburn, John | Crouch, David |
| Blaker, Peter | Dorrell, Stephen |
| Body, Richard | Dover, Denshore |
| Boscawen, Hon Robert | du Cann, Rt Hon Edward |
| Braine, Sir Bernard | Dunn, Robert (Dartford) |
| Bright, Graham | Dykes, Hugh |
| Brinton, Tim | Eggar, Tim |
| Brittan, Rt. Hon. Leon | Elliott, Sir William |
| Brooke, Hon Peter | Faith, Mrs Sheila |
| Brown, Michael(Brigg & Sc'n) | Fisher, Sir Nigel |
| Bruce-Gardyne, John | Fletcher-Cooke, Sir Charles |
| Bryan, Sir Paul | Goodhew, Sir Victor |
| Cadbury, Jocelyn | Goodlad, Alastair |
| Gow, Ian | Onslow, Cranley |
| Greenway, Harry | Osborn, John |
| Griffiths, Peter Portsm'th N) | Page, John (Harrow, West) |
| Gummer, John Selwyn | Page, Richard (SW Herts) |
| Hamilton, Hon A. | Percival, Sir Ian |
| Hamilton, Michael (Salisbury) | Pollock, Alexander |
| Hampson, Dr Keith | Prentice, Rt Hon Reg |
| Haselhurst, Alan | Proctor, K. Harvey |
| Havers, Rt Hon Sir Michael | Raison, Rt Hon Timothy |
| Hawkins, Sir Paul | Renton, Tim |
| Hawksley, Warren | Rhodes James, Robert |
| Heddle, John | Rhys Williams, Sir Brandon |
| Henderson, Barry | Ridley, Hon Nicholas |
| Hogg, Hon Douglas (Gr'th'm) | Ridsdale, Sir Julian |
| Holland, Philip (Carlton) | Rossi, Hugh |
| Howell, Rt Hon D. (G'ldfd) | Rost, Peter |
| Howell, Ralph (N Norfolk) | Royle, Sir Anthony |
| Hunt, David (Wirral) | Rumbold, Mrs A. C. R. |
| Hunt, John (Ravensbourne) | Sainsbury, Hon Timothy |
| Jessel, Toby | Shaw, Sir Michael (Scarb') |
| Jopling, Rt Hon Michael | Shelton, William (Streatham) |
| Kilfedder, James A. | Shepherd, Colin (Hereford) |
| Knight, Mrs Jill | Silvester, Fred |
| Lang, Ian | Smith, Tim (Beaconsfield) |
| Latham, Michael | Speed, Keith |
| Lawson, Rt Hon Nigel | Speller, Tony |
| Lester, Jim (Beeston) | Stainton, Keith |
| Lewis, Kenneth (Rutland) | Stanbrook, Ivor |
| Lloyd, Peter (Fareham) | Stanley, John |
| Luce, Richard | Steen, Anthony |
| Lyell, Nicholas | Stevens, Martin |
| Macfarlane, Neil | Stradling Thomas, J. |
| MacGregor, John | Taylor, Teddy (S'end E) |
| MacKay, John (Argyll) | Thomas, Rt Hon Peter |
| Macmillan, Rt Hon M. | Thorne, Neil (Ilford South) |
| Major, John | Thornton, Malcolm |
| Marland, Paul | Townend, John (Bridlington) |
| Marlow, Antony | Trippier, David |
| Marshall, Michael (Arundel) | van Straubenzee, Sir W. |
| Mather, Carol | Viggers, Peter |
| Maude, Rt Hon Sir Angus | Waller, Gary |
| Mellor, David | Warren, Kenneth |
| Meyer, Sir Anthony | Watson, John |
| Mills, Iain (Meriden) | Wells, Bowen |
| Mills, Sir Peter (West Devon) | Wells, John (Maidstone) |
| Moate, Roger | Wheeler, John |
| Montgomery, Fergus | Whitney, Raymond |
| Moore, John | Wickenden, Keith |
| Morris, M. (N'hampton S) | Williams, D.(Montgomery) |
| Mudd, David | Winterton, Nicholas |
| Murphy, Christopher | Wolfson, Mark |
| Myles, David | |
| Needham, Richard | Tellers for the Ayes: |
| Nelson, Anthony | Mr. Donald Thompson and |
| Newton, Tony | Mr. Tristan Garel-Jones. |
| NOES | |
| Alton, David | Dubs, Alfred |
| Anderson, Donald | Dunwoody, Hon Mrs G. |
| Archer, Rt Hon Peter | Evans, loan (Aberdare) |
| Beith, A. J. | Faulds, Andrew |
| Benn, Rt Hon Tony | Field, Frank |
| Booth, Rt Hon Albert | Foot, Rt Hon Michael |
| Bradley, Tom | Garrett, W. E. (Wallsend) |
| Brocklebank-Fowler, C. | George, Bruce |
| Brown, R. C. (N'castle W) | Graham, Ted |
| Buchan, Norman | Grimond, Rt Hon J. |
| Concannon, Rt Hon J. D. | Hamilton, W. W. (C'tral Fife) |
| Cook, Robin F. | Hardy, Peter |
| Crowther, Stan | Harrison, Rt Hon Walter |
| Cryer, Bob | Haynes, Frank |
| Cunningham, G. (Islington S) | Hooley, Frank |
| Davidson, Arthur | Horam, John |
| Davis, Terry (B'ham, Stechf'd) | Howells, Geraint |
| Deakins, Eric | Hoyle, Douglas |
| Dean, Joseph (Leeds West) | Janner, Hon Greville |
| Dewar, Donald | Jay, Rt Hon Douglas |
| Dixon, Donald | Kaufman, Rt Hon Gerald |
| Dormand, Jack | Kerr, Russell |
| Douglas, Dick | Kilroy-Silk, Robert |
| Lamond, James | Rooker, J. W. |
| Leighton, Ronald | Rowlands, Ted |
| Lyons, Edward (Bradf'd W) | Sandelson, Neville |
| Mabon, Rt Hon Dr J. Dickson | Sheldon, Rt Hon R. |
| McCartney, Hugh | Silverman, Julius |
| McDonald, Dr Oonagh | Skinner, Dennis |
| McKay, Allen (Penistone) | Snape, Peter |
| Maclennan, Robert | Soley, Clive |
| Marshall, Dr Edmund (Goole) | Spearing, Nigel |
| Mitchell, R. C. (Soton Itchen) | Stallard, A. W. |
| Morris, Rt Hon A. (W'shawe) | Summerskill, Hon Dr Shirley |
| Morris, Rt Hon C. (O'shaw) | Wainwright, E.(Dearne V) |
| Morris, Rt Hon J. (Aberavon) | Wainwright, R.(Colne V) |
| Newens, Stanley | Wellbeloved, James |
| Orme, Rt Hon Stanley | Welsh, Michael |
| Owen, Rt Hon Dr David | White, Frank R. |
| Penhaligon, David | Whitehead, Phillip |
| Pitt, William Henry | Williams.Rt Hon Mrs (Crosby) |
| Powell, Raymond (Ogmore) | Wilson, Gordon (Dundee E) |
| Prescott, John | Winnick, David |
| Race, Reg | Woolmer, Kenneth |
| Rees, Rt Hon M (Leeds S) | |
| Richardson, Jo | Tellers for the Noes: |
| Roberts, Ernest (Hackney N) | Mr. George Morton and |
| Robinson, G. (Coventry NW) | Mr. Lawrence Cunliffe. |
§ Question accordingly agreed to.
§ It being after half-past Six o'clock, MR. SPEAKER proceeded, pursuant to Order this day, to put forthwith the Questions necessary for the disposal of the business to be concluded at that hour.
§ Lords amendments Nos. 8 and 9 agreed to.