§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Garel-Jones.]
§ 10 pm
§ Sir Anthony Meyer (Flint, West)
I raise tonight the matter of the proposed pilot plant for the liquefaction of coal at the Point of Ayr colliery in my constituency.
I have raised this matter repeatedly in the House, particularly during the past 12 months, and I make no apology for doing so again. It is of great importance to the coal industry, to Britain's present and future strategic needs, and still more to those of the European Community. It involves a substantial number of jobs, good jobs, in my constituency where the unemployment rate is as high as it is in any part of Great Britain. It has also come to be regarded as something of a reward for a pit with a fine record, which the Minister knows well, and one which, incidentally, gave a resounding "No" to Mr. Arthur Scargill the other day. I do not think that that will displease any hon. Member present tonight.
The proposal to build a pilot plant for the extraction of oil from coal at the Point of Ayr colliery follows from the successful laboratory scale experiments which the National Coal board has been carrying out at its research establishment at Stoke Orchard near Cheltenham, which I have been to see a couple of times.
The National Coal Board is convinced that it has developed a process which will enable oil to be extracted from types of coal which are freely available in the United Kingdom at costs which, although they are above the cost of extracting oil by more conventional methods, are not so far behind those costs as to make the process hopelessly uneconomic in the long term. However, much hinges on the price differential between oil from coal and oil from other sources. We all know that that price differential fluctuates alarmingly.
What is beyond doubt is that coal is a raw material which is in abundant supply. Reserves of it in the United Kingdom look to be adequate for more than 200 years ahead, whereas sources of oil—particularly sources of oil available to the United Kingdom—are clearly finite and an end to reasonably easy exploitation is already in sight. Since oil is a more flexible fuel than coal, it follows that there is a strong case for pursuing its extraction from coal.
I am glad to say that the Government have from the start recognised the importance of the process. Indeed, so did the previous Government. My hon. Friend the Minister, whose sympathy with the coal industry and those who work in it is apparent to all, has been a firm, although never an uncritical, champion of the scheme. However, he is a member of a Government who, rightly, view State enterprise with a watchful eye. He wants to be sure that this process will pay off one day and is not just a means of keeping many highly paid people uselessly employed.
Therefore, the Government have insisted that, if they are to back the project with taxpayers' money—[Interruption.] I am sure that the hon. Member for Midlothian (Mr. Eadie) would not want money poured down the drain on a scheme which will not work.
§ Sir Anthony Meyer
I am not retreating. If the hon. Gentleman will contain himself for a few minutes, he will find out.
104 The Government have insisted that if they are to back the project with taxpayers' money, as they are being asked to do, private capital should also demonstrate its confidence in the scheme. Until recently two major oil companies have been providing that evidence of private sector commitment. Unfortunately, both have recently withdrawn their participation, each for a wholly separate reason.
British Petroleum withdrew because, on the whole, it considered that the process being developed by the National Coal Board would not be of immediate interest to it, as its interest was primarily in finding a method of extracting oil from other types of coal available overseas. Phillips withdrew largely because of cash flow problems and economies which it was effecting drastically throughout its operations. The double withdrawal seems to have put the whole scheme in danger.
Almost worse is to threaten the withdrawal of the substantial sum which the European Community had promised to commit to the scheme. It is right that the Community should back the scheme because, although getting oil from coal may be of only medium-term importance to the United Kingdom because of its North Sea oil, for the rest of the Community it is of immediate and vital significance since it has little oil of its own. On the other hand, the European Community, whatever its interest in the process, could not go on backing it if the Government of the host country withdrew all support. In recent months that has seemed a real possibility.
I make it plain that if that had been the Government's decision, and if it were even now to be their decision, I could not accept it, however strong their reasons for withdrawal. I could not accept it on constituency grounds as the project is vital in an area which has been hit by Europe's biggest steel closure as well as by the near-collapse of the local textile industry and where there are scarcely any openings for bright school leavers. I could not accept it as one who believes ardently in the need for a European energy policy, since I believe that we must never cease to think of the energy needs of the EEC as a whole. Indeed, the story of the Soviet pipeline hardly allows us to do so.
I hope that the Minister will be able to give me some good news tonight and confirm reports now beginning to circulate, after some extremely gloomy reports, that the Government will back a pilot scheme for the extraction of oil from coal at Point of Ayr colliery, even if the scheme is to be rather smaller than the 25 million tonne a day scheme originally envisaged.
What counts is that the plant should be a genuine pilot plant, not a mere scaled-up laboratory experiment, and that it should be set up in the environment of a working coal mine, not in the more rarified atmosphere of a research establishment. What is more, it is vital that the plant is of sufficient scale to demonstrate the engineering requirements of an eventual commercial plant and that in the process it provides plenty of engineering work locally.
I hope that the Minister will be able to convince me that the smaller pilot plant will meet these requirements—if we are to have a smaller plant—and that it will be at Point of Ayr. If so, I undertake that I shall take no notice of complaints that the plant is not as large as expected or hoped for. I am ready to be convinced that a somewhat smaller plant will teach the essential lessons. It will 105 certainly call for skilled engineering work in the construction phase and provide highly skilled jobs when in full operation.
Above all, I hope that it is not too soon for the Minister to still all doubts about the financing of the scheme. Of course, it would be better for private capital to come in to replace the two oil companies which pulled out. The National Coal Board should not slacken its efforts to interest the private sector. But I do not believe that it would be right at this stage, and after all that has happened, to allow the fate of the scheme to hang in the balance, still dependent on some private financier, oil company or large firm having enough courage and foresight to back it. The returns for private capital inevitably are on a longer time scale than most private finance is able to envisage in present circumstances.
Whether by raising the NCB's external financing limit or in some other way, I hope that the Government can make it plain that the project, at whatever scale of operation is judged optimal—and I am ready to listen to the Minister's views—is assured of going ahead.
§ 10.9 pm
§ The Under-Secretary of State for Energy (Mr. John Moore)
I am grateful to my hon. Friend the Member for Flint, West (Sir A. Meyer) for giving the House the opportunity to consider this important matter and the positive developments that have taken place since I previously explained the position to the House during Questions on 28 June. The importance of the matter is shown by the attendance of the hon. Member for Midlothian (Mr. Eadie), who might be regarded as father to governmental involvement in the coal industry. My hon. Friend the Member for Hint, West must be seen by his constituents as one of the most conscientious, determined and forceful advocates of the matter. I have been consistently pressured by him on behalf of his constituents.
Before I turn to recent developments, I should make clear the approach to the National Coal Board's liquefaction process that the Government have adopted and followed consistently. Coal liquefaction is likely to become an important process for the manufacture of liquid fuels in substitution for oil. Precisely when a commercial demand for liquefaction will develop is not clear at this early stage. Recently, perceptions have changed throughout the world and the commercial need for liquefaction is commonly regarded as lying further in the future than was previously the case. However, perceptions could change again. The history of the past 10 years should be ample warning against complacency. Nor can we plan solely against a background of possible United Kingdom needs for liquefaction. The market for the liquefaction processes will be world-wide.
It may be that the conversion of coal to liquid fuels will first become commercially attractive outside the United Kingdom, perhaps in countries with coal that is cheap to mine but located far from major industrial markets. Therefore, we cannot take a purely national view. The Government's objective must be a liquefaction process capable of competing in the world market. It is with that in mind that we have always taken a more long-term view than that suggested by short-term fluctuations in the oil market.
The steps that we take now must be those that give the best chance of commercial success. For that reason, the 106 Government have stressed continually the importance of participation on the liquefaction project by potential end-users of the process. It is also why we have been especially concerned that the project is technically sound, because any other approach runs the danger of making expensive mistakes. We have been, and remain, willing to give financial support to the NCB's work on coal liquefaction, provided that we have reasonable assurance that we are supporting a technically viable project. As hon. Members are no doubt aware, the bulk of the NCB's excellent work on liquefaction has been based on small-scale equipment, using a few kilograms of coal a day, at the Coal Research Establishment at Stoke Orchard.
In 1979, the previous Administration, led by the hon. Member for Midlothian, agreed to contribute to the basic design and conceptual economic studies for the further development of the NCB's liquid solvent extraction process. We have honoured that commitment and have made net payments of £560,000 or 53 per cent. of the total cost under the 1979 contract. We also announced our willingness, as I told the House on 22 May 1981 in response to another debate initiated by my hon. Friend the Member for Flint, West, to contribute up to £5 million towards the cost of constructing and commissioning a 25-tonne a day pilot plant using the NCB's process, subject to substantial private sector participation.
Moreover, we went beyond the commitments in making available a further £300,000 towards the cost of a three-month proving run at Stoke Orchard. We did that because of the high priority we attach to ensuring that the project should develop in a technically sound way. The results of this extended run have added considerably to our knowledge of the potential of the NCB's process. and of some of the problems which still have to be overcome. They showed a very acceptable catalyst life, but also suggested that there might be problems of stability with some aspects of the system, which might call for process modifications. As hon. Members will be aware, the NCB process involves the recycling of a solvent. Like any continuous process in the development stage, it is very important to demonstrate fully the stability of the process.
On 28 June I told the House that Phillips Petroleum and BP had informed the NCB that they did not wish to participate in the planned 25 tonne a day pilot plant at this stage. The reasons why they withdrew are, of course, matters which only the companies themselves are in a position to explain; I would not presume to do so for them. However, both companies, before their withdrawal, had drawn attention in private discussions to the uncertainties to which I have just referred, and which had shown up on the extended runs. They suggested that this was an area where further work was needed. It was felt that the balance of risk and reward had shifted in favour of greater process certainty, and that pointed towards a more modest scale of operation.
That, then, was the situation with which the Government were faced in June this year. The NCB's private sector partners had dropped out. The Government could have chosen to pick up their tab and step in with the additional finance necessary for a 25 tonne a day pilot plant to go ahead. In the light of what we knew about the possible problems of the process, that would have been quite unjustified.
§ Mr. Moore
Instead, we chose to face the difficulties squarely. We concluded that it was important to examine carefully the significance of the results of the earlier work at Stoke Orchard and consider what was the best technical approach to resolving the possible problems which this revealed. Also, and very important, we wanted—I repeat this very carefully—to do all this in a way which did not compromise the commercial future of what all concerned hoped would be a promising liquefaction process. Therefore, we did not seek public debate of the detailed position—I warned the House on 28 June that it would not be wise at that time to do so—but rather concentrated on getting the right answer, in close consultation with those concerned, particularly the NCB.
§ Mr. Moore
I have made it quite clear that I shall not give way. As we all know, this is an Adjournment debate introduced by my hon. Friend the Member for Flint, West. As a matter of courtesy to the House I sought to draw attention to the presence of the hon. Member for Midlothian to recognise the significance that he placed on the debate.
I asked the NCB to undertake a review of the liquefaction project prior to firm decisions being taken on how to proceed.
§ Mr. Eadie
On a point of order, Mr. Deputy Speaker.I am sure that this is not a bogus point of order. It is a generally established procedure in the House that when an hon. Member, especially a Minister, mentions another hon. Member in a debate, it is not a compulsion but a courtesy for the Minister of whatever Government to give way, if asked to do so. An hon. Member's name has been mentioned in this debate, which involves crucial decisions.
§ Sir Anthony Meyer
Further to that point of order, Mr. Deputy Speaker. I thought that it was the custom of the House on an Adjournment debate for the hon. Member who was fortunate enough to be given the Adjournment debate and the Minister to have the right to speak. Any other intervention would be made purely with the consent of the hon. Member who had the Adjournment debate.
§ Mr. Deputy Speaker (Mr. Paul Dean)
That is correct. That is the normal custom. I am sorry that I cannot help the hon. Member for Midlothian (Mr. Eadie). The Minister has clearly shown that he does not intend to give way. He is within his rights in deciding that.
§ Mr. Moore
I appreciate that. I said a few moments ago with great care that those of us who are genuinely interested in the long-term success of the project would not wish emotion to enter into this area. I should like to put carefully on the record in this limited time words that are carefully selected, which help the NCB and our country in this long-term process.
It was for the reason that I have mentioned that I asked the NCB to undertake a review of the liquefaction project prior to firm decisions being taken on how to proceed. I 108 informed the House of that on 28 June in answer to a number of questions, including one from my hon. Friend the Member for Flint, West who has raised the matter in the House today. I received the NCB's review in August. That did not, however, fully resolve the main problems which had caused me to ask for the review to be undertaken. I felt that we needed further advice.
Accordingly, I secured from Imperial Chemical Industries the services of a small team, led by a qualified and experienced process engineer, with considerable firsthand knowledge of the complex business of taking technology from the laboratory to commercial exploitation. I am grateful both to ICI for agreeing to make its people available at such short notice and to the NCB, which co-operated willingly in allowing the team to undertake a review of the board's experimental work.
The report from the group from ICI, which I received in mid-September, made it clear that the NCB's liquid solvent extraction process was attractive and that it was right to press ahead with work on it. I am sure that all hon. Members will be pleased to hear that. It concluded however that it would not be appropriate to build a 25 tonne a day pilot plant. Instead it recommended that the next step should be to build a smaller and more flexible plant, so that the process could be fully defined and demonstrated to the satisfaction of the potential users of the technology, meeting the point that was raised by my hon. Friend.
My Department has since had detailed discussions with the NCB, in the light of the conclusions of the group from ICI. I am glad to report that provisional agreement has been reached that the best way forward is to design and build a semi-technical scale plant with a capacity of up to 2½tonnes a day. I have told the NCB that my Department is prepared to provide 10 per cent. of the estimated costs of a 2½tonne a day plant. Our earlier offer of help for a 25 tonne a day plant was also intended to meet 10 per cent. of the costs. Our new offer is subject to four conditions—that one or more oil companies should join the project, that the European Commission agrees to provide substantial support, that the NCB itself makes a financial contribution and that arrangements are agreed for project management satisfactory to all concerned. I am sure that the House will recognise that those conditions are all intended to maximise the chances of eventual commercial success for the NCB's process. Detailed estimates of the cost of the plant are not yet available, but I anticipate that my Department's 10 per cent. contribution will be in the range of £2.5 million to £3 million, spread over the period of the project.
In addition, I have been keeping in close touch with my right hon. Friend the Secretary of State for Wales on the matter. I know that the House will be pleased that my hon. Friend the Member for Conway (Mr. Roberts) has been representing that Department throughout the debate. I am glad to report that discussions are under way between the NCB and relevant officials concerning the availability of regional development grant if the new plant is sited alongside Point of Ayr colliery in North Wales. It would not, of course, be right for me to anticipate the outcome of these discussions, but a preliminary examination suggests that they might lead to a considerably increased Government contribution to the total cost of the project, perhaps bringing the total contribution from my Department and regional development grant together to £5 million of more. 109 Although the siting of the new plant is primarily a matter for the NCB and prospective partners from industry, I am strongly aware of the anxiety expressed by my hon. Friend and other hon. Members that the project should go ahead at the site previously selected at Point of Ayr.
I know that my hon. Friend is concerned about employment. Preliminary estimates suggest that constructing a 2½ tonne a day plant might employ up to 250 people and operating the plant about 80. Obviously, these estimates may change as detailed planning work progresses. The corresponding figures for a 25 tonne a day plant would have been 350 for construction and 130 for operation.
My hon. Friend has expressed his concern that the promised support from the EEC might be withdrawn. I asked my officials to support an application by the board for an extension of the EEC deadlines, and as I expect my hon. Friend and other hon. Members now know, the deadline has been extended. More recently, a joint team of NCB and Departmental officials has visited Brussels to explain to the European Commission the reasons for the change in our view of the most desirable way to proceed and to ensure that EEC support will be forthcoming. The NCB has now followed this up with a formal notification to the Commission of a revision to its earlier proposal. I can assure the House that my Department will give full support to the NCB in its endeavours to secure financial support from the Community for this project, and also in its efforts to attract private sector participation.
It has been suggested that the Government have acted through a desire to reduce public expenditure on this 110 project. From the explanation that I have given, it should be clear that nothing could be further from the truth. Indeed, the Government's total contribution to the 2½tonne a day plant seems likely to be much the same as the £5 million we were prepared to contribute to the more expensive 25 tonne a day plant. We were anxious to ensure that the money was spent in the right way and on the right project to produce the most successful results.
§ Mr. Moore
Nor is the accusation that the Government have dithered and delayed justified. The only delay has been that necessary to get the right answer.
I hope that my explanation of developments in the past few months will leave the House in no doubt of the Government's commitment to promoting more work on coal liquefaction in a way that is technically sound and aimed at commercial success.
§ Mr. Moore
I wish to make clear the Government's confidence—I am sure that it is shared by all who are committed to the long-term development of the NCB's process—in the solution which has now been agreed, to build a 2½tonne a day plant. The important thing is to have a project likely to produce the most useful results, not one of a particular size. I am sure that we would all wish the NCB well in pursuing this further work in the way that I have outlined.
§ Question put and agreed to.
§ Adjourned accordingly at twenty-nine Minutes past Ten o'clock.