Britoil

HC Deb 27 October 1982 vol 29 cc1060-9 4.41 pm

The Secretary' of State for Energy (Mr. Nigel Lawson)

With permission, Mr. Speaker, I wish to make a statement about the privatisation of Britoil.

Almost exactly a year ago, I told the House that I hoped to transfer the entire oil-producing business of the British National Oil Corporation to the private sector this year. These plans were set out in full and debated at length during the passage of the Oil and Gas (Enterprise) Act. That Act is now on the statute book. Britoil has been set up as BNOC subsidiary, and the oil-producing business has been transferred to it. As from next Monday, the shares in Britoil will be directly owned by the Government.

The way will thus soon be clear for an underwritten offer for sale of 51 per cent. of the shares in the company. Subject to market conditions, I intend the flotation to take place next month. The choice between a conventional fixed price offer and a tender must be made nearer the time. I will inform the House, as I have undertaken to do. If the sale is by tender, consideration will be given to the inclusion of special arrangements for small investors to buy shares at the striking price, without having to bid a specific price in advance. In either case, payment for the shares will be in two instalments, spread over a period of several months. The offer will also include special arrangements to encourage small investors not only to participate, but to retain a long-term interest in the company.

Finally, arrangements will be made to encourage Britoil's own employees to take a stake in their company. BNOC employees, too, will enjoy the right to make preferential applications for Britoil shares.

As the House knows, the privatisation of Britoil will in no way affect the system of participation agreements, which will remain in place, under 100 per cent. Government control, as a means of safeguarding our national security of supply. But what it will do is enable the people of Britain to take a direct personal stake in the North Sea. It will create an independent British oil company free to seize the opportunities open to it. And it will substantially reduce the size of the public sector in an area where State ownership has no rational justification whatsoever.

Mr. Merlyn Rees (Leeds, South)

We have constantly asked for a statement on the sale of shares in Britoil. The one that we have had is brief, and confirms our worst fears. Accountability to Parliament in the Act is minimal. The Public Accounts Committee cannot look at what the Minister proposed to do until afterwards. With your permission, Mr. Speaker, I wish to ask a number of questions to try to clothe the brief statement.

Valuable public assets are to be sold off. The Secretary of State will soon he announcing the underwritten offer. Is he aware that there is wide disbelief that he can even contemplate selling shares in Britoil next month, which will result in their being sold at much below their real value? Is he aware that all informed comment, other than from Mr. Shelbourrte—I remind him of the International Energy Agency report—says that this is the wrong time to sell? National assets will be undersold. The PAC will eventually have to investigate, on behalf of the House how far the Secretary of State will meet his criterion of selling only when the conditions are right. That is what he said. He realises—does he?—that he will have to answer for his actions.

Does the right hon. Gentleman realise that his decision to issue part-paid shares raises a basic and important question? If that procedure had been followed with Amersham International, it would have doubled the immediate profit to purchasers for the amount that they actually staked—to use, quite correctly, a gambling term. Amersham was bad enough. The right hon. Gentleman's decision in this case could make the rake-off far greater than it would otherwise have been. Will the right hon. Gentleman reconsider his decision?

On the question of underwriting, the Government now hold 100 per cent. of the shares. After the sale, certainly in the first instance, the Government will hold 49 per cent. Why not give an instruction that any unsold shares be kept by the Government? There is no need to pay what has been estimated as £20 million to the underwriters in the City. In any event, I remind him of the Tenth Report from the Committee of Public Accounts, which said: We are concerned that, in the course of this re-examination"— that is the Secretary of State's job— the Treasury should look again at the practice of underwriting such sales. In the first place, as the DOI acknowledged, the decision to underwrite is bound to influence the price of a share issue. I shall not quote at length, as I am sure that the Secretary of State has read the report. However, it continues: We therefore trust that the adoption for sale of publicly owned shares of this aspect of normal City practice will be very carefully re-examined. Has the right hon. Gentleman done that?

The right hon. Gentleman is always saying that he is keen to revive the interest of small investors, as if there were a time in recent decades when large numbers of small investors were buying stocks and shares in large firms. They have never existed to any degree. This is not the United States. In Britain, the purchasers of shares are the institutional investors, as we have seen in recent months. What percentage of the total issue will he issue in that way?

I turn to what the Secretary of State has not said. He will know, because they have been quoted in the press, that a number of documents have been leaked from his Department and from the merchant banks—

Mr. Lawson

Not from my Department.

Mr. Rees

The documents that have been quoted say that there has been a disagreement—has there been?—between the Government and Britoil, backed by Rothschilds, which argues that the balance sheet "needs attention". It states that, as presently constituted, the balance sheet is not one to inspire confidence in potential investors. Will the right hon. Gentleman confirm that Britoil has asked for cash to keep up the dividends in the event of a drop in profitability, and that the figures that are being discussed—the House should know about this—are that £80 million will be a cash injection, £127 million will come from the national oil account and £219 million from retained profits, making a total of £426 million to massage the account before the sale. Will Britoil get that money? That is what is being said in knowledgeable circles, and this House should know that.

I turn to the sale of shares to foreign investors. The right hon. Gentleman spoke about the national interest, which I presume is the phrase that he used in the initial legislation; otherwise there would have been trouble with the EEC. When that large amount of assets is put in share form on the market, what steps will he take to ensure that Middle Eastern, American and other investors do not buy the national assets that belong to the people of Britain?

Does the right hon. Gentleman agree that Britoil has been a fabulous asset in the North Sea and that since 1975 BNOC has fed money into the Treasury? Does he accept that it is not a loss-maker, that BNOC was a successful form of public enterprise and that his political dogma will lead to the sell-out of the century?

Mr. Lawson

The right hon. Gentleman has asked a number of questions and I shall try to answer most of them. He will have to wait until the prospectus form is available before some of them are answered. However, I shall answer many of his questions, if he and his right hon. and hon. Friends will be patient.

I am glad that the right hon. Gentleman referred to the absurd story about the injection of cash and dressing up the balance sheet. He has enabled me firmly to place on the record that the Government do not plan to make any injection of new cash into the company. We shall be arranging for the entire net outstanding balance of money drawn from the national oil account on 31 July to be repaid. That deals with that allegation, and I hope that the right hon. Gentleman will withdraw it.

The right hon. Gentleman suggested that now is not the right time to sell. He did not say that when I announced the intention to privatise on 19 October 1981. On that date the Financial Times actuary's oil share index stood at 654. It is now 762. In other words, there has been a rise of 16½ per cent. The stock market is such that there is no reason for the right hon. Gentleman—if he knew anything about these matters, which he does not, he would not make the suggestion—to suggest that this is the wrong time to sell.

The right hon. Gentleman talked about selling below the real value of national assets. If he knows what the value of the assets are, I hope that he will tell the House how he arrived at that figure. It is only the market which can judge the value of the company. It is possible to make arbitrary estimates of the net asset value, but they depend on forecasting that takes into account the lifetime of the oilfields in question, the price of oil, the exchange rate, interest rates, the taxation system and the inflation rate. A different figure will emerge whatever assumptions are fed in. The only true value of the company is the value set on it by the market.

Following the successful flotation of Britoil, which will take place, I would welcome an examination by the Public Accounts Committee. The right hon. Gentleman is entirely wrong in imagining that part-paid shares enable investors to make a profit which fully-paid shares do not.

Underwriting is the normal way of issuing shares—

Mr. D. N. Campbell-Savours (Workington)

It is a rip-off.

Mr. Lawson

It is by no means a rip-off.

Mr. Campbell-Savours

It is a misuse of public money.

Mr. Lawson

It is a means of ensuring that the sale takes place and of increasing the price level, thereby benefiting the taxpayer. What is important is the price that is paid to the underwriters. I have examined the only comparable cases. Those are the 1977 BP share offer under the previous Labour Government, of which the right hon. Member for Leeds, South (Mr. Rees) was a member, and the 1979 BP share offer under this Government. The terms agreed to by the previous Labour Government for the underwriters were more generous than those agreed by this Government. I hope that the right hon. Gentleman will withdraw his allegation about underwriting.

The right hon. Gentleman asked about foreign investment. The underwriting will be undertaken by British institutions. The offer will be on the London Stock Exchange, unlike the BI' shares offer of the previous Labour Government, which took place on the New York Stock Exchange. As the right hon. Gentleman knows, the Government will retain a special share which will ensure that control of the company, or of the board, cannot move into unacceptable hands.

Several Hon. Members rose—

Mr. Speaker

Order. I propose to allow 20 minutes for questions on the statement. If hon. Members are succinct, everyone who wishes to participate will be called.

Mr. John Hannam (Exeter)

Is my right hon. Friend aware that the country will welcome his statement about the return of the ownership of Britoil to the British public? Is he aware also that Labour Members always want to nationalise industry at the lowest possible market price and always object to denationalisation because they say that the market price is not high enough?

Mr. Lawson

My hon. Friend is right. When a Labour Government seek to nationalise a company or industry, they never take the slightest notice of timing or market conditions, yet when in Opposition they have the gall to suggest to us that we should have some special care for these matters, of which they show little understanding.

Mr. Tom Ellis (Wrexham)

First, what effect does the right hon. Gentleman think that the sale will have on BNOC' s viability? Secondly, how does he propose to reconcile the long-term strategy with the short-term market responses that presumably will become increasingly dominant?

Mr. Lawson

BNOC will have an important role to play. Unfortunately, the hon. Gentleman was not a member of the Standing Committee which considered the Oil and Gas (Enterprise) Bill, but I explained in Committee how the corporation would be restructured. I am about to announce fairly shortly a strengthening of its role. The role that it plays as the custodian of the participation agreements is of considerable importance to British interests in the North Sea oil business.

The hon. Gentleman has asked about the reconciliation of the long-term strategy with short-term responses. Private enterprise has made North Sea oil the success that it has been. I am confident that by giving Britoil the chance to move into the private sector we shall increase its success.

Mr. Dick Douglas (Dunfermline)

Does the right hon. Gentleman admit that there are widespread fears in the country about the nature of this operation and that his answers this afternoon will do nothing to allay those fears? Why cannot he make up his mind now about the tender option? Why cannot we have a prospectus before the House or a pro forma balance sheet? The right hon. Gentleman knows of the uncertainties of the market and the fears in the oil industry. and he took the opportunity this week at the Eurotec exhibition and conference to allay some of the industry's fears about taxation. Why is it that when he and his Department are shelving public interest and public assets in this manner they are trying at the same time to persuade the international oil industry, of which the United Kingdom is a substantial part, to go into China, where the oil industry is dominated by the public sector?

Mr. Lawson

It is entirely a matter for the oil industry to decide whether it goes into Chinese offshore waters. The United Kingdom oil industry has a successful record of exploration throughout the world. I have great respect for the hon. Gentleman's understanding of the oil industry, especially the offshore supplies industry, but I do not think that he has a similar understanding of financial markets. The issue of a tender or an offer for sale is much more complex than he realises. He speaks as if new companies come to market by tender every day of the week. In fact, such tenders are few and far between. There has never been anything remotely as big as Britoil that has been issued by the tender mechanism.

Mr. T. H. H. Skeet (Bedford)

Does my right hon. Friend recognise that in 1975, when the Treasury, at the behest of the then Labour Government, directed that the Burmah Oil Company's assets in BP were to be taken over, they were taken over at the lowest point in the market? At that time the Labour Party was prepared to accept the market's verdict: why should it not do so now? As the profitability of Britoil is likely to be prospective rather than immediate, mainly because of the large acreage involved, surely it is only right that the market share should be reduced slightly.

Mr. Lawson

I agree with my hon. Friend, particularly with his strictures about the Opposition. They are in no position to cast any stones in this area. The sale of 51 per cent. of Britoil, which we have debated in Committee upstairs and on the Floor, represents about 3½ per cent. of total North Sea oil production. Yet I recall that in 1977 the then Labour Government sold BP shares representing 9 per cent. of North Sea oil production without any prior parliamentary procedure. Furthermore, since that sale the BP price has increased by well over 50 per cent., so that was not very clever, was it ?

Mr. Douglas Jay (Battersea, North)

Since the right hon. Gentleman has such an expert knowledge of financial markets, what is his answer to the widespread criticism in the financial press that he is cooking the books to carry through this disreputable deal?

Mr. Lawson

I resent deeply that allegation. particularly as I have already explained, in answer to the right hon. Member for Leeds, South (Mr. Rees), that there is no truth in it whatever. The books are in no way being cooked. There is no fresh cash injection by the Government into Britoil. The money that Britoil owes to the national oil account will have to be repaid in full. There is no dressing up. There is no sham of any kind.

Mr. Gordon Wilson (Dundee, East)

Does the Secretary of State accept that there will be little joy in Scotland that in one ,lay we are stripping the country's oil and fish assets? If the Secretary of State is so confident that the financial returns will be beneficial, will he give the House the working assumption of the value of the proceeds of the sale of the 51 per cent. of Britoil compared with the asset value of the resources under sale?

Mr. Lawson

The hon. Gentleman was obviously asleep when I discussed that before. The value of the company is that which the market places on it. It is impossible to arrive at a precise evaluation of the net asset value because to do so depends on making inevitably speculative and arbitrary assumptions about the lifetime of oilfields owned by the company, about the rate of inflation, the rate of interest, the sterling/dollar exchange rate and the oil price. They affect the outcome considerably. The hon. Gentleman must accept that the true valuation of the company is that placed on it by the market, which makes its best judgment of all those factors in the light of the substantial information that will be provided in the prospectus.

Mr. Peter Rost (Derbyshire, South-East)

May I particularly welcome the commitment to give preference to the small investor? Does my right hon. Friend agree that, if he is to achieve a wider spread of shareholding, he will have to take firm measures to discourage the short-term, professional speculator? Will he therefore consider ensuring that all cheques are cashed before allotments are made and that all multiple applications are eliminated?

Mr. Lawson

I am well aware of my hon. Friend's suggestions. Indeed, I listened attentively to him when he made them on an earlier occasion. I have taken them fully into account. I shall be reserving the right to cash all cheques on receipt.

I hope that the issue will be attractive to small investors. I want to make it clear, so that there is no doubt in the House, that North Sea oil is a risk investment. That is a fact of life. Those who wish to invest in the company will have to bear that in mind. It is a very good company. I agree with the right hon. Member for Leeds, South about that. Of course, I shall be taking steps, not merely to encourage the small investor, but to discourage the type of activity that my hon. Friend mentioned.

Mr. Peter Hardy (Rother Valley)

Does the Secretary of State agree that if the words "daylight robbery" can be properly used in the House they will be rightly used to describe the irresponsible course on which the right hon. Gentleman is embarked? Will he assure the House that the questions by my right hon. Friend the Member for Leeds, South (Mr. Rees) to which he gave no reply, and those to which he gave only a partial reply, will be further explored? Does he accept that the House should have an early opportunity to explore these matters before the flotation, either by a statement or, preferably, by way of debate in Government time?

Mr. Lawson

There has been substantial debate on the matter, as the hon. Gentleman knows since he was a member of the Committee and has taken a full part in our debates in the House. It is striking that there was so much debate that the Opposition did not even bother to take up anything like the full time that they were allotted under the allocation of time motion.

Mr. David Alton (Liverpool, Edge Hill)

Does the Secretary of State agree that it is misleading to describe the announcement as creating an independent British company, because all that it does is create another global international company? Will he take the opportunity to clarify that part of his statement dealing with employee participation, which I welcome, and say precisely what preferential arrangements are to be made for employees?

Mr. Lawson

I am glad to have the hon. Gentleman's welcome. I too believe strongly in employee participation. For the details of the scheme the hon. Gentleman will have to wait for the prospectus.

Mr. Tim Eggar (Enfield, North)

Is my right hon. Friend aware that there will be a warm welcome for his announcement, and particularly for his courageous decision to go ahead with the sale next month? Will he confirm and expand on the preference that he is to give to small investors? Will he ensure that copies of the prospectus are available in sub-post offices and Crown post offices?

Mr. Lawson

I shall certainly ensure that copies of the prospectus are made available in Crown post offices. To go as far as making them available in sub-post offices would be a little difficult.

Mr. Joan Evans (Aberdare)

Is not the Secretary of State misleading the House when he says that the disposal of Britoil is to allow British people to participate in its ownership? Does not everyone in Britain own Britoil? Is he not taking the ownership away from the people and giving it to only a small section? Does he agree that not only will it pass into the hands of just some British people, but it could in future pass into the hands of foreign capital? May we have an assurance about that? May we also have an assurance that the sale of the shares will not involve the same scandal as that which occurred in relation to the sale of Amersham International?

Mr. Lawson

Amersham was a successful issue—[HON. MEMBERS: "What?"] In addition, the recent sale of a controlling interest in Standard Telephones and Cables by ITT was successful and similarly oversubscribed. The hon. Gentleman knows little about the subject. However, I know that he cares deeply about the national interest. I shall repeat for his benefit that under the articles of association the Government retain, and will in perpetuity, a special share which will enable them to prevent any change in control either of the company or of the composition of the board that is unacceptable.

Mr. Anthony Nelson (Chichester)

Is my right hon. Friend aware that there will be widespread acclaim for the speed with which he has implemented the sale of Britoil? Since we are talking about a company owned by the people being sold to the people, and since, as others have said, we are anxious as far as possible to encourage small shareholders to subscribe, will my right hon. Friend please bear in mind that many of us urge upon him the case for having a fixed price share offer rather than a tender, as that will provide certainty and simplicity which, in my judgment, will attract the small rather than the institutional invester?

Mr. Lawson

I shall certainly take note of my hon. Friend's advice.

Mr. Eric Deakins (Waltham Forest)

Will the families of members of the Government be debarred from applying for the shares? If not, would it not be a good thing for Ministers to exercise a self-denying ordinance on their behalf?

Hon. Members

Answer.

Mr. Speaker

Order. Hon. Members are wasting time that could be used for questions.

Sir William Clark (Croydon, South)

rose— [Interruption.]

Mr. Speaker

Order. We have only a few minutes left for other questions that need to be asked.

Sir William Clark

Emphasis has been placed on the small investor. Would my right hon. Friend—

Mr. Douglas Jay (Battersea, North)

On a point of order, Mr. Speaker. As the Minister seemed to wish to rise to answer an important question, should he not be given the chance to do so?

Mr. Speaker

If he had, I should not have stopped him.

Sir William Clark

While I welcome the emphasis that has been placed on the small investor, would my right hon. Friend remind the House that even if there is a great deal of institutional buying, it will be on behalf of millions of pensioners who have their funds with those institutions?

Mr. Lawson

Yes, Sir. My hon. Friend is entirely right. Right hon. and hon. Gentlemen on the Opposition Benches are inclined to talk about the City institutions as if they were some evil, strange and probably foreign, gnomic characters. They are bodies such as the National Coal Board pension fund.

Mr. Lawrence Cunliffe (Leigh)

How does the Minister reconcile his corny comments that he wants to encourage small shareholders to invest in Britoil with what happened with Amersham International? He has the audacity to claim that the sale of Amersham International was a success. The 65,000 successful applicants were down to 8,601 shareholders within four months. Two-thirds of the shares of the present company are owned in lots of £250,000 and over.

We said in Committee, and have repeated in the House, that the Government presented an opportunity for the financial sharks to move in on a despicable and disgraceful bonanza. They will move in again on this sale.

Mr. Lawson

Those "financial sharks"—quoting the hon. Gentleman—who own large numbers of Amersham shares are, as my hon. Friend the Member for Croydon, South (Sir W. Clark) mentioned, the pension and life assurance funds who bought them on behalf of their members and those who hold life assurance policies. It is absurd to speak as he does. He should welcome the fact that 99 per cent. of Amersham employees hold shares in their company.

Several Hon. Members rose—

Mr. Speaker

Order. As this is the last statement of the Session, I propose to call the three hon. Members who have been standing before I call the Front Bench speakers.

Mr. Bob Cryer (Keighley)

Will the Minister be courteous to the House, to which he is accountable as an elected Minister, and answer the question that my hon. Friend the Member for Waltham Forest (Mr. Deakins) put to him about the involvement of Ministers? Whether he likes it or not, the public is extremely worried about what it sees as a rip-off engineered by a Tory Government for the benefit of their backers outside.

How many health workers and other ordinary workers does he expect to participate in the sale? Will there be a special needs payment from the DHSS or the unemployment benefit office for the 3½ million people his Government have put on the dole, and who presumably will not otherwise be able to participate in the bonanza?

Mr. Lawson

I have no idea how many health workers or others will participate in the offer. We shall have to wait and see. The nation is far more interested in the lamentable and sorry spectacle of the Labour Party than it is in Britoil.

Mr. Alfred Dubs (Battersea, South)

Will the Secretary of State answer the question put to him by my hon. Friends the Member for Waltham Forest (Mr. Deakins) and the hon. Member for Keighley (Mr. Cryer) about Ministers' families purchasing shares?

Mr. Lawson

I regarded that question as beneath contempt when it was asked the first time, and I still do.

Mr. David Winnick (Walsall, North)

That is what Nixon said about Watergate.

Mr. Frank Haynes (Ashfield)

Will the Minister cast his mind back to when we first discussed Britoil and the sell-off of British oil? Can he remember constantly saying that it would be sold off to the highest bidder? Will the Secretary of State come clean and answer the question put by my right hon. Friend the Member for Leeds, South (Mr. Rees) who mentioned the Middle East? Bearing in mind that the Secretary of State loves the Soviet Union, if the Soviet Union is the highest bidder, will he sell Britoil to it?

Mr. Lawson

That is a rather far-fetched question.

Mr. Haynes

It is not far-fetched.

Mr. Speaker

Order.

Mr. Haynes

On a point of order, Mr. Speaker. I do not believe that the Secretary of State has the right to make a comment of that sort. I have asked for a straight answer.

Mr. Speaker

Order. We have had some strange comments this afternoon. We have had suggestions of robbery, blackmail and many others. That was mild compared with the mood of the House.

Mr. Lawson

It is my judgment—I understand that the hon. Member for Ashfield (Mr. Haynes) may think differently—that that was rather a far-fetched question. He imagines that the whole company is being sold to the highest bidder. It is nothing like that. Fifty-one per cent. of the shares will be sold to individuals, and it is rather unlikely—quite apart from any views that the Government may have—that the Soviet Union will encourage individuals to subscribe to the share issue.

Mr. Merlyn Rees (Leeds, South)

Is the Minister aware that he is extremely free with his Oxford Union epithets and that he has a high opinion of himself? Is he aware that our feelings for him are not founded on such a flimsy basis, and that we hope that he never again holds high Government office when the national interest is at stake. Typically, he did not answer one basic question. He said that no money is to be put into Britoil, as is alleged and as is shown in documents which are around. Did Britoil ask for that money, because it is an important factor in the sale that is to take place in the next few weeks?

Mr. Lawson

I am not in the habit of referring to confidential internal documents any more than the right hon. Gentleman was when he was Home Secretary. He ought to know better.

Mr. Cryer

On a point of order, Mr. Speaker. You have heard three questions from the Opposition about Ministers' families—to the effect either that they should not be allowed to participate in the purchase of shares, or that the Secretary of State should make a statement saying that Ministers would practise a self-denying ordinance. The Secretary of State said that that was beneath contempt. It is a matter of public interest, and any Minister—I know that you are not responsible for his answers, Mr. Speaker, but you are responsible for the conduct of Parliament and our democratic institutions—can fob off questions by saying that they are beneath his contempt.

Mr. Speaker

Order. The hon. Gentleman has done well, but he knows better.

Mr. Eggar

On a point of order, Mr. Speaker. Is it in order for the hon. Member for Newham, North-West (Mr. Lewis) to be reading a paper in the Chamber, even if it is about himself?

Mr. Arthur Lewis (Newham, North-West)

While you are considering that point of order, Mr. Speaker, may I ask you to bear in mind the fact—the hon. Member for Enfield, North (Mr. Eggar) has been here long enough to know it—that I might be studying the paper for a subsequent debate?

Mr. Speaker

Order. The hon. Gentleman would be quite in order if he were in the Library, but not here.