Cross-Channel Electricity Cable

HC Deb 07 February 1983 vol 36 cc638-43

4.5 pm

The Under-Secretary of State for Energy (Mr. John Moore)

With permission, Mr. Speaker, I wish to make a statement. In connection with the 2,000 MW cross-channel electricity cable project, the Central Electricity Generating Board sought competitive tenders from a number of British shipping firms for the hire of a vessel to lay cables between England and France. The lowest tender was submitted by a British firm, International Transport Management, of Middlesborough, from which the vessel will be chartered. I would emphasise that the cable-laying barge will not be purchased or owned by the CEGB, but by the British firm concerned.

The CEGB must of course be conscious of its obligations to provide electricity as cheaply as possible. As a nationalised industry, it is also conscious of the Government's wish that, wherever possible, it should buy British.

However, when the CEGB received the first tenders for this project some months ago, the price differences were so great it appeared inevitable that the shipbuilding work would go abroad. The board, naturally concerned over this, then asked the firms to tender again, and expressed a clear preference—other things being equal—for vessels supplied by United Kingdom yards.

Regrettably, the second tenders showed such a huge price difference that the board had no choice but to accept the bid from ITM, involving the construction of a vessel in a Korean yard. Other bids to the CEGB, I understand, were at least 50 per cent. higher.

The Government do, of course, provide financial assistance to help United Kingdom shipbuilding firms to gain orders, but even with Government assistance the difference in bids would have been unbridgeable. Hon. Members who have repeatedly stressed the importance to industry and consumers of low-cost electricity will understand this decision.

Questions on the shipbuilding industry, including matters relating to assistance from the shipbuilding intervention fund are, of course, matters for my right hon. Friend the Secretary of State for Industry.

Dr. John Cunningham (Whitehaven)

I thank the Minister for making the statement. Is it not astonishing, in the middle of the worst slump in shipbuilding this century, that a British publicly financed board should be involved in a contract to spend British taxpayers' money to build a vessel in a Korean shipyard?

I wish to ask the Minister a number of specific questions. Is it correct that ITM at no time invited British Shipbuilders to make a detailed tender for this work? Is it also correct, notwithstanding what the Minister says about the ownership of the vessel, that the CEGB engaged naval architects to draw a detailed and complex specification for this vessel, which was tantamount to meaning that it was designing the vessel for its own particular purposes? Is it also the case that, in terms of the financial arrangements of the deal, the CEGB contribution will be a capital expenditure contribution? Does this not reinforce the point that it is paying for the vessel to be built?

Will the Minister say what the French utilities are doing to fulfil their part of the contract for the cable laying? Will not all their contracts be placed in France? Will he explain why there is apparently no liaison on this matter between his Department and the Department of Industry, which is responsible for the British shipbuilding industry? Is it not industrial policy lunacy that one public board, spending British people's money, refuses to liaise properly with another public corporation, British Shipbuilders, in its desperate attempts to keep men in work and to sell vessels at home and abroad? Is that not insulting to the management of British Shipbuilders? Is it not a stab in the back for the shipyard workers on Tyneside and Wearside who are staring the dole queue in the face?

Mr. Moore

The truth about liaison between Government Departments is quite the reverse of the hon. Gentleman's suggestion. There was liaison on the charter between British Shipbuilders and the Offshore Supplies Office in my Department. It was advised to pursue the matter through the Department of Industry and its officials communicated with the Department of Industry on this matter in December. The chairman of British Shipbuilders was in contact with the chairman of the CEGB but that was at a much later date, on 14 January.

I am not responsible for the French Government's policies in these matters. It is of interest—I do not have the details but I shall pursue them—that at the moment the French are engaged in chartering a Norwegian vessel for their part of the cable—laying. I believe that that vessel will be converted in the yard at Marseilles.

Negotiations between the CEGB and companies such as ITM were conducted perfectly normally. British Shipbuilders was fully conscious in its approaches via my Department—[Interruption.] I am informed by the CEGB on this matter that British Shipbuilders had the opportunity to make its views heard. Officials of my Department advised it to pursue the matter with its sponsoring Department.

I cannot comment in detail on the CEGB's activities in retaining the services of naval architects but I shall return to the House with more detail. The CEGB sought tenders for the project with a view to owning or chartering because whichever was better for the taxpayer was to the advantage of the CEGB. That would clearly have been a presumption in the tendering process. The CEGB, recognising its obligations to the consumer, again sought tenders to ensure that, if possible, the contracts would go to British shipyards.

Mr. David Steel (Roxburgh, Selkirk and Peebles)

Have the Government identified the precise reasons for the variations in tenders from overseas and Britain? If so, what were they? Secondly, did the Government take into account in their calculations not just the possibility of funding through British Shipbuilders but also the higher cost of having more shipyard workers on the dole?

Mr. Moore

I must remind the right hon. Gentleman that detailed matters on the shipbuilding fund and the EC directive are for my right hon. Friend the Secretary of State for Industry. As there is to be a debate on this matter later today, there will be an opportunity for that point to be raised. Everyone is worried about the difficulties of the British shipyards. No one would wish to see orders going to non-British yards, all things being equal. I assume that the right hon. Gentleman is aware of the detailed mechanism under which the EC directive controls the assistance fund. In the tenders that were submitted, assistance was assumed under the intervention fund.

Mr. Anthony Nelson (Chichester)

Is my hon. Friend aware that, although many of my hon. Friends feel that the CEGB has a proper responsibility to seek the most competitive tender, his most serious statement this afternoon gives grounds for great anxiety about whether our policies for British shipbuilding are right? What is the length of the charter involved? If it is other than a short one, it would seem to show that the feasibility of the capital purchase by ITM rests on the financing provided by the CEGB. Therefore, one is essentially talking—although it is done through the medium of a charter—about effectively financing the capital cost of the purchase of a ship.

Does my hon. Friend agree that, although Britain often produces the best ships—the most competitive in terms of cost, and the best suited for the job—it is often finance which ensures that orders go to other countries? Does this case give my hon. Friend or my hon. Friends in the Department of Industry cause for concern?

Mr. Moore

As I said, detailed shipbuilding matters are for my right hon. Friend the Secretary of State for Industry. However, I remind the House that, of the £700 million spent in aid to the shipbuilding industry, over £600 million has been spent while the Government have been in office. I also remind the House that this project will cost the CEGB about £250 million gross. We are talking here about 4 per cent. of the overall contract. Ninety—six per cent. of the business involved is related to United Kingdom purchases. The CEGB spends about £1,290 million a year on goods and plant in the United Kingdom, of which about 95 per cent. is spent on United Kingdom goods and services. Surely that is a record of which we can be proud.

I am advised that the charter will last for between 12 and 18 months.

Mr. Frederick Willey (Sunderland, North)

I share the feelings of the hon. Member for Chichester (Mr. Nelson). Is the Minister aware that the lack of effective consultation and consideration of financial matters overall means that Sunderland Shipbuilders has been savaged and that the heavy redundancies it is now suffering will increase? That is in a town which is already spending £2 million a week on unemployment benefit.

When I raised this matter in Committee last week, the hon. Member for Tynemouth (Mr. Trotter) said that he had been to Korea, a country with the most up-to-date capital facilities, and that shipyard workers there worked 73 hours a week for only a fraction of the wages enjoyed in western countries. In those circumstances, it is suicidal to place orders in such a country. It is about time that we shared the view of the chairman of British Shipbuilders that the ridiculous prices being quoted by Korea are intolerable and that it is time we acted against them.

Mr. Moore

I fully understand the right hon. Gentleman's concern for his constituents. [Interruption.] Despite the interventions from the Opposition Front Bench, I fully sympathise with and understand his anxieties for his constituents and the future of the shipyards in his constituency. However, I must utterly reject the suggestion that British Shipbuilders had insufficient opportunity to enter tenders when the CEGB took the trouble to go out to tender a second time. Any detailed questions on shipbuilding and the relative quality of our yards compared with those overseas should not only be addressed to my right hon. Friend the Secretary of State for Industry but be raised in a later debate in the House and in the Standing Committee which will meet again tomorrow morning.

Several Hon. Members

rose—

Mr. Speaker

Order. I propose to call the five hon. Members who have been rising to ask questions throughout.

Mr. Tom McNally (Stockport, South)

Is the Minister aware that the introduction of the idea of keeping down electricity prices will bring a horse laugh from both the domestic consumer and British industry on his Department's record? It is no use the Minister coming to the House, making a statement and then shuffling the responsibility off onto other Departments. Has there been any liaison between his Department and others about the national interest in this decision? Will he read the Official Report of the debate on trade which asked for a vigorous Government policy of public purchasing to help British industry? Has the Minister or any of his right hon. and hon. Friends studied the Korean Government's practices of hidden subsidies and distortions to trade? Is he sure that British shipbuilding is competing on equal terms in such tenders?

Mr. Moore

I know that the hon. Gentleman was not a Member during the previous Labour Government's term of office. Had he been, and had he been able to study electricity prices, he would have seen a far greater percentage increase than has taken place under this Government. He has probably not had the opportunity either to study the Monopolies and Mergers Commission's report for 1981.

The hon. Gentleman may be interested in what the commission stated when it examined the policies of the CEGB: The board has also pursued a 'Buy British' policy in its procurement of plant; with only small exceptions it has placed its orders with the home industry". It concluded: We conclude from the foregoing that the board's procurement costs could have been lower. This arises not from lack of efficiency in use of its existing resources but from concern on its own or the Government's part for the interests of major suppliers". The interests of the nation have clearly been in the mind of the CEGB, just as they have been in the minds of the Department of Industry and the Department of Energy.

Sir Albert Costain (Folkestone and Hythe)

Is the Minister aware that the converter station for this cable has now been built for more than a year? In view of the rapid progress that has taken place, why has it taken so long to place an order for the ship? In view of the delay, is he satisfied that the ship will be finished on time?

Mr. Moore

My hon. Friend is quite right to draw the attention of the House to the key factor involved in such tenders and contracts—the time and the ability of tenders to show that there is no time delay. That is clearly a crucial part of the contract which relates to the £250 million and not the amount that we are talking about, which is approximately 4 per cent. of the whole contract.

Mr. Don Dixon (Jarrow)

Has the hon. Gentleman read the report of the Select Committee on Industry and Trade, which studied British Shipbuilders? Paragraph 43(v) states: the Government should remind all public authorities of the desirability of buying British materials and components and also ships built in British yards. Where is the public saving when it costs £5,000 a year to put a British shipbuilding worker on the dole? Is it not about time that the Government gave the same support to our shipbuilding industry as other countries give to theirs?

Mr. Moore

The hon. Gentleman clearly did not listen earlier when I outlined the policies of the Government in terms of their wish that nationalised industries and corporations should, where other things are equal, follow a "buy British" policy. He is also not aware, as I said earlier, how large a percentage of all CEGB contracts are placed in the United Kingdom. He is obviously not aware that, all other things being equal, every effort is and has been made to ensure that, where possible, contracts go to Britain.

Mr. Tim Eggar (Enfield, North)

Have we not been listening to the most extraordinary doubletalk from the Opposition Benches? Do not Opposition Members, most of the time, complain about raising electricity prices, particularly for industry? Are they not now arguing directly for an increase in electricity prices? Will they get their facts straight for once?

Mr. Moore

My hon. Friend reminded us of the crucial need to ensure economic pricing of our basic fuel products, especially electricity, if we are to ensure that British industry stays competitive.

Mr. Arthur Palmer (Bristol, North-East)

Does the hon. Gentleman agree that, in the past, the CEGB has had an excellent record, as it should as a nationalised enterprise, of buying British? In this case, will he tell the House something about the future of this cable ship, because the interconnection between the British and French grids is a one-off job? The CEGB is not likely to have much use for the ship once this job is completed. Will it not have a considerable resale value which could be used to provide a financial arrangement to assist British Shipbuilders?

Mr. Moore

The hon. Gentleman has a large and extensive knowledge of the electricity industry and is very conscious of the way in which the CEGB has tried to carry out this public duty by trying to help British industry. I remind him that the ship is being chartered from British industry. However, the ship will be owned not by the CEGB but by ITM. The CEGB does not own it. The 12 to 18 months for which the vessel is needed had a significant impact on the CEGB decision in terms of analysing tenders to follow that route rather than one of ownership.

Dr. John Cunningham

I assure the Under-Secretary that, although we realise that he is not responsible for shipbuilding, my right hon. Friend the Member for Sunderland, North (Mr. Willey) is correct. No market forces are operating in the shipbuilding sector at present. Is not the CEGB providing the capital for this vessel to be constructed in a Korean yard? Will not the Under-Secretary, even at this late stage, talk to his hon. Friend the Minister of State, Department of Industry and call in the chairmen of the CEGB and of British Shipbuilders to see whether this order cannot be saved for British industry?

Mr. Moore

We are not talking about the expenditure of money via a public corporation in terms of its specific construction of the vessel. ITM will own the vessel. The CEGB is chartering for an amount under £10 million. The CEGB has advised me that a formal contract now exists with ITM.