§ Mr. K. Harvey Proctor (Billericay)
I beg to move amendment No. 1, in page 2, line 25, leave out paragraph (b) and insert—`(b) a person who is a concession owner in relation to the installation for the purposes of that Act insofar as they relate to the relevant activities or who was a concession owner for those purposes when a relevant activity was last carried on from, by means of or on the installation;'.
§ Mr. Deputy Speaker (Sir Paul Dean)
With this it will be convenient to discuss the following amendments: No. 2, in page 2, line 25 leave out paragraphs (b) to (d) and insert—
Government amendment No. 3.
- (b) a person outside paragraph (a) who is a party to a joint operating agreement or similar agreement;
- (c) a person outside paragraphs (a) and (b) who owns any interest in the installation otherwise than as a security for a loan;
- (d) a company which is outside paragraphs (a) to (c) but is associated with a company within any of those paragraphs.'.
Amendment No. 4, in page 2, line 31, at end insert—'(2) In subsection (1), "relevant activities" means activities within paragraphs (a) and (c) (but not insofar as paragraph (c) refers to paragraph (b) of section 12(2) of the Mineral Workings (Offshore Installations) Act 1971.'.
Government amendment No. 5.
Amendment No. 6, in page 2, line 38, leave out paragraph (b) and (c).
Government amendments Nos. 9, 10, 11, 12, 16 and 17.
§ Mr. Proctor
Before I speak to my amendments, I shall make some general observations as my amendments have been grouped with Government amendments.
I congratulate my right hon. Friend coming forward with these amendments. In Committee we had long, detailed discussions about recasting clause 2 and the consequential clauses. My right hon. Friend said that he had taken heed of our thoughts and would consider them. I am aware that constructive talks took place and continue to take place between my right hon. Friend, officials in his Department and the industry, whose interests are represented by UKOOA. Those deliberations have been fruitful and have produced the Government amendments, for which I and the industry are grateful.
However, having said that, I am tempted to introduce a note of caution and refer back to the amendments I have tabled. There are one or two matters of concern where the industry and, perhaps, hon. Members would like my right hon. Friend to go even further. My amendments refer to clause 2(1)(b), which permits the giving of notices requiring submission to an abandonment programme for an offshore installation ofa person who is a concession owner in relation to the installation for the purposes of that Act"—the Mineral Workings (Offshore Installations) Act 1971—or who was a concession owner for those purposes when an activity within Section 12(2) of that Act was last carried on from, by means of or on the installation;".
Anyone following the argument so far will realise that it is rather technical and complicated. I understand that the industry believe that the wide definition of "concession owner" will cause injustice because of its application to installations that serve other fields—for example, those installations that act as gathering centres collecting production from a number of local fields for transmission by a large capacity pipeline to shore.
The definition of concession owner in relation to any installation is contained in section 12(2) of the Mineral Workings (Offshore Installations) Act 1971 as amended by the Oil and Gas (Enterprise) Act 1982. I will not read those definitions to the House now.
In Committee on 13 January, my right hon. Friend explained what he meant by the term "concession owner", when he said:With regard to off-shore installations, the concession owners will be the holders of the relevant petroleum production licences. The term concession owner is used in the Bill, and that is why the hon. Member for Merthyr Tydfil and Rhymney raised his question. I believe that he wanted to know what the antecedents were for its use. It is used to keep continuity with the offshore safety regime established in the Mineral Working (Offshore Installations) Act 1971, by 376 reference to which offshore installations are defined in clause 16(1). I hope that that makes it absolutely clear."—[Official Report, Standing Committee B, 13 January 1987; c. 220.]
With due respect to my right hon. Friend, the industry does not believe that that has made the position absolutely clear. It is not clear to the industry which are the relevant licences, whose holders will be liable for abandonment of an installation. Does my right hon. Friend mean the production licence holders in whose area the installation is situated?
The industry's concern is best demonstrated by the example—hon. Members may have been given it in a briefing— of the Ninian central platform. It is a gathering centre for production from three fields as well as transmitting its produce down the main oil line that runs from the Ninian central platform to Sullom Voe. One such field is Heather, whose platform is connected by a lateral pipeline to the Ninian central platform. That lateral pipeline connects with a riser and top deck equipment on the Ninian central platform, which in turn joins the end of the main oil line on the platform.
The Heather partners have no interest in the Ninian central platform or in Ninian production. Consequently, in all fairness, the industry believes that they should not be liable for the abandonment of the Ninian central platform. The industry would like my right hon. Friend to state whether the Heather partners are concession owners in relation to the Ninian central platform and, if so, whether they are consequently liable for its abandonment.
In materially applying the definition in section 12(2) of the 1971 Act to the facts, we arrive at the following formula:A person who has the right to exploit or explore mineral resources in the licensed area including the Heather field (Block 2/5)…shall be a concession owner for the purposes of this Act in relation to the Ninian Central Platform at any time if, at that time, there is carried on from, by means of or on the Ninian Central Platform any of the following activities, namely—(b) the conveyance in that area (Block 2/5) by means of a pipe or system of pipes, or minerals gotten (Heather production)…in the exercise of that right (the Heather licence).Conveyance means getting from point A to point B. The Heather production is conveyed through a system of pipes from the Heather platform via the Ninian central platform to Sullom Voe. That system of pipes crosses, and is supported by, the Ninian central platform. Similarly, the top deck equipment involved is located on the Ninian central platform. Without that platform, conveyance could not take place in exactly the same manner. The industry therefore considers that it cannot exclude the conclusion that the conveyance of Heather production in the Heather licence area, by means of a system of pipes crossing Ninian central platform, is an activity carried out through that platform. Consequently. the industry believes that Heather partners may be liable for that platform's abandonment.
The industry understands that Government lawyers take a different view from the lawyers that the industry have consulted. The Government lawyers consider—when current facts are applied—that only the holders of the production licences covering the Ninian field would be within the definition of concession owners in relation to the Ninian central platform.
I have demonstrated that that interpretation is, at the very least, open to question and doubt. It will be no protection in legal proceedings because, as my right hon. Friend will be aware, judges are not allowed to consider 377 our deliberations, or the correspondence between the Government's lawyers and lawyers for the oil companies or UKOOA.
The basis on which the industry is supporting the Government's amendments to the Bill relates to clause 3 and amendment No. 9 to it, which gives relief from lifting the corporate veil to make unrelated and associated companies liable for abandonment, provided that adequate arrangements have been made by persons within paragraphs (a), (b) or (c) of clause 2(1) to ensure that a satisfactory abandonment programme is carried out. As the extent of persons within paragraph (b) is uncertain, that relief could easily be lost to the industry.
That and the basic inequity of making unrelated fields liable for abandonment of an installation in which they have no interest seems too high a price to pay for continuity with the offshore safety regime. Continuity is a matter of tidy legislative housekeeping not necessity.
Clearly, there is a dispute on this matter between the Department's lawyers and the industry's lawyers as to the meaning of the term "concession owners". Scope should not be left for lawyers to disagree on that matter, because inevitably that will lead to expense and ultimately to grievance. I am not arguing about who is right and who is wrong. Both sides have consulted very sophisticated and, presumably, expensive lawyers, and there is disagreement. The matter is demonstrably unclear and must be resolved. Therefore, I urge my right hon. Friend to reconsider the matter. It has been considered in Committee, but I urge my right hon. Friend to consider it again and to look at it with the same flexibility and courtesy that were the hallmarks by which he conducted the proceedings in Committee.
§ Mr. Rowlands
I am not quite sure of the best way to proceed with the amendments. I was waiting for the Minister to explain them, or to come in first. However, perhaps it would be convenient if I intervened at this stage. We should like the right to pursue these matters again after the Minister has introduced his amendments.
It is a pity that we are taking these in one sweep, because two separate issues are contained in this clutch of amendments. One set deals with clause 2 which relates to pipelines, and the other with installations. In Committee we realised increasingly that the two sets of amendments had to be looked at separately because they presented separate problems and arguments. Therefore, we are having to consider an enormous collection of amendments that deal with pipelines and installations. I shall have an initial shot, but I should like the right to return to the battle when we have heard the Minister—
§ Mr. Deputy Speaker
Order. I shall, of course, do my best to accommodate the hon. Gentleman, but I am sure that he realises that we are on Report and not in Committee.
§ Mr. Rowlands
I was trying to suggest that the House will be put in some difficulty because of this large group of amendments on such wide and separate issues, including several significant changes that the Government introduced to their own Bill as a result of our discussions in Committee. We need to digest those changes, and the Minister needs to explain them to us.
To avoid any doubt— we said it enough times in Committee—we have a common objective in devising a proper clause 2. That is to make sure that that liability is 378 properly placed, the responsibility is clearly identified, and the financial consequences of abandonment are guaranteed. Those basic principles and objectives are shared by all hon. Members. There is no difference of opinion about the objective that we seek to achieve in clause 2. We want the liability clearly and properly placed upon those who should be liable and we want the responsibility for preparing, developing and implementing the abandonment programmes clearly identified. Obviously, we need financial arrangements to guarantee that the state does not pick up more of the tab than it should.
Such an objective requires that there should be no doubt or confusion about the law. The hon. Member for Billericay (Mr. Proctor) made that point. We have not signed his amendment because, as he will notice, we are trying to do it differently, by omitting the offending subparagraph about concession owners. However, we have no difficulty in supporting his amendment and are willing to join him in pressing it.
We should ensure that there is absolutely no doubt abour our common objective, which must not leave any confusion or doubt in legislation or in the law. It is because there is doubt and, as the hon. Gentleman said, because there is a genuine difference of legal opinion about the paragraph that he and we are seeking to amend, that we are expressing concern and anxiety at this late stage.
As we know, when faced with the problem of trying to place the responsibility and to identify those upon whom to serve the notices under clause 2, the Government chose a catch-all method. It smacked of the Inland Revenue which, when in doubt, serves a notice upon anybody who is walking past to make sure that it does not miss anybody. It tries to catch anybody and anyone in the hope of eventually catching those it wants to catch. That solution caused considerable worry and concern to the industry and also to hon. Members in Committee.
Quite properly, after continuous consultation in Committee, the Minister announced that he intended to recast parts of clause 2 to meet the legitimate worries, concerns and objections. The amendments tabled by the Minister today go a long way to fulfilling his commitments.
I know that it might seem rather churlish of us to pursue that point again, but it is essential. The Minister decided—we supported the principle—that instead of serving notices on almost everybody under the wide and sweeping powers of clause 2, notices should initially be served on the operators, on those who are named on the licence or on those in partnership in a joint operating agreement. As the Minister knows, we not only support that proposition, but advocated it from the first day of the Committee stage. I said that the simplest and least confusing way would be to place the responsibility and liability upon those who would be uniquely qualified to deal with those problems—the operators and the co-licensees involved with the installations. We felt that that was where the burden of notice-serving should go.
The Minister substantially met that point, by his amendment to clause 2 and, more significantly, by amending clause 3. That showed that he would not serve notices on all possible subsidiary interested parties until the operator and the co-licensees had had the fullest opportunity, within a decent time scale, to establish proper collective liability, to the Minister's satisfaction. Why spoil 379 that important recasting of this part of the Bill by clinging to that part of the clause, which has caused, and which continues to cause, such genuine confusion?
As I have said, we have a common objective. An essential aspect is to avoid further confusion or doubt about where the liability or responsibility should rest. However, by clinging to the subsection, the reference to "concession owner" is still causing confusion and concern, despite the attempts of the Minister and his Department to persuade the industry that it does not mean what it says.
Therefore, there is no reason or case. We wait, with considerable interest, for the Minister to identify exactly who will be caught by the term "concession owner". So far, we all agree that notices should be served first and foremost on operators. We believe that notices should be served on those parties who form, belong to or are part of a joint operating agreement on any installation. We have accepted that there should also be an opportunity to serve notices at a later date, if need be, upon other persons who have an interest, but who do not have a secured loan—in other words, not a bank. We accept that, albeit reluctantly, as will be clear when we debate amendments Nos. 7 and 8. We have even accepted the principle of serving notices on associated companies, thereby piercing the so-called corporate veil. We even support the Government to that extent.
Who, then, are we talking about, other than those categories who are at present in the North sea? Can anyone name an installation that is not covered by any one of those definitions? We have hunted high and low for exceptions. Where are they? All we have come up with are the curious arrangements on the Ekofisk borderline which are the subject of Orders in Council under the Town and Country Planning (Minerals) Act 1981. I have the block numbers with me and should be grateful if the Minister will tell us whether this is what he is after. There are midline stations in block 36/22 and block 37/4 and there is a gas compressor station in block 14. Some of those are covered by Orders in Council.
The problem is that no joint operative agreements are in force for those installations, nor are they under any operator. Surely they are covered by the third category, of a person with an interest other than in a secured loan. People own them and their ownership is not difficult to identify. They have been the subject of Orders in Council and they would be covered under the provision of a person with an interest. Are these the unique installations that the Minister is trying to cover in his term "concession owner'"?
We cover operators and everybody who is party to an installation through a joint operating agreement or something similar. If that does not catch everybody, we cover people with an interest in any installation, other than one based on a secured loan, and associated companies. So we cover all the possibilities of those with an interest in North sea oil installations. If the Minister has these three extraordinary cases in mind, surely they too are covered by the broad definition of a person other than an operator or a co-licensee who has an interest in an installation. Therefore, those exceptional cases, which are covered by Orders in Council, would be covered by that 380 provision. What in the name of heaven is the phrase "concession owner" doing in the clause? For what installation is it necessary to have that provision?
I do not wish to repeat the case made by the hon. Member for Billericay and his illustration of the connection between the Heather and Ninian central platforms. Such doubts have been represented to us all. I am not a voice for the industry—far from it; the last thing it would want is to identify with many of my views—but I have had to listen to a sensible case made by sensible people who know the score and are obviously worried about the consequence of leaving those words in the Bill without proper definition.
On the first batch of amendments— the Government's amendments relating to installations, the amendment of the hon. Member for Billericay and our amendments—I hope that the Minister will make this final concession and ensure that not an ounce of doubt is left in anybody's mind about responsibility and liability and the persons on whom notices will be served. Otherwise, the Minister will spoil the very thing that all of us have sought to do in recasting clause 2.
Now I must turn to the second half of the batch of amendments, dealing with pipelines. In Committee, pipelines loomed larger and larger during our discussions. I do not know how pipelines loom, although installations loom, but I am speaking metaphorically. Perhaps it would be better to say that we began to follow the pipelines issue increasingly carefully. We realised, and even the Minister admitted, that genuine new issues were arising about programmes to deal with abandoned pipelines.
It is difficult to find out where responsibility lies. Under the Bill, in the incredible gas-gathering structure of the North sea, where one set of pipelines was linked to another, liability would run with that link. A person who did not own the pipeline in question but whose pipeline was linked to it could suddenly be liable for the abandonment of that other person's pipeline. The Minister recognised that, and towards the end of our proceedings identified the route that he intended to take. That was to take advantage of the little-used section 33 of the Petroleum and Submarine Pipe-lines Act 1975 to serve designation orders and to define the ownership of the pipeline.
We thought that was fine. Applying the test for the Bill—that it leaves no confusion or doubt—we thought that that was marvellous and that, through the designation orders, we would identify the ownership of the pipeline clearly. In that way everyone would know what they were liable for and for which pipelines they were responsible. I thought that was an excellent solution. But again, the Minister has inserted a belt and braces provision and has thrown another category in on top of that, instead of sticking to a clear, simple, well defined basis.
Designation orders would establish the ownership of pipelines in the North sea. The provision in section 33 allows for consultation with the industries, so agreement could be reached on who owns a pipeline. But then on top of that we have another subsection to cover a person outside paragraph (a) who owns any interest in the whole of the pipeline other than as security for a loan.
Who is that? If, under the 1975 Act, we are to designate the ownership of the pipeline system in the North sea, which other people will have an interest? We shall have established the interest through the designation process.
381 Who else could be caught under this provision, having defined the whole ownership of the pipeline system? Who else could possibly be included in that category?
Rather than a simple, clear, well-defined identification of liability, there will again be doubt and anxiety about whether other people can become liable for pipelines in which they have a marginal or nominal interest, to say the least. That has been the problem from the start with the construction of clause 2. We have done a great deal to change it and we welcome the Government's amendments, because they meet many of the points raised by us in Committee. Our doubts and anxieties were shared by the Minister—we make no party point about this—but he has still left confusion and doubt. Otherwise we would not have received the representations that we have which have led to our amendments.
I hope that tonight the Minister will go a step further and amend this provision on installations. If not, I hope he will tell us exactly whom he is trying to catch by the concession owner provisions, and that he will clarify the position on pipelines.
§ Mr. Buchanan-Smith
I am happy to respond to the debate. As the hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) said, we share a common objective. Indeed, I share also the view of my hon. Friend the Member for Billericay (Mr. Proctor) about what we are trying to achieve. The only difference that may be between us on this matter is whether I shall achieve what my hon. Friend, the hon. Gentleman and I seek to achieve and, indeed, whether I shall go too far. I certainly welcome the opportunity to try to clarify the position.
I shall deal first with the amendment moved by my hon. Friend the Member for Billericay. That deals with a more limited matter. None the less, it is important to the industry within the much wider-ranging changes that I propose in the amendments that I hope to have the opportunity to move formally at a later stage. I hope that I can reassure my hon. Friend and the House on this matter. Our objectives are identical. I do not have any difference with him or any other hon. Member about what we are trying to achieve.
My hon. Friend asked me whether what he and I are trying to achieve is absolutely clear in legal terms. I hope that I shall be able to reassure him on that matter. From discussions in Committee and subsequent discussions with representatives of the oil companies and with my legal advisers, I certainly believe that the position is absolutely clear in the Bill as drafted.
The effect of the term "concession owner" is critical to the Bill. I reiterate what my hon. Friend has said. It has the same meaning as section 12(2) of the Mineral Workings (Offshore Installations) Act 1971, as amended by the Oil and Gas (Enterprise) Act 1982. For the purposes of the 1971 Act, to be a concession owner in relation to an offshore installation a person must have the right to exploit or explore mineral resources or store and recover gas in an area, and one or more qualifying activities must be carried on from, by means of or on the installation. The qualifying activities are, in summary, the exploration or exploitation of mineral resources or the storage or recovery of gas, the conveyance of minerals or gas and the provision of accommodation. I have spelt that out in some detail because the definition is complicated.
I ask my hon. Friend whether he has appreciated the precise application. To illustrate that point, I shall refer to 382 the precise example that he gave and the type of application that he thought led to the confusion. The example that my hon. Friend gave related to the Ninian central platform. As he correctly described, it serves as a gathering centre for production from three fields—Heather, Magnus and North Alwyn, as well as its own. The oil is gathered there for subsequent transmission down a pipeline to Sullom Voe. These four fields—this is an important point— are in different licensed areas. My hon. Friend has suggested that the licensees of the Heather field, for example, could be concession owners in relation to the Ninian central platform because the production from Heather is conveyed through a system of pipes through the Ninian central platform to the shore.
I must refer closely to the words of section 12(2)(b) of the definition in the 1971 Act, as amended by the Oil and Gas (Enterprise) Act 1982, which my hon. Friend and I mentioned earlier. Subsection 2(b) refers tothe conveyance in that area".That is a critical phrase. It means the area of the concession. It goes on:by means of a pipe or system of pipes of minerals gotten, or gas being stored or recovered, in the exercise of that right.Again, that is a critical phrase because it refers to the right granted by the concession.
I understand the concerns of the industry. Therefore, I have looked closely at this matter and not only taken the legal advice available to me but also consulted parliamentary counsel. It is clear to them that the words "in that area" in the paragraph to which I referred limit the operation of the conveying function by reference to which a person may be a concession owner in relation to an offshore installation to the area of the concession. I shall put it another way. I have tried to follow closely the provisions of the Act. Putting this matter into layman's language, the holder of a petroleum production licence cannot he a concession owner for the purposes of the Bill in relation to an offshore installation situated in a different licensed area simply because some of his petroleum passes over or through it on its way to the shore. That is the legal explanation. I am reassured— I take seriously the Committee debates and what my hon. Friend said——that the Bill as drafted precisely covers this point. The Bill does not require any further amendment. I hope that, with reference to the previous Act, I have reassured my hon. Friend about that point.
§ Mr. Rowlands
I have closely followed the Minister's remarks. I shall pose a question in layman's terms in the hope that he can give an affirmative answer. Could not the Heather partners, who have no interest in the Ninian platform or production, possibly have liability for the abandonment of the Ninian central platform? If the Minister will confirm that point, at least we will know that we have translated the legal language into a practical example.
§ Mr. Buchanan-Smith
That is right. The hon. Gentleman has correctly translated my interpretation of the legal situation.
This is an important point. It is one about which, even following discussions, some representatives of the oil industry have been concerned. I hope that my spelling out of this matter will have helped to reassure them why I am so confident that this measure is correct. I assure my hon. Friend the Member for Billericay that I do not seek to rest 383 on reassurances that, I appreciate, could have no force of law. I rest my case on what is in the Bill, which, in turn, is based on previous legislation.
I wish to refer now to my substantial group of amendments. In doing so, I shall cover some of the points that the hon. Member for Merthyr Tydfil and Rhymney raised. I am glad to be able to respond to the Committee and to the House. I appreciate that, because of the way the Bill was drafted originally—this was a point of concern at all stages of deliberation from Second Reading—there was genuine concern that the Bill was cast rather too widely. It was considered that we could have achieved our purposes effectively without ranging so wide. I was glad to have the reassurance of the hon. Member for Merthyr Tydfil and Rhymney that in certain circumstances one must maintain ultimate protection for the taxpayer, but that we should go down a rather more sensible road. That is what I have tried to do, and that is why I gave the commitment in Committee on 13 January.
The amendments introduce a trigger mechanism into the arrangements for serving notice outside the immediate licensees of installations and parties to joint operating agreements, or designated owners in the case of submarine pipelines. I am sorry that this has involved such a complicated and formidable batch of amendments. However, I warned the Committee that might be the case.
There are two amendments to clause 2. Amendment No. 3, which relates to installations, introduces for the first time parties to a joint operating agreement or similar agreement— I emphasise that, because it does not necessarily have to be a joint operating agreement—as persons to whom notice may be given under clause 1. That is a logical development, and I believe that it was accepted in Committee, because it is under the joint operating agreement that the conduct of operations in the licensed area will generally be regulated.
Thus, as far as installations are concerned, the Secretary of State will in the first instance have three groups of persons upon whom to draw in giving notice, as we are retaining power to give notice to the person who has registered the installation, pursuant to the Mineral Workings (Offshore Installations) Act 1971 and "concession owners", as defined in that Act, with whom I dealt a moment ago. That is necessary to cover the situation where, for example, there is no joint operating agreement because there is only one licensee.
Where there is a joint operating agreement, the person who has registered the installation and the concession owners will invariably be parties to it. New paragraphs (d) and (e) of clause 2(1) identify the parties to whom notice under clause 1 may be given at a later stage—that is, if those companies to which I shall initially be looking to complete the arrangements referred to in amendment No. 9 to clause 3 have been unable to do so. They are similar to paragraphs (c) and (d) in the Bill as originally drafted, except that here again we have fulfilled a commitment that we entered into in Committee to take out of the scope of clause 2 a person whose sole interest is as security for a loan, such as a bank or an institution. That is covered by amendment No. 3.
Amendment No. 5, which is the second important amendment, concerns pipelines and it parallels the first amendment. The groups of persons to whom notice may be given are essentially similar to those in the existing 384 clause 2(2), except that once again we have excluded banks and institutions, whose sole interest is as security for a loan, from the ambit of paragraph (b). We have also removed the possibility that the owner of a small part of any pipeline system should be made liable for the abandonment of an entire system by introducing a reference tothe whole or substantially the wholeof the pipeline in paragraph (b).
That is the first batch of amendments, which define more closely those upon whom notices may be served.
§ Mr. Buchanan-Smith
As we are on Report, I should like to follow the amendments through logically. That might be helpful to the House. The hon. Gentleman can then make a speech and I shall pick up any points that he makes.
The important point about these changes we propose to clause 3 is that, by having provided new definitions, we ensure that there is a particular sequence of events so that a catch-all situation becomes a fallback and long stop, not a first stop. That is why amendment No. 9 to clause 3, to which I referred briefly a moment ago, is critical. The amendments to clause 3 provide the trigger mechanisms that enable the Secretary of State to serve notice on the wider classes of companies referred to in clause 2.
Subsection (1A) stipulates that the Secretary of State may not serve a notice before 1 July 1988 on the companies in the wider classes to which I have just referred—that is, to associated companies and companies owning an interest in the installation or pipeline but which do not, however, fall within subsection (1) (a), (b) or (c) or subsection (2) (a) of clause 2. The purpose of this date is to enable companies to which notice has been given to enter into appropriate abandonment arrangements. We recognise that this may not always be easy, but we have to guard against providing an opportunity for unnecessary delay.
We believe that the date 1 July 1988—although I do not claim that there is anything desperately magical about it—provides, in practical terms, a reasonable balance between not requiring things to be done too quickly and preventing companies from unnecessarily delaying putting in place the kind of arrangements that I should like to be put in place through the joint operating agreement, or a similar agreement, between the parties to the licence. There will, of course, be no compulsion on the Secretary of State to give notice more widely, once that date is agreed. He will still be able to exercise a certain amount of discretion, and I have no doubt that in practice the parties will be in touch with the Department of Energy. If they believe that a satisfactory arrangement is within reach, although the precise date has not been complied with, I am quite sure that they will want the Secretary of State to hold his fire. I am also quite sure that in such circumstances any reasonable Secretary of State would do so.
New subsections (2A) and (3A) prevent the Secretary of State from serving notice more widely in respect of either offshore installations or submarine pipelines where he is satisfied with the arrangements, including financial arrangements, which have been made for abandonment by the persons to whom notice has already been given. The 385 effect of this is that the Secretary of State may not give notice more widely where satisfactory arrangements have been made and where they continue in operation.
New subsection (4A) enables the Secretary of State to serve notice more widely, either because the persons to whom notice has already been given have failed to submit an abandonment programme or because a programme, for one reason or another, has been rejected by the Secretary of State. This is the first circumstance amounting to default to which I referred in Standing Committee. The second circumstance of default is provided by the new subsection (2A) to clause 6— amendment No. 17—which enables the Secretary of State to propose that any of the wider classes of companies mentioned in clause 2 should become liable to secure that an abandonment programme is carried out, where a person who is already under such a duty has failed to carry it out, or seems likely to fail. The Secretary of State can therefore step in if at any time after approval of a programme he becomes concerned as to the financial status of the parties concerned.
I have attempted to deal with the main amendments. There are other amendments, but I assure the House that they are of a purely consequential nature. However, I hope that my explanation has followed through the sequence of events and that I have reassured the House about what I have achieved. Nevertheless, there is one matter to which I should like to return. I have dealt with the amendments of my hon. Friend the Member for Billericay and I hope that at the same time I have covered most of the points that were raised by the hon. Member for Merthyr Tydfyl and Rhymney. However, I do not think that I have yet answered adequately his second amendment that deals with pipelines.
§ Mr. Rowlands
Before the Minister deals with my pipelines amendment, I should point out that he has not answered the question that I put to him about concession owners. Who is a concession owner who is not an operator, a co-licensee or a person with an interest in the installation?
§ Mr. Buchanan-Smith
We need this term to cover all the licensees. It is conceivable that there may be no joint operating agreement. We may not always know who owns an installation. We always know who the licensees are. That is why it is important to follow it through that particular route.
I shall turn to the point on pipelines that was made by the hon. Member for Merthyr Tydfil and Rhymney. I confirm that it is our intention, in the first instance, to give notice under clause 1 to designated owners of pipelines. The designation exercise is under way already. One of the reasons why I have chosen this route is that we already have the power. I hope that I reassured the hon. Gentleman in Committee as to why we have chosen that route. It is our intention to follow the industry's practice and avoid the potential difficulties that were mentioned in Committee with respect to spur lines, T-junctions and so on.
However—this is where I am not happy with the hon. Gentleman's second amendment— we need the opportunity to give notice more widely should there be default in submitting a programme or in carrying it out. That is the purpose of paragraphs (b) and (c), which the 386 hon. Gentleman is seeking to remove by amendment No. 2. I have referred to amendments which affect that part of the Bill.
I hope that I have reassured the House on these points. This is an important part of the Bill. Indeed, it is the crux of the approach to the method of abandonment. On Second Reading this issue was raised, but no solution was identified. The full debates in Committee were of considerable help to me and to my Department in forming our view of the best approach, while ensuring that we protected the taxpayer. We have reached a solution which not only prevents powers from being used too widely, but gives the ultimate protection, which I hope will not be necessary.
I look to licensees, and those who work in a joint operating agreement, to put abandonment arrangements in place, either through the joint operating agreement or through some parallel agreement. If that is done, there should be no need to cast the net more widely. It has given us an opportunity to change the Bill quite substantially. I welcome the contructive way in which Members on both sides of the House have approached it. I hope that there will not be too many lingering doubts left.
§ Mr. Rowlands
With the leave of the House, I would like to reply. It would be churlish to carry on quibbling. the amendments represent a substantial change to the Bill, particularly the amendment to clause 3, which we did not debate because we were in wholehearted agreement with it, including the deadline of July 1988. That deadline will help people to concentrate their minds.
It is mind-boggling to believe that there are anonymous or pirate installations in the North sea, the ownership of which is not known to the Department of Energy. I hope that the Minister will check how many of those there are. It will be difficult, having served a designation order on the owners of pipelines, to find another group of people who have a whole or substantial interest in it—somebody separate from those covered by a designation order. We will have to wait and see in both cases.
We take considerable comfort from the specific illustration that has been presented to us, which could have caused concern. The Minister was assuring and legally put his head on the block by saying that the worries and concerns that we had are not valid. In the light of that, we will not be pressing our amendments.
§ Mr. Proctor
With the leave of the House, may I say that I will not be pressing the two amendments that I tabled, for similar reasons to that of the hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands). It appears to me that the Government amendments mean that we are moving away from the sub-machine gun approach to the preciseness of the sniper's shot. For that reason, the amendments are to be supported and welcomed.
My right hon. Friend stressed the importance of the timing and phasing of the powers that are available to the Secretary of State. That is important and is underlined in the amendments. With regard to my amendment Nos. 1 and 4, I thought that my right hon. Friend went as far as he could in making crystal clear what he believed the position to be. I rest content, having heard that tonight, and beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
- `(c) a person outside paragraphs (a) and (b) who is a party to a joint operating agreement or similar agreement relating to rights by virtue of which a person is within paragraph (b);
- (d) a person outside paragraphs (a) to (c) who owns any interest in the installation otherwise than as security for a loan;
- (e) a company which is outside paragraphs (a) to (d) but is associated with a company within any of those paragraphs.'.
§ No. 5, in page 2, line 38, leave out from beginning to end of line 40 and insert—
- (b) a person outside paragraph (a) who owns any interest in the whole or substantially the whole of the pipe-line, otherwise than as security for a loan;
- (c) a company which is outside paragraphs (a) and (b) but is associated with a company within one of those paragraphs.'.—[Mr. Buchanan-Smith.]
§ Mr. Rowlands
I beg to move amendment No.7, in page 2, line 53, leave out 'one-half or more' and insert 'more than one half.
§ Mr. Deputy Speaker
With this it may be convenient to discuss amendment No. 8, in page 3, line 10, leave out 'or' and insert 'and'.
§ Mr. Rowlands
This gives an opportunity to have one last look at one of the potentially contentious issues in clause 2—the piercing of the so-called corporate veil by the provision in clause 2 to serve a notice on a company associated with another company and make it responsible and liable for abandonment. Rather than attack the principle of it, we have used these two amendments to uncover how far and to what extent the associated company chase will take. We have questioned the definition of ownership, put down in subsection (5), where it saysone half or more of the issued share capital of the company".
The controlling share, surely, is 51 per cent. A company cannot be said to be in control of another company if it has joint ownership. Therefore, we want to know why just one half. Why not more than one half, 51 per cent., which everyone would identify as a controlling share? Having written all these paragraphs out— (a) (b) (c) and (d)—to define ownership, on top of that, it is said:or if it has power, directly or indirectly, to secure that the affairs of the company are conducted in accordance with its wishes.In other words, although we have a definition of ownership in paragraphs (a) (b) (c) and (d), on top of that we have the word "or", and another definition of what could be a controlling interest, irrespective of the definition in subsection 5. We want the Minister to get the antecedents and parentage of these definitions, because they are important.
Although we understand why the Minister has chosen to introduce the principle of seeking to go behind one company back to a parent or associated company in the ultimate possible serving of notices, the Minister ought to be as worried as we are about the precedent that that is creating. If that becomes model legislation for other member states, some British companies that have a marginal interest in an installation in another part of the world— perhaps in the south China seas or off the Malaysian coast— and if other nations pick up this legislative model and serve notices on British parent companies, which might have the most marginal involvement in companies that are responsible for 388 installations in other nations' waters, we could find that those companies go to see our ambassadors and the Foreign and Commonwealth Office to make representations, only to be told that the powers that are being used against them are modelled on British legislation.
The definition opens a wide door. The Minister might think that the British Government will behave sensibly, but British companies could become liable for abandonment programmes in which they have only a marginal interest. A serious precedent is being created and the House should not let it go through without being aware of its dangers.
We are seeking clarification and want the Minister to tell us where the definition comes from. We did not debate this part of the Bill thoroughly in Committee.
§ Mr. Proctor
I should not like the House to feel that the Opposition have a monopoly of concern in this matter. It was raised by both sides in Committee. Anxiety remains, for the reasons that the hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) has given.
There are many joint venture agreements involving British companies and companies from other countries where there is a 50:50 per cent. shareholding and no absolute control. A deadlock can no doubt occur. I wonder whether it is fair for such companies to be caught by the 50 per cent. rule. I should be grateful for my right hon. Friend's comments.
§ Mr. Buchanan-Smith
We did not debate this area of the Bill in detail in Committee and I quite understand why the hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) seeks clarification now. I am happy to try to provide that clarification.
Clause 2(5)(a), which the hon. Gentleman would amend, provides a test of control when one company has, or is entitled to acquire, one half or more of the issued share capital of another company. The hon. Gentleman said that the clause appeared to redefine control when he spoke on Second Reading. He assumed that control involved ownership of 51 per cent. of the share capital. He is quite right to say that the clause provides for a 50 per cent. test of ownership. It does that for one reason—to catch what is called the deadlock company. I am sure that my hon. Friend the Member for Billericay (Mr. Proctor). who has great knowledge of these matters, understands that. That happens when a company has been set up by collaborating companies, often for a specific project, and each company holds 50 per cent. of the new company's shares.
Amendment No. 7 would not catch that type of deadlock company. The hon. Gentleman also said that the 50 per cent. test raises major issues and suggested what might happen to British companies abroad if our provisions were applied more widely. He will be familiar with the terms of the model clauses in the petroleum production licences such as those set out in part III of schedule 2 to the Petroleum and Submarine Pipe-lines Act 1975, which provides a test of control of one third or more for certain purposes. Those provisions have worked satisfactorily in practice and have posed no difficulty for the industry or the Government.
Amendment No. 8 would change the thrust of what I call the tailpiece to subsection (5), which provides that a company may exercise control for the purposes of part I, 389 even though it does not fulfil any of the criteria in paragraphs (a) to (d), because it has the power to ensure that the affairs of the second company are conducted in accordance with its wishes. Amendment No. 8 makes that an additional rather than an alternative requirement. That would defeat the purpose of the test which looks to the realities of a company's circumstances rather than to its circumstances on paper.
I confirm that there is an element of catch-all. We want to ensure that there are no difficulties or gaps, so that the proper protection of taxpayers' interests can be assured. It is better to have the Bill in its present form and to have the test as an alternative, although we hope to apply the other tests. In those circumstances, I hope that the hon. Gentleman will feel able not to press the amendment.
§ Mr. Rowlands
The definition of ownership here and the one third rule as provided in the Petroleum and Submarine Pipe-lines Act 1975 apply to completely different circumstances. I understand that the latter relates to the disposal of ownership of licences. I can see why there should be a provision to ensure that licences cannot be disposed of without the consent of a Minister. That is quite a different concept from creating a liability, which is one way in which to transfer a valuable asset. I should like to be clear that I have taken up the right reference. Governments have every right to know whether ownership changes and therefore to lay down a one third ownership rule, but we are talking about something quite different here.
I shall not press our amendment, but I did not find the Minister's answer very satisfactory. He did not answer the question asked by the hon. Member for Billericay either. There are many joint ventures in the North sea oil industry and the definition of 50 per cent. or more would catch them. We shall not press the amendment, but not because we are satisfied with the Minister's response.
I beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
Amendments made: No. 9, in page 3, line 19, at
'(1A) The Secretary of State shall not before 1st July 1988 give a notice under section 1(1) to a person within paragraph (d) or (e) of section 2(1) or paragraph (b) or (c) of section 2(2).
(2A) Subject to subsection (4A), the Secretary of State shall not give a notice under section 1(1) in relation to an offshore installation to a person within paragraph (d) or (e) of section 2(1) if the Secretary of State has been and continues to be satisfied that adequate arrangements (including financial arrangements) have been made by a person or persons within paragraph (a), (b) or (c) to ensure that a satisfactory abandonment programme will be carried out.
(3A) Subject to subsection (4A), the Secretary of State shall not give a notice under section 1(1) in relation to a submarine pipe-line to a person within paragraph (b) or (c) of section 2(2) if the Secretary of State has been and continues to be satisfied that adequate arrangements (including financial arrangements) have been made by a person or persons within paragraph (a) to ensure that a satisfactory abandonment programme will be carried out.
(4A) Subsections (2A) and (3A) shall not apply if there has been a failure to comply with a notice under section 1(1) or if the Secretary of State has rejected a programme submitted in compliance with such a notice.'.
§ No. 10, in page 3, line 22, leave out 'subsection (1) of section 1' and insert 'section 1(1)'.
No. 11, in page 3, line 25, after 'give', insert
`(subject to the preceding provisions of this section)'
§ No. 12, in page 3, line 25, leave out 'that subsection' and insert 'section 1(1)'.—[Mr. Buchanan-Smith.]