Conditions for funding certain companies engaged in nuclear generation in Scotland

HC Deb 05 April 1989 vol 150 cc215-40

`.—(1) Without prejudice to section 7(1)(a) above, it may be a condition of a licence granted to a company ("the licence holder") that it shall from time to time provide any company to which subsection (2) below applies with such funds as may be determined by or under the condition in respect of such of that company's liabilities as may be so determined.

(2) This subsection applies to any company which—

1. (a) is deemed for the purposes of the Companies Act 1985 to be a subsidiary of the licence holder; or
2. (b) is a related company of the licence holder (as defined in paragraph 92 of Schedule 4 to that Act),

and is, at the time when the condition is imposed, engaged in the operation of a nuclear generating station in Scotland.

(3) Subsection (3) of section 7 above applies in respect of a condition included in a licence by virtue of this section as it applies in respect of a condition so included by virtue of subsection (1)(a) of that section.'.—[Mr. Lang.]

Brought up, and read the First time.

The Minister of State, Scottish Office (Mr. Ian Lang)

I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker

With this, it will be convenient to discuss Government amendments Nos. 5, 6, 7, 15 and 65.

Mr. Lang

The new clause relates to a technicality in the relationship between Scottish Nuclear Limited and its parent companies. It will enable a licence condition to be included in any licence or licences granted under the Bill requiring the licence holder to meet the liabilities of any subsidiary or related company operating a nuclear generating station in Scotland. The amendment applies only in Scotland, as it is only in Scotland that it s proposed that nuclear operations be conducted through a subsidiary company.

As hon. Members will be aware, it is a central part of the Government's proposals for restructuring the Scottish industry that there should be a separate company. The new clause will enable such a condition to be placed in the licences granted to the two electricity companies as successors to the Scottish boards to ensure that the liabilities of that subsidiary, Scottish Nuclear Limited, are met.

The long-term liabilities in question are those associated with the decommissioning of nuclear installations and the disposal of nuclear waste. Following privatisation, the nuclear stations in Scotland will be owned and operated by SNL, which is to be owned by the two electricity companies in proportion to their relative size.

SNL will be the nuclear site licensee and, as such, will be responsible for decommissioning the stations once generation has ceased. Such decommissioning is planned to take up to 100 years to complete. Financial provision will be made in the balance sheets of SNL and the parent companies against the long-term liabilities. The fact that financial provision is made in this way should ensure that funds are available to meet the long-term liabilities.

The clause covers a technicality which results from the subsidiary structure. As things stand, SNL, as a subsidiary company of the South of Scotland electricity company or a related company to the North of Scotland electricity company, would be unable to obtain funds from its parents without their agreement. While it is expected that the parents would agree, the Government recognise that it is prudent to ensure that there is a direct route to enforce the long-term liabilities against them.

Subsection (1) of the new clause provides for the inclusion of an appropriately drafted licence condition requiring the licence holder to provide such funds as may be determined by, or under the condition in respect of, the liabilities of a company specified in subsection (2). Subsection (2)(a) applies the clause to any company which, in terms of the Companies Act 1985, is a subsidiary of the licence holder; SNL will be a subsidiary of the south company by virtue of the fact that the south company holds more than half its equity share capital. Subsection (2)(b) applies the clause to any company which is a related company of the licence holder, defined in the Companies Act 1985 as meaning any body corporate in which the parent company holds, on a long-term basis, a qualifying capital interest for the purposes of securing a contribution to that company's own activities by the exercise of any control or influence arising from that interest.

Mr. George Foulkes (Carrick, Cumnock and Doom Valley)

The Minister is speaking at a rapid pace about an issue which, in his initial remarks, he implied was merely technical but which is in fact of monumental importance.

He skipped rapidly over the point about SNL having responsibility for including in its accounts the costs of decommissioning any nuclear power stations that are closed. Will he explain precisely the position of Hunterston A? The decision to decommission having been made prior to privatisation, will the responsibility for decommissioning that station be inherited by SNL?

Mr. Lang

I said that the new clause was concerned with a technicality because, in essence, it is. The relationship between Scottish Nuclear Limited and its parent companies and the respective roles of the parents and SNL are important and major issues, but the clause is not directly concerned with that. It is concerned with the technical possibility that the parent companies might escape a liability incurred by their subsidiaries. The matter was raised in Committee and I am sure that Opposition Members will welcome this additional provision, which is made in case such a situation should arise.

The nuclear assets of Hunterston A will be transferred to SNL and my expectation—I will seek confirmation of this and if I am wrong I will write to the hon. Gentleman, or if the opportunity arises, correct myself later is that Hunterston A would also form part of those nuclear assets and be transferred, notwithstanding that the decommissioning process, which may take 100 years, will already be under way.

Mr. Foulkes

The Minister is being helpful and has stated precisely that the nuclear assets of Hunterston A will be transferred to SNL. Do I assume that his reference to "assets" includes liabilities? In other words, may we assume that all aspects of Hunterston A—I am particularly concerned with the major liability of the cost of decommissioning—will be included in the liabilities of SNL and that all of that will be transferred to SNL? Perhaps the Minister has received a note on that by now.

Mr. Lang

I have indeed, and it confirms that I was correct in my assessment in reply to the hon. Gentleman's earlier intervention. Assets and liabilities will be transferred to SNL. The new clause is concerned with a technicality to ensure that the parent companies to SNL cannot escape their contribution to those liabilities. As I said, SNL is related to the north company on the basis described by the Companies Act 1985 from which I have quoted. In both cases, the new clause applies only to a company which, when the condition is imposed, is engaged in the operation of a nuclear generating station in Scotland.

Subsection (3) ensures that clause 7(3), which relates to the role of the director in relation to licence conditions, applies to any condition imposed by virtue of the new clause. The other amendments in the group are technical and I shall say something about them if the House wishes.

5 pm

Mr. Donald Dewar (Glasgow, Garscadden)

The Minister has described new clause 6 as technical. I recognise that it builds in a safeguard to ensure that the parent company does not slough off some of its responsibilities in the sensitive subject with which the clause deals. However, it raises a number of interesting matters on which we are entitled to inquire, relating to the scale of funds which might be involved and which can be transferred under certain conditions of the licence if new clause 6 reaches the statute book.

There is no area where public interest and sensitivity is more marked than the nuclear subsidiary of the two privatised companies in Scotland. While I imagine that it will be common ground that it is unlikely that any new capacity will be provided and that any nuclear or non-nuclear power stations will be built in Scotland for a considerable time, as my hon. Friend the Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) has pointed out, there are on the horizon very substantial liabilities and charges which will be the subject of some of the financial transfers in the new clause. Perhaps it would be fair for the Minister to provide some details of the exact scale of the transfers, the size of the liabilities and how the nuclear subsidiary will operate.

I do not want to speak at great length about the accumulated debt, but the Minister will have heard the exchanges between my hon. Friend the Member for Rother Valley (Mr. Barron) and the Under-Secretary of State for Energy in the past hour or so. We are all aware of the fact that there is something like £2.7 billion of accumulated debt between the two Scottish boards. I was interested to hear the Under-Secretary of State giving a breakdown of that debt between the national loan fund and more than £1,000 million of foreign debt included in that overall total.

It is important to know as soon as possible exactly what will happen to that debt and how much will be written off as it is a matter of such pressing importance to the electricity industry. I recall the briefing given in December 1988 by Mr. Donald Miller, the chairman of the SSEB at Torness in which he made a statement that I am sure the Minister recalls. He said that the company could not be privatised unless the Government writes off a large part of the £2.2 billion debts it incurred in building them. He was referring to the nuclear power stations.

I heard the Under-Secretary of State making it clear that he was a man of experience with many previous convictions in the privatisation campaign and that he did not think that it was yet time to reveal all, although he promised that sinister happening—a full disclosure—at some point. It is important that the Minister says something on the subject, particularly as I understand that a good deal of the foreign debt is with the European Investment bank. I am relying upon the expertise of some of my colleagues, but I understand that it is backed by Treasury exchange cover and by guarantees.

If I am right, the European Investment bank debt will be at a considerably lower rate of exchange than the going rate. If the European Investment bank debt is transferred to the Treasury before the transfer date, can we be sure that it will be at the same rate of interest and that there will be no disadvantage in terms of the new rates of interest to be charged on the substitute debt, as that will clearly affect the transfer of funds or the call upon those funds which we are discussing in new clause 6? Perhaps the Minister might quickly and simply deal with that when he replies.

Another aspect of that briefing—I almost said that notorious briefing because it was certainly much noticed —at Torness given by Mr. Donald Miller was that he made it clear that he had considerable doubts about the way in which the Government were approaching possible changes in Government policy, the variations in BNFL pricing policy and the impact that that could have on the balance sheet of the privatised companies. That will have a direct effect on new clause 6 and upon the calls on the parent company which it covers. The House will be familiar with the fact that in the financial year 1987–88 the South of Scotland electricity board had a trading profit of £13 million which was dramatically transferred into a loss of £70 million simply because of the cost of transferring the Chapelcross power station—a.very old, minor power station—to the Cumbria board. Of course a great deal will emerge about future possible transactions which must affect the extent to which new clause 6 is used and whether it is necessary at all and are therefore relevant to the debate.

The House will recall that the chairman of the SSEB made it very clear in December 1988 that in his view the company would be, "unsellable" unless he received "the ultimate insurance" on the possible costs and the escalating expense of decommissioning. He said that the assurances will have to besigned and sealed before one writes a prospectus—otherwise it will not be worth writing. That was a very serious point to be made by someone who was about to become chairman of a private company approaching flotation.

It is clear that the solution to that problem will have a very far-reaching effect on the use that is made of new clause 6. I hope that the Minister will say something about that. A favourite jargon term often found in European debates is "transparency". I am in favour of transparency and knowing a little more about how the machinery will operate and what the implications will be. I say that in the light of what Mr. Miller said. I draw the Minister's attention to a story which appeared in The Scotsman on 8 March 1989 under the headline: Nuclear costs deal eases SSEB's sell-off doubts". It went on: A secret agreement has been reached between Ministers and the South of Scotland Electricity Board which has removed one of the biggest question marks over the proposed privatisation of the Scottish power industry. I cannot think of anything that will have a more direct effect upon the operation of new clause 6, and the amount of funding that will have to come from parent companies. We have an excellent opportunity relevant to the debate to get some information about that secret deal. It is particularly appropriate that the Minister of State should be at the Dispatch Box. It appears that he was the principal partner, together with Mr. Donald Miller, in the private discussions that the press tell us led to the deal.

The article says: Both the SSEB and the Scottish Office yesterday confirmed however, that an understanding has been reached in which Mr. Miller's doubts have been satisfied… the key element is understood to be assurances on the contracts which fix ceiling levels on the amount of any unforeseen rise in nuclear costs and in the contracts which will govern the relationship after privatisation with British Nuclear Fuels Limited. It goes on to say:

"A senior Scottish Office source"— I am always suspicious when I read those words. However, that senior Scottish Office figure said that there was still some way to go in the discussions before a firm announcement could be made but that the process involved `dotting the Is and crossing the Ts.' I should like to hear from the Minister a little about the deal and what has happened. Clearly, it will have an important and direct impact upon the way in which new clause 6 will operate.

A particularly good example of the calls that may be made on new clause 6 is the issue to which my hon. Friend the Member for Carrick, Cumnock and Doon Valley referred in his intervention—the decommissioning of Hunterston A Magnox station. I do not want to debate the merits of that decision because it would be going wide of the new clause. However, we are entitled to ask for some information about the implications of the decision in terms of the calls that may be made on the parent company under the licence agreements that will presumably be written in if the new clause is placed on the statute book.

I do not know what the cost will be but an article dated 30 March 1989 in Power in Europe, which is published by the Financial Times and is a reputable and informed trade paper, points out

Hunterston A is the most efficient of the United Kingdom's Magnox stations, and is one of the most efficient nuclear units in the world, with a lifetime load factor of 82 per cent. It goes on to point out: only minimum expenditure is expected to be required at Hunterston A in order to receive the Nuclear Installations Inspectorate's approval for continued operation in the 1990s. There is little dispute about that as the background to what has now happened.

The view of the author of that article is particularly relevant and interesting in terms of new clause 6. He believes that the real reason for the closure is that the operating costs of all Magnox stations in the United Kingdom have increased markedly in recent years, particularly because of higher BNFL charges for the reprocessing of spent fuel. If that is so, and the arrangements between BNFL and the privatised companies continue unaltered, the implications for the transfer of funds to the nuclear subsidiary company, which are envisaged in the new clause, are bound to be significant.

Mr. Foulkes

I agree with my hon. Friend's suspicions about the words, "senior Scottish Office sources". When one reads the words, "senior Labour MP" one knows that if someone is quoted in that way, one is about to be stabbed in the back—[Interruption.] Well, anyone would give their name if they had something good to say.

My hon. Friend mentioned. BNFL and its costs to the SSEB in relation to Hunterston A. BNFL has a private monopoly on the ability to provide reprocessing. Does that not illustrate beautifully the way in which the private monopolies, which have total control over the costs they charge, can have a grip on the consumer? That is the way the privatised electricity companies will have a grip on the consumer in relation to pricing.

Mr. Dewar

That is a fair comment. I do not want to follow my hon. Friend down that line but there are dangers and concerns. My hon. Friend's health seems to be remarkably good in view of the dangers he described of life in Parliament.

Mr. Foulkes

I was thinking about my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar).

Mr. Dewar

As always, I am touched.

I shall return to the thread of my argument. I was making an important point. II is an open secret and was the subject of specific comment when the Select Committee on Energy considered the matter. Evidence was given by Mr. Christopher Harding, chairman of BNFL. According to the article in Power in Europe he told the Select Committee that the "contract was unbreakable". That is the contract between the nuclear subsidiary whose fate we are discussing and BNFL. He said: the contract was unbreakable; should the two utilities attempt to avoid reprocessing by long-term storage, for example, they would be obliged to pay BNFL the price of reprocessing anyway. It is, in effect, one of the biggest take-or-pay contracts in history. Clearly, that will have a direct influence on what we are discussing now.

5.15 pm

I am entitled to ask the Minister if he can say whether that contract, in that remarkably inflexible state—almost a Leonine bargain—is still in place. If it is, the House should consider it in relation to the calls that are likely to be made under new clause 6.

Another point worth mentioning is that we are talking about the calls on funds to supply the nuclear subsidiary. No doubt nuclear expenditure will be linked to other types of generation and its availability. I do not want to transgress on your tolerance, Mr. Deputy Speaker, but it is important that the Minister mentions the SSEB's arrangements on coal burn. I say that because the state of coal burn and whether the agreement that has been negotiated over many years has been brought to a successful conclusion will inevitably affect the calls made under the new clause.

I do not want to strike a discordant note and I welcome the fact that the Minister intervened in the long-running negotiations and recognised that public interest was involved. However, I was saddened that we had to beat on his door for a couple of years without success and that an enormous amount of damage was done as a result of the delay and the Minister's refusal to do his duty.

We know that in principle an agreement for five years has been reached. Under the agreement the SSEB will take 2 million tonnes of coal a year. However, I understand that the last two years of the agreement are dependent on the use of the interconnector. That is a matter for speculation and concern. We do not know much about the details or whether Ministers are still completely satisfied that the deal will hold at this point. The Minister may wish to correct me and I would be glad to receive any details but there is nothing clear about the price. We have heard mention of 150p per gigajoule but we were told by the SSEB that it would have to receive 130p per gigajoule if it were to sell effectively into the interconnector. British Coal is said to be holding out for 180p per gigajoule.

Those are enormous variations. I unreservedly welcome the agreement in principle but I am concerned about the current state of play. I would be interested to know how much of the two million tonnes will be deep mined and how much will be opencast or whether there is any agreement on that. Those are all matters which, inevitably, affect the nuclear subsidiary and, therefore, the calls on the parent company's financial resources which may be made under new clause 6.

Another point, which is connected by the same logic to this debate, is what is happening about the interconnector. I raise this matter because I now read repeatedly in articles by well-informed journalists a suggestion that any sales by the Scottish private boards to the English distribution companies will come from nuclear base load electricity. The logic is that that is likely to find favour in the first-call system and may be more attractive and cheaper for clients south of the border. There is a real fear that the consumer will have to pay a price for that and that domestic costs will spiral. It is important for the Minister to say a few words about that. I am anxious to see the interconnector working and sales increasing, which might do something to reduce the calls on the parent companies' finances under the mechanism envisaged in new clause 6. We are entitled to some information from the Minister on those points.

I am conscious of the fact that several of my hon. Friends wish to catch your eye, Mr. Deputy Speaker, and I am also aware that there will be another debate on Scottish matters when we come to the next group of amendments, which are concerned with the regulatory machinery. I give fair notice to the Minister that we shall raise such matters as the 8 per cent. increase in prices. I hoped that such rises could have been prevented under a proper regulatory system. The electricity consultative councils have been left bravely, but vainly, trying to hold the line for the consumer interest in the dying days of this Government's stewardship. However, we shall be discussing that in our later debate and I do not wish to transgress at present.

I ask the Minister to address some of the important points. If he is asking us to endorse new clause 6, he cannot do so on the basis that it is simply a technical matter to be nodded onto the statute book in a perfunctory manner. He must give us some idea of the shape and scale of the calls likely to be made under the new machinery and he must try to deal with the important points I have raised, not because of a peculiar and idiosyncratic interest of my own, but because they are of fundamental importance to the industry and the consumer.

Mr. Malcolm Bruce (Gordon)

It was interesting that the Minister tried to pass off new clause 6 as a technicality, when the very fact that it is necessary suggests that there is a rather more deep-seated problem, which has been touched on already by hon. Members and about which the Minister must come clean. The Minister has said, in effect, that the successor companies to the existing boards in Scotland will, under the Bill, inherit a liability—the requirement to own any nuclear subsidiary to which they are committed to provide funding, on a fairly open-ended basis. That means that the commercial judgment of the successor companies will be compromised by new clause 6. They would have some reason, if they are coming in with a fresh approach, to believe that the SSEB in particular has a record of profligate extravagance. It would not have been able to get away with such extravagance if it had been in the private sector.

The SSEB has been able to invest in providing 110 per cent. excess capacity in the Scottish generating system, which is way above any possible strategic or commercial requirement. That has been brought home in the past couple of weeks, as the hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) remarked, by the announcement that the board is closing Hunterston A, the most efficient and consistently successful Magnox station, which still has a substantial effective life left. It is to be closed down for one reason—that the board cannot find, or foresee the possibility of finding, a market for the electricity that it produces.

That seems extraordinary, given that in the past couple of years a brand new nuclear power station has been opened on the other coast of Scotland. For a company to build a new power station and then to close down a smaller power station of a similar type and of proven efficiency suggests a complete lack of good commercial judgment and an incredible degree of appalling forecasting. One must also consider that the massive Peterhead power station is operating consistently under capacity and the Inverkip was mothballed almost before it came on stream.

It is no wonder that the Scottish electricity industry is apprehensive about being exposed to market forces—if that were the Government's intention. It is not, and new clause 6 is a further indication of how ridiculous the Government's policy is on nuclear power and the operation of the market. It is, perhaps, appropriate to quote from Energy Economics, which, summarising Government policy on nuclear power, said: Privatisation has meant that the UK has discovered it does not after all need an active fast breeder research programme, nor pour vast sums into nuclear fusion; that nuclear power is not as economic as viable alternatives; that reprocessing is an expensive waste of time; that decommissioning is a vast problem. That is the state of the nuclear industry, and all those factors specifically affect the industry in Scotland.

Consumers may ask how much cheaper electricity in Scotland might have been had we had an efficient electricity board producing close to the required capacity, rather than servicing the debt for a massive over-capacity. The Bill has already provided the SSEB with a £2.5 billion nuclear debt write-off. Mr. Donald Miller has said that that is not enough. Presumably, this "technical amendment" is designed to ensure that not only will the taxpayer have to contribute to the massive excess of nuclear capacity in Scotland, but that the consumer will continue thereafter to fund it through electricity prices.

The hon. Member for Glasgow, Garscadden (Mr. Dewar) made passing reference to the recent increase of 8.5 per cent. It is interesting to make the point that that increase is higher than that in England and Wales and higher than the rate of inflation—at least for this week, although inflation will no doubt catch up fairly soon. The point which has not been fully realised is that Scotland is now beginning the fairly rapid march from being the area of the United Kingdom that has enjoyed the cheapest electricity to being the area of the United Kingdom that will face the most expensive electricity as a direct result of this Bill. The electricity boards, while still in public ownership, are like the Welsh forwards, getting in their retaliation first. They are softening up the Scottish public to the idea that price increases in Scotland will move faster than in the rest of the United Kingdom.

Mr. Robert Maclennan: (Caithness and Sutherland)

Can my hon. Friend explain the relationship between his earlier remarks about the over-investment by the SSEB in the nuclear industry and the fact that Scotland, as he has rightly described, has enjoyed much cheaper electricity than our neighbours south of the border?

Mr. Bruce

The answer to that is that Scotland has had the advantage of access to hydro power. I made the point on Hunterston A about the success of the SSEB's engineering capability compared to that of the Central Electricity Generating Board. I acknowledge freely that the SSEB has been more successful technically than the CEGB in the development of nuclear power. However, I repeat that there was no justification for building Torness. If that money had not been invested, we would not have had to close Hunterston A and electricity prices in Scotland could have been even lower than we have enjoyed. There is a combination of factors and I freely accept that the earlier efficiency of the nuclear industry, coupled with hydro prices, are the main explanation.

5.30 pm

However, having reached that position, the way forward that the SSEB is now pursuing should be questioned. I suggested in Committee that the Scottish electricity boards should at least consider selling Torness to an English user, lock stock and barrel—in other words, transfer the capacity. I accept that that is a contentious statement and that the South of Scotland electricity board is hardly likely to be keen on selling something of which it feels so technically proud. I am sure that hon. Members of all parties will recognise that it is legitimate to ask why we are closing an economic and apparently safe nuclear power station only two years after opening a new one. Surely the argument must be that we should never have built Torness in the first place but, having built it, might it not have been more sensible to have tried to sell Hunterston A so that its capacity could be used—

Mr. Jimmy Hood (Clydesdale)

We are well aware that the hon. Gentleman made this point earlier in Committee. Indeed, I referred to it in Committee when, unfortunately, the hon. Gentleman had briefly left the Committee room. If we sell off Torness to the English market so that it provides low-base, low-cost electricity to England, where will we in Scotland find a market for exporting our still-excess electricity?

Mr. Bruce

The hon. Gentleman makes a fair point. We have massive excess capacity in Scotland for which the South of Scotland electricity board has admitted that it will not be able to find a market. Having invested in that capacity, hon. Members should address the way in which we can ensure, that it is used to the maximum benefit for both the Scottish consumer and the British taxpayer. Closing a station does not seem to give the maximum benefit for the money invested.

I accept that having reached our present position—I do not think that we should have got here—we are left with the problem of excess capacity. All that I am suggesting is that that course of action should be examined because there is no possibility of securing the future of the coal industry in Scotland, about which the hon. Member for Clydesdale (Mr. Hood) is so legitimately concerned, if we have massive excess capacity. If Torness turns out to be the SSEB's cheapest investment, the SSEB might argue left to its own devices, that having made that investment, it might well choose to close the coal capacity and substitute Torness. There is therefore an argument that taking Torness out of the equation would help to create the balance that would ensure the coal industry's future.

Mr. Deputy Speaker

Order. I hope that the hon. Gentleman will not pursue that point too far because we are going further and further away from the substance of new clause 6.

Mr. Bruce

I am grateful to you for putting me on the right track, Mr. Deputy Speaker. However, I hope that you will accept that costs relating to the continuing nuclear power industry are relevant to this new clause because the way in which those costs can be absorbed so as not to disadvantage the Scottish consumer is a point of real interest. The Government's new clause gives me cause for concern, because it means that, regardless of the commercial judgment of the successor companies, Scottish consumers will have to pay more and more towards the cost of servicing that excess capacity. That will be particularly true if we fail to find a market for it and I have not met many people who have confidence that we shall secure such a market.

It seems extraordinary that we should continue to fund the nuclear industry in Scotland and close a nuclear power station at a time when the Central Electricity Generating Board is applying for planning permission to build up to four more nuclear power stations. If there is a requirement for nuclear capacity to meet the non-fossil fuel argument —leaving aside the merits and demerits of that argument —surely the sensible thing is to ensure that before we build new power stations we organise the existing capacity to ensure that it is fully utilised. To close power stations—

Mr. Deputy Speaker

Order. The hon. Gentleman may be pre-empting a debate that is yet to come.

Mr. Bruce

I accept that constraint, Mr. Deputy Speaker, and shall be happy to raise the matter later in the debate.

When the Minister replies I hope that he will have taken on board the fact that suggesting that this is a technical amendment is not good enough. The question that the Minister must answer is, if the nuclear subsidiary is to receive, as of right, funding from its parent companies, which is what they will be post-privatisation, will that funding simply be the transfer of funds provided by the taxpayer through the provisions of what will then be the Electricity Act, or will they be funds over and above those funds, which can then be recovered from the consumer in the form of increased prices?

The Minister must accept that two sources of funds are provided for. One is the ability of the industry to raise revenue and the other is the up to £6 billion that has been provided from taxpayers towards the cost of what is the substantially nuclear debt of writing off the nuclear decommissioning costs.

In response to the hon. Member for Carrick, Cumnock and Doon Valley, the Minister has already suggested that decommissioning is included in the provision of Hunterston A. If that is the case, we are entitled to know how much of that cost will be met by the taxpayer and how much will be borne by Scottish consumers. If that is not made clear, the new clause will seem to be about securing additional charges on the Scottish consumer towards the cost of the nuclear industry on top of what the taxpayer will have to invest. That might put a rather different complexion on the intervention made by my hon. Friend the Member for Caithness and Sutherland (Mr. Maclennan) that the early investment in nuclear power may well have been beneficial to the consumer but from now on the Scottish consumer may find that he is paying through the nose. I should be grateful if the Minister could tell us exactly what the new clause means in that context.

Mr. Alexander Eadie (Midlothian)

I am not as blasé about the cost structure of nuclear power or about its great advantages as the hon. Member for Gordon (Mr. Bruce). As you rightly said, Mr. Deputy Speaker, there is room for a debate so that we can get all the facts, figures and consequences of that. I repeat that I am not blasé about the great benefits—

Mr. Malcolm Bruce

Nor am I.

Mr. Eadie

Well, the hon. Gentleman appeared to be blasé in his speech. However, as you, Mr. Deputy Speaker, pointed out, the hon. Gentleman will have his opportunity later.

As my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) said, the new clause affords us the opportunity to talk about the question of commercial judgment. Taxpayers' money is involved and we want some guidance and explanation from the Minister. When we are talking about commercial judgment we have great difficulty in even getting the Minister or his right hon. Friend the Secretary of State to come to the Dispatch Box to explain what is happening on coal burn in Scotland.

My hon. Friend the Member for Garscadden said that he thought that this debate would give the Minister the opportunity to give some information to the House about what is happening on the so-called agreement or understanding reached between the South of Scotland electricity board and British Coal. There can be no argument about it: the Secretary of State and his hon. Friends are responsible for the South of Scotland electricity board and for all the costs that are likely to be involved and, as my hon. Friend pointed out, billions rather than millions of pounds are involved in relation to SSEB debt. Commercial judgment must enter discussions about coal burn.

The Standing Orders would not permit me to go into all the details and arguments in favour of a greater coal industry in proportion to the nuclear power industry in Scotland. I hope that the Minister will not try to argue that nuclear power is much cheaper than coal. We have the figures: that argument is finished. It is now recognised that nuclear power is more expensive than coal. The Minister will probably argue that there are good, sound environmental reasons for nuclear power. We will later have an opportunity to challenge that argument.

Opposition Members are trying to extract from the Minister some information about what is happening to the coal burn agreement. He cannot stand back and say that it is a matter for commercial judgment, then put down a new clause involving not millions but billions of pounds, and ask the House to agree. We are entitled to an explanation. What is the agreement? How many millions of tonnes of coal are involved for the Scottish coal industry? As my hon. Friend the Member for Garscadden said, we want also to know what it involves in respect of opencast and deep mining.

I have a vested interest in the matter. There are two pits in my constituency. I hear of all the financial problems of the SSEB. A press release by British Coal states that it will not be 3.5 million tonnes and that it may be 2 million tonnes of coal. We want to know how much will be opencast and how much will be deep mined.

Mr. Deputy Speaker

Order. I hesitate to interrupt the hon. Gentleman, but I hope that he will not go too far down that road. The new clause specifically deals with funding relating to nuclear power stations.

Mr. Eadie

Thank you for your guidance, Mr. Deputy Speaker. However, as we are talking about moneys, and as the Scottish Office talked about exercising commercial judgment, Opposition Members have a right to challenge the Government's commercial judgment in introducing this new clause which, by implication, means that they will be responsible for solving the SSEB's debt to the extent of billions of pounds. We were told that there were problems with the financing of British Coal, so we are entitled to question the Minister on how he can reconcile the commercial jugdments that he talked about with his proposal to solve the SSEB's debt to the extent of several billions of pounds.

The Secretary of State for Energy has been more forthcoming than the Scottish Office Minister. I give due credit to the right hon. Gentleman. He tried to be helpful, but I cannot say that about the Minister who is to reply to the debate. Like a parrot, he repeated that it is a matter for commercial judgment. As moneys are involved and as we are talking about commercial judgment and the commercial viability of the SSEB, we are entitled to hear the Minister explain the implications.

I should love to debate the matter in greater detail, but I do not want to stray too far. We are talking about moneys and the deep-mine coal industry and their implications in relation to the debt. I hope that the Minister will let us know what the coal burn really is and what the present stage of the negotiations is. He cannot say that he does not know. He has been in close contact with it and has said that he is responsible for the SSEB. He must know what is happening. The Minister's reply will be closely scrutinised by my hon. Friends. In deference to you, Mr. Deputy Speaker, I leave it at that, but we want information, and information we must get this evening.

Mr. Foulkes

I am not too sure how knowledgeable you are about the geography of Scotland, Mr. Deputy Speaker, but in case you are not fully aware, the Minister—

Mr. Deputy Speaker

Order. I inform the hon. Gentleman that I spent 18 months at royal naval air station Abbotsinch, HMS Sanderling at the end of the war.

5.45 pm

Mr. Foulkes

I am grateful for that information, Mr. Deputy Speaker. You will be fully aware that the Minister, the hon. Member for Galloway and Upper Nithsdale (Mr. Lang), represents a constituency which is contiguous with mine, Carrick, Cumnock and Doon Valley. The name of his constituency is almost as unwieldy as mine, but his constituency is equally as beautiful. We know him well, not only in the House but in the south-west of Scotland. When we think about the Minister, the two words that most commonly reach our lips are —

Mr. Brian Wilson (Cunninghame, North)

Small majority.

Mr. Foulkes

No, not "small majority" but "smooth" and "bland". I am sure that you will agree, Mr. Deputy Speaker, that the Minister was very smooth and particularly bland in introducing the amendment in his usual low voice, quickly glossing over what he described as technicalities. As my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) and I said, and as even the proportionally represented hon. Member for Gordon (Mr. Bruce) agreed—that is quite a spectrum of opinion to start with—the amendment has some substantial implications, and I wish to ask a few questions about them.

First, as the Minister said, the prime purpose is to ensure that the parent company cannot escape the liabilities of the subsidiary. But what about the other way round? I hope that the Minister will answer that question. New clause 6 seems to demonstrate that some aspects of the licence conditions are not intended to apply to subsidiary companies. For example, apart from generation and supply, licence conditions could be avoided by using a subsidiary company to perform certain tasks. I hope that the Minister will check that. If that were to be the case, it would be a worrying loophole, and I hope that the Minister will consider doing something about it. If there is no loophole, I hope that he will give an assurance to that effect.

Mr. Lang

I shall deal with that specific point now in a way which I hope will reassure the hon. Gentleman. If he reads the new clause, he will find that it is concerned solely with the activities of nuclear generating companies.

Mr. Foulkes

I am grateful for the Ministers intervention, but I am not totally reassured by it. There are still activities in which nuclear generating companies will be involved. By allocating tasks to a subsidiary company, the supply and generating companies could avoid their legal liability.

That is not a party political point. Therefore, it is in the public interest for hon. Members to be assured that the provision is watertight. I hope that the Minister will consider that.

Secondly, nuclear costs are a major matter. There is still uncertainty about nuclear debt, and there are provisions for write-off. We are suspicious about the position in Scotland. The huge, almost entirely nuclear, debt in Scotland of £2.7 billion is almost exactly the equivalent of what the Government might expect to get from the floatation of the companies. Therefore, there is a major incentive for the Government to use taxpayers' money to write off the debt. As usual in respect of privatisations, we are concerned about that matter. It is an abuse of taxpayers' money.

Opposition Members are concerned also about the other costs which, in the past and even at present, have been greatly underestimated. I refer to the two additional nuclear costs. One is the disposal of the waste and the second is the decommissioning of the power stations which are vital and central to the amendment.

I know that my hon. Friend the Member for Cunninghame, North (Mr. 'Wilson) has a particular constituency interest in the closure of Hunterston A and will in no way trespass on his responsibility. I know that he is deeply concerned about employment in his constituency and the implications of its proposed closure. Some of my constituents work at Hunterston, so I share his concern. However, I have been suspicious about the entire episode. I shall use the phrase of the singer Max Bygraves, "I wanna tell you a story", about Hunterston A.

Mr. John Home Robertson (East Lothian)

Will my hon. Friend sing it?

Mr. Foulkes

No, I certainly will not sing it. That would empty the Chamber even further.

I am sure that my hon. Friend the Member for Cunninghame, North, as I do, receives weekly reports from the South of Scotland electricity board about the operation of Hunterston A and Hunterston B. Those reports tell us who is visiting, who has had slide shows, and what incidents there have been. I must confess that they are scrupulous in defining and giving information about incidents that have taken place. Those weekly reports were telling the success story of Hunterston A—how well it was doing, how efficient and marvellous it was, and what a long-term future it had. Then suddenly there was an announcement that the SSEB was to close it.

I waited then with anticipation for the next weekly report from the SSEB. Of course, it was a model of careful writing and one had to read between the lines to get to the truth. It was probably written by my old friend Tom James. Clearly, the stated reason for the closure of Hunterston A had nothing to do with the real reason, which is why I intervened earlier.

I accept completely and unreservedly the Minister's assurance that it is now the Government's intention to say that the costs of the decommissioning of Hunterston A must be taken on by Scottish Nuclear Limited. However, I also know Donald Miller. I have known him over the years as deputy chairman and as chairman. I know his persuasive power and the way he keeps on going. As my hon. Friend the Member for Midlothian (Mr. Eadie) said, he is like a tiger on the question of the coal contract with British Coal.

I have discussed with Donald Miller, too, the cost of decommissioning. He said that he believes that the cost of decommissioning is finite, it can be calculated, and that he has made an allowance for it. I confidently predict that he has it wrong. He has underestimated and the cost will be much greater. There has not been a full decommissioning of a Magnox power station in this country or elsewhere, and it must still be decided whether it will be dismantled piece by piece, whether it will be encased in concrete, or what will happen. All the options must be considered.

The cost of dealing with that decommissioning is a major problem. I predict that pressure will be put on the Government to get the taxpayer to take on board some, if not all, of the cost of decommissioning and other costs, too. I hope that the Government will stick to their guns and that it will not be the taxpayer who takes on that responsibility. As privatisation approaches and the Government realise the real cost, they will become increasingly worried about the burden around the necks of the companies soon to be privatised. The only explanation that I can envisage for the early closure of Hunterston A is that the Government are looking for some way of getting that debt taken on by the taxpayer and not taken on by the future private company.

My second point concerns the site at Chapeldonan in my constituency, which is a designated site that has been owned by the SSEB for more than a decade. The SSEB has said that it will build a nuclear power station there. It is a blight on the area around Girvan. At Girvan the development of the town is constrained on the west side by the sea and on the south and east sides by hills. The only place where housing and industry can be developed is to the north, but that site is owned by the SSEB and has been reserved for a nuclear power station. Over the past few years, Kyle and Carrick district council and myself as the local Member of Parliament—

Mr. Home Robertson

And Councillor Struan Stevenson.

Mr. Foulkes

As my hon. Friend said, Councillor Struan Stevenson, the ex-leader of the Conservative group on Kyle and Carrick district council, as well as the Labour councillors, have been anxious to get the SSEB to declare Chapeldonan surplus to requirements. It will not need another nuclear power station. The hon. Member for Gordon and my hon. Friend the Member for East Lothian (Mr. Home Robertson) know that Torness power station was not needed and that it provided capacity well in excess of demand. It will certainly not need Chapeldonan.

What I do not understand from the new clause is who will take over the ownership of the Chapeldonan site if it is not sold before privatisation. Will it be the SSEB, the new privatised company, or will it be its subsidiary? [Interruption.] The more my hon. Friend the Member for Glasgow, Pollok (Mr. Dunnachie) waves his finger, the longer I will take, because it distracts me. Or will ownership be taken over by Scottish Nuclear Limited?

That is an important issue and that is the reason why I wrote to Donald Miller at the SSEB saying that the only advantage of privatisation—it sticks in my gullet a little to say this—is that it has made the people who are generating and will generate power look seriously at the costs. My hon. Friend the Member for Midlothian has said that nuclear power is not cheap, as the Government previously pretended—it is more expensive—and they have now realised that. I hope that we shall reach the stage when the SSEB will say that the Chapeldonan site is no longer required and that it can be sold and used for much needed industry and housing developments in the Girvan area.

My fourth and penultimate point—

Mr. Wilson

My hon. Friend has missed the third point.

Mr. Foulkes

My third point was Chapeldonan. If my hon. Friend were able to count, I am sure that he would know that.

My fourth point is that Chapelcross near Annan is an anomaly. The Minister said that the legislation applies to power generation in Scotland, but in Chapelcross there will be the anomaly of a nuclear power station based in Scotland, but providing electricity for an electricity supply company based in England. I am not sure how the provisions of the new clause and some of the other Scottish provisions in the Bill will apply to that situation. Will they apply to the siting of the establishment or the siting of the company that owns and operates that establishment? The question of cross-border relationships is an important one.

What is interesting is that the SSEB suddenly decides to close Hunterston and that British Nuclear Fuels plc decides to replace Chapelcross. One begins to suspect in those circumstances that many strange things are going on and that other factors are involved, as I have already shown in the case of Hunterston. It is also interesting to consider the other factors relating to Chapelcross, such as the pressures arising from the requirement for the supply of plutonium for weapons as opposed to power generation. Tritium is also provided at the related plant at Chapelcross and there is intense pressure on Chapelcross because of America's shortage of tritium and the relative shortage of plutonium.

Those of us who live in the south-west of Scotland are a bit fed up as we are becoming surrounded by nuclear establishments which are of no benefit to the local inhabitants, including the Minister of State, who lives not far from me. Those establishments are creating additional hazards and problems for us.

6 pm

I am concerned about the Bill in general. I appreciate that the new clause is a belated attempt by the Government to patch up some of the difficulties, but it creates further difficulties. Today I have highlighted my suspicions and worries. I hope that the Minister will take the opportunity of this important debate to try to answer some of our concerns; otherwise we shall seek more occasions in the next few days, weeks and months to pursue our concerns until we get the answers, which are especially needed by the people of south-west Scotland.

Mr. Home Robertson

I share the views expressed by my hon. Friends the Members for Carrick, Cumnock and Doon Valley (Mr. Foulkes) and for Midlothian (Mr. Eadie) about the tough practices of the present chairman of the South of Scotland electricity board. Some might say that the chairman has used sharp practices to manage that board. It is tempting to consider that a privatised SSEB could not possibly behave as badly as the present board. One could cite a number of examples of such behaviour, such as the way in which the board has handled the coal contract. In my constituency we have the bizarre situation in which large quantities of coal, which have been shipped halfway around the world from China, are being burnt at Cockenzie power station when the necessary coal to feed the grid could easily be mined from the Scottish coalfields.

I wonder whether the nuclear subsidiaries will enjoy the same facilities as the present SSEB and get a year's holiday from the rates? The Minister will be aware of my correspondence with him about how the SSEB has managed to take advantage of the rather curious provisions dealing with the rating of public utilities. On 25 May 1988 in one of the famous press releases to which my hon. Friend the Member for Carrick, Cumnock and Doon Valley has drawn attention, the SSEB claimed credit for contributing electricity to the grid from Torness in my constituency. In July 1988 it confirmed that it was putting 682 MW into the national grid. On 1 October 1988, however, the SSEB signed a certificate and submitted it to the assessor of public utilities in Scotland to say that it was generating nil at Torness, and hey presto—that ensured that it avoided paying more than £1 million in rates for the coming year. That is one way to fix the books in preparation for the privatised regime.

Much has been said about the fact that Scotland has a substantial excess of generating capacity over its peak demand and it is relevant to understand the background to that. I am acutely aware of that extra capacity because it has arisen since the construction of Torness nuclear power station in my constituency. When the decision was taken to go ahead with the construction of that nuclear power station there were many predictions of increased demand for electricity. There was also a general acceptance of the bland assurances given over the years that nothing could go wrong at nuclear power stations. Since then, one or two accidents have raised doubts about their safety record. Of greater significance to this debate is our experience of 10 years of a Government who have run down British industry and reduced the demand for energy despite the fact that we have the capacity to produce energy efficiently in Scotland.

A graphic example of the rundown of industry was the closure of the Invergordon aluminium smelter. I understand that we now import more aluminium than Invergordon could ever have produced, but in allowing that smelter to close down the Government wrote off one part of the Hunterston power station. That is a curious way to manage our economy and our long-term energy policy.

Nuclear installations function in my constituency and in that of my hon. Friend the Member for Cunninghame, North (Mr. Wilson) and there is widespread public concern that those power stations must be run efficiently and safely. That concern will run through this debate.

Much has been said about the cost of decommissioning nuclear power stations, but we should also consider the obvious additional costs of running nuclear power stations to the high standards to which it is imperative that they keep if we are to avoid the sort of accidents that have occurred abroad and, indeed, in Britain. Apart from the ongoing cost of running a power station and the cost of decommissioning such a station, there is also the cost of insuring against accidents at nuclear power stations.

Perhaps the Minister will say what provision has been made for insuring the operators of nuclear power stations in Scotland against the consequences of accidents, large or small. Will the parent company or the subsidiary company be able to indemnify people who may be affected by the emission of radioactive material or as a result of a serious accident at a nuclear power station? The House will not be surprised to discover that that is a matter of considerable concern to my constituents in the Torness area following what happened at Windscale in 1957, at Three Mile Island and, more recently, at Chernobyl. Things can go wrong and massive disruption and massive costs can result.

It would be useful if the Minister could tell us how the operators of the nuclear power stations under the new regime will be able to ensure that such costs can be met in all circumstances. Will the Government insist that the operators idemnify the people affected?

Mr. Alex Salmond (Banff and Buchan)

In the light of all that we now know about the development of the Torness power station, does the hon. Gentleman regret his original support for the project?

Mr. Home Robertson

Frankly, yes. In recent years I have put that on record several times. At the time when the decision was taken to construct Torness nuclear power station, there was increasing demand for electricity, there were credible forecasts of a need for a new generating capacity in Scotland and evidence was not publicly available, as it is now, of the possibility of serious accidents. Be that as it may, however, Torness nuclear power station has been built and commissioned and it would be absurd to try to turn the clock back now.

The people of East Lothian, Cunninghame, where Hunterston is located, and throughout Scotland are fighting to ensure that in the future the generating plants are operated safely to the highest possible standards. We must also ensure that we have the right economic climate to enable us to take advantage of the power potential in Scotland, whether that means the oil industry, the coal industry, hydro-electric power or nuclear power. Scotland has the capacity to be the power house not only for its own economy, but for the entire United Kingdom. What we require from the Government is the framework to make that possible.

Mr. David Winnick (Walsall, North)

On a point of order, Mr. Deputy Speaker. Will there be a statement about Sir Leon Brittan who, when interviewed for television, stated that the then Solicitor-General's letter was leaked on the express approval and authority of the Prime Minister's private secretary and press secretary, Mr. Bernard Ingham? There seems to be a contradiction between what the Prime Minister told the House and what Sir Leon Brittan has said on record. The integrity of the Prime Minister is at stake—

Mr. Deputy Speaker

Order. The hon. Gentleman has gone far enough. I have heard of no request for permission to make a statement to the House on that or any other matter.

Mr. Wilson

I should have been quite happy for my hon. Friend the Member for Walsall, North (Mr. Winnick) to proceed. I am sure that it would be gratifying for all Opposition Members if, at last, the chickens were coming home to roost for the Prime Minister's men. As far as the Prime Minister's Scottish men are concerned, once again we are having an important Scottish debate without the presence of one solitary Scottish Tory Member other than the Minister.

I do not wish to extend this debate long as it has already continued for longer than most of us expected. Although I am speaking from the Dispatch Box, the point that I wish to dwell on, while highly relevant to the new clause, relates particularly to a constituency issue of my own, to which reference has frequently been made in the debate—the proposed closure of Hunterston A nuclear power station in my constituency.

It is worth noting that the SSEB, in framing its announcement, was careful to talk of the "possible" closure of Hunterston A nuclear station, which is of the Magnox design and has been in operation for the past 25 years. I cannot help feeling—particularly when I look at the new clause—that Hunterston A and, by definition, the people who work there are caught up in a fairly high-powered game of poker in which the stakes played for are intricately involved with the privatisation of the electricity industry and what is to be done with the nuclear content. That is objectionable. The record of Hunterston A is second to none—it is the most efficient of the United Kingdom's Magnox stations. The record of its work force is also second to none, having given extremely loyal and diligent service for the past 25 years. I recently visited the Hunterston A station and was given absolutely no clue of any proposal to close it.

My hon. Friend the Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) was absolutely right—the announcement was completely unexpected. I believe, as does the work force, that the station is but a pawn in the privatisation game, the outcome of which is not yet known. The real reason for Hunterston's closure, we are led to believe, is the increase in its operating costs, due particularly to British Nuclear Fuels' imposition of higher charges for the reprocessing of spent fuel.

6.15 pm

The Minister, in his bland way, said that this was a technical matter and had nothing to do with the substance of electricity privatisation, but he has an obligation to say what considerations will be involved in the technical announcement contained in the new clause. The financial sums involved are truly enormous. The decommissioning of Hunterston A will probably cost about £250 million to £300 million. Despite the questions that have been posed and partially answered in this debate, I still want a clear-cut statement from the Minister when he sums up about who will carry the costs of the decommissioning and about the relationship between the timing of the announcement of the possible closure of Hunterston A and the passage of the Bill through the House.

The logical consequences of the position of Hunterston A go far beyond that station and my constituency. As we understand it, the SSEB's concern, as a result of the high costs being charged by BNFL, is not primarily with Hunterston A but with the two advanced gas-cooled reactor stations, Hunterston B and Torness. As my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) pointed out, it appears from the evidence given to the Select Committee on Energy that the SSEB and its successor may be tied to a contract with BNFL which would impose exactly the same cost disadvantages on Hunterston B and Torness as those which led to the threatened premature closure of Hunterston A.

The Minister must say, within the context of new clause 6, whether the costs of decommissioning Hunterston B and Torness on account of a high-cost regime operated by BNFL can also be expected. He should say whether the story in The Scotsman of 8 March was founded in fact. Under an exclusive label, Chris McLaughlin reported that the tentative agreement reached between the SSEB and the Scottish Office was partly based on a review of the contracts that will govern the future relationship, after privatisation, with British Nuclear Fuels plc. Has a deal been made between the Government and BNFL on the relationship between the SSEB's successor and that company or is it possible, as predicted in the "Power in Europe" article published in the Financial Times, that continuing cost burdens will be imposed on Hunterston B and Torness in the form of high charges imposed by BNFL?

The Minister has a good opportunity today to take this matter out of the realms of journalistic theorising, leaked exclusives or the word of a "senior Scottish Office source" and give the House a definitive statement about the position. I need hardly say that the future of Hunterston B power station is of immense importance. It is of even greater importance to my constituency and that part of Scotland than Hunterston A, which may close within the next few years. As the Minister said earlier, we are talking about a decommissioning process which will continue for at least 100 years—150 years has been suggested to me as the time scale involved before the core reactor can be removed from the Hunterston A site. We are talking about a time far into the future, and about continuing costs and implications for the communities around Hunterston A.

I was surprised and disappointed that the announcement of this possible prospective closure should have come so unexpectedly, without rehearsal and with minimal notice to the work force and, so far, with so little information about the implications being given to the communities around Hunterston A. I want the relevant questions to be answered tonight. It is not good enough for the Minister to say that this is merely a technical clause. It carries on its back substantial financial and practical implications for Hunterston A in my constituency, for nuclear generation in Scotland and for electrical generation throughout Scotland. The Minister should take this opportunity to give us some answers.

Mr. Lang

On the small peg of this technical new clause it has been possible to hang quite a wide-ranging debate on the Scottish electricity industry, particularly in the context of nuclear energy, and I make no complaint about that. It has been a useful debate, in which a number of valid points have been made, with which I shall try to deal. One or two of the looser points may, of course, be picked up in our later debate.

I will refer first to a group of points which may be characterised as involving financial aspects such as debt and write-off, to which the hon. Member for Glasgow, Garscadden (Mr. Dewar) and others have referred. Listening to the hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes), I was struck by the feeling that when we talk about debt some Opposition Members seem automatically to think that we are talking about something disastrous and unsatisfactory which is the result of incompetence, profligacy or some kind of rake's progress arising from unprofitable trading. In fact, we are talking about debt that has been incurred deliberately for a specific purpose, is being re-serviced and will be repaid. Such debt is to provide for investment, and it is investment in assets that has put the Scottish industry in such a strong position as it faces up to privatisation.

It clearly makes sense for the successor companies to have continued access to the national loans fund while they are still wholly owned by the Crown in the period leading up to flotation. The current limit of £3 billion on the boards' borrowings will be maintained. The two Scottish boards currently have debts of around £2.8 billion, arising from successive investments in new plant, most recently at Torness. About £2.3 billion of the debt is incurred by the SSEB and about £500 million by the north board. That investment puts the industry in Scotland in a strong, healthy position to move into the private sector, and removes uncertainty about its prospects.

The hon. Member for Garscadden asked about the European Investment Bank borrowings and other debts. Those loans will be redeemed and converted into national loans fund debt, available at a rate of interest more attractive than from commercial sources. I expect the industry to be no worse off as a result in terms of the interest burden prior to capital restructuring.

We shall first establish the Scottish nuclear company on a wholly equity-funded basis in the ownership of the two Scottish electricity companies. We shall then go to establish an appropriate capital structure for those two plcs by converting some national loans fund debt into Government equity in the form of share capital and reserves. The rest will be converted into debentures. Such capital restructuring is an established business practice and will result in a combination of debentures, issued share capital and reserves which will replace the Scottish industry's extinguished liabilities pound for pound in the companies' books. In the meantime, the Government will continue to fund the industry's requirements for capital from the national loans fund.

We shall go on to dispose, on flotation, of part or all of the Government's equity by selling shares in the Scottish electricity companies. The amount that we obtain in proceeds will depend on market conditions at the time, and may or may not cover the nominal value of shareholders' funds invested in the business. What is important is that the shares on flotation are successfully marketed at a price above their nominal value. We shall choose the capital structure best calculated to maximise returns to the Exchequer and hence to the taxpayer.

Debt will not be written off in the sense of obliteration. Here I repeat a point that was discussed more than once in Committee—this measure will not discharge the obligation to repay. It is not like a bankruptcy or liquidation, in which payment is made in the form of only a few pence in the pound. In the establishment of the capital structure of the companies prior to flotation, debt will be replaced by a mixture of debt and equity geared to market requirements. The sums owed to the NLF will be replaced pound for pound by debentures, share capital and reserves.

The hon. Members for Garscadden and for Gordon (Mr. Bruce), and one or two others, asked whether the cost of decommissioning nuclear stations would be paid for by the consumer or by the taxpayer. I consider it entirely appropriate for the customers to pay the knows costs of generation, whether nuclear or otherwise, as they have already done in relation to Hunterston A, and the SSEB has made provisions for decommissioning and for waste disposal.

We recognise, of course, that long-term changes in costs should not be met in full by future consumers. That is why clause 90 and schedule 12 allow a Government contribution. We have consulted closely with Donald Miller and his colleagues in the nuclear industry about uncertainties associated with some aspects of nuclear back-end costs, and the concerns to which they may give rise following privatisation. The powers that we have taken in clause 90 and schedule 12 have been drafted in the light of those consultations and are designed specifically to provide a framework to meet those concerns. The chairman of the SSEB shares my confidence that the Scottish industry, including its substantial nuclear assets, can look forward to a bright commercial future. He has been closely involved in discussion of the proposals, and has recently indicated his satisfaction with the progress of negotiations, although clearly a number of points of detail remain to be resolved.

Mr. Dewar

Is the Minister saying that since the original consultation which led to the drafting of the Bill no further reassurances, agreements or guarantees have been given that are unknown to the House? Is he saying that there is nothing in the reports that have appeared in The Scotsman about further reassurances and undertakings on what he elegantly calls "back-end costs"?

Mr. Lang

I think that I can reassure the hon. Gentleman. We have continuing contacts at both official and, occasionally, ministerial level with the chairmen of both the north and the south hoards. I had a meeting with both chairmen only last Friday, when they signed the agreement to replace the joint generation agreement. There has, however, been no secret deal, no special patched-up arrangement, that has not been made plain to the House or provided for in the Bill. Clause 90—which I seem to recall was clause 88 in an earlier version—has been in the Bill since its inception. Any suggestion of a private arrangement or hidden agenda is entirely misplaced.

Like the nuclear industry in the south, the Scottish industry already makes substantial provisions for decommissioning, waste disposal and other anticipated costs. At present, the SSEB has some £764 million provided for in that context and further provision of about £58 million for short-term debts. It is significant that last year it was able to adapt without great difficulty to the changes resulting from Chapelcross and the increased costs that that brought, as well as the costs arising from a change in the reprocessing charges of BNFL.

The powers in the Bill provide a backstop whereby the Government can meet unexpected, uncontrollable and substantial cost escalations arising well after the relevant electricity has been consumed, which might impose an unwarranted burden on the industry's future. It is, however, the industry's responsibility to meet the full known costs of nuclear generation and to make appropriate recovery from today's consumers.

Mr. Wilson

I am sure that the Minister is as anxious as we are to get this firmly on the record. I quote again the report in The Scotsman of 8 March: Neither side was prepared to reveal details of the talks, but the key element is understood to be assurances on the contracts which fix ceiling levels on the amount of any unforeseen rises in nuclear costs and in the contracts which will govern the relationship after privatisation with British Nuclear Fuels Limited. Is that true or false?

Mr. Lang

I am not answerable for what appears in The Scotsman. I am sure that Opposition Members find stories in The Scotsman with which they are familiar, and which they consider as inaccurate as some of the stories that I quote from that paper.

As I have said, the chairmen of the boards are in regular touch with our officials, and from time to time with Ministers. Matters concerning the boards are discussed, clarified and resolved. There has been no separate, secret deal or special arrangement—of the kind suggested by The Scotsman—in our negotiations. There has been nothing of that sort which is not already known by the House.

The hon. Member for East Lothian (Mr. Home Robertson) raised the subject of insurance. The industry makes provision for self-insurance against material damage—for example, to its stations—through its mutually owned subsidiary. On third party risk cover against accidents, the industry is required to insure itself for liabilities up to a certain level, which could obviously vary in the light of changing circumstances. Beyond that, under the nuclear legislation, the Government are liable up to a further threshold, and beyond that there is the possibility that Parliament could be asked to grant further cover and indemnity if that were considered necessary. The arrangement is similar to those prevailing throughout Europe and in the United States.

The hon. Member for Carrick, Cumnock and Doon Valley referred to Chapeldonan, and I understand his constituency interest in that location. Whether or not the next power station in the SSEB's area will be nuclear and, if so, when it will be built obviously depends on future growth and demand and on the relative costs of nuclear and other fuels. I think that it is a point of universal agreement—perhaps one of the few points of universal agreement—that at present there is very substantial over-capacity in the industry in Scotland. The building of another nuclear station in the immediate future, or even in the next few years, therefore seems unlikely.

6.30 pm

Identification of suitable sites for possible future power station development is a matter for the SSEB, and the Government have no power to instruct the board on its holding of land. In fact, the SSEB was unsuccessful in discussions to acquire land at Hunterston from the BSC, and, for the time being at least, that land is ruled out as a possible future site. The board intends to retain the land at Chapeldonan as a strategic option for possible future use. Its judgment is that surrendering the site could prejudice the future provision of economically priced electricity in Scotland. On the other hand, it has made it clear that, given changing circumstances, it would be willing to consider seriously any sympathetic development that might be proposed.

Mr. Foulkes

Surely the Minister agrees that this cannot go on for ever, that at some point the Government must decide whether a power station should be built or whether the land should be released for other purposes. The area is blighted, so no one will come forward with specific suggestions for development. Surely Ministers have an overriding responsibility to say to the electricity board, "Make up your mind—if you do not intend to use the land within the next five years, or even the next decade, you must release it for other purposes." Will the Minister give serious consideration to that suggestion?

Mr. Lang

It would be a mistake to put pressure on the company to make a decision. A decision taken too soon, under pressure of that kind, could be the wrong one. I think that the hon. Gentleman exaggerates the relevance and importance of the site to Girvan. It is an important and useful site, but it is not the only one available for the kind of development that the hon. Gentleman has in mind. Moreover, the board has said that, given changing circumstances, it would look sympathetically at the possibility of considering specific proposals put to it.

I was distinctly puzzled by some of the remarks of the hon. Member for Gordon (Mr. Bruce)—specifically, his reference to the profligate extravagance that had gone into the building and commissioning of Torness. As the decision to go ahead with Torness was one of the few valuable outcomes of the Lib-Lab pact, the hon. Gentleman must be castigating his own party as much as anyone else. I agree with him that Scotland has substantial excess capacity. One might argue about whether it is 110 per cent. or less, but I suggest that it is the result of nationalised industry planning and that once the industry is returned to the private sector we may look forward to a more positive and efficient planning approach and the avoidance of that kind of situation.

Mr. Malcolm Bruce

I wish to refer to a consumer point which was raised earlier. The Minister made no reference either to the Director General of Electricity Supply or to the shareholders of privatised companies. May we have an assurance that in the private sector the industry will take account of legitimate risks taken by the shareholders and that the companies will not be given carte blanche to pass on to the consumer the cost of their mistakes? The director general might well say, "You made a commercial decision and you made a mistake, so your shareholders and not the consumer must take the risk."

Mr. Lang

The hon. Gentleman is complaining of precisely the situation that we have now. Every wrong decision taken by every electricity board or company in the past few years has been passed on and is being borne by the consumers, and quite a lot of mistakes have been made. Under the regulation arrangements and the activities of the director general, there will be a far more disciplined and competitively oriented approach, which will lead to a more efficient appraisal of the need for the commissioning of new power stations.

The hon. Gentleman's comparison between Hunterston A and Torness seemed to me to be wholly misplaced. I shall come in a moment to his specific point. At this stage, I should say that the proposition that Hunterston A should somehow have been kept open and that Torness should not have been built is extraordinary. Hunterston A is a very much smaller power station. It is now coming towards the end of its commercial life. It is reaching a stage where the economic considerations are becoming paramount. That is why closure was considered. The loss of generating capacity resulting from the closure of Hunterston A will be taken up by Torness not just on its normal design rating output, but on its higher-thannormal design rating output—in other words, because it is working more efficiently than the original design anticipated. The cost of decommissioning Hunterston A, like all the other foreseeable nuclear costs, is already being provided for within the accounts of the industry.

I accept that, from the point of view of the hon. Member for Cunninghame, North (Mr. Wilson), this is a constituency matter of great importance. As the decommissioning process goes ahead, there will clearly be a continuing need for a considerable number of workers. I hope, and expect, that the impact on the unemployment figures in that constituency will not be so substantial as some people fear. Torness, which is coming on stream, will be an efficient, clean and economical way of generating and delivering electricity.

The hon. Member for Caithness and Sutherland (Mr. Maclennan) revealed not only the split within the Social and Liberal Democratic party over nuclear matters, but also the inherent inaccuracy of the posture of the hon. Member for Gordon. The most absurd proposition of all to which the Liberal party and the Scottish National party have subscribed is that Torness should be sold. If that were done, we should be looking forward to an English company owning Torness and selling back to Scottish consumers electricity that had been generated in Scotland. That seems to me to be a quite extraordinary proposition.

I have not yet said anything about coal, which to some Members—indeed, to the whole House—is a matter of very considerable interest and concern. It is of particular concern to the hon. Member for Garscadden and to the hon. Member for Midlothian (Mr. Eadie), who raised the issue of coal burn. As the hon. Gentleman knows, the amount of coal burnt in Scotland for electricity generation is very much smaller than the amount burnt in England. Nevertheless, it seemed to my right hon. and learned Friend the Secretary of State for Scotland, and indeed to my right hon. Friend the Secretary of State for Energy, that a solution to the negotiations between the coal board and the South of Scotland electricity board could be achieved0—a solution that would secure, in Scotland, the use of coal in substantial quantities for a considerable period.

As a result of the commercial negotiations between those two bodies, agreement has been reached on quantity and duration—2 million tonnes per year—but not yet on price. Price is an important component of any agreement, but we have made considerable progress in those negotiations. Of course, the duration of the contract is linked with the interconnector, which we may have an opportunity to debate further on the next group of amendments. I emphasise that the negotiations must be between the two boards, and must be conducted in a commercial manner. Only in that way can the best interests of the consumer be served.

As to whether the coal is to be opencast or deep-mined, that too must be a matter for the boards. At present something like half, or even more than half, of the coal mined in Scotland is open cast. That enables British Coal to sell more coal at a more competitive rate. The interests of the consumer and the interests of the industry in Scotland have to be taken very seriously into account. It would be quite wrong to force on British Coal and on the electricity board a solution based on coal priced higher than was necessary simply because it was all deep mined.

Mr. Eadie

I want to be perfectly clear about what the Minister is telling the House. In the course of his reply, he talked about commercial judgment and a commercial decision between the two parties. He said earlier that he and his right hon. and learned Friend the Secretary of State felt that there should be some sort of agreement and understanding. Is he saying that an agreement has been reached, but that some details have yet to be filled in and that the matter will be settled in the boardroom rather than in the courts? Can the Minister give the House an assurance on that point?

Mr. Lang

I cannot give the hon. Gentleman an assurance that matters will be settled in the boardroom rather than in the courts, since it is essentially a matter for the coal board and the electricity board. I am saying that progress has been made and that agreement has been reached on two important components of any deal. I hope very much—I believe that it is possible—that agreement will be reached on the third component. Certainly the pressure of the deadline of 31 March has now been lifted.

We have had a wide-ranging debate, hung on the peg of a narrow and essentially technical new clause. I was reassured that during the debate there was no criticism of the structure of the new clause, and I commend it to the House.

Question put and agreed to.

Clause read a Second time, and added to the Bill.