§ 3.47 p.m.
§ The MINISTER of STATE, DEPARTMENT of ENERGY (Lord Balogh)
My Lords, I beg to move that this Bill be now read a second time. Before I embark on my more difficult task, may I join all those who have expressed great regret at the news of the resignation of the noble Lord, Lord Hughes, as a Minister, although I am quite sure that we shall have his sage advice from time to time from the Back Benches, backed by his own authority which is perhaps even greater than that of the Government. In particular, I owe him an immense debt of gratitude for redeeming my opening speeches by his masterly summing-up of debates which were witty and sharp as well as being totally sincere and very kind.
May I also anticipate his contribution to the debate and congratulate my noble friend Lord Kirkhill on his multiple trans-substantiation and assure him that his audience today, at any rate, if not less discriminating certainly will be more benevolent than some of the assemblies which he addresses in the great North. We shall all listen with great interest to what he has to say about the topic of which he has greater first-hand knowledge than the rest of us. We hope to hear him often because he is not really the ultimate arbiter when he speaks, as I know very well from my own horrible experience.
My Lords, if ever the cliche "last but not least" has applied, certainly it can be claimed for this occasion. Here we are at the very last debate of a crowded session, yet the subject of that debate is certainly second to none in importance. In a previous useful discussion in the long and exhausting days and nights in another place, which fortunately I have not had to undergo, the basic principles of this Bill received a thorough going over. I will not weary noble Lords with them now.
1933 On this occasion I should like to stress the large area of agreement which exists between the two sides not only of both Houses but also between the Government and the oil companies. I am sure that noble Lords opposite will do their best to diminish disagreement for the purposes of this debate, but this will not really disquiet us. I quote from the speech of the right honourable Member for Wan-stead and Woodford in another place on 29th July:We agree that the Exchequer should have a proper share of the revenues from the oil and gas. We agree that the Government should exercise proper controls over the operations. We agree that the Government need to have an expert understanding of the workings of the industry.We agree that there must be powers to regulate the rate of depletion. We agree that every effort must be made to press ahead with the development of offshore oil fields and exploring for new reservoirs if we are to achieve and sustain self-sufficiency. We agree, too, that for the foreseeable future, only the oil industry can undertake these immensely complex and difficult tasks.
This Bill is essential to the attainment of many of the objectives I have just quoted. With participation as provided for in this Bill and with the Petroleum Revenue Tax we can tell the oil companies that, so far as this Government are concerned, the book is closed. I hope and trust that the Government and the companies, and all parts of the nation, will now work together to make the new policy a success. I hope more especially that the participation negotiations will be speedily ended and successful. I have never claimed that the discovery of gas and oil in the British Continental Shelf will by itself cure our evils and restore Britain to the rightful place to which her qualities and history entitle her. It will, however, if cleverly used, powerfully contribute to our rehabilitation.
With your Lordships' permission I shall resolutely refrain from looking back to find fault and I hope I shall be more fortunate in inspiring the same spirit in noble Lords opposite than I was on the last occasion. I shall thus try to go in greater detail through the provisions of the Bill, describing where necessary how they are related to the general themes we discussed in the previous 1934 debates. I wish freely to acknowledge the assistance and expertise of the oil companies in helping to improve the Bill in its passage through another place. We have pledged ourselves to undertake extensive consultations with the industry and I think I can honestly claim that we redeemed that pledge handsomely.
By way of introduction I would say only that the Bill has three principal aims. The first is that of greater public involvement in the production of oil and gas from United Kingdom waters. In our last debate I explained at some length why the Government believe that this involvement is necessary. I will repeat now only that every major oil-producing country in the world has embarked on a policy of participation in its oil industry—every such country, that is, except the United States, and even in that country there are many moves in the current Congress towards greater involvement in the oil industry by the Federal Government. I would once more ask your Lordships to see our proposals in this worldwide context and not in the context of our own familiar and rather tedious and inconclusive debates about nationalisation. We are not nationalising the oil industry. What we are doing is to establish a partnership between the State Oil Company and the private sector in existing and future consortia formed to exploit licences.
The second aim of the Bill is that of greater public control over licensees. I hope I do not need to convince your Lordships of the importance of this. I gave some examples in our last debate of the gaps in our present controls. We have no control over the rate of depletion, no requirement for continuing exploration after the first 6 years of a 46-year licence, no adequate power to obtain information or to prevent flaring of gas. No responsible Government could have allowed these gaps to continue and indeed I am glad to see that the Opposition has endorsed the need for new controls which happen to be along the lines proposed in the Bill. I hope therefore that there will be general agreement in the House about this.
My Lords, the third general aim of the Bill is to encourage and facilitate the development of our North Sea resources. There was, quite rightly, much emphasis in our recent debate on the importance 1935 and urgency of getting early and substantial production of our own oil. One or two noble Lords seemed to think that the Government did not share this sense of importance and urgency. Nothing could be further from our thoughts. The right pattern of depletion in the 1980s will require very careful consideration, but there is no doubt that an early and rapid build-up towards production of oil at least equal to our consumption of it is very much in the national interest. The Government have been bending all their efforts to this end, have helped firms in need and will continue to do so. There are important provisions in this Bill which will enable us to do so more effectively. On those, too, I venture to hope that there will be general agreement in this House.
My Lords, perhaps it would now be helpful to the House if I go in more detail through the provisions of the Bill. Part I establishes our State Oil Company, the British National Oil Corporation. It is this body which we intend to acquire the knowledge and expertise needed fully to safeguard national interests and eventually complete national oil exploration and production capability, which, as I said in our earlier debate, we regard as one of the main advantages of participation. The acceptance of the noble Lord, Lord Kearton, of the Chairmanship of the organising committee is an earnest of success. Clearly however the growth of the BNOC must be gradual. Precipitateness would prejudice our aims and the country's interests. We are now negotiating for participation in current licences to 25 companies, and it is through its position as co-licensee and as a member of operating committees that the BNOC will learn the business, and monitor developments. Five companies have already accepted, to which must be added a sixth, the London Scottish Marine Oil Company. The company, with its merged interest with Cawoods and National Carbonising, and with its associated Scottish Canadian transportation company, holds a 9 per cent. share of the Ninian field. This company has accepted, and unlike the report in the Scotsman. I can assure the House it was a voluntary agreement, without any sort of pressure.
Later, when the BNOC has established itself, it should be able to acquire licences of its own and act as an operator. It 1936 might also extend its interests downstream or abroad, in order to make the best use of the knowledge and of the oil it has acquired. Its powers are therefore widely drawn in Clause 2 to allow for such expansion, although in practice its early operations will be strictly confined to oil and gas production in the United Kingdom shelf. We recognise of course that expansion abroad or downstream will have considerable implications, for example for private sector firms in the same industry, and that is why assent by the Secretary of State will be required for such expansion activity, for which he will be answerable to Parliament.
My Lords, I said earlier that in considering the case for participation we must he willing to consider novel ideas. Can I suggest that we should adopt the same approach to the BNOC. Its functions will not be like those of the nationalised industries, and the provisions made for it in the Bill therefore differ considerably from those made for those industries. It will have a mixture of functions. It will act as a partner in offshore licences and might eventually go downstream; in all those functions it will act commercially and the financial duties to be laid on it under Clause 5 will ensure that it does.
Confidentiality about the affairs of each of its partners to the other partners will be strictly maintained. But as the sole licensee it will not necessarily act commercially. For instance, it could establish reserves. Any reserves thus established will have a role similar to that of the United States Naval Oil Reserves, which have now come in so handily. There is also provision in Clause 2(1) for it to act as an agent and adviser of the Government, which we regard as an important part of its role if it is to make the best use of the expertise it will acquire. Statoil in Norway regards it as one of its most important functions to act as general adviser to the Government on oil matters.
The relationship between the Government and the BNOC also requires fresh thinking. The pattern established for the nationalised industries has not worked outstandingly well under Governments of either Party. It is even less appropriate for the new Corporation. This must be a serious body if it is to fulfil the task of being an equal partner of the great multinational companies operating in this exceptionally intricate and difficult field. 1937 In this context, I think I should repeat emphatically the assurance given by my honourable and right honourable friends in another place. The BNOC, where it is in partnership or competition with the private sector, will not receive in any respect preferential treatment from the Government.
At the same time, the importance of oil to the nation's economy, the vast sums of money passing through the BNOC's hands, and its possible use as agent and adviser to the Government—all these things indicate the need for a specially close relationship between the Corporation and the Government. I would draw noble Lords' attention, in particular, to the provision in Clause 1 for the appointment of two official members to the Corporation. This is designed to ensure the best possible communications between the Corporation and the Government, and indeed follows the example of most other State oil companies in the world. I would also mention the National Oil Account, although this appears in Clause 40 in Part V. All the Corporation's revenues and royalties will be paid into the Account, and out of the Account all their needs will be met. Some have seen the Account as a sinister device to reduce Parliamentary control. On the contrary, public and Parliamentary scrutiny of the Corporation's handling of the vast sums going through its hands will be more complete than for any nationalised industry.
Part II of the Bill provides for the new licence controls. It may help the House if I take a moment to describe the arrangement of this Part. The amendments to be made in seaward licences are set out in Part I of Schedule 2, and the consolidated licences incorporating these amendments are set out in full in Part II of the same Schedule with the amendments printed in heavy type. Schedule 3 deals with land licences in the same way. I hope that the House will find this arrangement, which was designed to help Parliament, convenient. The changes themselves close all the gaps which I mentioned earlier.
The most important new control, over the rate of production, is contained in model Clauses 15 and 16, which noble Lords will find for seaward licences on pages 79 to 83 in Part II of Schedule 2. 1938 This control, like all those in Schedule 2, has been discussed in detail with the industry, and I believe that it provides effective control for the Government while taking full account of the practicalities of the industry and the licensee's own legitimate interests. Model Clause 14 enables the Secretary of State to require exploration throughout the life of the licence, but only on the scale which a good licensee would have found it in his own interest to conduct anyway. A greater safeguard could not be imagined. Model Clause 11 gives the Government power to take royalty in kind; 21 gives, for the first time, effective control over the flaring of gas—we do not want to become an exploited economy in this country—29 empowers the Government to obtain a wider range of information, and 38 gives effective control over deals in licence rights.
Part III has a rather similar function, giving the Government, for the first time, effective control over the development of pipe-lines. This is one of the most important gaps we have to fill. Such control is, of course, designed to avoid proliferation of pipe-lines, in order to minimise possible damaging side effects, such as the risk of pollution, and interference with the fishing industry and other users of the sea, and in order to avoid wasteful duplication of investments between different licensees—we do not want to have a pipe-line boom akin to the railway boom of the 19th century—which is a consideration of the first importance when pipelines can cost £1 million a mile.
This Part of the Bill therefore requires an authorisation for the construction and use of all future pipe-lines, and gives the Secretary of State a power to order modifications to a proposed or an existing pipe-line to allow a third party to use it; in that case, the third party to pay the cost. Of course, the Secretary of State can order third party use of an existing pipe-line only where such use would not prejudice the owner's actual or expected use of it. One of the most important clauses in this Part of the Bill is Clause 26 which, again for the first time, gives complete control over the safety of men engaged in pipe-line works offshore.
I cannot leave those parts of the Bill conferring new controls without saying a word about retrospection. No issue arises in relation to our pipe-line controls, 1939 since authorisations are to be required only for future pipe-lines. But Part 11 affects the terms of current as well as future production licences. These changes are not retrospective, since they do not make unlawful, or a breach of licence terms, any action which, before the Bill was passed, could not have been so described. There is no doubt that they do change the terms of licences already in existence. But as I pointed out several times in and out of Government, these licences were grievously defective.
The changes are necessary because current licences will account for all production until the next decade and probably the great bulk of it for some time after that. If the new controls—on whose need there is, I think, general agreement—are to be effective, they must therefore apply to current as well as future licences. I wish previous Governments had taken this necessary precaution before they licensed these vast and very profitable areas, but the action which this Bill takes as a result of that failure is imperative. Here, again, we can say that the imposition of price control in the US and the Canadian legislation impeding exports are much more far reaching in their effects on the profitability of the oil companies. I should like to reiterate the assurances given by my right honourable friend the present Secretary for Industry on 6th December last year. Under the procedure now contained in the Bill, the industry and their bankers will know from the start the maximum amount of cutback any field can suffer. And we shall, of course, consult the licensee before fixing both the maximum amount, and the actual cutback, if there is one.
Part IV of the Bill contains new controls over refinery construction, a rather different area of policy from offshore aspects of the Bill, but one that is by no means unconnected. The ability to refine our own oil requirements in this country has always been important in terms of security and the balance of payments. There is now the added dimension that we need enough refining capacity, and the right type of capacity, to achieve the best pattern of disposal of North Sea oil. Our policy on this was announced by the previous Secretary of State for Energy on 6th December last year.
Your Lordships will, I am sure, agree that it is important to ensure that developments 1940 in the crucial area of refining accord with Government policy. In the debates in another place it has been clear that there is general acceptance not only of that point, but of the form that it is proposed the new control should take. One of the main considerations we have had in mind is the position of planning authorities who, in the past, have had to form a view on the national merits of refinery projects at the same time as assessing environmental impact, safety aspects, and so forth. It will, I am sure, make sense to all concerned that the oil policy implications of refinery schemes should be separately judged in advance.
I mentioned at the beginning of my speech that the three main aims of the Bill were participation, control and encouragement of production. Part V deals mainly with the third. There are provisions of first-rate importance here. Clause 41 gives the Secretary of State power to repay royalties where in his view this is desirable to promote the development of our petroleum resources. The repayment will, moreover, be free of tax, which will make it an exceedingly valuable help to marginal fields. In view of the solicitude which was very sincerely expressed on the other side, I think this is an important statement. I ought to emphasise that we regard repayment of royalty as a last resort, to be employed only where the automatic adjustments built into petroleum revenue tax still leave a marginal field uneconomic. But, with this qualification, we believe it to be a most important means of flexibility in varying Government take according to the circumstances of individual fields.
Another valuable provision is in Clause 42 which gives the Secretary of State power to guarantee borrowings of up to £600 million by oil companies, and to lend them up to £50 million where in his view this is desirable to facilitate the development of our petroleum resources. It is not merely control, it is positive encouragement. There have been many signs that some licensees are unable to raise the colossal sums of money necessary, especially in view of the rise in costs, to bring a field into production. Your Lordships will recall the recent case of the Thistle field, where two licensees found themselves in this position, and a contingent Government guarantee had to 1941 be given. I therefore attach importance to Clause 42 as a weapon in the Government's armoury for promoting development.
A previous Secretary of State for Energy proudly enunciated in this House: "North Sea oil is ours and that is that." This Bill (and the Oil Taxation Act) represent no less than the activation, indeed the redemption, of that pledge. I have no doubt that in different circumstances that Secretary of State would not have wanted less control and participation than is contained in our Act and Bill. I commend this Bill to your Lordships.
§ Moved, That the Bill be now read 2a—(Lord Balogh.)
§ 4.13 p.m.
§ Lord STRATHCONA and MOUNT ROYAL
My Lords, the slightly curious way in which we have been dealing with this Bill means that we must try to avoid going over the same ground too often. I shall endeavour not to repeat myself, but if I do it is to some extent because previously we did not get very many answers. That perhaps sounds a little disloyal as we pay our tributes to the noble Lord, Lord Hughes, who is leaving us. All I can say is that he displayed a characteristic masterly evasiveness when he wound up the debate last time. This leads me to welcome our new arrival, the noble Lord, Lord Kirkhill, a fellow member of the Smith clan, which gives me some family feeling towards him, and following in the noble tradition of Lord Provosts who have been translated to this House. As far as I recall, this is the first time a new Minister of State will at the same time have made his maiden speech from the Back-Bench. Anyway we shall hear him with great interest. I hope he does not feel the normal trepidation which most of us have felt when first addressing this House.
I shall try as far as possible to follow the noble Lord, Lord Balogh, in looking for the areas of agreement. I have said this before. The difficulty, speaking from the Opposition Bench, is because it is one's job to try to point out the areas of worry and disagreement, and it is sometimes apparent that one disagrees with the whole shooting match. This is not by any means so here. We recognise that many of the features of this Bill were 1942 desirable. However, I think it is probably true to say that we believe that this Bill at this time is very largely unnecessary, and is certainly unnecessarily divisive. I am sorry to have to say that, but it is right that I should say it.
However, let us not lose sight, as the noble Lord pointed out, of the basic objectives behind the Bill. We are anxious to achieve self-sufficiency in our oil resources for this country as soon as possible, not only for the balance of payments, with the relief that that must bring, but also for the reassurance that comes with the greater security of the supply of oil. It is worth remembering, however, that it is easy to exaggerate the importance of this security of supply question because I should have thought it unlikely that Europe as a whole would be in the happy situation of having a European security of supply, and I think it would be extremely difficult for a British Government to laugh at their neighbours across the Channel and say, "Pull up the ladder, Jack, I'm all right; we have plenty of oil." So let us not exaggerate the potential security that we stand to gain, but nevertheless let us be thankful for it if we can achieve it.
There is no doubt that it is right that the Government on behalf of the people of this country should see a proper take of what is, after all, a national asset which we are proceeding to exploit and deplete, and certainly no one would demur from wanting to see proper oilfield practice and, as the noble Lord pointed out, this is indeed in the interests of the oil companies. There are perhaps two slightly different aspects to this question of depletion control. There is the long-term national interest of getting larger overall production from a field by not rushing the production too much in the early days, and then there is the other issue, which is rather more contentious, which is the period which could come once we have reached self-sufficiency when it is thought in the national interest to restrain the production which the ordinary short-term commercial interests might suggest as being desirable. Then again, as the noble Lord mentioned, we obviously would want to avoid seeing wasteful duplication of the very expensive assets and to promote the most rational utilisation of them. I think most of us could agree with that.
1943 Some of those objectives might not be wholly palatable to the Scottish Nationalists, but mercifully they represent a small minority in this House. But these are the criteria against which we must judge the effectiveness of the Bill. As for the acquisition of knowledge, we believe that this would be better achieved by an independent agency. There are various reasons for this; it has a better long-term continuity, there is less likelihood of interference and there is a greater sense of confidence built up by the companies towards an agency which is separated off from the Government. I should have thought that, on the whole, this has been the experience of other countries. As for depletion control, I am not wholly persuaded by the noble Lord's case that it is necessary for the existing licences to be revoked. This is a highly technical question and this is clearly neither the place nor the time for us to argue it. Why I think we would believe is that if it is necessary to revoke licences, then this should be done according to what the noble Lord called something in the nature of a voluntary principle; at least it should be done by negotiation and, regrettably, this is not the situation with which we are dealing here.
I should have thought that, on the whole, we could have achieved depletion controls which we are to need by changing the nature of the new licences which are about to be issued. But we cannot afford to underrate the very serious damage which has already been done by the Government's declared intention of this post hoc alteration of a contract into which they solemnly entered. These are documents signed under seal, and it is a great sadness to talk to companies who say: "We never expected to find this kind of thing going on with Britain."
Let us be quite clear about what is happening. These companies are being told that something which has been sold to them is now not to be delivered as and when they want it. It seems to me that the analogy here is that on selling a house one enters into a contract to sell it, and then after the contract is signed one says to the buyer that it may be necessary later to deprive him of the use of some of the rooms—
§ Lord BALOGH
My Lords, would not the noble Lord agree that this is not 1944 really a matter of buying a house, but rather a situation affecting national interests of the utmost importance, and which has been exercised in many other countries, more especially in the United States of America—where price control has been imposed, as the noble Lord probably knows—and in Canada where the licences have been changed? After all, a force majeure situation with which we are confronted at present, as a result of the OPEC operations, cannot be described as "buying a house."
§ Lord STRATHCONA and MOUNT ROYAL
My Lords, I accept that we can make differences here. But I do not even find the Government regretting their having to go into the unilateral alteration of contracts—
§ Lord BALOGH
But, my Lords, we have just said so.
§ Lord STRATHCONA and MOUNT ROYAL
My Lords, I am delighted to hear the noble Lord, at least, express his own regret. However, we might have expected to see a practical demonstration of the nature of his regret by saying that in so far as anybody will lose by what the Government are having to do, they feel that they should at least discuss the possibility of compensating those people for it. I wish to refer to a quotation, which I have been unable to check, but which I believe goes back to Mary, Queen of Scots, who said:When formal obligations are being unilaterally abandoned can informal assurances be relied upon?It is this aspect of the matter which concerns us very much, and it is a bad precedent for the British Government. It weakens our ability to complain when other people do it to us, and it lays us wide open to the possibility of retaliation, although, naturally, one sincerely hopes that other people will not throw this kind of abrogation of agreements in our face.
We also believe that it is unnecessary to launch the BNOC into the competitive jungle of the oil business. After all, this is epitomised by the free-booting Texans now to be seen—dressed in their traditional garb—in Aberdeen. This is a business where the risks are high and the rewards are great; all of which leads us to believe that the less direct involvement the Government have in that kind 1945 of industry, the better. If the Government felt that they had to get involved—and we now accept that they do feel that—then this is a funny way to set about it.
The noble Lord says two things: first, that he accepts that nationalised industries have not a wholly happy record in this country. I welcome that statement very much indeed and I could not demur from it for a moment. It is not something which we very often hear said on the noble Lord's side of the House. One cannot but also welcome what the noble Lord says about needing to have a fresh look at the way in which we handle these kind of industries. The question is whether or not the proposals for the BNOC are likely to be successful. There are two major differences, as I see them, between the way in which the BNOC is intended to operate and the way in which either a private company or an ordinary nationalised corporation—such as we have got to know them—operates. The first difference is in being free from petroleum revenue tax. One sees the certain bureaucratic desirability of not levying a tax and then giving it back. But what concerns us very much is that this will create a difference of motivation between the two partners.
The oil companies are extremely used to combine in all sorts of ways. They are accustomed to combining at the upstream, or production end and competing against the same company at the downstream, the refining and distributing end. This does not bother them. But they have found a difficulty in the past where you have two companies with different tax structures which tend to give them different objectives and motivations. Let me give an example. There is the kind of situation which used to arise because American companies had depreciation arrangements for their assets which British companies did not. My information is that this created a conflict between partners in the past. I would suggest that that is one angle where this elimination of petroleum revenue tax on BNOC is likely to create difficulty.
Furthermore, my Lords, it will lead to a lack of credibility. I am sure the noble Lord himself must have met this before; but companies overseas, prior to all these negotiations, never really believed that 1946 British Petroleum was not a Government-controlled company. In vain would one say, "The Government have a very large holding in BP and the company have Government directors; but they are not accustomed to behave as Government directors, as such." It was a surprise to me to find the extent to which people say: "That is what you all say, but we know that this is not really the case." If that is true of BP, I quail to think of what will be said about BNOC. I fear that this will create additional conflicts which can only slow down the operation.
Then I fear that the same situation is going to be exacerbated by the rather complicated concept of the national oil account. This seems to me to be open to two objections. I totally take the point when the noble Lord says that this is an attempt to bring a nationalised corporation under Government control. But is it not going to create a situation whereby this Government corporation has no control over its own finances? All its revenue is going to the national oil account under the control of the Minister. In a fast-moving, free-booting, freewheeling situation, is it not going to delay the power of the BNOC to take decisions while it refers to the Minister. I know that it is unkind to accuse Whitehall of being slow; but the fact is that Governments are not good at taking quick commercial decisions. All the money will come under the control of the Minister from the national oil account. That is on one side. On the other side, we shall have a situation where enormous sums of money are going to flow into the total control of this Minister. This Minister is going to control sums of the order of £2,000 million. He is going to have power to use this money in almost any area he likes. As the noble Lord said, they can go downstream or abroad.
All this is going under the control of the Minister. I would have said this even before we got this Minister in this position at the present time; but it is an unhappy accident that it happens to be him but it merely exaggerates one's concern at the situation we are setting up. The danger is that if we once get nationalised corporations behaving in a non-commercial manner competing noncompetitively right down the line, even as far down as the chemical works, the 1947 danger is that by behaving in an uncommercial way they can make a previously viable operation non-commercial and one finishes up with a nationalised monopoly. I do not believe I need to develop the dangers of that case any more. These are genuine fears which we see and which the industry expresses.
However, let us go back to the positive side and welcome the assurances which the noble Lord gave about confidentiality as between the various activities of this many-headed monster which he is about to create. Here, again, there is an element of a credibility gap as to its ability to exercise its acknowledged acquisition in one area, and not to use that knowledge to the detriment of its partners in another. We must accept and welcome what the Minister said about that. I am astonished that he can speak so cheerfully about the confidence of the oil companies which he feels he enjoys. The message I am receiving is a different one, that their confidence has been destroyed to the point where they believe that many of the rather onerous burdens which are put upon the industry by this Bill are not there for their own good; they are there—some of these oil companies believe—as potential levers to force them to go into this so-called voluntary participation. It is no use the noble Lord saying that this is a great target which is being set up. I can assure him that this is a genuine fear which the oil companies have expressed.
I believe that the use of this word "voluntary" in this connection is nothing less than what I call a hypocritical farce. The kind of danger it creates is this. Here we have an industry which is very rapidly fluctuating, rapidly developing—the combinations change all the time—and licences are bought and sold, partners change. Every time a company wants to change its partnership arrangements, it has to get the permission of the Minister. What they fear, and what they say has already happened, is that the first thing the Government say when you go to discuss these matters is "We will talk about the question of the change of your licence, or partners. But before we do so, we have your agreement that we are going to have a voluntary 51 per cent. participation, do we not?" The noble Lord sometimes uses words that we argue about such as the words "nationalisation" and 1948 "participation". I do not suppose we shall agree what they mean. I have a horrible feeling that we shall not agree about what is meant by "voluntary". I suspect that his idea is considerably different from my own.
The other question which I should like to ask—and I raised this last time—is about the amount of money which will flow into the business as a result of BNOC's injection and participation. There is a sum of £900 million mentioned, which is "peanuts" in the kind of terms of which we are talking. You can pick your figure, my Lords, from anywhere between £5,000 million and £15,000 million wanted over the next few years. Then on top of that, as I understand it, there will be a certain amount of money re-circulating from oil revenues and royalties which the BNOC will use to put back. That is not new money going into the industry. Could the Minister tell us how much new money he thinks will flow into this industry as a result of the activities being suggested in this Bill? Is he so sure that the British Government are in a stronger position to raise money at a better rate in the international money markets than some of the international oil companies? I regret to say that I doubt it at the present time.
What about the nature of the participation agreements? We are coy about them, are we not? It is impossible to discover the details. If they are so voluntary, and if everybody is so happy about them, can we not publish the agreements which the oil companies are agreeing to enter into, and should we not then find that the oil companies knew what it was they were being asked to participate in? The Government would no doubt call it "an offer", but all I would say is that the oil companies regard it as something they are being pressurised to agree to.
§ Lord LOVELL-DAVIS
My Lords, if I may intervene briefly, the noble Lord has asked me several questions which I hope to answer in due course, but I should like to ask him a question at this stage, because I think it is important. He raised this matter of participation. It is a question which my right honourable friend the Under-Secretary in another place puts regularly and to which he has, as yet, received no answer from the Party opposite. Have the Party 1949 opposite now ruled out participation? Both the former Prime Minister and the present Conservative spokesman in another place have admitted that they considered it seriously while in Office—though opinions seem to differ on whether it was rejected, at least for current licences, before or after they left Office. Whatever they thought when in Government, perhaps they would not now seek to participate in the existing licences; but they have steadfastly declined to rule it out for the future. Can the noble Lord tell us whether or not the Party opposite accept that there has to be participation?
§ Lord STRATHCONA and MOUNT ROYAL
My Lords, I have some difficulty in answering the historical part of that question, and in a sense I suppose I am also in some difficulty in committing my Party ahead; but I do not say that we would not rule out the possibility of genuine voluntary participation if that is what the companies wanted. What I am complaining about is that we just do not see the "voluntary" element in the participation which is being mooted at the present time. I have a suspicion that the noble Lord is referring to the possibilities of carried interest, which used to be talked about some two years ago, but I think that the thoughts of all of us have matured somewhat since that time—at least I hope they have, because we are in a rapidly evolving situation and the concept of compulsory participation in any form by a Conservative Government is something which I should find it extremely difficult to go along with.
As usual in a debate, I have already spoken for longer than I intended. Unfortunately, the history of this legislation has been rather unhappy. The first announcement of this Bill came last November, but five months elapsed before finally it appeared. I do not think we should complain about that in itself, because we do not really believe this Bill was needed at this time, except for one or two non-controversial elements which could have been passed through quite easily. The Bill, having been produced, it was then guillotined unmercifully in another place, without any suggestion that the Opposition had been obstructive in the discussions that were going on upstairs. As a result the Bill comes to 1950 us, a great many issues never having been discussed at all in the other place.
My Lords, it is too much to hope that the Government will drop the Bill—and I must say I cannot think of a more suitable thing for them to announce on a hot day at the tail-end of this part of the Session, but we must not hope for miracles. What we shall do in September, when we come back to the task, which I confess will cast a certain shadow over my own holiday during the next month, is to endeavour to persuade the Government that there are matters of principle about which it is right for us to be worried. We also hope that they in turn will be receptive to some of the detailed and more technical Amendments which have not yet been discussed and which have been left to this House to deal with.
May I go back to what I said earlier. We shall approach the Committee stage of this Bill in good faith, genuinely wanting to do our best to get it right, because we believe that we are now making the ground rules for an exciting, but risky and dangerous, enterprise, upon which the very prosperity of this industrial country is to depend in the years ahead.
§ 4.40 p.m.
§ Lord AVEBURY
My Lords, in my view Parliament is at its most futile and irrelevant when it is discussing questions of political taxonomy and I do not propose to enter into an argument about whether this Bill or clauses of it could be classified as Socialism, or to argue with the noble Lord. Lord Strathcona, about whether the Bill as a whole is unnecessary and divisive. I should like to start from the rather different proposition that non-renewable natural resources of all kinds belong to the people as a whole and it is a matter of convenience rather than right if private interests are allowed to exploit them. I also believe that during the remainder of this century the problem which is to be of overriding importance for the over-developed world is that of adjustment from perennial growth to levels of consumption of non-renewable resources that can he sustained indefinitely. When it is said that ownership by the people is the guiding principle, it means that, or at least I hope it means that, in the sense that the people are the life tenants, rather than having absolute rights including any right to 1951 squander in a period of less than half a century the natural resources which have taken thousands of millennia to accumulate, leaving nothing for succeeding generations.
Worldwide, the ratio of production to reserves of crude oil stands at just over 34 years of supply at current rates of production, and has been declining steadily since the early 1950s. If consumption were stabilised at the 1974 level it would be necessary to discover 20 new oilfields of 1 billion barrels each, the size of the largest in the North Sea, to maintain this ratio at 34 years. But since the geologists tell us that the oil provinces which are those easiest to exploit geographically and geologically have been developed already, the further discoveries that remain to be made will require larger and larger inputs of energy, leaving smaller net amounts for the end users. And since the best estimates that have been made of the remaining reserves in the non-Communist world are around 750 billion barrels, however large the inputs may be the rate of discovery must decline.
That has been well illustrated in the ease of the Eastern Mexican Gulf where the companies paid 1.4 billion for exploration rights that produced 14 dry holes in a row. The United States Geological Survey has revised downwards the estimates of recoverable reserves to a maximum of 130 billion barrels, and in the meanwhile their production of natural gas has also declined sharply. Domestic production of oil in the United States is now 7 per cent. below the rate immediately prior to the Arab oil embargo, and over a quarter of American oil consumption is now having to be imported from OPEC countries. So they are much further away from the goal of national self-sufficiency than they were immediately prior to the crisis.
What that means is that over the next 30 years or so the law of supply and demand will continue to force upwards the price of oil and gas—and I must disagree with those who suggest that by the time production from the North Sea has built up to the 100 million ton mark at the end of this decade its cost is likely to appear less attractive in relation to world oil prices. I think there is an upper limit which is set by the existence of coal and nuclear options, but that 1952 limit also is receding upwards with time. One should also bear in mind that to alter the mix of fuels in an economy is a very long-term process because, after all, after 21 years of sustained effort, involving many thousands of our best scientists and engineers, at a cost of billions of pounds, only 10 per cent. of our electricity supplies are generated from nuclear heat. In the coal industry, we approved last year a programme of investment amounting to £600 million merely in order to keep production at the present level in the middle 1980s.
It is not at all clear to me, therefore, why the policy of both Tory and Labour Governments has been to secure the most rapid possible build-up of North Sea oil supplies to a peak which is estimated to occur towards the end of the next decade. All the authorities, including the super-optimist Professor Peter Odell, agree that with this strategy output is likely to decline fairly sharply thereafter and that we shall then be infinitely worse off than we were during 1973 and 1974. What is likely to happen is that we shall again become a net importer at the end of that period, making steadily increasing demands on overseas suppliers to replace dwindling home production, but in far more hostile market conditions than have obtained over the last two years.
If one looks at the matter in strictly accounting terms, we have to decide what will be the worth of North Sea oil at world market prices in the years in which it will be produced, assuming a variety of depletion policies. If one examines this, it could well be that a longer extraction period would make more sense from that strictly accounting point of view. Also, one has to take into account, as my noble friend Lord Thurso pointed out in the debate two weeks ago, the effect of a rapid build-up and then a rapid decline of the economy of Scotland. We shall have created a huge infrastructure, particularly in the North-East of Scotland. We are in danger of repeating over a shorter period at the end of this century the problems of dependence on a declining industry, which Scotland has already been through in coalmining and ship-building.
I must take issue with the noble Lord, Lord Campbell of Croy, who said in the previous debate that he thought we could leave it until 1981 to see what the extraction rate should be in future years. This 1953 point was also made by the noble Lord, Lord Balogh, in opening the debate this afternoon. It is also by no means obvious to me that we should have aimed all along at reaching self-sufficiency by 1980. I do not accept, as the noble Lord said, that this is now universally agreed, although I must accept, on the other hand, that if we placed restrictions in the near future on the operators of the fields that are already being developed, it would tend to undermine their creditworthiness. As the noble Lord, Lord Balogh, pointed out this afternoon, one knows that some of the smaller companies have already been in severe difficulties over borrowing the huge sums required. The best form of depletion control, as was rightly said by the right honourable Member for Wanstead and Woodford in another place, is the timing of new licences. One wants to use pro-rating only as a last resort.
However, I do not believe that our central objective should be, as the Under-Secretary of State put it in another place, to fashion an intelligent balance between the temptation to export and the long-term need to conserve. Within the limits of commercial practicality, the aim should be to stretch production as far into the future as it will go. If one is to believe the stories spread by the Conservatives in another place, the BNOC should help the pace of development to be slowed down merely by the threat of its existence.
There has been endless repetition of blood-curdling stories about the flight of drilling rigs from the British North Sea to escape the Red menace. To me, at least, those tales have an oddly familiar ring. They recalled the speeches that were made by the Tories in another place when we talked about the exploitation of gas in the Southern sector of the North Sea. We were frequently told that it was quite impossible for us to meet the targets set out in the 1967 White Paper, because of the policies of the then Socialist Government; whereas, as noble Lords will be aware, the story of the development of gas in the Southern sector of the North Sea has been one of great success.
I do not believe that the BNOC is going to make any difference to the process of exploitation for many years to come because the Government have given 1954 assurances that the participation arrangements are financially neutral, and as I understand it that means that so far as the discoveries already made are concerned there is no conceivable reason why managements should slow down. In the last debate the noble Lord, Lord Balogh, explained that companies would be neither better off nor worse off as a result of participation. Presumably he meant that to be understood as neither better off nor worse off in terms of the net rate of returns after royalty, corporation tax and PRT in relation to the size of their remaining investment. He said that discussions were continuing on how this could be achieved, and as the noble Lord, Lord Strathcona and Mount Royal said, it would be interesting to know more about the exact formulation of the terms. If we could be given some indication even of the general principles that are being applied in negotiations with the companies that would be better than nothing. There was an explanation of a kind given by the Under-Secretary of State in Standing Committee in another place, which I have read several times, and so far as I can see no capital payment is envisaged for the 51 per cent. of the investment which has already been incurred by the companies, but I should like the noble Lord to go into this in a little more detail.
The Under-Secretary of State gave some figures relating to 1976 with which I will not weary the House, but what they amounted to was this. The Government would be putting up 51 per cent. of the new capital expenditure then being incurred and they would receive 51 per cent. of the revenues from the oil being produced, but there was a silence about what was going to happen with regard to the very substantial investment that the companies have already incurred.
My right honourable friend the Member for Orkney and Shetland had some other criticisms to make of the BNOC. These were, first, that it requires up to £900 million of new borrowing at a time when almost everyone agrees that public spending ought to be reduced; and, secondly, that some 800 people, many of them possessing extremely rare skills, will have to be recruited to run the Corporation. I should like to ask the Government why we should not provide that participation can proceed only at the rate which the BNOC could finance out of its revenues 1955 so that we do not create any new borrowing at all. If we did that the magic figure of 51 per cent. required by the Government would be reached ultimately; it would merely take a little longer to reach.
If the Corporation has to build up its operations more slowly, the problems of recruitment of expert staff would be that much reduced. A further advantage that occurs to me is that the adverse effect on the balance of payments of acquiring 51 per cent. of the existing investment, assuming that there is any cash payment there, from overseas companies would be deferred. I am not so naive as to imagine that any of these arguments will appeal to the Government, but I should like to know why it is considered so essential, as it appears to be from the figures given by the Under-Secretary of State, that by the end of 1976 these participation arrangements have to be completed for all existing fields.
Then there is the element of retrospection in the amended model terms which has already been referred to by the noble Lord. It is a matter of very great concern, as he said, because it is impossible to predict the extent to which the Government are going to use these new powers, and even when assurances have been given behind the scenes to oil companies, I think it will be generally recognised that there is no satisfactory substitute for obligations written into a Statute which cannot then be varied or revoked by some Minister who may not be as well disposed towards the private enterprise sector as is the present Secretary of State. It is argued that in the last round licences should not have been granted for periods as long as 46 years without a break. I do not think that anyone would dispute that if, in 1972, we had had any idea of the size of the North Sea oil province, the terms would have been much less favourable.
§ Lord BALOGH
My Lords, if the noble Lord, Lord Avebury, will give way, may I say that one of the Tory Ministers in 1971 said that we would he independent in oil, and production would be between 100 million and 140 million tonnes, which is not peanuts. It cannot be argued that the previous Government had no knowledge by that time of the potential of the North Sea.
§ Lord AVEBURY
My Lords, I would be interested to pursue that quotation, perhaps on Committee stage. I was under the impression that when the last round of licences were awarded, we had not yet made the enormous discoveries; we had not assessed the size of the Forties Field, which made the turning point in evaluating the ultimate potential of the North Sea. Perhaps the noble Lord, Lord Balogh, would be kind enough to let me have that quotation—
§ Lord AVEBURY
—that there was knowledge in 1971 of the ultimate resources, although I accept what he says. I certainly did not think that it was generally known at that time.
§ Lord AVEBURY
My Lords, I was going to say that in commercial contracts of all kinds it frequently happens that after a contract is entered into, changes in the situation make the terms more attractive, and one of the parties—and in our law the other party—has no right unilaterally to alter these terms. Of course, the State has such a right, but in international law it is subject to the payment of reasonable and prompt compensation. Yet there is no obligation on the Government to pay anything at all to the licensees if and when the new powers in Schedule 2 are exercised.
I suppose it might be argued by the Government that, practically speaking, the same result could be achieved by a variation of petroleum revenue tax if they were not able to claw back money from the oil companies under operating licensing terms. But the noble Lord, Lord Balogh, said this afternoon—and, of course, we all warmly approve of his statement—that from now on the oil companies would know exactly where they stand under a settled régime of tax and participation.
My Lords, I want to express some unhappiness about the incompatibility of the functions given to the BNOC. The former Secretary of State said that he did not want to see it become a political eunuch, but the degree of control by the 1957 Government, the complexity and peculiarity of the accounting and fiscal rules within which it will operate are such that it is difficult to imagine it behaving as a commercial organisation where it is required to do so. But it may be required to undertake unprofitable work, as was mentioned by the noble Lord, and it is to be exempt from PRT. It will be almost impossible for outside observers, including the Select Committee on Nationalised Industries—to whom I hope the BNOC will be subject—to isolate the commercial from the non-commercial transactions, and so measure BNOC by the standards applied elsewhere.
The criticisms to be made of the Bill are very largely concerned with the relations between the State and commercial companies, and the associated question of how far the State should become involved in a sphere of activity which, up to now, has been left to private enterprise, or nearly so. I do not belittle the importance of those questions, which must be settled now if the development of the United Kingdom sector of the North Sea is to proceed in an orderly manner, nor would I underestimate the strength of the political passions invoked when questions of this kind arise. But in my opinion there is a far more serious problem which I am afraid is virtually ignored by politicians because it stretches beyond the horizon of the next Election.
Neither the play of market forces nor the intervention of Governments seem able to cope with this problem of the management of finite resources in such a way as to achieve a smooth transition to the lower levels of consumption, which I believe are inevitable as these resources dwindle. Throughout the overdeveloped world as a whole the lesson of the crisis of October 1973 and its aftermath has been overlooked. I think there has been a general failure of political will and there is no evidence in this Bill or in the Government's overall policies for oil that that deficiency is being made good.
§ Lord BALOGH
My Lords, before the noble Lord sits down, may I just tell him for information, that in the figures which I quoted I was being really conservative; I said only 140 million tonnes. "Exciting North Sea oil prospect 1958 for Britain"—Sir John Eden addressing Aberdeen Chamber of Commerce, 1st December, 1971. The reference is Victoria Street, SW1, Extension 3798, reference No. 1033. He declared that there was sufficient to sustain a rate of production of 1 million barrels a day, that is, 50 million tonnes by 1975, and thought it would not be unreasonable to suppose that this figure will be trebled by the end of the decade. I hope that the noble Lord's impressions about the coming of Doomsday are as accurate as his recollection of the lack of knowledge of the Government about the size of the fields. I should say that this is the Northern part of the North Sea, including the Norwegian sector.
§ Lord AVEBURY
My Lords, perhaps I was too kind to the noble Lord's predecessors in Office in saying that nobody realised at the time of the previous licence round what was the ultimate size of the reserves. The noble Lord has produced a quotation, and it is for the Tories to reply to those allegations. I think the noble Lord merely reinforces the-point I was making, that no one who had sufficient knowledge of the ultimate size of these reserves would in the first place have awarded the licences for as long as 46 years. If that is what happened, and certainly it did judging from the quotation, then the Tories are to be severely criticised.
§ Lord BALOGH
My Lords, the noble Lord also complained that since we arrived in power and got to know the size of the fields we are now trying to alter certain of the control measures. I do not know how the noble Lord thinks he can have it both ways.
§ Lord AVEBURY
No, my Lords, I certainly do not say, and have never said, that the Government should not take these control measures. I said that they are perfectly entitled to revoke or vary licences and to take power to control depletion or anything else. What I did say was that in these cases where the contract is altered retrospectively it is normal, and it is provided by international law, that compensation should be paid to holders of those rights.
§ 5.3 p.m.
§ Lord KIRKHILL
My Lords, in rising to make an initial contribution to debates 1959 in your Lordships' Chamber, I think I should point out to my fellow member of the Smith clan, the noble Lord, Lord Strathcona, that I speak from the Back Benches in a rather Gilbertian manner, being, as I believe, at the moment a Minister-elect rather than a Minister affirmed, so I think the priorities are being observed. Of course, I thank him for his very warm welcome to me personally, as I do my noble friend Lord Balogh for his sentiments equally sympathetically expressed.
I thought it might be pertinent if I were to emphasise that there are at least two paramount considerations which seem to me to be relevant in the provisions of the Bill now before your Lordships. First, it must always be kept clearly in mind that tile major discoveries of oil deposits in our Northern waters constitute a new energy source and resource for Great Britain as a whole, and, while finite in duration, in marked contrast to the coal industry, whose long-term energy potential is, in my view, unrivalled, it unquestionably will be the principal influence leading to energy self-sufficiency by this country in the very early 1980s. Incidentally, this is a position which no other European nation will enjoy at that time, and which indicates, in my view, that if the burden of inflation can be brought under control over the coming months then an expanding economy in the 1980s is no mere rhetoric but is more probably a realistic prospect.
Secondly, it is already clear that the downstream potential development arising froth these discoveries is, and will be, enormous, giving rise to the need for complex decisions on future investment commitments. It might be, for example, that a balance will have to be maintained between the competing demand for increased refinery capacity, if this should be needed, as against perhaps the expansion of the petrochemical industry, and from such competing demands problems of location, of ultimate control and ownership, and of the very real needs and aspirations of the people most concerned, will require to be considered within a comprehensive social ethos. I conceive that in the birth of the British National Oil Corporation public participation in what will be profitable terms, unlike some recent forays, will ensure that rather wider 1960 considerations than those of straight commercial assessment will obtain.
Thus far, Scotland has been a principal beneficiary of onshore oil development. Many thousands of additional jobs have been created. In my own native city of Aberdeen there is virtually no unemployment today, and this in an area which, as recently as 1970, could be described as "cosy corner" in an article under that heading in the Economist magazine. It would be more apposite today to describe it as "the land of plenty."
Nevertheless, it should be said that the direct effects of North Sea Oil are unlikely by themselves to transform the Scottish economy, despite the potential to do so. The problem is that if you have an industry which has high value added—and the oil industry is exactly that—direct effects depend on costs of extraction. It could be that by the time the oil is flowing sufficiently to have an effect on the balance of payments and to contribute to the revenue, there will still be unacceptably high levels of unemployment in the West of Scotland.
I therefore welcome very much the decision to site the headquarters of the British National Oil Corporation in Scotland, believing that this firm decision by the Government is the real sort of devolution which the people of Scotland will be delighted to accept. By this action the Government have shown a marked confidence in the future of the Scottish economy, and in association with the offshore supplies already sited there it is clear that a serious effort has been made to devolve a measure of total power from the centre while at the same time, as the Bill clearly intends, supporting the fiscal and economic unity of the United Kingdom as a whole.
§ 5.8 p.m.
§ Lord IRONSIDE
My Lords, first, may I congratulate the noble Lord, Lord Kirkhill, on his appointment as Minister of State in the Scottish Office. I have listened with particular interest to what the noble Lord has said in his speech, which I think all your Lordships will agree has been short and agreeable, and delivered with great skill and clarity. The noble Lord has chosen the hard way of making two maiden speeches in your Lordships' House, this one being a sort 1961 of trial run for the Dispatch Box. It is unusual, I think maybe unique, that we have a Minister of State elective speaking from the Back Benches. The House will admire the noble Lord for not withdrawing but choosing to subject himself to the customary practice for Back-Bench maiden speakers before going to the Dispatch Box.
In assuring him of a warm welcome to this House, let me assure him also that it is the first occasion on which I have had the opportunity of following a maiden speaker, but with the association that my family has with Aberdeenshire I am happy to follow the noble Lord who, as a past Lord Provost of Aberdeen, speaks with particular authority and with first-hand knowledge of oil and gas developments and of the way in which the face of that great city, and of Scotland as a whole, has changed in recent years. He has so rightly described it now as a land of plenty. We are fortunate in having the benefit of the noble Lord's experience on the Second Reading of this important Bill, and it goes without saying that we hope we shall hear him again on many other occasions. I also hope that he will sometimes listen to us.
My Lords, as the House is today going into Recess, I shall try to be as concise as possible, but as your Lordships know this Bill covers a lot of new ground, and I believe that we should study the contents with sufficient care in order to make absolutely certain that it is returned to the Commons in a more acceptable form than it is in now, in spite of the fact that there is a shortage of time after reaching us at this late stage. I may be able to help my noble friend Lord Strathcona and Mount Royal who inquired what is to be said about BNOC in future years. A US banker friend of mine asked me what progress is being made in the recovery of North Sea oil and gas, and he said, "I do not know what you call BNOC, but I reckon it stands for 'British nonsense over crude'." I was inclined to agree with him.
But, seriously, we have to reckon with the Bill and I wish to refer in the main to Part III, which makes provision for submarine pipelines. I think this might well be described as being the non-controversial Part of the Bill, but, as your 1962 Lordships know, until it has been properly examined in Committee we cannot tell for sure whether it is as innocent as it appears. Before I go any further, I should like to declare an interest, as on previous occasions, in that I am associated with International Research and Development Company Limited and connected directly with new British developments relating to underwater explosive techniques for joining large diameter piping and planning the exploitation of these and other new techniques with Vickers Oceanics and their fleet of submersibles. The noble Lord opposite will have been briefed by his Department about these activities, and will therefore recognise that if I speak with a possible bias I also speak with some knowledge of British industrial endeavour in the offshore field.
We have talked about British industrial endeavour in the offshore field on many occasions, and I have attended conferences, listened to debates in this House, and read much comment in journals, newspapers and so on. But when I try to sum up in my own mind what progress has been made, I always come to the conclusion that in spite of many developments, some of which are successful, we are really not making the impact in the big time league which we ought to be. It is true that we are learning in the North Sea, at a certain pace, but there is convincing evidence that our competitors are also learning the course fast on our backs. For example, we see the difficulties that have now overcome the new, second generation pipelaying barge—the semi-submersible of US design—in the way that its capstan shafts have proved to be just not man enough for the job in the North Sea. In so many ways we start all square with our competitors in the North Sea, and it should not be assumed that the previous experience of the Americans in other waters is the overriding factor in the North Sea.
I do not want to argue these points any further on this occasion, and I think it is sufficient to say that the approach adopted by the Commission of the European Community, in financing projects in the hydrocarbon sector to lift offshore endeavour into a higher gear, needs taking note of, in contrast to the British Government's support in the offshore field, which is directed much more towards long term research and data gathering and is only a fraction of that amount of money at 1963 present being allocated by the Commission. Time is slipping by and we still have no major facilities for contracting.
If, therefore, under the terms of its general functions, the BNOC were to seek substantial aid from the Commission as the Steel Corporation and other bodies in England have done, it might be seen that at least some good has emerged from its formation if the end result was a British pipelaying facility, derrick barge facility or some other major offshore investment of that nature. But will the BNOC really be in a position to do such a thing? As we have already heard, it has to feel its way almost from the start. As I see it, it will depend very greatly upon industry in every way for development and, above all, it should in my view be exposed to the commercial disciplines if it is to be accepted; in other words, it should represent fair competition to those who are engaged in carrying on similar business.
One of the powers which the new Corporation will be able to exercise is to carry out research, which is probably a reasonable power to take in view of the fact that other nationalised industries have similar powers and that the oil industry itself carries its own research facilities. The new Corporation has no such facilities at the moment and it will be, as I have said, dependent very largely, as is most of the oil industry, on developments in engineering industries and the private sector as a whole. Hence, it will also be vital for the Corporation to be in a position to sponsor research, and this would be in general line with the powers of other organisations set up by various Governments in recent times.
To mention just two such organisations which have such powers there is, first, the Nature Conservancy Council and, secondly, the British Library. To quote briefly exactly what is said in this connection in the case of the Nature Conservancy Council, it is:The commissioning or support, whether by financial means or otherwise, or research.The British Library Act says:Generally for contributing to the efficient management of other libraries and information services, to carry out and sponsor research".So a precedent has certainly been set for sponsoring research. This I believe to be fair, but I do not understand the Government's intention in the spheres 1964 of training, the offering of research services, advising and assistance. Is it intended that the Corporation will take over the functions of the national training centres already set up in Scotland? Is it intended that the Corporation will set up a research centre which will not only serve its own purposes, but also undertake research on a contract basis for others? I hope the Government will explain to the House their intention in these matters.
Part III of the Bill, which concerns the operation of pipe-lines, provides for the orderly supervision of the pipe-line network, the arteries of the controlled waters. Because of their importance and the fact that they must be protected, it is right that their construction and operation should be regulated, but not overregulated, and it is my suspicion that many of the clauses in this part of the Bill are here in order to give gathering powers to the BNOC over what is built, what is passed through these pipes and what is finally abandoned—a sort of cradle to the grave service. I have a feeling that many of the clauses in this Part of the Bill could quite simply and properly have been incorporated in offshore regulations under other Acts, such as the Mineral Workings (Offshore Installations) Act, but being in this Bill they must of course now be examined.
The Government are treading new ground and so it seems are the Parliamentary draftsmen, as we are faced with some language in Part III which, because it is imprecise, becomes vague and somewhat unprofessional and possibly difficult to understand. For example, the whole tone of Part III relates to fluid flow and substances which might be conveyed, but the best description that the Bill offers is "things"; in other words, all that has been thought of and all that has not. As I said, this is imprecise when it need not be so, and it gives the impression of a lack of understanding of a situation in which the Government are seeking considerable powers of intervention. Furthermore, in connection with Part III, there appear to be some provisions on safety and inspection that do not adequately express the Government's desired intention, nor do they meet what many people in professional circles think is required; and they may even step 1965 beyond what is desirable. This will probably need probing further during the Committee stage, to see whether any improvements can be introduced.
Powers to regulate the use of pipe-lines are obviously important, but they must be seen to be fair, for example in terms of adequate compensation for intervention and modifications to the network, and in adequate rights of appeal. In due course, we shall be faced with the adoption of depletion policies and co-operative actions in the event of supply difficulties that relate to the European Economic Community and the International Energy Agency. The Bill goes to great lengths to secure Government intervention; but your Lordships will realise that the EEC is also trying to adopt an interventionist policy and, although the degree of intervention proposed is less than what it was two years ago, nevertheless the prospect is that the Council of Ministers will agree on some degree of intervention in due course. The Commission is seeking power in an emergency to impose rules which are subject only to appeal in Council, where decision by qualified majority could upset any plans for the British Government to dispose of North Sea oil and the powers to be taken by the Secretary of State under this Bill.
This means that the Secretary of State may be overruled and may find that in practice his powers may be limited by the diktat of Brussels, and we may find that North Sea oil was ours and that was that. In Committee we should take into account these factors and ensure that we do not overlook the way both the International Energy Agency and the EEC may affect our own offshore oil domain. I do not wish to say anything further, and I hope that through debate this Bill can be improved before it leaves this House.
§ 5.22 p.m.
§ The Earl of LAUDERDALE
My Lords, it is a particular personal disappointment to me that the noble Lord, Lord Balogh, cannot at this moment be in his accustomed place because, as he would expect, I have one or two little posies to throw in his direction. When the noble Lord told us in the last debate that he was the expert behind the BNOC my hopes began to rise. He knows my 1966 regard for him both personally and for his ability. But now that we have had the chance to learn about this Bill and to digest what we were told in the last debate, I am forced to the conclusion that the noble and academic Lord is a simple flat-earther. It is not altogether surprising that our good friend, the noble Lord, Lord Hughes, is now leaving the company of the flat-earthers. We shall miss him, and not least perhaps after his rather unhappy excursion into the problems of deviated drilling in the last debate. We shall miss him very much, but we still hope to see and hear him in the future.
The noble Lord, Lord Kirkhill, is a bold man to join that flat-earthing company. He gave us a most interesting and enjoyable maiden speech. He comes from a distinguished stable, a stable of Provosts of Aberdeen, dating back in my knowledge at least to before the year 1410; and that year sticks in my mind because it was the year of the Battle of Harlaw when a Maitland kinsman of mine was Provost of Aberdeen, and he led the victorious Aberdonians in the battle.
My Lords, one accepts the aims of the noble Lord, Lord Balogh, and of the Government; indeed, the noble Lord himself appealed to us to search for areas of agreement. To use his words in the last debate we must:meet the urgent need for efficient and continuing development of the United Kingdom's petroleum resources."—[Official Report, 23/7/75; col. 327]We need adequate control over, and adequate revenue from, the oil and gas, and finally we must get the balance right, as he put it, between the national interest and the oil companies themselves. In our submission all of those objectives could be obtained by means of tax.
But I wish to support my noble friend Lord Strathcona and Mount Royal who was put in a spot just now by being challenged as to the Tory attitude to participation in future. I have always been in favour of a carried interest provision in future licences. I have always been in favour of that as a basis of a bipartisan policy. But this Bill flies in the very face of fact, of logic and of experience. Relative to BNOC we were told the other day—and it was said again today—that participation necessarily 1967 involves the creation of a State oil company. What are the facts? First, we have the considerable success of the British Gas Council and of the National Coal Board exploration company. The National Coal Board exploration have more North Sea oil and gas now than either Gulf, Texaco, Standard Oil of California, Union of California or Burmah. What about the logic of it all? The British Gas Council is to carry on outside BNOC. This seems very strange, particularly when they have been so successful. There is much more to be said for having their competition, the British Gas Council and NCB, on the same lines as Norsk Hydro—people forget about that—which has a State participation of 51.4 per cent., and Statoil. Then if British national partnership is the aim, why not sell the 50 per cent. of the BNOC stock to the British public as the Canadian Government are doing with the Canadian Petroleum Company which is their chosen instrument for State intervention?
Questions have been asked, and I stress them again, about how BNOC is going to team up with private enterprise partners in the various consortia. We were told by the noble Lord in the last debate in one of those flashes of genial frankness that make him so endearing to us, that "BNOC will have a lot to learn. One of the advantages of participation in the current licences is that it will be able to learn the business". Surely, as a distinguished academician, the noble Lord, Lord Balogh, must agree that the pupil-teacher relationship does not work in universities unless the pupil is willing to learn instead of trying to take administrative and policy decisions.
How will the consortia, with BNOC in it, arrive at their best policy decisions? This is a point that was raised more than once this afternoon. There will be hideous dichotomies of judgment; they are inevitable when 49 per cent. of the consortia are going to be subject to the petroleum revenue tax and 51 per cent. exempt. The authors of this Bill are flat-earthers.
What about overseas experience? The noble Lord, Lord Balogh, invited us to look at it in a worldwide context. Let us see what has happened! In the last debate we were told that "with the exception of the USA, every major oil producer is developing State participation 1968 in the oil industry". Let us look at some illustrations. Norway: without retrospective revision of licences; without the State forcibly seizing on the oil companies' oil for Statoil; and without subsidising the State's oil by tax exemptions. Look at Denmark! The same applies. What about Holland? The same again. And Ireland? This country, too, follows the same pattern. Australia, the same again; New Zealand, the same again; Canada, the same again. The pattern of experience is not wholly to be dismissed. In addition, Canada, with her State interest, has needed to reverse both the federal and Albertan policies in order to arrest the flight of the oil experts and companies. And even having done that—and perhaps in conjunction with it—Canada is still honouring her natural gas obligations to the USA, although those obligations are distasteful, inconvenient and even burdonsome."Dictum meam pactum"—"My word is a bond; a bond is a bond". What about Australia? There the State policy has simply killed new exploration. Only the flat-earthers could ignore such experience.
We have had glowing talk of glowing prospects. This is digging into existing capital with a vengeance. We were told last time that Britain should be capable of producing between 100 million and 150 million tons per annum through the 1980s, perhaps more. That is at column 327 of Hansard of the previous debate held on 23rd July. What are the facts? A figure of 1,500 million tons over 10 years requires a minimum reserve of something like 2,500 million tons to allow for the build-up between now and the 1980s, and also to allow for the tailing-off in the 1990s; and 2,500 million tons are the minimum proven reserves needed to sustain the kind of programme which the noble Lord has proclaimed, and in which he has followed, it would seem, his Tory predecessors.
What, indeed, are the facts? Proven reserves at this moment, according to the Brown Book, are not more than 1,000 million tons. These are distributed among 13 fields that are now under development. I will come to the new discoveries in a moment. With such a shortfall, it is necessary to start now on the development of other fields and fiscally and politically to encourage this. Just hearken, my Lords, to this list of the 1969 great, neglected, undeveloped discoveries, some 13 of them: Alwyn, Andrew, Brae, Bruce, Crawford, Hutton, Josephine, Lomond, Mabel, Maureen, Magnus, Tern and the British sector of the Statfjord field. What is holding them back? Only a flat-earther would be blind to this fact.
Then we were told that we must,continue to attract the oil companies' investments and support their activities".The smaller fields of 300 million barrels can be developed only if they are unencumbered by a shotgun marriage to a partner so virginal that she admits to needing training, yet this innocent virgin is insisting on more than half the estate before the marriage is consummated. I often wonder how the flat-earthers got married. Just listen to this, my Lords. Here is a flat-earther turned preacher with an almost evangelical fervour. At column 336 of Hansard in the debate on 23rd July he said:…the last 12 months have seen oil developments coming to fruition.The present development work was committed before the Government started intervening. The flat earth preacher goes on, carried away with his enthusiasm. So at column 336 of Hansard he said:There have been no less than 17 discoveries, 12 of them since the end of March.These 12 discoveries amount to no more at present than shows of oil. A show of oil is very different from a reservoir. Two or three may not prove commercial, three are likely to prove commercial, half a dozen may never be developed at all. The flat-earther geographers cannot distinguish between a showing and a real developable find.
Then we have had all this talk about free negotiation, voluntary negotiation. The noble Lord, Lord Strathcona and Mount Royal, was right when he said that perhaps we shall never agree across the Floor of the House as to what each side means by "free". How on earth is it possible to have free negotiation between unequal partners when, on the one hand, there is the Government able to take power to control, regulate and tax as much as they like? Have the flat earthers ever tried free negotiations with a gunman? Have they ever tried free negotiation with a hijacker or with 1970 the Japanese Red Army? If one chap has got the gun, then negotiation is very far from free.
Just listen, my Lords, to the innuendo here, and now I am quoting the noble Lord—my noble friend—Lord Balogh, in column 335 last time:The Government can carefully choose one company to receive a potentially valuable licence.After that threat I ask: will the Government guarantee publicly that any company or consortium not accepting the terms of participation will not be the victim of discrimination in the future; for example, in the next licensing round? Can the "flat-earthers" not read? Let us listen to Mr. Harold Lever, speaking on 20th February. I quote:It was very possible, if they"—that is, the oil companies—did not agree to State participation, that the Cabinet could feel free, and indeed might feel obliged, to nationalise that portion of the licence that they thought right.
Free negotiation! We have been told many of the results already achieved, and let us have a look—Burmah, Tricentrol, Blackfriars and Deminex. To how much of the discovered reserves do they have access—not more than 4 per cent. Those companies fell into the trap only because they were at the end of the road financially, as the banks would not finance them under the threat of PRT, and BNOC; the Government had to come in with a guarantee. What about BP? We have been told, "Ah, BP have agreed". BP already had a strong Government interest in their company. As we understand it, they have accepted the principle. We also understand—and perhaps the Government will deny this if it is untrue—that they have accepted the principle with a major qualification, which is that there shall be no financial change. Have the final arrangements been held up as regards BP, because this guarantee has yet to be written in? Like the "flat-earthers", I, too, am eager to be away to my bucket and spade. I shall not detain your Lordships any longer, but I warn the Government that the "flat-earthers" are in danger of falling off the edge.
§ 5.38 p.m.
§ Lord WYNNE-JONES
My Lords, like the noble Lords who have spoken earlier, I should like to congratulate my 1971 noble friend Lord Kirkhill on his splendid introduction to this House. We shall all look forward to hearing him speak from the Front Benches, especially since we have noticed the brevity of his speech today.
The noble Earl, Lord Lauderdale, always gives us very good value for money. I think that he probably gives even better value for money when he observes my noble friend Lord Balogh sitting on the Front Bench opposite to him. I was not very certain today when he started off by referring to his associations with Aberdeen—or perhaps it was his ancestors' associations with Aberdeen—when it seemed to me that perhaps he was trying to inveigle the noble Lord, Lord Kirkhill, into some sort of cabal, shall we say? But he continued with many interesting and fascinating remarks. He moved over the whole range of oil company policy. At one moment the British National Oil Corporation was, I think, "an innocent virgin", but a little later it was suddenly transformed into a hijacker, a gunman and even into the Japanese Red Army; so that one really began to wonder at this—was it a many-headed monster he referred to? Indeed, one began to wonder what sort of monster the noble Earl was building up in front of us. This British National Oil Corporation is something which is being set up to do a necessary job for the people of this country. It is in order to ensure that the oil of the North Sea and indeed of any other part to which we have access should be under proper national control.
The noble Lord, Lord Avebury, earlier on referred, I thought in a quite important way, to the fact that we had no permanent resources of oil; that all such resources are necessarily limited in time, and it was therefore quite essential that we should have national control over the whole exploitation of such resources. But it is much more than that in this particular case. It is true that the long-term objective is extremely important. It is also true that all the developments which take place from winning oil should be properly considered nationally. I have little doubt that in the long run we shall move a lot further in this direction I do not pretend that what we are doing today is the end of the road at all; it is not. But it is an important step in order to start thinking properly about how we 1972 exploit, how we use, the oil resources of the country.
The noble Lord, Lord Ironside, quite rightly referred to the European Economic Community. Mention of the same matter was made by the noble Earl, Lord Lauderdale. This question of what the European Community, working through its Commission, tries to do with the oil resources of this country is an extremely important one. Under the Treaty it has the right to put forward proposals. If these are passed by the Council of Ministers, they will be operative. Those of us who have been trying to look into this matter for some little time (and the noble Earl, Lord Lauderdale, indeed has been chairman of a Committee of this House doing this very job) know perfectly well that the Community is making proposals which have to be considered very carefully and critically inside this country and indeed every other country which is part of the Community. I am not saying that the proposals are wrong. I am merely saying they are proposals which must be looked at with extreme care.
One of the difficulties at the present time is that, except for a relatively small number of experts—sometimes referred to, not inappropriately, as so-called experts within Ministries—we have no national body which is capable of answering on this field of oil. The corporations which are dealing with it, extracting the oil, exploiting the resources, are not in the main national corporations, part of this country; they are international corporations. The British National Oil Corporation should be able to build up expertise to do this job thoroughly and competently. In my opinion, it is much better that such a job should be done by a commercial corporation rather than through an ordinary Civil Service. I do not think it is a Civil Service job. The Civil Service can do an excellent job, but I do not think it is its function to bring the kind of expertise that is required into examining this whole position. I believe that the British National Oil Corporation can play an absolutely vital part in doing this. So, far from denigrating it, laughing at it, talking about "flat earth" and so on, I would say, rather, that the British National Oil Corporation is a well-rounded conception, not "flat earthian" at all; that it is something which can properly look at and tackle 1973 this problem. And this is, in my opinion, an extremely important problem.
The noble Lord, Lord Ironside, also made reference to another point which I should like to take up; that is the question of research. There is in this Bill singularly little reference to research. One would have thought that in a field like this, research was absolutely essential. It may be said that plenty of research into oil is already being done. It is true that an enormous amount of research is already being done and that it is unnecessary to duplicate that research. However, there must be a commitment to research, otherwise this major national oil corporation will not, in my opinion, succeed in making the real progress that we expect it to make.
The noble Earl, Lord Lauderdale, referred to the lack of effectiveness in, for instance, much of our steel industry. With regard to the problem of North Sea oil, it is a well known fact that large diameter pipes have not been produced in this country and that there were no facilities for producing them, but that was before the British Steel Corporation was set up. This complete failure to produce what was required for North Sea developments was due to the private steel industry. The British National Oil Corporation can lay emphasis upon what is required. If a research organisation is set up, it can make clear to bodies like the British Steel Corporation and, indeed, to the whole of British industry, what will be required for North Sea developments. Together with the noble Lord, Lord Ironside, I place great emphasis on the necessity for co-operation between the whole range of our industry and such a body as the British National Oil Corporation. I agree with him also that it is vital that the British National Oil Corporation should be able to place contracts for research with a number of organisations throughout the country. The Corporation can do this only if it has a research organisation. Therefore, when my noble friend replies to the debate, may I ask him to give us some hope that it will be considered that an important part of the work of the British National Oil Corporation is to undertake the research that is appropriate to what it is going to do so that it can build up the expertise that is required to make it 1974 not just a paper organisation—that would be madness, that would be folly—but something which will play an absolutely vital part in the development of our oil resources.
There is one other point to which I wish to draw attention, and I do so to seek information. On page 24 of the Bill, I notice that reference is made to inspectors and matters of safety. That is very appropriate, but not so very long ago we passed the Health and Safety at Work Act. If one looks at that Act, one sees that a Health and Safety Commission has been set up and also a Health and Safety Executive. As I understood it, these bodies were supposed to act for the whole of industry. I was critical about this at the time and pointed out in your Lordships' House that I thought it was a mistake to confuse the health and safety regulations and the Inspectorate which are required in coalmines and chemical works with what is required in the more ordinary type of engineering works. It seems to me that this Bill sets up its own Inspectorate which will be quite separate from the Health and Safety Commission and the Health and Safety Executive. I personally hope that it will, but it seems to me a little odd that we have passed this Act, which is supposed to unify the whole question of health and safety, and that this Bill should set up its own method of dealing with it. I do not know whether my noble friend can explain this point to me when he replies. I hope that your Lordships will regard this, not as a trivial, unimportant or even "flat earthian" concept but rather as something which is a vital contribution to the future of this country and to the proper utilisation of the resources of this country.
§ 5.50 p.m.
Lord CAMPBELL of CROY
My Lords, I should first like to join in the congratulations to the noble Lord, Lord Kirkhall, upon his maiden speech made, if I may say so respectfully, with such ease and confidence that I am sure all others who have made maiden speeches envy the way in which he did it. We look forward to hearing from him on many occasions because it is so clear that he has a great deal to contribute to our deliberations. I am especially glad to have been able to hear him in the last debate before the Recess, since 1975 we have known each other for some years and I am well aware of his distinguished tenure of office as Lord Provost of Aberdeen. He had to deal there with the unusual situations and problems which arose in recent years as the offshore oil industry developed fast in and around Aberdeen, so he is well qualified to take part in this debate. I should also like to congratulate him on the announcement this morning that he is to be a Minister at the Scottish Office, and I wish him well personally in that appointment.
I should like to join the noble Lord, Lord Balogh, in applauding the contribution as a Minister which the noble Lord, Lord Hughes, has made over a long period, both in your Lordships' House and in the service of Scotland. We look forward to seeing him from time to time. I know that on occasion I shall see him in Scotland, but I am sure your Lordships all hope that we shall see him frequently here again.
With regard to the Bill, I will not repeat the comments which I made in the previous debate on 23rd July; I will simply summarise what I said about the BNOC, that this kind of juggernaut is inappropriate, unnecessary and more related to politics than to winning oil. It would be comprehensible if the Government wished to delay the winning of oil in the next few years, as indeed the Norwegian Government does in the case of the Norwegian sector; but the Government agree with us that over the next five to six years we should try to win all the oil we can from the British Continental Shelf. I am not sure whether the noble Lord, Lord Avebury, had mistaken what has been said in the past, because I think he was suggesting that both Front Benches here were in favour of going all out to obtain as much oil as possible up to a peak in the 1980s and continuing up to the end of the 1980s. That is certainly not our policy. I think he was right in quoting me at another stage as saying that I thought we should try to get as much oil as we possibly could up to self-sufficiency, which is about 1980–81. We have certainly not suggested from this Bench that we should then continue to go all out to get as much oil as possible at peak production. We think that in the 1980s the annual production should 1976 be regulated according to optimum depletion rates, and that of course is something that we shall come to in the course of considering this Bill in detail.
As a country we cannot afford the money for these schemes, nor can we afford the time which they will absorb. This would be so in normal times, but in the present state of our economy the main proposals in this Bill can only be described as folly. Offshore oil is providing an uncovenanted opportunity, if we act with urgency, in improving our sagging economy. I said in the last debate that I do not regard it as a panacea for all our economic ills, and I must repeat that; but it certainly is an uncovenanted opportunity. How will history pronounce upon this Government's reactions? Perhaps that providence threw Britain a lifeline, but we only played tug-of-war with it.
The device of the Government of having two debates has enabled discussion to extend over a wider field than the single debate of the 23rd July. The main points in the Bill have been referred to again, and we on this side have registered our principal objections. Since the last debate the Government have had time to prepare replies to the points raised then, because many questions remained unanswered at the end of that debate. I can assure the Government that they will be in absolutely no danger of repeating themselves today if they decide in the winding-up speech to reply to some of these points. What was astonishing in the attitude of the Government in the debate on 23rd July was that they appeared to be speaking to the same old brief, that there was no slowing down in the North Sea operations, that no slowing down had occurred or was occurring. I think this is part of what the noble Earl, Lord Lauderdale, characterised as "flat-earthing".
My Lords, we would have thought that the Government would have discarded this attitude in the face of all the evidence, also because the new Secretary of State for Energy has himself admitted to the falling-off in platform orders for the United Kingdom Continental Shelf. He did this on a visit to Scotland. I quoted him in the last debate. Since then—and this is important—he repeated what he said in another place last week, in the 1977 Third Reading debate on this Bill. He spent a considerable part of his speech on the subject of the shortage of platform orders, and gave the latest estimate of the orders up to 1980 for the United Kingdom sector of the North Sea. The latest estimate is 53, with a bracket of possibilities ranging from as low as 43 up to 61. He confessed that this was a cause of concern. The figure is considerably less than the estimate which the Government gave last year, when the bracket was 55 to 80. Your Lordships will notice that the estimate of 53 is less than the lower end of that bracket last year, of 55.
In the debate on 23rd July, the Government tried to explain that the reduction was due to the capacity of platforms being increased from 24 to 36 wells and the noble Earl, Lord Lauderdale, immediately pointed out that this change was well established some time ago. The Secretary of State for Energy again has been much more frank. In the Press he was reported as stating that it was not easy for the companies to accelerate orders for platforms when the exact spot for which they were needed was not known; in other words, unless exploration, appraisal and development are continuing apace the platform business flags. I will say more in a minute about the rate of activity in the North Sea, but the new Secretary of State for Energy is not concerned to continue the old story. He appears to be apprising himself of the facts and speaking openly about them. I am glad to see that a fresh look is being taken at the situation.
My Lords, let us look at some of the reasons causing delay and reduction in platform orders; first and foremost, the difficulties of raising finance and of making estimates of profitability of oil fields in the light of known Government proposals such as taxation, and the uncertainties about unknowns such as 51 per cent. participation. During his speech on this Bill last week, the Secretary of State for Energy stated in another place that the Government were giving support for a fabricating yard at Hunterston in the South-West of Scotland and that a guarantee was forthcoming from the Government covering loans of £1.5 million. This would cease to be operative when the consortium in question had received an 1978 order. An announcement had been made about this a day or two earlier, and in the Press the amount reported was £11.5 million. The decimal point seems to have moved about in the figures, so I would ask the Government to announce whether the figure is £11.5 million or £1.5 million as was reported in Hansard of the other place. What is the right figure?
Apart from Hunterston, there is also a platform-building site being prepared at Portavadie in Scotland. Government support is also being given to that. But there are still no orders for that, or indeed for the Hunterston project. I hope there will be, as I am sure all noble Lords do. What is the financial position? What will happen if in fact no orders are forthcoming? How long are the Government going to wait for an order before taking some other action? We should be grateful if that could be explained, if not today, then before we come to the Committee stage of the Bill.
It is disappointing and disquieting to observe this slowing down in platform orders, acknowledged by Mr. Benn. I recognise that there are more difficulties in the construction of concrete platforms than with steel, and this I predicted in my Statement, as the Minister concerned, on 31st January 1974 in another place, when I proposed action to deal with the difficulties of concrete construction and suggested changes in planning procedures. The change of Government intervened and those proposals were, unfortunately, not followed up. But it has been some comfort, at least, that we did make a flying start in 1971 and early 1972 with the steel platform fabrication yards.
I was glad to be present at the naming ceremony of the platform Highland II at Nigg Bay a few weeks ago, and at Nigg Bay and elsewhere they have not forgotten that accelerated action enabled planning permission to be granted there, and in other places in Scotland, in a matter of a few days, without a public inquiry which would otherwise have occupied the best part of a year. That was at a time when only a small proportion of the North Sea oilfields were known. It is encouraging that that platform, Highland II, was completed ahead of schedule. I would ask your Lordships to note that. There were delays in earlier platforms, because of design changes and other troubles, but I think it is encouraging that this most 1979 recent one was completed ahead of time. The worrying questions now are where and when are the new orders going to arrive. As the Secretary of State for Energy indicated, platform orders can hardly be placed until companies know where the platforms are to go in the fields.
This brings me to exploration and activity. On 23rd July I mentioned a survey which had been undertaken, and this was done by confidentially consulting each operator in the North Sea. It was carried out by the United Kingdom Offshore Operators Association. As a result, an estimate was given that the average number of rigs operating in 1976 in the British sector would be 20. I asked the Government whether they have made an estimate, because, of course, that is a great reduction on what had previously been expected, and it is a measure of the amount of activity in the North Sea. Again, if the noble Lord cannot give the answer at short notice in his winding-up speech, can he let me know what the estimate is or whether they agree with this estimate? I understand that the Secretary of State for Energy was provided with it some weeks ago. I hope they will let us know in writing during the Recess before we come to discuss the Bill again.
The points on which we invited explanation from the Government at the last debate and on which we have not had answers include the following. Why is the BNOC suggested in this form? We have not had an answer to that. The noble Lord, Lord Balogh, described to us today more about the BNOC, but did not explain why this form was necessary. It appears to be almost a part of the Department of Energy. The noble Lord, Lord Wynne-Jones, was saying that civil servants were not the right kind of people to man this kind of body, but the way in which this Corporation is to be set up makes it look as though it will be almost a part of the Department.
Then we come to the question of the exemption from petroleum revenue tax, to which my noble friend Lord Strathcona referred again today. The Government have stated their reason for the exemption, and that is to avoid money going from one Government pocket to another. They have also said that commercial discipline will be exercised for downstream activities. But how can the Corporation—and this is the question 1980 put in the last debate—fail to have an advantage in the oilfields when competing in development and production with companies, when they are not having to pay PRT as everyone else will? That is a question to which we have not had an answer.
Then, in relation to another taxation point, I noted that the noble Lord, Lord Balogh, referred to an inaccurate statement in the Scotsman today. Of course I take his word for it, but I also noticed something since the last debate in the Scotsman of 22nd July; that is, an article by the Parliamentary Under-Secretary in the Department of Energy, under his name. This raises the question of the ring fence, because that article stated something quite contrary to what the noble Lord, Lord Balogh, had told us in your Lordships' House. Since the Public Accounts Committee issued its Report in March 1973, many of us following these matters have been concerned that a ring fence should be erected well before any profits from our offshore oil could arise, but it is important to know where that ring fence is to be and exactly what it is to ring.
I quote from that article by the Parliamentary Under-Secretary:The Act created a ring fence around North Sea operations which prevents corporation tax being eroded by, for instance, companies setting capital and losses incurred in activities elsewhere against North Sea profits.When I queried this with the noble Lord, Lord Balogh, and said that surely it is the United Kingdom Continental Shelf and not the North Sea, he agreed in this House that it was the Continental Shelf, because otherwise when, as we all expect, oil is found in the Celtic Sea, and even more probably, off the West Coast of Scotland and the Western Approaches off Cornwall, it is important to know whether or not that is included within the ring fence. Our understanding is that it is within the ring fence, and we must get this established so that those who are following these matters closely, particularly in Scotland, and were concerned about the original PAC Report know where the fence is to be. Will the Government make that clear once and for all? If, as I suspect, the noble Lord is right and the article is wrong, perhaps something should be done to correct the misinformation which has 1981 gone out to the readers of that newspaper.
The Bill is reaching us at a very late stage before the Recess. It is also reaching us at a very late stage before the end of the Session. We shall return in September, and I am sure that we shall all be invigorated by taking some outdoor air and having some relaxation, but we shall then examine this Bill very fully and help the Government, if they persist with it, to make improvements to it.
§ 6.9 p.m.
§ Lord LOVELL-DAVIS
My Lords, I am as glad to embark on this last speech of the present energetic Session as I expect noble Lords will be to see me sit down when I finish, particularly if I try to cover all the points raised. Before I start, I have the agreeable duty of congratulating my noble friend Lord Kirkhill on his succinct, interesting, and helpful introductory speech in your Lordships' House. It has been said before, but it is none the less sincere for that, that we shall look forward to what he has to say on all occasions as he takes his place on this Front Bench.
We have had a useful and interesting debate, and although in length it has accorded more with the expectations than the hopes of my noble friend Lord Shepherd, it could scarcely have been otherwise, and I do not complain about that, for this is one of the most important Bills to come before Parliament, concerning one of our most important natural resources, oil and natural gas, and how its exploitation is to be organised and regulated. The noble Earl, Lord Lauderdale, who I see is not in his place, almost tempted me—and perhaps it is as well since he is not here that I did not rise to it—to start by launching into a political attack on the original activity, or lack of activity, of his Party in respect of North Sea oil. However, I think my noble friend Lord Wynne-Jones put the boot in for me, so I shall maintain the note of sweet reason first sounded by my noble friend the Minister of State. I will simply get his contribution into context now by replying to the assertion that all current development was committed before present Government policies were announced.
1982 Since the announcement in detail of the Government's intentions in the White Paper of last July, contracts for four major platforms have been signed worth well in excess of £200 million, together with substantial orders for equipment. There is no sign of Government policy causing a slowdown in development activity. The point has been made many times, but will bear repeating, that oil and natural gas together account for more than half our primary energy requirements. Oil alone accounts for 45 per cent.; it also accounts for some 20 per cent. of our current import bill and is equivalent in value to about 6 per cent. of our gross national product. This is a measure of the importance of the matters dealt with in this Bill, and an indication of savings in the balance of payments which the nation can expect in the coming years.
Before turning to the detailed points which noble Lords have raised in debate, I should like briefly to look at a few aspects of the Bill which have generally given rise to comment or are worthy of particular note; first, BNOC and participation—the two are inseparable. If the State is to participate in licences it must have the capability to play its full role. That means that it must acquire the expertise necessary to take informed and sensible decisions, and it must live day to day with the oil business and among the oilmen themselves. This needs a purpose-built organisation—one capable of involving itself in all aspects of the oil business. The noble Lord, Lord Strathcona and Mount Royal, said that knowledge could be better achieved by an independent agency, but such an agency cannot itself explore for and produce oil as the BNOC can. The only way to understand these things is to do them yourself.
The noble Earl, Lord Lauderdale, asked: why not use the British Gas Corporation or the National Coal Board, both of which, as the noble Earl said, have been very successful? But searching for and producing oil in the North Sea cannot be their main concern; we need a body to concentrate full time on it. The job cannot be done at arm's length from the industry. I wonder what sort of organisation a party of noble Lords 1983 opposite would establish if they had participation. Of course they would not participate in existing licences—perhaps not at all—but, as I pointed out during the speech of the noble Lord, Lord Strathcona and Mount Royal, at the beginning, they have steadfastly refused to commit themselves against it for the future. They might yet be grateful for the British National Oil Corporation and they are wise not to rule out participation entirely. The case for it is strong.
The noble Lord, Lord Strathcona and Mount Royal, raised the matter of the BNOC structure, and this is a point which was also raised by the noble Lord, Lord Campbell of Croy, on the exemption from PRT. We have said that in partnership BNOC will behave like a private sector partner. Exemption from PRT will make no difference. We are discussing these matters with the industry. The noble Lord, Lord Strathcona and Mount Royal, said that foreigners would be suspicious of BNOC, but the National Iranian Oil Company has a licence in the North Sea and Statoil has licences on the Dutch Shelf, so these two State oil companies have successfully expanded beyond their own countries. He also said that BNOC may take slow decisions, but by common consent the NCB and the British Gas Corporation have been very good partners in the North Sea.
A matter also raised in connection with BNOC by the noble Lords, Lord Avebury and Lord Campbell of Croy, concerned the total cost of participation. First, regarding time, participation will not cost the Exchequer money since the outlay will be recovered with remuneration; and, secondly, we shall aim to get the recovery and the remuneration quickly.
§ Lord STRATHCONA and MOUNT ROYAL
My Lords, may I interrupt the noble Lord, because I am not sure what he is saying? He says that it will not cost the Exchequer money, presumably because it will earn a return. Is he aware that I asked whether it would bring in new money? I do not know what the noble Lord means by the expression "cost money", because we are talking about cash flow, are we not?
§ Lord LOVELL-DAVIS
My Lords, it will of course bring in money in terms of saving us extremely large sums of 1984 money on our balance of payments in time, and whether we decide to become exporters of oil will depend on whether or not it will bring new money into the economy.
§ Lord AVEBURY
My Lords, may I also interrupt the noble Lord? I ask aim to clarify a partial cash flow statement, as it were, that was given by Mr. John Smith, the Under-Secretary of State, in Standing Committee on 25th June. The noble Lord may perhaps not be able to answer this now, but during the Recess he might care to circulate to those who have taken part in this debate a notional cash flow for 1976 and 1977, so that we may see where the 51 per cent. payment occurs. This would be most useful for the further proceedings in Committee.
§ Lord LOVELL-DAVIS
My Lords, the fact is that participation has not been worked out to the extent that I could really do that. I could certainly clarify anything that the Under-Secretary said in Standing Committee, in so far as I am able to do so, but there is a limit beyond which I am simply not able to go at this time. I will, however, look into the matter for the noble Lord. I have already referred to the importance of oil in our economy, yet oil is the one important energy source where there is no direct public sector involvement. I do not say that we are badly served by the private sector oil companies. On the contrary, we admire them and are grateful for their skills, which have within a short space of time turned the North Sea into a major oil province. But the fact is that the interests of the large oil companies, with operations spanning almost the entire globe, and the interests of individual nations need not and do not always coincide, a point that the noble Lord, Lord Strathcona, conceded in his opening remarks.
The noble Lord, Lord Avebury, also referred to a specific aspect of this; not necessarily the reconciliation of interests but the importance of proper depletion control, as provided for in this Bill. We are going for early and rapid build-up, because of the enormous security and balance of payments advantages, and because investment for production until the end of the decade is already committed. There is a lot in the old adage that if you want a job well done you are best 1985 doing it yourself. With our own capability through participation with BNOC, we shall be in a much better position to pursue, as we want to pursue, a policy of partnership with the private sector on equal terms. The noble Lord, Lord Avebury, referred in this connection to the business of being neither better nor worse off. The details are a matter for negotiation and in negotiations one cannot predict the outcome or show one's hand.
We shall, of course, take into account investment already incurred and, in this respect, I wish to refer to a point raised by the noble Lord, Lord Ironside, on the subject of BNOC and research. The BNOC clearly has powers to carry out research under Clause 2(2)(b). Adequate research and development will be one of its main functions. Under Clause 2(1)(f) it can also provide research services and training facilities to other persons, but it will not cut across the work of the Petroleum Industry Training Board—I am sorry I said "main" functions, I do not mean "main" functions: but one of its functions. I remind noble Lords that in opting for participation we are taking the same route as—
§ Lord IRONSIDE
My Lords, before the noble Lord goes on to his next point, is he able to say whether the BNOC will have powers to sponsor research in addition to being able to carry it out?
§ Lord LOVELL-DAVIS
Yes, my Lords, of course it will. I remind noble Lords that in opting for participation we are taking the same route as every other major oil or gas producer, apart from the United States—and even there there is, to say the least, a body of opinion which believes that they have been less than ideally served by leaving it all to the oil companies and the play of market forces. The noble Lord, Lord Strathcona and Mount Royal, said that it was unnecessary to set up the BNOC and that it could be left to the oil companies. Therefore I had better take the opportunity of quoting some examples of other Governments who have adopted participation: Norway, the Netherlands, Ireland, Canada, Australia, New Zealand and Denmark. It happens that the Norwegians and the Irish have accepted participation in carried interest form, a 1986 principle which the noble Earl, Lord Lauderdale, apparently endorses.
My Lords, one would expect noble Lords opposite to show more enthusiasm for participation, representing, as it does, the essence of the mixed economy; a combination of private initiative and social consideration; the best of both worlds. Criticism and suspicion have also centred on the National Oil Account. In another place, on Third Reading, Mr. Jenkin, presumably in a desperate search for phrases memorable enough to obliterate earlier pronouncements more relevant to oral hygiene than energy conservation, described the NOA as an "open-ended slush fund to finance State socialism". It was a good try, though it loses some of its effect by being wide of the mark. The fact is that the National Oil Account will fulfil two functions. First, it will provide for Parliament and public a convenient account—a record—of the revenue and expenditure arising from the issue of licences and the operations of BNOC, and one which will be subject to the scrutiny of the Comptroller and Auditor General who, of course, is the servant, not of the Executive, but of Parliament.
If obfuscation and evasion were the Government's purpose one might be pardoned for thinking that they have been remarkably maladroit in achieving them. But the NOA does something else besides. It is a fact that the sums of money which will accrue through participation, especially in future licences where BNOC might be sole licensee, will be very large indeed. These sums belong to the nation, and it is right that they should be available to the nation without difficulty or delay for meeting the cost of public expenditure in accordance with the Government's priorities. The Party opposite do not dispute this; they continually advocate it. What they do not realise is that this is precisely what the National Oil Account achieves. Under Clause 40 of the Bill all BNOC's revenues are surrendered to the National Oil Account whence they can be transferred to the Consolidated Fund. Without these provisions these very large sums of money would remain with BNOC.
I should not like to leave this debate without saying a word about the licence changes. Noble Lords, including the noble 1987 Lord, Lord Strathcona and Mount Royal, have objected that these changes are to apply to existing licences and that there is no provision for compensation to be paid to licensees. The noble Lord, Lord Strathcona and Mount Royal, spoke of revocation of licences. This is not correct. The licences will continue with new terms. The noble Lord also said that we could control depletion through the new licences. This is not practical since current licences will cover the great bulk of production for years to come—
§ Lord STRATHCONA and MOUNT ROYAL
My Lords, I admit that this is more of a Committee point, but since the noble Lord has raised it, I cannot let him get away with it. Is it not a fact that if a company is asked to drill in a certain area and it declines to do so on economic grounds, then the Government have the right to revoke the entire licence, which may or may not be part of that field?
§ Lord LOVELL-DAVIS
I think that that is a very simple statement of the situation. I think it is far too simple. It contains an essence of truth, but there is far more in it than that.
§ Lord STRATHCONA and MOUNT ROYAL
My Lords, it cannot be denied that they have the right to revoke.
§ Lord LOVELL-DAVIS
My Lords, they have the right to change under certain conditions and perhaps they have the right to revoke; but we are not talking about revocation.
§ Lord STRATHCONA and MOUNT ROYAL
But the noble Lord is talking about it.
§ Lord LOVELL-DAVIS
My Lords, I think we will leave it to the Committee stage. It is rather late in the day.
The noble Lord also suggested renegotiation. There are over 200 licensees. Is it really practical to negotiate all the changes in the Bill with so large a number? My noble friend Lord Hughes referred to this matter when he spoke on 23rd July. Of course the unilateral variation of contracts is to be regretted. So, too, is the fact that variation has proved necessary.
My Lords, I welcome back the noble Earl, Lord Lauderdale. I shall 1988 have some remarks to address to him in answer to some of his questions. I do not wish to rehearse the argument about what degree of blame attaches to whom for the present situation; but the fact remains that the complete absence of power over depletion, over exploration of the initial six-year term and over certain dealings in licences and in licensed companies, was simply not acceptable, given that production up to 1980 (which will give us self-sufficiency in oil) will come from fields already licensed. The Party opposite do not deny this.
Mr. Jenkin, on the Third Reading of the Bill in another place, accented the need for tighter controls. I would point out, as my noble friend pointed out, that we are not making illegal anything that was legal when it was done. We have consulted very extensively with the licensees and have sufficiently amended the provisions to take account of their representations. Of course they are not entirely content; of course they would wish to be compensated. But these powers are taken in the national interest and, just as when Governments change rates of taxation or the value of a currency there is no question of compensation, so here I believe that we have acted fairly and properly in the national interest. We welcome the oil companies' investment in the North Sea. We want to see them stay there and to increase their investment. We want them to earn a fair return and we want to work in partnership with them. But we want it to be a fair partnership which takes account of national as well as commercial interests.
Finally, my Lords, I should like to say a word about two topics which although not arising directly from the Bill are of considerable interest. They are platform sites and the level of exploration activity offshore. The Government have announced support for the construction of a platform development site at Hunterston (to which the noble Lord, Lord Campbell, referred) and steps are being taken to see whether a more even spacing of orders for platforms can be achieved. I do not wish to dwell on the detail of these questions. I recognise that there were some questions raised by the noble Lord, Lord Campbell, to which I should like to reply; I shall certainly also take up some of them in writing; and the rest we shall have to discuss in 1989 Committee. Such matters as I mention are mentioned to highlight the Government's continuous concern that British industry and British workers should benefit from the very lucrative onshore market which North Sea oil has brought into being.
Secondly, the level of activity. We often hear from members of the Party opposite—as we have heard this afternoon from the noble Lord, Lord Campbell of Croy—sour comments that activity is declining, and they are only too ready, it seems, to lay the blame at the Government's door. But, in practice, events confirm that the momentum of exploration activity has not been lost. On average, just over 30 rigs have been operating on the United Kingdom Shelf in the first half of this year, and this is more than ever before in a comparable period. I answered questions on this very subject addressed to the Government by the noble Earl, Lord Lauderdale, and I thought that we had made our case. Twelve new discoveries of oil have been made since the Brown Book was published in April—
§ The Earl of LAUDERDALE
Will the noble Lord give way for one moment?
§ Lord LOVELL-DAVIS
I do not think I will give way. The noble Earl has missed most of my speech. The hour grows late.
Lord CAMPBELL of CROY
My Lords, as the noble Lord mentioned me, will he give way to me? We had an answer regarding 30 rigs in the first half of this year from the noble Lord, Lord Hughes, in the last debate. The question I put was about the estimate for 1976, which the United Kingdom Offshore Operators' Association produced and has sent to the Secretary of State, that on average there will be only 20 in 1976. It was to comment on that that I put the question.
§ Lord LOVELL-DAVIS
My Lords, I have with the noble Earl, Lord Lauderdale, bandied about with the number of rigs in the area. If I remember correctly, the figure last time was something over 29, when we had forecast 30. The important thing is the level of activity which is what I am talking about. As my noble friend Lord Hughes said 1990 in the earlier debate, one of our main reasons for the reduction in our estimate of platform orders is that the technological progress, especially with subsea completion, has enabled the companies to plan for, on average, a smaller number of platforms for discovery.
We have now had the first month's production from the Argyll field and, if all goes well, three more fields will be in production by the end of the year. I believe the signs are set fair for the nation to grasp to the full the opportunities which our offshore oil presents. I turn now to some of the detailed points which have been raised. I hope noble Lords will understand why, at this stage, I may not be able to cover all of them, but must, perforce, leave them to the Committee stage.
The noble Lord, Lord Ironside, asked me whether the BNOC would be able to borrow from the EEC. In fact they can borrow under Clause 6(2)(a). He also asked me why Part III of the Bill was necessary. We could not have taken powers over pipe-lines under the Mineral Workings (Offshore Installations) Act to which he referred. This does not apply to pipe-lines, and I understand it really covers only safety. The noble Lord, Lord Avebury, asked me what would be the situation vis-á-vis recruitment of staff for BNOC. We cannot say; BNOC has not been set up yet. Norway's Statoil has found no difficulty in building up rapidly to 200. Their annual report says there have been several candidates for each vacancy. He also asked why we were not proceeding more slowly. If participation has benefits, the sooner we get them the better. The most important point is that if we were to go more slowly, this would only prolong uncertainty.
My noble friend Lord Wynne-Jones is not with us and I shall leave my replies to him until I see him at a later date. The noble Earl, Lord Lauderdale, asked: why not give the public 50 per cent. of BNOC? This would defeat the objective of giving adequate Government control and take. I should point out that the noble Earl is wrong in saying that the public own 50 per cent. of Petrocanada.
§ The Earl of LAUDERDALE
My Lords, will the noble Lord allow me to intervene now? I missed the earlier part 1991 of his speech because I was trying to put some verbs into my own prose. I apologise for not having been here earlier. What I said was that Petrocanada were now preparing to offer to the public 50 per cent.
§ Lord LOVELL-DAVIS
My Lords, this is not how I understood it. Maybe the noble Earl is right. It is in fact true of the Alberta Energy Company. There are a number of other points which were raised, and it is rather difficult for me to cover them now. However, since the noble Lord, Lord Ironside, was kind enough to let me know in advance some of the questions he was going to raise, I should like to deal with one point. He criticised the use of the word "things". This word had been used to indicate the widest possible variety of commodities that can be transmitted by pipe-lines—liquids, gases and even solids in suspension or floating in water. The term "things" was first used in the Conservative Pipelines Act of 1962, which relates to land. This has never given rise to any trouble or criticism over the years and so it was felt proper to use the same word for offshore pipe-lines.
I find it rather depressing to reflect that ever since I came to your Lordships' House, North Sea oil, which poses great and exciting challenges and offers the nation the prospect of vast rewards for its success, has so often seemed to many noble Lords opposite to be a subject only for criticism and gloomy forecast. One might have wished for a more constructive and optimistic response and, as my noble friend the Minister of State has implied, perhaps we shall find it as we proceed with the Bill. The industry, it is fair to say, has been more constructive and realistic. Indeed, I should like, as did my right honourable friend the Secretary of State in another place, to express the Government's gratitude to the industry for help and advice. Some noble Lords have said or implied that the industry may be deterred by the action taken by the Government in this Bill. Nothing could be further from the Government's intention.
We believe that this Bill is urgently needed in the national interest, but we are always ready to listen to legitimate points made by the industry and, as an 1992 earnest of this, we have made changes to the Bill in another place which, without affecting its principle, took account of points made by the industry about the practicalities of the operations in the North Sea. I hope that we shall continue to work with the industry in this way. Certainly they will find the Government very willing to consider sympathetically any points they bring up about the administration of the Bill when it becomes an Act.
We all know that this is an important Bill. It prepares the ground for the nation to reap the rewards that are its due in the coming decades from North Sea oil. The detail of the Bill has already been extensively examined in another place. Noble Lords will wish to give it further scrutiny, and when we resume in September we shall address ourselves to that task. Today we are concerned with the principle of the Bill. We believe it to be a good and necessary Bill. It is a Bill to protect the nation's inheritance for this and future generations. I invite this House to give the Bill a Second Reading.
On Question, Bill read 2a, and committed to a Committee of the Whole House.
Baroness LLEWELYN-DAVIS of HASTOE
My Lords, before moving the adjournment of the House, may we on this Bench wish noble Lords in all parts of the House a very happy and, above all, a restful Recess. I beg to move that this House do now adjourn.