§ 2.59 p.m.
§ The MINISTER of STATE, DEPARTMENT of ENERGY (Lord Balogh) rose to move, That this House takes note of Her Majesty's Government's proposal to establish the British National Oil Corporation and related proposals to meet the urgent need for efficient and continuing development of the United Kingdom's petroleum resources. The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper. Noble Lords will understand that I am grateful for being allowed to introduce the debate. This topic is one of the most important to come before this House in recent years. The issue is nothing less than the choice of policies the United Kingdom should follow as a major oil producer. It is hard, even now, to think of this country as a major producer, so rapid has been the change in the last few years, but that is what we shall be. Throughout the 1980s we should be capable of producing 100 to 150 million tons a year, and perhaps more than that in some years.
§ At this level of production our output will be as great as the present output of more familiar producers like Kuwait, Libya and Canada and we shall be one of the world's leading producers. The benefit to our balance of payments will run into tens of thousands of millions of pounds over the life of the oilfield. Having striven in earlier years to arouse interest in this great opportunity which Britain was offered, an opportunity which, noble Lords will recall, I have argued should be greater than it is, some of us are quite glad to see our labours bearing a good harvest for the nation. This is the sixth or seventh time that I have addressed your Lordships on the problem of British Shelf offshore oil and gas. I hope that as exploration work progresses there will be increasing reason to refer to the British shelf as a whole rather than to the North Sea. I hope, also, that our debate on this Motion will cover the whole background to the Petroleum and Submarine Pipelines Bill, and so ease the passage of that Bill when we receive it from another place.
§ Before I discuss the Government's policy in more detail, may I make three 328 general points? The first follows from what I have just said and will be readily accepted by everybody here. It is that it is enormously important to us to work out the right policies for the United Kingdom as a major oil producer. My second point is that getting the policies right is extremely difficult it is a matter of careful judgment and balance. In particular, we need to strike a just balance between the need for the Government to have adequate control over, and adequate revenue from, the oil and gas, and the oil industry's legitimate commercial interests which must in no way be neglected. The contribution which the oil industry has made and continues to make is remarkable. I would be the first to acknowledge this. The rapid development of the North Sea in the last few years owes a lot to their knowledge, resources and willingness to take risks. We must continue to attract their investment and support their activity here.
§ But I spoke of a balance with the nation's interests. I believe that the PAC Report has shown that the balance had not been secured in the 1964 Act, and the various licensing rounds that were undertaken by Governments formed by both Parties. Even a cursory review of other countries' policies, countries which were and remain successful in attracting and holding the interest of the companies, shows that we had failed to secure a fair share for the nation of God's splendid gift to Britain. Maybe the present balance was at one time right. That was when the North Sea was unexplored and the chances of finding oil had been proven only little. My own belief is that this ceased to be true as cumulative evidence emerged, exemplified in 1970 by Forties field, of one of the world's largest oil-bearing regions in the North Sea. By now it is beyond dispute that the public interest demands a new deal. The task that now confronts us is to get the balance right. By tilting it too much to one side or the other, the cost and the penalty might be very heavy, and we are in no position to forgo relief on our balance of payments of the magnitude which North Sea oil production promises. As we have been totally non-discriminating on the issue of licences, obviously foreign enterprise, and thereby the balance of payments, is being burdened.329
§ My last general point is this. I said earlier that it is still hard to think of the United Kingdom as a major producer of a vital raw material. But the revolution in our economic prospects brought about by North Sea oil must be accompanied by a revolution in our thinking. It is not easy to change the habits of thought appropriate to an oil-consuming and oil-importing nation. I shall say more in detail about this later, but I want to make straight away the fundamental point that in such a novel situation we must be willing to consider novel policies. Above all, we must not just look at what our own history and past political debate tell us would be the right policy; we must also look at the outside world, and try to draw lessons from what other major oil producers have done.
§ The Government's proposals were outlined in the White Paper of July 1974. Briefly they fell into four parts: new tax arrangements to increase the nation's take from North Sea oil and gas; participation by the nation in oil and gas; greater control by the nation over operations in the North Sea; and measures to help Scotland and the other development areas. Legislation has been put forward by the Government under all four heads. The Oil Taxation Act, which provided for the new tax arrangement outlined in the White Paper and which was debated in the House in April, is now law. The Bills to establish the Scottish and Welsh Development Agencies are now before Parliament. The remaining two objectives—greater national participation and control—will be achieved under the Petroleum and Submarine Pipelines Bill which is now in another place, and will I hope be coming before your Lordships' House very shortly. It is on one of the main proposals in that Bill that I should like to concentrate this afternoon.
§ Lord ORR-EWING
My Lords, would the noble Lord be kind enough to give way? Can he give us some indication of the programme? The Bill is still in Standing Committee in another place. The noble Lord said that he hoped it would be coming before your Lordships' House very shortly. There will be opportunities for a full Report stage to pass through another place, and also a Third Reading. I hope that before the Bill comes before our House we will have ample opportunity 330 to consider Amendments made in another place. When does the noble Lord foresee the Bill coming before this House?
§ Lord BALOGH
My Lords, I should not like to trespass on the duties as Chief Whip of the noble Baroness, Lady Llewelyn-Davies of Hastoe, because that course of action would be fraught with danger for me. Therefore, I suggest to the noble Lord, Lord Orr-Ewing, that he puts down a Question to the noble Baroness, rather than asking me. However, I hope that we shall get the Bill in due time before we adjourn. I am sorry I cannot be more definite, but it would be fraught with danger for me to trespass on that ground.
My Lords, let me take participation first, and admit straight away that to many people it is rather a bogy word. I am sure that some noble Lords would share this view. It reminds them of the familiar arguments we have had since the war about the rights and wrongs of nationalisation. I should like to take it out of that essentially British context and put it in a worldwide oil industry context. Participation is not the same as nationalisation. I cannot stress that too often; it is participation. We are not proposing to nationalise the North Sea. I repeat that participation is a means of partnership between the Government and the oil companies. Our objective is to obtain by negotiation—and when I say "negotiation", I mean free negotiation—51 per cent. participation in commercial oilfields regulated by current licences.
In the Government's earlier discussions with the companies, we outlined our general approach to the negotiations. In particular, we made it clear that it was not the intention of the Government to increase the level of Government take through participation. The level of Government take is determined by royalty, corporation tax, and the new petroleum revenue tax. Thus, the companies would be left financially no worse off as a result of participation; nor would they be left any better off. We are now discussing how this should be achieved.
My Lords, at the same time we outlined our proposals on the contribution that the British National Oil Corporation might make to development costs, and how it might be rewarded for any contribution it may make. In addition, we 331 expressed willingness to enter discussion about the disposal of BNOC oil, and about terms to be incorporated into operating agreements to ensure that minority interests are safeguarded. We believe that the proposals we are putting forward are fair and reasonable, and from reports I and my colleagues have received it would seem that the companies recognise this too—not only those companies which have publicly declared a willingness to enter into negotiations but others, too, who for one reason or another do not yet wish to make any public statements. I quite see their point. No longer do they see us as ogres but they recognise our desire to ensure that development is not delayed, and in particular that the interests of those who are putting up large sums of money, including the banks, must be protected.
The State Oil Company, about which I shall say more later, will enter into the consortia which exist to exploit fields as a 51 per cent. partner, the present private sector partners retaining the remainder. Here, then, is a practical example of the balance of interests I referred to earlier. The private sector will retain their stake and operational function. No one thinks that their knowledge and resources should be displaced. What will happen is that the State will acquire a direct title to 51 per cent. of the oil and the State Oil Company can learn from its partners what it needs to know if it is to develop, as we hope it will, a full national capability in all branches of the oil industry. This will take time, and no one expects the operators in existing consortia to be replaced. We are willing to enter into discussions with the industry to lay down safeguards lest red tape should be in the first period impede the smooth execution of development and extraction operations. But we have a duty and a right to know what is going on.
We have tried to evolve the details of our new order in close consultation with the industry. In a number of respects, to which I shall refer later, we have modified our proposals. I cannot pretend that the great captains of the industry are in all respects delighted. It would be unnatural for them to feel elation when a fat golden calf left unprotected in their field by unprofessional amateurish previous 332 Governments is helped to escape leaving behind it a thinner and smaller but still very delectable lamb.
§ Lord ORR-EWING
My Lords, as the noble Lord referred to all previous advisers as amateurs, perhaps he could give the names of the professionals who are advising the present Government?
§ Lord BALOGH
My Lords, I am. We shall see whether I have earned my naturalisation. I should like to ask noble Lords and them, once more to contemplate what we have done with objectivity and reflect whether they would or could in the circumstances have done otherwise. We could not leave operations vital to the country practically without any control, including control over the pipelines.
With the exception of the United States, every other major oil producing country in the world is developing State participation in the oil industry, without any exceptions whatever except the United States. This is true not only of the OPEC countries but also of such countries as Norway, Denmark, Holland, Ireland, Australia, Canada and New Zealand. Just recently Egypt, in dangerous waters liable to great physical risks, was able to attract the very same companies we are dealing with, obtaining up to 85 per cent. participation without payment or investment, with the profits on the remaining oil of between 15 and 25 per cent. being taxed at 50 per cent. I am sure noble Lords on all sides will marvel at our reticence. But we want genuine negotiations and willing cooperation, and we are willing to pay for it. I think in the long run that would be in the best interests of the country and of the companies.
I said earlier that we must be ready to consider novel policies and to draw on the experience of other oil-producing countries. It is in this worldwide context that I should like your Lordships to consider the Government's proposals. We are doing only what every other major oil producer has found it in its interests to do. The reasons are not hard to find. The dependence of modern industrial economies on oil, the worldwide nature of the oil industry's operations, the vast size of the resources needed; all these have dictated all over 333 the world the need for a direct Government stake in the oil industry.
Your Lordships, I am sure, will already be aware that four companies, Burmah, Deminex, Tricentrol and Blackfriars, have announced that they accept the principle of participation, and our discussions with them are continuing. More recently, the Chairman of BP has accepted on behalf of his company the principle of participation on the basis of the proposals put forward, and we have been in discussion with the company for some weeks regarding the details of an agreement. This is a very great step forward and I want to acknowledge it. I do not intend to give any further details of these discussions, since I do not think it is in either the nation's or the companies' interest that these negotiations should be conducted publicly. I can, however, inform your Lordships that we are also in serious discussions with a number of other companies, large and small, British and foreign, and I am sure we can reach a reasonable agreement with them. Your Lordships may also be aware that a number of companies who hold North Sea licences but who have not yet been successful in making a commercial discovery, have also indicated that they would be willing to undertake constructive discussions with the objective of achieving State participation in the event that they find commercial fields.
Participation necessarily involves the creation of a State Oil Company, and the proposals to set up the British National Oil Corporation are at the heart of the Petroleum Bill which I have mentioned. The importance of oil makes it essential for the nation to have a direct capability in oil exploration and production, and eventually, perhaps, in downstream operations. I said earlier that we recognised the value of the contribution made by the oil companies and we wanted them to continue to stay here. But it is only prudent to build up our own knowledge and expertise, only prudent not to remain fully dependent on the private companies. This is certainly the conclusion reached by other oil-producing countries, and indeed we have across the North Sea the example of the very recent, but already very successful, State Oil Company in Norway, Statoil.
Of course, we realise that the growth of the British National Oil Corporation 334 must be gradual. It will have a lot to learn, and one of the advantages of participation in current licences is that it will be able to learn the business from its private sector partners. Its rate of growth will depend on the participation negotiations and on the timing of future licensing rounds. Eventually, we want it to hold licences on its own account, especially as it can play a most important part in conservation, akin to the so-called Naval Reserves in the United States.
I said that the Government's proposals were for greater national participation and greater national control, and I should like now to describe the Government's proposals on control. I do not think anyone would argue against adequate national control over operations in the North Sea, and there are several serious gaps in our present arrangements. Let me give the House a few examples of them. First, there is no control over the rate of production. This is a particularly serious gap, given that oil and gas are finite assets of enormous value to the nation, and do in the ultimate belong to the nation. Future generations may pay heavily—and not so future either—if we do not control their depletion with care. At the same time, as my right honourable friend's Statement in the other place shows, we shall take into account the legitimate interests of the companies in pursuing the depletion policy and we have given them an assurance that for the moment that power will not be exercised.
Secondly, there is no obligation on the licensees to explore after the first six years. For the remaining 40 years they can hold the licence without having to do any further work. This is absurd. Thirdly, there is no adequate provision for the Government to receive certain financial and technical information from the licensees. In view of the importance of getting our policies right, I need not emphasise the need for the Government, and the nation, to be properly informed. Fourthly, there is no adequate control over the flaring of gas which is obtained together with oil. Flaring is sometimes unavoidable, but it always means the waste of fuel which the nation desperately needs and must, therefore, be rigorously limited and permitted only in cases where it is unavoidable technically.
Fifthly, there is no adequate control over dealings in licence rights. Licences 335 have been granted by discretion for no initial payment, except for one small block. The Government can carefully choose one company to receive a potentially valuable licence and then find that, in effect, the benefits of the licence will be enjoyed by another company. This is also absurd. The Government are proposing changes to close all these gaps. I hope that that illustrative list will have shown that no responsible Government, whether Conservative or Labour, could have done otherwise. We have discussed the changes very carefully with the industry and have made several adjustments to our original proposals in response to their representations.
I said earlier that we have modified our proposals in a number of respects and perhaps I should mention the three most important modifications. First, exploration programmes required additional to those relating to the initial term of the licence will only be those which a conscientious licensee with adequate resources would carry out anyway. Secondly, and perhaps most importantly, we have modified the provisions relating to depletion powers. From the time of the approval of the development programme, the licensee will know the maximum extent of cutback or increase in production which the Government can require; that is to say, neither they nor their bankers will be under any risk. Thirdly, in respect of pipelines, we have made it quite clear on the face of the Bill that a pipeline owner who is required to change the route of pipeline to accommodate a third party, which again is absolutely essential, is to be fully reimbursed. I would not say that the industry wholly accept these changes, but I hope they would agree that we have responded sympathetically and effectively to what they told us.
There are, of course, those who deny that we have considered the legitimate interests of the companies. They point to the level of activity in the North Sea, which they say will decline as a result of Government policies. I should like to call the attention of noble Lords opposite—and especially noble Lords on the Front, Second and Third Benches—to a Report of the NEDC about process plant. We have seen that their expansion is fully 336 in swing and that we are about to receive a number of further orders, and we cannot complain. The mobile rig exploration in the first half of this year was higher than ever before. There have been no fewer than 17 new discoveries, 12 of them since the end of March and therefore not recorded in the Report to Parliament. Enough oil has now been discovered to take us up to self-sufficiency by 1980 and beyond.
Secondly, the last 12 months have seen oil development coming to fruition. Seven production platforms have been completed, towed out and installed, and two more are on the way. One field is already producing oil, four will be on stream this year if all goes well, and seven by the end of next year. A very substantial relief will be afforded to our national income and our national balance of payments. Thirdly—and more generally—expenditure and activity necessary to lift us from being 100 per cent. oil importers to being self-sufficient are on an enormous scale. This level of activity will continue for a few years. What happens after that depends in part on the rate of new discoveries and perhaps on further offshore licensing by the Government, which is under contemplation.
I shall not try to translate the question of the level of activity into quantified hypothetical predictions. I find that that is a pastime better fitted to the Opposition than to the Government. I leave that to those who seem quite uninhibited by the many risks and variables inherent in offshore petroleum exploration which makes forecasting in the area a particularly hazardous business. But if we stick to the evidence before us, there is no doubt that those who currently use gloomy predictions as a means of attacking the Government's policies are not well advised. You see, my Lords, my reticence in not using any further adjectives.
There are other proposals in the Petroleum Bill, and no doubt we shall be discussing these in detail later, I am sorry to say. I have this afternoon concentrated on national participation and control, which are at the heart of the Government's proposals. I know that there are aspects of them which some noble Lords may not at first sight like—that would be understating it—but I 337 appeal to them to consider the new situation in which the United Kingdom is now placed, and to set aside the controversies of the past. The Government's proposals are aimed at ensuring that we get the full national benefit from the novel situation in which we find ourselves, and I commend them to the House. My Lords, I beg to move.
§ Moved, That this House takes note of Her Majesty's Government's proposal to establish the British National Oil Corporation and related proposals to meet the urgent need for efficient and continuing development of the United Kingdom's petroleum resources. (Lord Balogh.)
§ 3.28 p.m.
Lord CAMPBELL of CROY
My Lords, I am sure that we are all grateful to the noble Lord, Lord Balogh, for having arranged this debate today and for his introductory statement. The Government are giving us an opportunity to assess the present situation, and they invite us to take note of their proposal for the British National Oil Corporation and what they describe as "related proposals". There is a Bill in another place which will reach us in due course, and I am sure we shall want to examine it fully when it arrives. The noble Lord indicated that it might come here for Second Reading at a time which he said could be "inconvenient", but he was not prepared to answer directly the queries of my noble friend Lord Orr-Ewing. It is not a matter for discussion now, but as he has referred to it, I very much hope that it will be possible for that Bill to be considered at a convenient time.
Today we have this opportunity to assess the situation reached in Britain's bid to extract offshore oil as an urgent operation of great importance to our economy. It is less than four years since the first commercial oilfield was announced in the North Sea, and only six years since the first traces of oil were discovered. The noble Lord mentioned the Forties field as having been discovered in 1970, but I would remind him that it was not appraised and announced as commercial until the second half of 1971. We agree with the statement in the Motion that there is an urgent need for the,efficient and continuing development of the United Kingdom's petroleum resources.338 We agree especially in view of the world price of oil as it has been for the last year and a half. Of course I would remind your Lordships that it could well drop in future years, but that movement is unlikely during the next year or two.
Apart from the terms of the Motion, I detected nothing in the noble Lord's speech which referred to the urgency of the present situaton. Our balance of payments can be relieved of the present very heavy burden arising from oil imports, and we shall also have an additional source of energy, though much more expensive to produce than oil from the Middle East and some other of our traditional sources. We ought to be assisting this operation in every possible way. This is an operation to win as much oil as possible in the next five years—that is, until we reach self-sufficiency, which should be in about 1981. We hope it will be 1981. Then we can consider the optimum rates of annual extraction for later years. Therefore, we feel that this is an extremely urgent matter but we do not think that establishing this kind of oil corporation is the best way of hastening and helping these operations. Rather is it more likely to hinder, and the uncertainty which has been caused over the last year and a half arising from the Government's proposals, and their vague threats of nationalisation and intervention, have already caused a regrettable slowing down in the British offshore programme.
This is especially unfortunate because the rate of discovery has been fast in the three years from the end of 1971 to the end of 1973 compared with discoveries in other oil provinces in other parts of the world. This was largely due to improved methods of exploration in offshore oil. I agree with the noble Lord that we in Britain have received an uncovenanted gift from Nature previously unknown to us, just when we are in economic difficulties and standing most in need of its benefits. While offshore oil can greatly help us, it is not a bonanza and it is not a panacea for all our economic maladies. The efforts needed to win this oil are of daunting dimensions. The advanced technology needed has had to be developed as the operations have moved into deeper and more difficult areas of the North Sea. Enormous sums are required for investment some years 339 before any return can be expected from it. It was not possible to get started on operations in the North Sea from our own resources alone. Both on the frontiers of technology and in capital for investment we have successfully enlisted the help of the world's leading exponents. Britain ought to be encouraging in every way these massive joint ventures. We should also be playing a rapidly increasing part in the engineering and industrial effort and in the growing business of supplies and support for the offshore operations.
We should recall that in 1971 the large majority of the fields now known had still to be discovered, and they were later found at intervals over the following three years. Four years ago there was no way of telling how much oil in our Continental Shelf would be commercially accessible. The jigsaw has been fitting into place since then. In those circumstances, it is remarkable how quickly the operations were started in what, for this country, was a completely new industry. It is remarkable also how much capital has been raised. Our criticism of this Government is that they have killed the momentum from that early start and allowed this great enterprise to drift into the doldrums of doubt and uncertainty. I use a nautical metaphor, and it is appropriate. This is a maritime industry. We are a maritime nation and we should excel in this venture. Instead of the spirit and vigour of the British merchant venturers of the past, which were certainly evident from 1971 to 1973, the Government have introduced the paralysing potion of bureaucracy.
Let us look at the outward signs of this slowing down, in case noble Lords opposite should contest the point, first on exploration, and secondly on production. Exploration and appraisal drilling should be continuing at an increased rate. There are many who estimate that the amount of oil which has now been discovered is only about half that which will eventually be discovered in the United Kingdom Continental Shelf; the rest is likely to be in smaller oilfields, less easy to find, but we shall certainly need it in due course. Therefore, an argument which has been used from the Front Bench opposite, that exploration rates are not now necessarily needed to be so high, 340 falls to the ground, because in due course we will require this oil from the more difficult fields. There are fewer drilling rigs now than have been estimated in the last year or two, and even by the Government as recently as the spring of this year. A year or two ago the trade journals and informed commentators reckoned that there would be an average of about 40 drilling rigs operating in the British sector at any one time this summer. The Government's brown book of April predicted an average of 30 rigs for 1975, and in a reply to me on 27th June in your Lordships' House, the Government stated that there were only 26 operating. That was at the height of the summer drilling season.
In a survey carried out recently, by approaching all the individual operators in the British sector, forecasts have been made as follows: for 1975 an average of only 25 drilling rigs, and for 1976—and this is significant—an average of only 20 rigs. I would remind your Lordships that these rigs need very little maintenance. They are operated on the basis of being at sea, if possible, for 365 days of the year. This is a severe reduction and it cannot be ascribed simply to the recession and high inflation. I can tell any of your Lordships who may be in need of the services of a rig that they would have no difficulty in hiring one at present. I understand that they are easily available; there are many spare ones.
I now turn to production, and here the platform situation is a good indicator. A year ago the Government expected that up to 1980 between 55 and 80 platforms would be required for the British sector. Now, in the light of the changed situation, nearly a year after that August estimate, it is clear that it is wrong. The National Economic Development Council expect orders for platforms in the foreseeable future to be between 28 and 34, and I do not agree with the noble Lord's interpretation of that survey that many orders will be coming in. I regard it as a much more realistic and less promising survey in its results.
Moreover, the new Secretary of State for Energy, Mr. Benn, has already appraised himself of the changed situation and admitted publicly his concern about it. During a two-day visit to 341 Scotland last week, he was reported in the Press as follows:After a meeting with the Scottish Trades Union Congress yesterday he agreed to write to the Chairmen of all the oil companies asking them to advance orders as quickly as possible".That is orders for platforms. He went on:It is absolutely critical that we do not lose our capability through this gap in orders and then find platform orders going abroad".The report then said:Mr. Benn said he could understand that it was not easy to accelerate orders when the exact spot for which they were needed was not known.This comes back to the question of the exploration effort and the development programmes which are necessary before companies can take their decisions about ordering platforms. I will revert to production platforms later.
The Government cannot continue, in the light of the information I have given, to pretend that there has been no slowing down in the programmes for British offshore oil. I agree that one reason is the rate of inflation, and the Government must take some responsibility for that. But it is also due to the Government's own proposals, particularly on taxation and intervention. One reason for the slowing down is the long delay before the Government's proposals appeared. The noble Lord may say that this was because the Government carried out consultations with those concerned, and of course it was right for them to do that, but a year is a long time in the life of an industry which itself is little more than four years old. The final proposals from the Government on taxation did not appear until March this year and the Petroleum and Submarine Pipelines Bill did not appear until April this year.
We had a debate in your Lordships' House on taxation on 10th April and I will not go over that. I shall just remind your Lordships that the Government chose the wrong system initially, and that was a petroleum revenue tax. This is to be levied on each oilfield in isolation, with no losses to be offset against other fields in the United Kingdom Shelf. I acquit the noble Lord, Lord Balogh, himself of this mistake; it is perfectly clear that he would have preferred an excess profits tax, as would we on this side of the House, and the noble Lord must have 342 lost the argument initially. Indeed, he claimed in the debate on 10th April that the drastic and dramatic changes which had been made in the taxation Bill—made on Report in another place after the Government had been pressed by my right honourable and honourable friends—had converted the tax into an excess profits tax, and that was the point in the first sentence of his winding-up speech.
Although they were great improvements to the taxation system, it was apparently too late to start again with a different tax. We cannot agree that it is now virtually an excess profits tax, as the noble Lord, Lord Balogh, suggested, but we do agree with him that it would have been much better if it had been and had started as such. The result of this taxation system is that it is satisfactory for prolific fields which are easy to work but it is discouraging for marginal oilfields, and oilfields can be marginal however large they are, whatever their size. As a result, the companies are having to review their plans and much of the oil in fields which are difficult to work may be left in the seabed and never extracted. Indeed, the Government are doing what the North Sea winters have so far never achieved; they are freezing some areas of the seabed and leaving the oil in cold storage.
One point on PRT was the anomaly to which I referred; namely, that a small marginal field could be paying tax and not qualifying for the full oil allowance of 10 million tons tax-free. That is the kind of field which ought to receive special consideration; otherwise, it may not be developed at all. The noble Lord, Lord Balogh, said in his reply that I was wrong and he added that sometimes I was wrong. I freely admit to fallibility on many occasions, but as it happened I wrote to the noble Lord afterwards giving him an example of a field and the production profile, and he wrote back to me agreeing that it could occur and could indeed produce a situation in which such a field was paying PRT and not getting its full allowance.
The noble Lord raised the question of professionals and amateurs during his speech and on that one, although a pro, he did lose game, set and match and I fear that it may be Britain who will lose if fields of that kind are not developed because of the companies and 343 consortia concerned estimating that it is not worth developing them. The noble Lord also referred to a golden calf which previous arrangements would have made available to greedy oil companies. But the tax system had not then been formulated; it was still to be filled in. A tax system was not yet necessary, because the oil did not start to flow until a few weeks ago and the first profits were not going to be made for some time. So the tax system still had to be formulated, and far from removing any imbalance the Government have created an imbalance. There may not be a golden calf but there is a fatted calf for the prolific fields. An excess profits tax would have applied fairly to large and windfall profits. Thus the Government, I believe unintentionally, have produced an unfair system of oil taxation which penalises the marginal fields and will probably lead to much of the oil being left at the bottom of the sea.
I come to the proposals for public ownership and 51 per cent. participation. On the proposed British National Oil Corporation. We cannot see how the establishment of yet another public body will help with the urgency of this situation. It is simply creating another dinosaur, trampling over existing arrangements and causing confusion. The Government are proposing that this Corporation should engage in virtually all activities connected with oil, including what are known as "down-stream activities"—for example, operating petrol stations by the roadside—but they hasten to add that this will be done commercially in competition with others. But in the offshore operations—and this is our immediate concern—the Corporation is to be both a partner in consortia and a competitor, and it is to be exempted from the petroleum revenue tax.
There is to be this special dispensation. The Government have stated that this is simply an accounting matter so that money does not come into a public body and just go out again. If the Corporation is operating in partnership, then the estimates and conclusions which it will make about the future and planning its investment are likely to be very different from those of its partners in a consortia, because the Corporation will not be paying PRT while they will. And 344 then, when the Corporation is in competition, if it is paying no tax and it is operating on its own, the Government must explain—and perhaps the noble Lord, Lord Hughes, will explain—how it will not be at an advantage over other companies operating in the United Kingdom Shelf.
Another point is that the Corporation appears in structure to be entirely different from other public corporations in the nationalised sector. Why is this? Why is its proposed relationship with the Government to be so different from the relationship of the nationalised industries with Ministers? I cannot resist referring to an article in the last issue of the Economist in which it was stated that the chairmanship of this Corporation had been hawked around to many people who had refused, despite an attractive salary. Of course we do not want an indication of names, but it would be helpful if the Minister could confirm or correct whether that article was right. On the question of 51 per cent. participation, the noble Lord, Lord Balogh, said, "This is not nationalisation". Why, then, is it 51 per cent.? Reasons have been given—for example, the need of the British nation to have title to the oil or a stake in it—but it already has. This oil is British and there is no doubt about that.
Everything that the noble Lord described today as being required for the State can be carried out through licensing, taxation and depletion control. What he had to say confirmed this. The participation which is still going on, and which is causing a good deal of anxiety in industry, consists of private talks with individual companies through approaches carried out through the Chancellor of the Duchy of Lancaster, Mr. Lever, for whom we all have great respect. From him come short, cryptic statements offered with his usual endearing inscrutability. Of course he is right to play this slowly if he is not to cause more delay to programmes which should be treated as urgent. The noble Lord repeated one such statement today, that four companies have agreed in principle, but nothing more is being said about it.
All this is causing, and is contributing to, uncertainty. The exercise appears to us to be largely for the benefit of the Left Wing of the Labour Party. The 345 majority of the country, and probably the majority of the Labour Party, are not in favour of further large adventures into nationalisation. But in this exercise we detect political motives, and we certainly have some sympathy with noble Lords who sit on the Government Front Bench. But I ask: is this exercise to keep a small, but influential, minority in the Labour Party fold? Mr. Prentice, who is having some troubles today, stated recently that the Labour Party was a coalition of groups with different views. That is very proper in our democratic system. But I hope that this 51 per cent. participation, with its nationalisation overtones, is not being carried out, for example, to propitiate people like the group who are today trying to oust Mr. Prentice. They must surely be a small minority whose views should not predominate. The noble Lord, Lord Balogh, has himself in the past written strictures on nationalisation for nationalisation's sake. I will not quote extracts, but I have in mind particularly an article he wrote in October 1973. This exercise of 51 per cent. participation may be purely political, but it could dangerously delay the urgent programmes for offshore oil.
The noble Lord said a lot about depletion policy. We believe that we should be self-sufficient by 1981, provided the programmes are not seriously delayed; and we agree there should be overall control of annual production after that. But it is not necessary that there should be arbitrary decisions at short notice, because these could cause heavy financial losses to companies concerned. We welcome the improvements to the Bill which have been made in another place, and to which he referred, whereby production authorisations would be negotiated with companies, and would include lower limits in production profiles below which the Government would not demand reductions.
But the case for provisions for some compensation, in certain circumstances where companies, through no fault of their own, are still made to reduce and still suffer losses, is continuing to be a matter of considerable anxiety in the industry. I trust that the Government are still considering that point. I am sorry that the Government have felt the need to alter licences retroactively, without first trying to obtain results through nego- 346 tiation and agreement. I believe that these could well have been achieved.
On the question of platforms, perhaps I could remind your Lordships that in those early days, I, as a Minister, had some interesting and unique decisions to take. As Secretary of State for Scotland and a planning Minister, I had to take decisions for the first time on applications for planning permission for structures and projects which had never before been applied for in this country. Those were the proposals for building production platforms, which are enormous and which occupy sites on the shore. The areas selected by the companies at the beginning were fortunately sensible ones; I think they were guided to sensible places. But, none the less, they had to be in areas of great scenic beauty. However it was possible to take decisions in a matter of a few days, very urgently, for Nigg and Ardersier, and later Ardyne Point, without inquiries. If there had been inquiries there would have been up to a year's delay, possibly more. Work was started immediately. Of course, those decisions were precedents and were unique, but I am glad to say that they have all been vindicated and there have not since been complaints from those areas.
But there have been considerable delays elsewhere owing to planning procedures, and your Lordships will know that we considered that these could be streamlined. The Offshore Petroleum Development (Scotland) Bill, which the noble Lord, Lord Hughes, piloted through this House, has not so far been needed in order to acquire sites compulsorily. In answer to a Question from me, he reported that since the beginning of the offshore oil industry in this country, there has so far not been any significant delay in acquiring sites for platform building, because the owners of the land have been willing sellers. So that Bill was really unnecessary, except for one or two small points, like the Sea Designation Order which has been made. My guess is that, despite the time spent in this House in a congested Parliamentary programme, it will prove to be unnecessary in the coming years as well.
In replies to my questions, and in a Statement last week that I mentioned, the Secretary of State for Energy has acknowledged that there is a disturbing 347 lack of orders for platforms. I remind your Lordships that each platform can mean £30 million to £60 million of business for this country. In addition, there can be the orders for the modules with the machinery and equipment, which are installed on top of the platforms, and which are likely to go to the country which gets the platform orders.
The Government say, rightly, in this Motion that Britain's offshore operations are urgent. However, if they had wished to discourage and delay them, they could hardly have done it more successfully. If they wish to restore confidence and the former tempo, they should drop their proposal for a British National Oil Corporation and the related proposals. I suggest that if they were to bury their Bill in the North Sea they would get more oil out of it.