Lords Sitting of 22 May 1978

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR On the Woolsack.
Prayers—Read by the Lord Bishop of Bradford.

BANABAN COMMUNITY: CONTROL OF COMPENSATION
Lord BROCKWAY: My Lords, I beg leave to ask the first Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will accord the Banaban people, through their elected representative Council, the control of the expenditure of the ex gratia offer made to them in compensation for the damage to their island homeland.
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, we have proposed to the Banabans that the ex gratia offer of 10 million Australian dollars to provide for the future of the Banaban community should be discussed through legal channels, and they have welcomed the suggestion. Her Majesty's Government have no wish to be involved in the administration of the fund once it has been established.
Lord BROCKWAY: My Lords, while appreciating that reply, and being a little surprised by it, may I ask whether the ex gratia payment of £6¼ million is not a fraction of the benefit which Great Britain, Australia and New Zealand have received from the phosphates that have been supplied? Will Her Majesty's Government resist any idea of appointing a trust fund from which the Banabans would receive only interest, rather than having control of this fund by the capable, elected representatives of the Banaban people?
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, I have already said that Her Majesty's Government have no interest at all in administering the
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fund once it has been set up, but I would remind my noble friend that the Rabi Council has just changed hands and that of the old Council only two members are left. There might possibly be a difference of view, therefore. There might quite easily not be, but that is something we have to consider.

ARMS SALES RESTRAINTS: THIRD WORLD
2.38 p.m.
Lord BROCKWAY: My Lords, I beg leave to ask the Second Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will indicate their willingness to join the United States and the Soviet Union in discussions to restrain the sale of arms to the Third World countries in view of the agreement between the Governments of the United States and the Soviet Union to do so.
Baroness LLEWELYN-DAVIES of HASTOE: Yes, my Lords, and with any other concerned Government. My noble friend Lord Goronwy-Roberts is today attending the United Nations Special Session on Disarmament. Her Majesty's Government, together with nine other Western countries, have tabled a draft programme which calls for a United Nations study into ways of limiting the worldwide build-up of conventional arms. A copy of the programme has been placed in the Library.
Lord BROCKWAY: My Lords, in welcoming that Answer, and on this occasion not being surprised, may I ask whether it is not a fact that the cost of major weapons to Third World countries, excluding the Vietnam war, rose between 1956 and 1976 from 1,293 million dollars to 7,312 million dollars? Is that not a terrible cost for the poverty-stricken areas of Africa and Asia to bear?
Baroness LLEWELLYN-DAVIES of Hastoe: My Lords, without confirming my noble friend's figures, it is undoubtedly true that defence costs have risen very considerably in the Third World. This is one of the reasons why Her Majesty's

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Government are taking part in the United Nations Special Session on Disarmament. We bear it very much in mind.
Baroness GAITSKELL: My Lords, may I ask the noble Baroness this: Is it not a great mistake to bracket the United States and the Soviet Union in this way? —when we consider that the Soviet Union only gives aid in the form of arms, whereas at least the United States gives both arms and development aid.
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, my noble friend speaks with great experience from sessions at the United Nations.
Lord BROCKWAY: My Lords, is it not very significant indeed that it should be the unaligned nations which have initiated a Disarmament Conference?
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, I am so sorry; I am afraid I did not hear my noble friend.
Viscount ST. DAVIDS: My Lords, has the noble Baroness any figures she can give to the House as to who are the major providers of arms, so that we may know where most of the arms come from?
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, the United Kingdom provides about 5 per cent. of the arms. The two major donors are the United States and the USSR.
Lord BROCKWAY: My Lords, without defending in the least the Soviet arms, is it not a fact that the Soviet Government have contributed greatly to development aid in Africa?
Baroness LLEWELYN-DAVIES of HASTOE: I think that is true selectively, my Lords.
Baroness ELLES: My Lords, would the Minister be able to give figures of how much the Soviet Union has contributed to Africa in terms of aid, compared with what the United Kingdom, and particularly the European Community, has done?
Baroness LLEWELYN-DAVIES of HASTOE: Not without notice, my Lords; but if a Question is put down I will answer it.

ZAIRE: PROTECTION OF UK CITIZENS
2.42 p.m.
Lord CAMPBELL of CROY: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what action they are taking to protect the safety and interests of United Kingdom citizens in Zaire.
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, with the leave of the noble Lord, Lord Campbell, and of the House, at a convenient moment after 3.30 p.m. I will reply to this Question by repeating a Statement being made in another place.

BUSINESS OF THE HOUSE
The LORD PRIVY SEAL (Lord Peart): My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That leave be given to the Lord Wallace of Coslany to advance the Second Reading of the Co-operative Development Agency Bill from Thursday the 25th to Wednesday the 24th of May.—(Lord Peart.)
On Question, Motion agreed to.

NORTH SEA OIL: LICENSING
2.43 p.m.
The Earl of GOWRIE The Earl of GOWRIE rose to call attention to the policies of Her Majesty's Government in respect of North Sea oil and with special reference to the document: United Kingdom Offshore Petroleum Production Licensing: Sixth Round; and to move for Papers. The noble Earl said: My Lords, in recent months we have debated the present and likely effects of North Sea oil on our economy, and we

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have debated our need to use this windfall as an opportunity to concentrate on those alternative forms of energy which will become even more important to us as our oil stocks are depleted. These are of course great national issues and will remain so, and I am quite certain that we shall return to them under the terms of some Motion or another. But in moving this Motion this afternoon, I want to try to narrow the issues just a little, so as to concentrate them and, perhaps, so as to be able to concentrate upon them, because I am convinced that all our attempts to deploy this marvellous national resource to the end of national economic renewal will, in fact, founder unless we get right our policies of extracting and exploiting the oil.
I believe that at the moment we are well on the way to getting our policies wrong. Of course, we all have an interest in North Sea oil which is wider and more profound than our individual political viewpoints—energy, in one form or another, is life itself—and we should strive for as wide a political consensus as possible on a resource that affects us all so acutely. But politics are in the end about choices, and in our democratic system choices are about politics.
So I believe that the opportunities and chances for our political economy, which the discovery of North Sea oil now offers, are unfortunately receiving the wrong response, and that the response is damaging and dangerous to our national interest. I say that because it seems to me that, if we get our sums wrong, if we make the wrong decisions now, we shall effectively have thrown away what is unquestionably the greatest chance we have had since the first industrial revolution to revitalise our economy and make it more responsive to the needs of our people. I therefore make no apology for trying to narrow, in order really to define, the policies open to us.
It would be naive, too, not to acknowledge that a General Election is less than 12 months away. It seems to me—and I do not know whether other noble Lords on all sides share this opinion—that there exists some confusion among the public as to where the two leading Parties stand on this critical issue, and as to what the choices actually are. I hope that one of the effects of this afternoon's debate
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may be that the Government will have to state a little more clearly what they are up to, and that, indeed, we on this side will be able to dispel a few myths and a few rumours that have been going the rounds about our own position.
Let me try, if I may, to give a brief outline of the Government's policies for North Sea oil, as I understand them. I am sure that the noble Lord, Lord Strabolgi, when he comes to speak—whether it is in his opening speech or whether, by leave, it is in his winding-up speech—will, in his usual courteous and always friendly way, tell me that I am over-simplifying, but at least that will give us a chance to get the Government's own account. It seems to me rather appropriate that we should hear the Government's account of their policies on North Sea oil here in the House of Lords, because, of the three principal architects of the policy, two are Members of your Lordships' House and one should be.
The fine Hungarian hand of the noble Lord, Lord Balogh, who, unfortunately, through no fault of his own, cannot contribute to the debate this afternoon is, I think, everywhere apparent in the policy. The chief executive of the policy is the noble Lord, Lord Kearton, and in my respectful, but also, as I hope will become apparent, critical view, he is one of the ablest Members of your Lordships' House. And the Secretary of State for Energy, Mr. Benn, is only a "Mr." through his own considerable resources and skill. In case your Lordships think that I may be straying into the minefield of personalities, let me be very clear that there is absolutely no way around this. Her Majesty's Government's policy for the extraction and exploitation of North Sea oil is inextricable from the beliefs and talents of these three remarkable men, and we must at least pay them the compliment of not underestimating their rôle and their importance.
The linch-pin of the Government's policy, and nowhere is it more apparent than in the Consultative Document referred to in the terms of my Motion, is the creation and expansion of the British National Oil Corporation. The argument associated with its creation, and with the thinking of the noble Lord, Lord Balogh, is as follows. Britain's considerable oil resources have not been,

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and perhaps could not be, developed without the involvement of the major international oil companies, including, of course, one and a half British companies—that is, BP and Royal Dutch Shell—and indeed one British nationalised corporation, the Gas Board.
These companies are adept at bringing pressure to bear on sovereign States, so the argument goes, many of whom start life, in economic terms, poorer than the companies themselves. They are adept at tax avoidance and they know a good deal more about the fiscal dimension of their activities than anyone from the Inland Revenue. As the noble Lord, Lord Balogh, said on a public occasion, the Inland Revenue is in the tax business; the oil people are in the oil business. They are too useful, the argument goes on, to exclude and they are too powerful—that is, too profit orientated—to tame.
The thing to do, therefore, is to join them in a set of partnership or participation agreements. This has precedent on its side because all oil-producing countries, except America, have national oil corporations. Indeed, the great oil companies expect such participation and, with more or less grumbling, have learned to live with it. In addition, only actually working in energy industries gives a nation the necessary expertise to deploy what may be its greatest national asset. That, briefly, but I think accurately, is the economic argument.
The political argument is not dissimilar. Indeed, from the Government's point of view there is a certain rather pleasing symmetry to it. A mixture of exigency, the International Monetary Fund and the personal tastes of senior Ministers—as well, of course, as of electoral considerations—has spelled a swing to the point of view of the capitalist end of the mixed economy after our acute inflation and currency crisis of 1975–76. But the Labour Party—as it should be, as it is perfectly respectable and proper that it should be—is a Socialist as well as a national Party, and many members of the Party inside Parliament and outside it were clearly dissatisfied at this swing. So nationalising North Sea oil, whether by the front or the back door, and putting a leading Socialist Minister at the Department of Energy, was a welcome move for the Left. But since nationalisation, in
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the sense of the overt purchase or the overt confiscation of assets, would be both economically impracticable and electorally unpopular, the rapid rise of a dynamic State-owned corporation, operating to some degree as partner and to some degree as referee of international capital, would do the trick. Therefore Mr. Benn and Lord Kearton went through the international energy industries like Bonnie and Clyde went through the Southern States' banks in the early 1930s. In case again that your Lordships think I may be giving a partial or personal view of this, the latter intention has been clearly spelled out by Mr. Benn and others in political papers and political meetings which I have attended.
I need not rehearse in this context the rapid rise of BNOC in response to this partly political and partly economic programme. Certainly it could not have taken place without the formidable talents of Lord Kearton, and again I should like to pay tribute to those talents, if not to the ends to which they are being put. The history of State entrepreneurism in this country is not a particularly happy one. In general, it has been the case that the best men have stuck to the private sector, but Lord Kearton is clearly an exception and Lord Robens comes to my mind as another. Noble Lords on all sides of the House will probably think of their own examples.
At present, BNOC has achieved a remarkable left-and-right in emasculating the Department of Energy and the large oil companies simultaneously. The former has lost the real powers of regulating oil activity by co-ordinating what is actually going on. It has also lost experienced personnel to BNOC. The large companies are stuck with a partner who is also a referee whom they declare publicly they trust—because they need the licences—but whom privately they say that they do not trust. As an instance of this anomaly, consider the case of Mr. Bob McAllister of Occidental Oil and Mr. George Keller of Chevron. Mr. Keller was the man who, in the appropriately Coleridge-like imagery of our cold North Sea, called BNOC an albatross hung around the oil industry's neck and immediately had to retract so saying. Mr. McAllister was the man who dared to say that BNOC was a device to put the

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private oil companies out of business in the United Kingdom. Terrified of ruffling feathers while the sixth round allocations were still a gleam in the Secretary of State's and Lord Kearton's eyes, Dr. Armand Hammer, the head of Occidental, hustled Mr. McAllister off to Canada, rather as Lord Lundy's grandfather sent him off to govern New South Wales.
The position, therefore, at present is that BNOC, under Lord Kearton, is a crude oil producer in its own right; that it is entitled to participate as a 51 per cent. partner in all the current or fifth round of licences for exploration and development; that it is entitled to negotiate an option to buy—a straight purchase—51 per cent. of the oil from the fields discovered before round five and, indeed, before BNOC came itself into existence; that it is, under the Secretary of State's announcement of 5th April last and under the present Consultative Document, formally awarded also 100 per cent. ownership of nine more blocks for which no other company is allowed to apply.
Further, if we read paragraph 5 in this Consultative Document we see that:
"The Secretary of State will expect BNOC to be operator for the exploration phase in six blocks, the selection of which will be made after applications have been received".
The point of this, surely, is to give BNOC the chance of seeing which are the most popular blocks—that is, which are likely to be the most fruitful—in order to nab them. By itself, that seems to me to be a nice little piece of real politik; but, whatever one thinks of it, it does make rather a nonsense of the 51 per cent. participation of taxpayers' money in what BNOC deems to be less promising fields for exploration.
Lastly, the Corporation is at present causing frenzied anxiety about the clash between its role as the manager of the Government's participation interests—as the adviser of the Secretary of State, if you like—and its role as an "eighth sister": a dynamic and growing oil company moving into downstream activities; that is, the refining and marketing of oil in competition with the private sector.
At this point I want to make it very clear that on this side of the House our objections to BNOC's growth of powers
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are not a simple or philosophic matter of the State sector—a nationalised industry, if you like—versus the private sector. Other things being equal, putting the national cat among the multinational pigeons may even be a desirable thing to do. This is not the moment nor the debate for political science, but too often is there confusion between the Conservative tradition and the Liberal or Whig tradition. Tories have always been interventionist, and no doubt they will be again. What we object to is the old confusion generated here between the interests of the State and the interests of a particular State body. In short, the cat is in the process of becoming the pigeon.
Britain's interest in her oil is not, in our view, the same thing as the interest of the large oil companies, although it occasionally overlaps with their interest; but nor is Britain's interest in her oil the same thing as the interests of the British National Oil Corporation, which is rapidly coming to assume the character and ambitions of the companies that it deems to regulate. This is the crux of the matter. As we see it, Britain's overriding interest is to use the cut in the oil imports bill—to use improvement in the balance-of-payments position—to obtain the breathing space needed for repairing the damage to her real economy.
It is the real economy that makes things, that sells them and that enables us to buy what we need and to give our people the jobs that they need. I contend that nothing in the Government's policy, nothing in the ambitions of BNOC to become a multinational among multinationals—and what a strange Socialist ambition this is, my Lords!—is adding one penny of revenue which could not be achieved in another way more rapidly and which could not be achieved in another way more simply. Nothing that BNOC is doing is adding to the private domestic sector, to British business and British industry which, by the Government's own admission—at least in the person of Mr. Harold Lever—is the only begetter of employment and prosperity.
In the last debate that we had on North Sea oil I asked your Lordships rhetorically but not, I think, fancifully, to imagine the situation where Japan had discovered oil on her off shores. I postulated that within ten or twenty years Japanese home-based oil industries would have been active

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and operational around the world. How on earth is BNOC helping our native oil industries? There is urgent need to restore confidence and open dealing to the oil industry. The industry needs to know where the Government stand—where any Government stand—and how they define their share and their interest in the resources for which they are accountable. This knowledge should not come from a competitor—from a hived-off and barely accountable corporation—but from a Minister in overall charge of a Department of State and accountable for his Department in Parliament.
At present, it is incredibly difficult to get information about BNOC's activities or intentions, as anyone who works in the oil industry will tell you. Herbert Morrison's concept of the public corporation as a legally independent entity established by Parliament but not directly responsible to it, and with large but quite unspecified powers of ministerial invervention, is not only, it seems to me, out of date but has a record of proven disaster. Witness the dislike of even Labour supporters for the nationalised industries. Consider British Steel. Remember what happens in this House as well as in another place when anyone asks a question about the Post Office or when someone like the noble Baroness, Lady Burton of Coventry, has a go at the airport facilities. The phrase, "that is a matter for the commercial judgment or day-to-day management of BNOC", is not what one looks forward to hearing from the Dispatch Box, from either side of the House.
The oil industry is terrified to criticise BNOC publicly or even to ask it questions for clarification in public because of the Corporation's powers to influence the award of leases. In preparing for this debate your Lordships would hardly credit how many oil "rabbits" I met. I practically had to put on a false moustache and a plain mackintosh to go into some of their company offices.
I want to repeat that what is good for a private oil company is not necessarily good for Britain. Uncertainty and delay and the non-accountability of publicly financed bodies is even worse and I must also add that BNOC's association with the Secretary of State—the apostle of open government—seems to us to be a nauseat-
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ing hypocrisy. There is the urgent need to reduce delays in the exploration of off-shore hydrocarbons. We must not confuse delays with a policy for depletion. I shall be absolutely emphatic that there is no such thing as a free market for a finite and indeed diminishing energy resource. The success of British agriculture, as noble Lords on this side of the House will know, was not built up through free markets. The national interest, and therefore the Government's interest, so long as the Government are properly accountable, are always involved with questions of pricing (which the nation cannot always control) and with questions of depletion and conservation (which it usually can control). But we cannot conserve what we do not know is there. The detailed intervention by BNOC in every operating agreement, the persistent upping of the ante in BNOC's favour once agreement has been reached, so new discussions towards yet another agreement have to take place, have reduced exploration for North Sea oil to the speed of a submarine snail. Under round four, the Conservatives' last licensing round, so often derided by the noble Lord, Lord Balogh, and Mr. Benn, drilling on several blocks had begun within two months of the allocation of licences: the present rate is nearly two years. If BNOC had been in control of round four I think that, as a nation, we should still be snipping around the perimeter of the Forties field. I do not think this is a small or a niggling point. The average size of the 14 oil fields at present in production is slightly over 600 million barrels a day; the projected average size of the next 10 fields is 300 million barrels a day and, as we go on into the 'eighties and' nineties, the average size of field will go down as well as occurring in even deeper water. So we must make it worth while and make it a national priority to find out what we have got. Only then can we decide what we should do with it.
I cannot see the case either—but perhaps the noble Lord, Lord Strabolgi, will give it—for the involvement of the public sector in oil speculation and in trading. The noble Lord, Lord Kearton's conception of BNOC as a multinational oil company dealing, albeit on unequal terms, with other multinational oil companies, seems to me to be not merely dubious in

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terms of commercial morality and constitutional propriety but altogether unnecessary as well. Why should public money be committed to the exploration of fields before we know what is in them? Why do we have to take a 51 per cent. participation in the "dud" fields? Again, there is a fundamental difference here between the concept of the State as a regulator and protector of what it deems to be the national interest and the concept of the State as an entrepreneur. We passionately defend the former; we shall have to be very powerfully persuaded indeed not to put an end to the latter. If I were the noble Lord, Lord Kearton, I should make sure to light a candle for a Labour victory at the next election.
At present, BNOC is using public money to buy large quantities of crude oil. It has borrowed 825 million dollars against future oil receipts in money markets here and abroad without Treasury indemnity and therefore without ministerial control. I wonder whether the noble Lord, Lord Strabolgi, can tell us in his winding-up speech what the Treasury thinks of that particular activity. I understand that most of the money is earmarked for the exploration of fields which the oil companies themselves are committed to drill in any case, so where is the sense and where the justification for this? How ironic, too, that the Corporation should be forced by price mechanisms which its own activities are affecting to make distress sales of stock-piled crude. It seems to me that Governments, unlike oil companies, are in a "no lose" position where oil is concerned. When we form a Government we shall put an immediate end to gambling and commercial indisciplines of this kind.
Other speakers in the debate will no doubt touch on, and bring their own experience to, other aspects of policy. I am thinking in particular of some of the international and strategic implications of North Sea oil and I am glad to see that the noble Lord, Lord Chalfont, in what I hope is merely an intermediate stage of his Western journey round the Chamber, has put his name down to speak. I am also glad to see that the noble Lord, Lord Vaizey, who has long, in print at any rate, been a mentor of mine has not only put his name down to speak but is
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also making a step in the right direction. Also, I look forward very much to the maiden speech of the—as yet—still loyal noble Lord, Lord Hatch.
For my part, the most useful thing that I believe I can do from these Benches this afternoon is to put an end to the myth that is going about in the Press and elsewhere that in some way the next Conservative Government will not, or will not be able to, put an end to BNOC as it is at present constituted. We shall do so. We shall start by making it immediately and uncontrovertibly clear that the advisory and regulatory section of BNOC's activities will be returned to the Department of Energy; we shall put an end to the large discretionary powers of the Department and of BNOC; we shall see that any powers of participation that remain to BNOC are authorised by Parliament and we shall tax BNOC like the other companies. It should not therefore be taken for granted that BNOC will automatically survive a change of Government any more than the major oil companies should take it for granted that there will be a continuation of the principles of round five when not one of the smaller independent British companies was cast in an operating rôle.
We on this side of the House are not beholden to the oil companies and we will not be beholden to BNOC. Our only objective is to see how the resources of the North Sea, which cannot by themselves solve anything, can buy sufficient time to get the industrial economy of Britain on to a sound footing, to restore profitability and incentive and lower unemployment levels, and to give back to the British people confidence not simply in a diminishing asset but in themselves. My Lords, I beg to move for Papers.
3.10 p.m.
Lord TANLAW: My Lords, it is always a difficult task to follow the noble Earl, Lord Gowrie, especially when he makes such a brilliant and detailed presentation of the oil industry as he sees it today. It reminds me in fact of a very famous night club pianist whose playing of melodious tunes brought him instant success throughout London. The secret of his success was not so much the notes he played but the ones he left out, which

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gave him a unique and interesting combination of musical skill. The noble Earl has put a case and put it extremely well. I feel that in some ways the case may be slightly over-biased in favour of the large multinational oil companies, although I am convinced that the noble Earl may well deny this in his winding up.
If we go back in history just a very short period, it is not so long ago when the question of licences came up in your Lordships' House, and these were being given away rather like pieces of sliced bread at a soup kitchen. There was no negotiation. It was the noble Lord, Lord Balogh, and also some noble Lords, including myself, on these Benches, who drew attention to some of the things that were going on. It was out of debates in this Chamber that BNOC was formed and some of its policy was formulated. It has only been the activities of the noble Lord, Lord Kearton, the noble Lord, Lord Balogh, and other noble Lords, as well as others outside this House, that have put the United Kingdom's position in terms of the North Sea oil industry on a basis so that we can negotiate, even now, on only semi-equal terms with those multinational companies which would have wished, given the opportunity, to take a far greater slice of the cake than would have been advantageous for the taxpayers of this country.
It was not just a question of nationalised greed, as the noble Earl implied. The position was that there was a serious lack of knowledge in the Departments in Whitehall involved with energy as a whole. There was not even a Department when I originated one of the early debates in your Lordships' House, and as a result of the OPEC crisis a new Department of Energy was formed. But that was only a few years ago, and I think we should put some of the remarks presented by the noble Earl, Lord Gowrie, in historical perspective before we focus in detail on the main part of this debate, which is the terms of the sixth round licences.
The BNOC is a creature of government and it was established to tame the tigers that had dominated the arena of international oil trade. I take the point the noble Earl made as to whether BNOC will still retain what I believe to be its benign intentions in the years to come when
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it reaches maturity, or whether it will turn instead into an animal which is almost indistinguishable from those it set out to tame in the first place. I sincerely hope not, and provided that there are adequate financial checks on the way it operates its accounts and on the terms on which it raises its money I see no threat either to the multinational oil companies or to our existence here in the United Kingdom as consumers of energy.
If we look at the terms in which BNOC was created, there is a note in its accounts which says that according to Section 15 of the Petroleum and Submarine Pipelines Act 1975 the chairman is responsible to the Minister for Energy. So I do not share the extent of the fears the noble Earl has that the chairman of BNOC is able to act too much in his own right to the exclusion of the Minister, who is, after all, his master in this situation. I do object, however, that there are no shareholders in BNOC; the annual general meeting, if I can call it that, is replaced by a Press conference. At the same time, the Minister presents the accounts, not at an annual general meeting but on the Table in another place, before Parliament. This offers some opportunity to study these accounts, but in the years to come it may not be quite enough.
I am concerned with only one aspect, which is that it is not that there are not enough masters but there are almost too many masters of BNOC. The detailed scrutiny of the accounts is primarily the responsibility of the Select Committee on Nationalised Industries, which is in this case indirectly responsible to the Public Accounts Committee through its supervision by the Auditor General of the National Loan Fund and the National Oil Account, which are the sole sources of income and finance for the Corporation. I should like the noble Lord who will be replying to the debate to bring some clarification to this. There is quite a possibility, a danger, of overlapping here: when we consider the magnitude of the figures that will be involved in terms of income and royalty income not so many years hence, there could be a danger that these various sources of control will overlap to the extent to allow some funds to get through unaccounted. I do not want to go into details of this, but it was a very similar arrangement that brought about the muddle over the Crown Agents'

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financial situation. I personally would be much happier if there were some clearer mechanism of accountability than we have at the moment.
If I may turn to the life of the BNOC, I had prepared a note to say that it was a short one, but I did not realise it was going to be quite so short until I heard the noble Earl say that its future would possibly be in doubt if there were a change of Administration. But the life of BNOC can only be about 15 years. If we refer to Cmnd. 7101 we see that the United Kingdom becomes once again a net importer of crude oil, and presumably by that time there will be no more oil to discover and no more licences to be given out or negotiated. What this gives us in this country is 10 more years. And the European Economic Community, according to some calculations, will be forced to import most of, if not all, of its oil requirements by 1985. Bearing this in mind, we should look very carefully at what BNOC's future will be in 15 or 20 years time. I assume that it will then develop and graduate into the distribution business and become a familiar sign on the roadside alongside Shell and Esso and other signs which are so familiar today, in which case I believe there is a very different set of arguments and a very different set of parameters to put to its activities.
But at this point of time we are not concerned with distribution but with exploration and the trading in crude oil. Another point mentioned by the noble Earl was the slowness in giving out these exploration licences. I accept that there has been some slowness, but I am not sure that that is a bad thing. There seems to be far too much crude oil in world markets at the moment. The international oil companies and BNOC itself are awash with crude oil which they cannot sell at the price at which they would like to sell at the moment. I think there is a case for going a little slowly rather than adding to the problem and depressing prices artificially, as they would be if exploration rates were increased rather violently in the next two years. That would create another crisis of its own.
When we consider oil—and I said this four years ago in an energy debate—we are, in terms, considering money or
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currency. It is, as it were, a form of black currency. If we create an artificial reduction in price at this stage it will have effects far outside the parameters of an energy debate or an energy Minister.
Lord ORR-EWING: My Lords, would the noble Lord not agree that the case which he is making out—the case, that there is currently a surplus of oil—makes it all the less desirable that the BNOC should be stockpiling oil at today's prices which it may have to unload at cheaper prices tomorrow and thus cost the taxpayer sorely?
Lord TANLAW: My Lords, the point that I was attempting to make was that if BNOC unloaded it now the problem would be a reduction in price. There is a case for retaining it and, hopefully, maintaining the price of oil at the same time.
I should like to revert to some words which were used by the noble Earl when he opened the debate. He used the phrase "terrified oil companies". That, in my view, is a very rare state for oil companies of the size that were mentioned by the noble Earl. These "terrified oil companies" have managed to exercise a control on the President of the United States of America. Some of the major policy decisions of the United States have been greatly affected by the attitude of the oil companies. The power that they have is out of all proportion to the number of people involved. We do not want that situation to occur here. I do not believe that these are small men frightened of a national oil company that has only 750 employees. This is the only time that I have heard of an oil corporation of the size of Shell or Esso being described as "terrified".
The Earl of GOWRIE: My Lords. I am grateful to the noble Lord, Lord Tanlaw, for giving way, but he is misquoting me. I said that the oil companies were terrified to criticise BNOC policies publicly. That is different from saying that they are generally speaking terrified.
Lord TANLOW: My Lords, it is a free country.
The Earl of GOWRIE: My Lords, that is just the point—it is becoming increasingly less so.
Lord TANLAW: My Lords, let us get back to the terms of the debate. I still believe that the day is not yet here—and may it never be for anyone on these Benches to say that it will come—when the chairman of an oil company is for one reason or another unable to unburden himself in public in this country. He can do it in Hyde Park if he is frightened to do it in the papers. I simply do not accept the argument.
I am totally against nationalisation but I believe that without the BNOC this country, in terms of its executive and, indeed, in terms of this Chamber and Her Majesty's Government, would not have the expertise or knowledge to know that we were not, in fact, being "done" by the oil companies. We took far too much for granted before the formation of the BNOC. Although I think that we should watch very carefully that as it grows it does not become out of hand and does not enter into the kind of agreements or practices which the noble Earl suggested that it could or might do—I would join him in opposing such movements in that direction—at this stage of the game I think that we should try to help preserve and cultivate it, but at the same time keep an eye on it.
I eventually return to the point that I have been attempting to establish. Very early in his remarks the noble Earl mentioned the worry that these oil companies might have as regards a nationalised agency. It so happens that I heard, I think it was yesterday, that a Chinese language newspaper in Hong Kong put down the fall of sterling relative to the Hong Kong dollar as being solely because the British Government had sold the North Sea assets out to overseas and multinational operators. That is the kind of story that gets around. I believe that it is less likely to get around if the BNOC is given some structure and some guts to take on these giants in the multinational oil field at something like their own level. It is not a perfect organisation and I have already added to the criticisms that have been made by the noble Earl. Indeed, I shall continue to do so, especially in terms of its accountability and money raising facilities. Nevertheless, at present—this being the time of the sixth round of exploration licences—with the reservations that I have made, I, from these Benches, am happy to see
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the BNOC go ahead, and I wish it well at this stage.
3.25 p.m.
Lord STRABOLGI: My Lords, I am very glad that the noble Earl, Lord Gowrie, put down this Motion for debate and has afforded us the opportunity of a wide-ranging discussion on offshore oil policy. It has also provided the noble Earl with the opportunity to show the differences of approach which noble Lords opposite and the Government have to the matter of safeguarding the benefits of this vital resource for the nation. I noted carefully what the noble Earl said and I shall, at this stage, review briefly the policy of Her Majesty's Government and the results of our North Sea policies. At the end of the debate, as the noble Earl surmised, I shall deal with some of the points of detail, like Britoil to which he referred. However, I find myself in much more agreement with the speech of the noble Lord, Lord Tanlaw, who I thought had a much clearer appreciation of some of the difficulties involved.
Our two major objectives were set out in the White Paper of July 1974; they were, first, to secure a fairer share of profits for the nation and to maximise the gain to the balance of payments. There needed to be a big increase in Government revenue from the Continental Shelf, although we recognised then, and continue to recognise, that the companies must have a suitable return on their capital investment. Secondly, it was necessary to assert greater public control in order to protect the public interest.
In pursuance of those objectives, we have introduced the petroleum revenue tax and a "ring fence" to safeguard corporation tax on North Sea profits. The "ring fence" prevents the companies setting off losses unrelated to the North Sea against profits made from the North Sea, and thus protects for the nation its proper share of the profits. These measures were essential to correct the inadequacies of the tax and licensing regime which we inherited from the previous Conservative Administration and which would have led to substantial losses in tax. I should remind your Lordships of some of the remarks made

719
in the 1973 report of the Public Accounts Committee on the loose arrangements which the previous Government had made and the lack of tax and the losses. The measures that we have introduced will help to increase the nation's share of North Sea profits to around 85 per cent. from fifth round licences, when due account is taken of the State's equity share in the licences. I was very glad that the noble Lord, Lord Tanlaw, agreed with the very necessary measures that we took.
We have succeeded in negotiating participation by BNOC in all discoveries made under the first to fourth round licences. We have established a State oil company which in a mere two years' existence has achieved a notable entry into offshore exploration, development and production. In the last year it has, for example, brought into production a major North Sea oilfield—Thistle—and has contributed to over one-fifth of all exploration and appraisal drilling in that time.
The corporation has become a source of valuable advice to the Government on oil matters. That in turn has assisted the Government in the use of their regulatory powers over offshore activity, and I should emphasise to the noble Earl that they are the Government's powers. I should like to repeat what I said in the participation agreements debates: BNOC is not—and I repeat, not—a regulatory agency. We have also introduced into existing licences conditions which enable the Government to exercise a more effective control over operations including such vital matters as development programmes and rates of depletion.
Under the previous Administration there was no effective control; so long as the companies prepared plans which were technically sound they could have drained the oilfields at once, or put down as few platforms as they liked, and have recovered as little oil as possible to give themselves the maximum rate of return. It is the Government's effort which has returned to the State full control over these matters—a control which is vital to retain the essential flexibility to meet future circumstances. These controls were included in the fifth round licences, and we propose that they shall be included also in the sixth round licences.
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I do not want to go into the question of depletion which was referred to by both noble Lords. The arguments for and against early depletion are set out very fully and interestingly in chapter 7 of the February Green Paper on energy policy and also in annex 2. As the Green Paper points out, these are probably decisions that need not be made until the early 1980s. The point I want to make here is that whatever we decide to do with this very important depletion policy we must be able to control it. The Opposition continue to believe that we can control production in the North Sea through taxation. It seems that they have learned nothing and forgotten nothing.
Having established a rôgime which fully recognises the national interest in licences, we have already moved forward and licensed new territory. In doing so we have adopted a more orderly approach and have arranged that the State shall have an assured majority equity stake in each new licence. What response have the Opposition made to these policies? They have crtiicised and they have fought them. They have declared time after time that we are driving the oil companies away and the noble Earl returned to the charge this afternoon. But what is the true picture? The true picture is that the companies continue to be interested in the North Sea. The fifth round demonstrated that. And in respect of the earlier licences, where our first target is to ensure the development of our resources so that we become self-sufficient in oil, we are well on the way to achieve this by 1980.
North Sea oil production last year amounted to nearly 38 million tonnes, equivalent to almost half our national requirement. This was achieved only two years after the first oil came ashore from the Argyll and Forties fields. Thistle, which came on stream recently, became the ninth oilfield in production and there are eight more oilfields currently under development. This year's estimate of total possible oil reserves from existing finds at 2,620 million tonnes is 120 million tonnes higher than the previous year's estimate. Since the first natural gas came ashore in 1967, gas production from the North Sea has increased to the point where we now take it for granted that the gas industry depends almost entirely on our indigenous natural gas. In 1977 the Frigg gasfield on

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the median line with Norway became the first Northern basin gasfield to come on stream with gas being delivered by pipeline to a new terminal at St. Fergus which the Queen opened earlier this month.
Our North Sea oil and gas made a major contribution to the United Kingdom economy in 1977, leading particularly to significant improvements in the balance of payments. North Sea oil production last year was valued at over £2 billion and indigenous natural gas production was also worth in the order of about £2 billion. By 1980 our national income arising directly from oil production in the North Sea is expected to be about £4½ billion (at 1977 prices) or rather more than 3 per cent. of gross national product. By 1980 it is estimated that the overall benefit to our balance of payments should be about £5½ billion (at 1977 prices). I submit that all this is evidence of the success of our policy of ensuring the rapid development of our Continental Shelf oil and gas resources.
The Motion before the House makes special reference to the document United Kingdom Offshore Petroleum Production Licensing: Sixth Round, and the noble Earl has made a number of comments about the document which I shall deal with shortly. First, I should like to say that the document has been published by my right honourable friend the Secretary of State for Energy to whom I should like to pay a tribute, together with my noble friend Lord Balogh, who is very sorry that he cannot be here today, as a basis for consultations about the arrangements for the round.
The Opposition allege that the Government do not appreciate the contribution made by the oil companies, both large and small, to the exploration and development of our Continental Shelf. Nothing could be further from the truth. My right honourable friend the Secretary of State has on numerous occasions made quite clear that the Government recognise and indeed welcome that contribution; the expertise and investment they have brought to bear on this exacting task has been invaluable. But recognition of that contribution does not mean that we should refrain from asserting proper and legitimate control over the extraction of these vital resources.
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The companies are in business and their financial interest is to make as much profit from the North Sea as they can, and the more profit they make the less the return to the nation for the resources that belong to the nation. So clearly the protection of the national interest demands that the Government become involved in and can control these activities in the recognition of that fact which distinguishes us from the previous Conservative Government who, as I have said, were so profligate in dispensing with the rights of the nations' precious oil reserves to the extent indeed of offering these rights on a free-for-all basis, as the noble Lord, Lord Tanlaw, said, and for some fourth round blocks offering them to the highest bidder. It is in this light that the Government's development of their licensing policy should be seen.
We are determined that the new round should be used to strengthen British control over its offshore oil resources. But we have not sought to make numerous or substantial changes to the fifth round arrangements. I should like to demonstrate this by describing the principal features of the proposal. We propose that the round should be of about 40 blocks and should continue our strategy of a more orderly pattern of licensing, with smaller amounts of territory being made available at more frequent intervals than in the past. We have no intention of repeating massive rounds like the fourth; the associated peaks and troughs of activity would be entirely unhelpful to our offshore supplies industry, which is also a very important aspect of this which the noble Earl did not deal with.
There will be no discrimination in regard to the nationality of applicant companies. That is surely right and proper in the light of our international obligations. BNOC is to have a 51 per cent. minimum interest in each licence—except where British Gas is also a partner, in which case the combined interests of the State corporations will he 51 per cent. Thus we can ensure that the nation has an appropriate stake in every licence. It follows that all initial awards of licences would be subject to such matters as BNOC and the private sector companies settling joint operating agreements. There is no alternative to such agreements to regulate affairs between partners in the licence.

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The noble Earl accused BNOC of being responsible for delays. Of course, settlements take time, but there has been no undue delay in the conclusion of the joint operating agreements for the fifth round. Both sides in these agreements have interests which, quite properly, need to he protected. The arrangements, after all, may have to stand the test of time for nearly 40 years. Our proposal to limit approval of operators to the exploration phase has given rise to some comment by the noble Earl, Lord Gowrie. We have given much thought to the massive demands which the development of discoveries inevitably places on resources of manpower and technical capability. There is no escape from this. It seems only sensible therefore that the decision about the operatorship under the continuing licence—and I would stress this, in view of what the noble Earl said—for the development phase should be left to be decided in the light of resources available at the time; and this could be to the advantage of the smaller companies.
While I am commenting on the matter of operators, noble Lords will know that BNOC has been appointed operator in six fifth round blocks. The Government's view is that there would be a similar arrangement for the sixth round. BNOC will, it is proposed, be operator on six blocks on this occasion, also. We believe it very important that BNOC should have a stake in its own blocks. It may be necessary not to exploit a block, for example, as part of our depletion policy. On the other hand, we might want to exploit it very fully. Those are decisions that we can only really take if certain blocks are given entirely to BNOC. That is the reason for that policy.
Our proposals for the sixth round are that the criteria to be used for assessing applications should, in general, be on the same lines as in the fifth round. They would include such matters as the technical and financial standing of the applicant, his contribution to the British economy, provisions concerning the participation policy and opportunities for British industry to compete for orders for off-shore work, and provisions concerning the proper representation of trades unions off-shore. We are proposing for the sixth round to add a new criterion about applicants' efforts in the important area of
724
training. This would, we hope, lead to an increase in the number of skilled people available for work off-shore, and, through this increase in competence, to an improvement in safety.
The plans for the round include one novel feature— the introduction of optional arrangements. We are proposing—as the noble Earl alluded—that applicants should be given the opportunity under the round of offering to carry the Corporation for all or part of its costs during the exploration and appraisal phase. There would also be provisions enabling applicants to offer to BNOC an equity share greater than the standard 51 per cent. and to offer BNOC the option to buy at market price from its partners a proportion of their oil, or to sell—and also at the market price—a proportion of the Corporation's oil to the applicants, or indeed options on both these matters.
It is our belief that each of these optional arrangements could benefit this country either financially, or in access to oil, or in flexibility for the disposal of oil; and it is for those reasons that they have been included. The assessment of applications would be undertaken by reference to the offers made by applicants under these special arrangements and the standard criteria all taken together.
All these proposals are tabled as a basis for consultation. My right honourable friend the Secretary of State regards this as essential. The organisations chiefly concerned have already been asked for any views or suggestions they may have. Careful consideration will be given to any comment they, or indeed any other interested party, may wish to make. The Government will not take their final decision about the arrangements for the sixth round until the process of consultation and consideration has been completed. I may also say that careful note will be had of all the points made by your Lordships in this debate.
We believe that the Government's North Sea policies show a fair and evenhanded treatment of the public and private sectors. Of course, we recognise that the private sector, with its particular commercial interests, would prefer that the privileged position it obtained under previous rounds of licensing—particularly the fourth, as I have said—should be

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maintained. However, that is not to be. Her Majesty's Government have not flinched from the policies necessary to redress the disregard of the national interest shown by the previous Conservative Administration.
We make no apologies for continuing to seek ways to increase the national benefit from licences. We note that each step we take has been greeted by complaints that we are being too severe and that we are removing all encouragement. That was so with the introduction of PRT, with the improvement of licence controls in the Petroleum and Submarine Pipelines Act—which was surely a very necessary and essential measure—and with the provision of an equity role for the State in each fifth round licence. Yet we notice that the industry's interest does not diminish. The Government are confident that, when the process of consultation and consideration is completed, the sixth round will demonstrate that the companies continue to regard the United Kingdom Continental Shelf as an attractive oil province, having a licensing regime which properly respects their position, while at the same time protecting the legitimate national interest, which should be paramount.

ZAIRE: PROTECTION OF UK CITIZENS
3.47 p.m.
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, with the leave of the House I shall now repeat a Statement being made in another place by my honourable friend Mr. Rowlands. The Statement is as follows:
"My right honourable friend the Secretary of State for Foreign and Commonwealth Affairs made a Statement in another place on 16th May about the situation of British citizens in Zaire. I now have to tell noble Lords, with very deep regret, that five British subjects must now be presumed to have been killed in the appalling atrocities which have taken place in Kolwezi in the past few days.
"An RAF officer, who was sent there yesterday, as soon as the first information about British loss of life was received, has reported that he has
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firmly established the deaths of three of those concerned. We shall make every effort to confirm the position over the remaining two reported British victims as quickly as possible.
"The remaining 19 United Kingdom citizens who were known to have been in Kolwezi are now safely accounted for. Some have already been evacuated to Europe and others are still in Zaire. The British Embassy at Kinshasa are doing everything they can to help them. Fortunately it has not, in the event, been necessary to use the two British Army medical teams which were sent to Lusaka.
"I am sure noble Lords will wish to join me in expressing deep sympathy to the families of those who have been so wantonly killed in these tragic events, as well as to all of those, of every nationality, who have suffered this terrible ordeal".
3.49 p.m.
Lord CARRINGTON: My Lords, everybody on this side of the House would join the noble Baroness in sending our sympathy to the families of those who have been killed—and not just the British families but all those who have been killed in this appalling incident.
I wonder whether the noble Baroness can say whether the Government feel that the international arrangements which exist for evacuation of families in these circumstances are really adequate, and whether or not there might be something to be said for having some kind of standing machinery in the EEC, or perhaps in NATO, whereby it would be possible very quickly to arrange for an evacuation of this kind. I also wonder whether the noble Baroness would suggest to her right honourable friend the Foreign Secretary that perhaps one of the lessons of this particular episode is that there should be a greater effort to concert European foreign policy in matters concerning Southern Africa, which have a very great effect on the Western economy and which, even now, seem to be altogether too haphazard.
Lord AVEBURY: My Lords, I also join with the expressions of sympathy that have been paid to relatives of the

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victims—including those many citizens of Zaire who have been killed by the rebels—by the noble Baroness, Lady Llewelyn-Davies of Hastoe, and by the noble Lord, Lord Carrington. Is there any indication so far from where the rebels obtained their arms and of who trained them? If it turns out to be fact that these rebels were aided and abetted by Angola, will Her Majesty's Government seek to obtain redress from the Angolan Government for the dreadful atrocities committed against our own citizens? Although our own citizens may not require the assistance of the Army medical teams which were sent to Lusaka, could not the Government in this emergency offer them to the Zairean authorities for assistance to their own citizens?
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, in answer to the noble Lord, Lord Carrington, these things blow up overnight. This has shown that at short notice the Western countries can act decisively. However, I think that his suggestion of special machinery is a very interesting one and I shall, of course, bring it to the attention of my right honourable friend, as I shall also the question of concerting European foreign policy in Southern Africa. As the House well knows, it is not all that easy to concert European policy on a great many things, but I shall certainly bring that to my right honourable friend's attention.
The noble Lord, Lord Avebury, raised the whole question of the training of the rebels and from where they obtained their arms. Obviously they were in Angola; they must have obtained the arms there. As for the training, they received their training there. I do not think that there has been any time at all to consider the question of redress for the damage which the rebels caused to human life and property. The main effort has been to rescue the expatriates and to restore order so that the Zaireans themselves can live in security.
Lord AVEBURY: My Lords, I also asked whether the medical teams which we sent to help our citizens could be used to help the Zaireans.
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, the Zaireans know
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that any sort of help that we can give we shall give. On the other hand, all the arrangements were made in connection with the evacuation of expatriates and all countries have said that they will return home those who are sent as soon as there is no need for them.
Lord CLITHEROE: My Lords, may we also be allowed to express our sympathy to our Belgian friends?
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, yes, indeed; their suffering has been very great.
Lord WIGG: My Lords, is my noble friend aware that there have been reports that Cuban, Russian and East German troops have been involved in this operation and that now there are fairly authoritative reports that much of the shooting and pillaging was carried out by Mobutu's Zairean army? Is my noble friend in a position to give any authoritative indication of the truth of these stories?
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, I am afraid that I am not in a position to give any confirmation of the behaviour of the Zairean troops. As I am sure the House will realise, the situation is extremely confused. Reports of direct Cuban involvement have not been confirmed and the Cuban Government have specifically denied involvement in this operation. The rebel force may have received training in Angola, where there is a large Cuban force, but I have no evidence of direct Soviet or East German involvement in the operation.
Lord WIGG: My Lords, can my noble friend say anything about East German involvement? What evidence is there for her to say that the rebels received training in and were supplied with arms from Angola?
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, I mentioned that there was no evidence of direct East German involvement. As my right honourable friend has said, it is a very serious matter indeed for outside Powers to exploit these difficult situations for their own ends.
Lord ALPORT: My Lords, will the noble Baroness accept that the situation in Kolwezi is the predictable result of decisions made in the early 1960s with regard to the Katanga conflict? Will she accept that those decisions were largely dictated by the United States Government of the day and that, therefore, the present United States Government have a moral responsibility to help the situation which exists in that part of Africa; and that those of us who were concerned with this find it rather sad that the United States Government have so far appeared to wash their hands of the whole situation there?
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, the immediate necessity is to save lives, both black and white, and not to indulge in historical recriminations. We have throughout been in close touch with the Belgian, French and United States Governments.
Lord CHALFONT: My Lords, although, of course, one is in full sympathy with her view that there are immediate problems and that we should not indulge in historical recriminations, and although I am sure that noble Lords would agree that her answers both to the noble Lord, Lord Avebury, and to her noble friend Lord Wigg have been restrained and statesmanlike, will the noble Baroness not agree that the fact which is now established, that the rebels involved in the Shaba incident came from Angola, were clearly trained in Angola and came with arms that had been furnished for them in Angola—which is now a republic totally dominated by the Soviet Union—has considerable implications for the strategic future of the whole of Africa?
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, I should like to repeat that this is a tragic moment. It has come after a very sudden and dreadful happening. The situation is totally confused. We cannot confirm particular rumours of any kind. I am sure that the whole House has noted what the noble Lord, with his great experience in these matters, has said. I should not like to go further than that.
Lord GORE-BOOTH: My Lords, I should like to join with other noble Lords in expressing sympathy to those who have
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been killed, injured and otherwise damaged in this horrible occurrence. With reference to the question just asked by the noble Lord, Lord Chalfont, would my noble friend be prepared to go as far as to say that the Government are taking into consideration that we may be in the presence of something like a rather major effort of imperialism in Africa?
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, unfortunately Africa has been subject to imperialism of very different kinds over many centuries.
Lord MORRIS: My Lords, may I ask the noble Baroness whether we have consular representation in Zaire, and if not, why not? If we have representation there, why do Her Majesty's Government appear to know so very little about what is going on there at the present time?
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, I must say I think that that is a rather unfair suggestion. We have a High Commission in Zaire. We are constantly in touch with it and it is in touch with the High Commissions of all the other countries involved. It is in touch with the Zambians, who have given us a great deal of help. The fact that the situation is confused is surely understandable in itself.
Lord PARRY: My Lords, would it not be to the credit of this House and this nation if there went out from it at this time a solid acceptance of that work which has been done on behalf of this House and this nation by the people resident in Zaire, showing that they have the support of this House? And have not the answers given by my noble friend gone as far as anyone can be expected to go in this complicated moment of world history?
Lord PEART: My Lords, I think that we should proceed.

NORTH SEA OIL: LICENSING
Debate resumed.
3.59 p.m.
The Earl of LAUDERDALE: My Lords, reverting to the debate initiated

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by my noble friend Lord Gowrie on the policies of Her Majesty's Government regarding North Sea oil, with special reference to the document, United Kingdom Offshore Petroleum Production Licensing, et cetera, may I first express an apology. I was informed that this debate was coming on only in the middle of last week when I was clogged up with engagements which had long been established. Therefore, my own attention to preparing the speech has had to be short, hurried and sketchy. I ask your Lordships to be even more indulgent than you normally are when I speak because what I have to say is correspondingly disjointed, and I apologise. Secondly, for the same reason I am afraid that I shall have to leave the Chamber at about half-past five to fulfil a previous engagement. Once again, I apologise because if there is one debate more than another that I should like to have sat through to the end it is certainly this one.
It is always a pleasure to hear the noble Lord, Lord Strabolgi, in good heart and good voice. He was in good form this afternoon. In fact, I do not think that I have ever heard him speak so well, so effectively—I might almost say so boisterously. At any rate, he was not slow in claiming for the Government the benefits that have accrued to our country through the discovery and development of hydrocarbons beneath the North Sea. I think perhaps it might have been as well had he tempered his criticism of Tory disregard of the national interest in the past by some recognition that the benefits we now enjoy are the results of work begun many years ago.
It is not my purpose to tease or taunt the noble Lord, Lord Strabolgi—not that he minds that, because we frequently do it to one another. This is a serious debate, but I confess that I must confine myself largely to matters that puzzle me very much indeed. The noble Lord referred to the balance of payments. I shall be reverting to that. He referred to the inequities, as he described them, of the tax situation which the Government inherited. To that also I shall refer.
I am obliged to him for having referred to the Third Report of the Public Accounts Committee because that gives me the text which I otherwise lacked for referring not
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to the Third but to the Eighth Report of the same Public Accounts Committee. There is a reference there which it is perhaps worth while bearing in mind as we come to the 51 per cent. participation proposals that are outlined in the Discussion paper before us. The Eighth Report of the Public Accounts Committee concluded with these words:
"It would be more in keeping with the concept of Parliamentary control in relation to the taking of a State share in oil resources, and with the spirit of the Act, if an Order were laid in respect of the broad financial effects of any agreement providing for State participation with existing licences".
Then it goes on, and I continue:
"We recommend therefore that the Department should reconsider the desirability of laying such Orders before concluding the agreements".
One of the factors in the Paper before us that requires some examination is of course the automatic assumption of a 51 per cent. participation on an equity basis by the BNOC in the future licences.
There is only one other matter to which the noble Lord referred that I think I also must mention before I pass on, and that is that he said there had been no effective control of our oil developments hitherto. Well, I think one must say that of course the stimulating sea breeze of an oncoming general election has clearly had its effect on the noble Lord, as it certainly is having on our Benches, because as we look forward with zest and eagerness to this conflict, so they as well as we are naturally deploying our arguments as well as we can. If we have a chance of perhaps understating the position of our opponents, we occasionally fall for that temptation.
With regard to this document I am befogged and puzzled; indeed, I am reminded of that saying of the British, "They never draw a line without blurring it." So far as the policy that is laid before us is concerned, I recall the late Sir Winston Churchill's words in 1936. He said:
"So the Governments go on in strange paradox; decided only to be undecided; resolved to be irresolute; adamant for drift; solid for fluidity; all-powerful for impotence".
When we look at this whole subject we must consider what is our overall object. Our wealth—our position as a great industrial power—was built up on the availability of cheap energy. Today, something like one-eighth of the national

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effort—12 per cent. or 13 per cent. of the GNP, if one likes to use that crude measurement—is actually spent on providing the energy to fuel the rest. That is a very different situation to the one on which our industrial greatness was built up. But of course with the prospect that many of us can foresee—and that many great experts in energy policy worldwide foresee—that in 15 to 25 years' time there will be a net shortage of available energy at anything like current prices in the western world, we must also pursue the consequential danger that instead of spending one-fifth we might well have to spend up to one-quarter of our total national effort generating the energy on which the rest depends. If anything remotely like that is in prospect (and I believe, seriously speaking, that that is the case), then our object at this time in looking at the North Sea as a whole should really be quite simple.
May I say here that although—I might almost say for a bit of fun—we throw political balls and brickbats at one another, what we ought really to be concerned with, and what I certainly am concerned with and I am quite certain that the noble Lord, Lord Strabolgi is concerned with, is this: that the policy that emerges is one that will survive at least half a dozen General Elections. That is what is important. I am not concerned, beyond the bit of fun which we have between ourselves, to make Party points. I am concerned that, as we come into a run-up to a serious energy situation anything from 15 to 25 years hence, we should try to approach this without too much Party bias, and with an endeavour to bring together thinking that will survive a good half-dozen general elections.
Taking that as my basis, I believe that our overall object must be not so much to secure now as much energy as possible but to secure and establish the means for it when it is needed, consistent of course with a prudent depletion policy, which is another matter. Where hydrocarbons under the North Sea are concerned our real concern must be to encourage the maximum amount of exploration.
The Government are to be congratulated on the general approach of going for smaller and more frequent rounds. One effect of the smaller and more frequent
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rounds is to step up the pace of progress towards completion of programmes already agreed under previous rounds. It is also prudent—and again the Government are to be congratulated for it—that there should be taken into consideration an applicant's record in regard to providing training for technicians trying to learn about the industry. Those are positive, serious and real improvements.
However, I find that the document has certain shortcomings because on the face of it—the noble Lord may be able to correct such misunderstandings as have fallen my way—three clear points stand out. First, it would seem that BNOC will have a 51 per cent. equity share in each licence. As I read the document, however—I am thinking in particular of paragraph 9(b)(1)—it would appear that the applicant provides the capital. I may be wrong about that, and if the Minister wishes to correct me I will gladly give way. If it is the case that BNOC gets a 51 per cent. equity share and the applicant provides the capital, that would seem a very serious disadvantage.
The second disadvantage seems to follow, in that the policy for operating each licence is to be determined by an operators' committee. That is fair enough, but, as I read the document, that operators' committee is to reflect not the paid up capital of the participants but the equity interest including BNOC's unpaid 51 per cent. That is how I read the guidelines and I should like to be told I am wrong; I hope for the Government's sake and Britain's sake that I am wrong. If, however, I am right, we shall have BNOC not only enjoying a 51 per cent. equity share for free but also a 51 per cent. vote in the policy operating committee. That is a very serious difficulty indeed and I put it no worse than that.
Then we come to the third difficulty, and the noble Lord alluded to this in passing—I would say sideways—and he may say more when he replies. It appears that there is no certainty that a successful exploration operator will be accepted as licensee for the subsequent development, once again, if I have read the paper wrongly I am ready to be corrected. Thus, there would seem to be three straightforward difficulties: first, BNOC gets a 51 per cent. equity share for free;

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secondly, consequent upon that they get a 51 per cent. say in the operation of the licence; and thirdly, the operator, if the exploration is successful, will not necessarily be successful in getting a subsequent licence for development.
I mention another point in passing: the document tells us that the operating committees must meet in Glasgow. I am all in favour of Glasgow; it is a wonderful, great and beautiful city, a wonderful city in which to get drunk if not quite such a good city in which to be sober. It is also a great city in which to have friends. But I cannot for the life of me see why all the operating committees have to meet in Glasgow, where BNOC has 230-odd employees, rather than in Aberdeen, where it has more than 300. That may be a detail which will come out in the wash. It is not a major point but it puzzles me.
Whatever else the Consultative Document about the next round does, it shows how to make history. When I was a newspaperman I was told that one must have a nose for news and that if a dog wags a tail that is not news, but if a tail wags a dog that is news, and that is what is happening here; a 51 per cent. unpaid subscriber to the equity will control the policy. In this case the tail is wagging the dog.
So far as incentives for greater exploration are concerned, there is nothing said in the document to foreshadow any change in the taxation approach. The noble Lord is proud of the Government's tax policy. I would only say that I can see nothing whatever to be proud of and, apparently, if things go on as they are, each field is still to be taxed as a separate taxable unit, so that if one loses badly on one field one cannot set that off later against success on another. That in itself is a disincentive and has been so described by the companies many times.
Apparently also there is still to be no relief enabling interest payments to be deducted in computing company profits. Yet a great part of the funding of any exploration or development operation is loan capital. Moreover, it is largely funded by the operator, not by BNOC. But, if the heavy interest charges on those loans are not to be set off against profits,
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then we have yet another disincentive. My complaint therefore is that not only is this a project where the tail wags the dog, but it is a project where exploration will enjoy no greater incentive than hitherto.
The noble Lord told us with some pride—he reminded me of a father with his first child; our first child is always the best baby ever—about BNOC, almost as though it were his own baby. He said that BNOC had contributed to one-fifth of the appraisal drilling—I take it he meant over the past year—and that it had brought the Thistle field on stream. But unless I am completely mistaken—and I may be wrong because I have not had as much time as I should have liked in which to prepare this speech—The fact is that what BNOC has done is to take over the assets of Burmah and the National Coal Board oil development enterprise, and those are the ones that have been effective. In fact, the amount of drilling that is attributable to what I would call BNOC pure and simple—the corporation that has been built up in the last 18 months—is virtually nil.
When I put a Question to the noble Lord earlier this year about drilling in 1977 it emerged then that some 55 per cent. of the drilling in the British sector of the North Sea was by major companies on their own account, some 45 per cent. by majors on farm-ins, and nil per cent. by BNOC. Thus, whether BNOC has any drilling experience of its own, other than that acquired through the assets of Burmah and the ex-NBC interests, I do not know. One might enquire whether BNOC—so active, so zestful, so youthful, so full of enthusiasm for exploring on behalf of British interests, so full of enterprise and headed by such a magnificent capitalist pirate as the noble Lord, Lord Kearton—has drilled any of the blocks that were not taken up in the last round. What, for example, of 83/24 South West of the Scillies, or 86/12, 14 and 15, 88/2, 95/27, South of Lands End? Has BNOC drilled on any of these? They were all excluded by other companies in the last round. BNOC, which is full of energy and full of zest, might perhaps have had a go at them, but I understand not. In any case, for the future, when BNOC is to be the operator, will it be an operator in the sense of ex-Burmah or ex-National Coal Board oil interests being the operator,

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or is BNOC going to contract either with the major, or with other companies to do their drilling for them?
I shall look forward to reading (because I shall not be here) and I am sure that the House will look forward to hearing, what the noble Lord says in his reply about the increased opportunity which he forecasts for the smaller companies. This is another feature of the noble Lord's speech which I found good as far as it went, and I hope that when he replies he will be able to say more about that. But the fact of the situation now is that the pressures of taxation and the difficulties of raising funds have meant so far that the majors become more important and the minors become less important because the minors have been found to farm out their interests to the majors as being the only ones who could raise the cash and face the taxation difficulties that are now adding to their problems.
The tax burden is a penal burden, and when the noble Lord previously says that there is still interest in the North Sea, I should hope that there is. If there is oil underneath it, or natural gas or coal—and we believe that all those are there in varying amounts—of course the oil companies are interested. But having applied for licences to take them up, whether there will be as much competition for licences as before will depend very much on the state of the game in other parts of the world and on the competition in other parts of the world for the limited number of exploration rigs and teams that are available.
This business about the smaller companies is very serious from the viewpoint of our national interest. I have in front of me now a report compiled by Gaffney, Cline and Associates, well known consultants in the oil business. Some time ago they wrote the following:
"The cost of these uncertainties"—
they are referring to tax and other uncertainties—
"is felt in many directions. The industry as a whole is well able to quantify these risks, but the sheer exposure to drilling and development costs in the North Sea is forcing out many exploration companies. The absence of the smaller companies will deny the United Kingdom much of the imaginative and entrepreneurial flavour which is so essential to the world wide industry. Reliance on purely the major companies will merely polarise North Sea developments towards a handful of groups.
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"It is regrettable that 1977 may well see a significant reduction in the holdings of smaller companies as they farm out portions of their interests to the larger concerns, given the overall record of these companies in completing their exploration commitments. Notwithstanding the continuing excellent discovery ratio, it is important that the widest spread of drilling is maintained for many years to come so that a thorough appraisal of the potential offshore North West Europe and the United Kingdom in particular can be under, taken. Only in this way can the optimum energy policies for the region be adopted".
My Lords, I have spoken longer than I intended and I must apologise for the fact that I did not notice the clock until now. I wanted to ask one or two questions about refining. There is no reference in the document to the Government's refining policy. The noble Lord will be aware that there has been a certain amount of boasting on behalf of BNOC that it has or it can look forward to having about 14 million barrels of oil a day in a few years' time. Of course, anyone with 14 million dollars a day can have 14 million barrels of oil a day. That is simply a question of money. But under existing agreements BNOC already has the right to acquire about 10 million tons (200,000 barrels a day) which would be enough to fuel a large refinery. This is a serious point on which I hope the noble Lord may be able to comment when he winds up. With about 200,000 barrels a day (10 million tons a year) of oil available to BNOC, that is enough to support BNOC's own refinery. With its own refinery it could if it wished undercut its commercial rivals in the downstream market and play havoc.
What I should like to know is what is BNOC's attitude towards refining. Are the Government using BNOC to influence the refining policies of the other companies? Are the Government trying to compel the other companies when they export their product to export it as a white product and not as crude? Are the Government in fact prepared to play ball (if I may put it that way) with the European Community in regard to refining policy generally?
The great difficulty that we are in about BNOC is that it is really neither fish, flesh nor fowl. It is a kind of hybrid, because, on the one hand, it is an attempt to enter the oil business commercially and, on the other hand, it is the chosen instrument of Government policy. It is really two things at once. One might

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even say that it is an attempt to mix oil and water. BNOC is rather like the question that was put by Fawcett to Cook on one occasion:
"How are you this morning?"
The reply was:
"Not at all myself".
The answer to that was:
"Then I congratulate you, for whoever else you will be, you will be the gainer by the transaction".
4.28 p.m.
Lord HATCH of LUSBY: My Lords, may I ask the indulgence of your Lordships as traditionally given to one speaking for the first time in this House. However, I am not a complete stranger to your Lordships' House. I have spent many hours below the Bar here, as well as in a similar position in another place, associated with a variety of debates over many years. I should like to thank both present and past Members of this House, and of the other place, for the courtesy and helpfulness that they showed to me in that responsibility. I hope that that may add a little to my contribution to the work of your Lordships' House. If there is one thing that I discovered during my experience both in this place and in another place, it is that at least so long as this House exists as it is today, it is more appropriate and more possible to discuss wide and profound issues here than in the other place. The noble Earl who opened this debate will forgive me if I do not follow him by confining my contribution to this debate to the narrow issues of this Paper, but try to broaden them out to the wider issues which we have to have in mind in regard to our North Sea oil revenues and in regard to energy as a whole.
Oil has already played a crucial part in the character of our world society. I believe it will play an even greater part in the character of the society that our children and grandchildren will live in; and, in being accepted as a Member of this House, I regard my responsibility as being to the world that will be inhabited by my grandchildren. Oil is a part of man-controlled, man-directed energy, and that we may regard as the capital of mankind; whereas the income of mankind is comprised of the other forms of energy which are generated by the sun constantly.
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My Lords, I fear that since the end of the Second World War we have been using that capital in a wasteful, profligate manner. It has been estimated that our consumption of fuel reserves since the end of the war has risen at a rate of 1·9 per cent. per annum, which means that they are being consumed at double the rate every 37 years.
In support of this part of my argument, I should like to quote from a distinguished scientist, the Astronomer Royal, Professor Sir Martin Ryle, who wrote just last year:
"We have become accustomed to believing that our standard of living and full employment both depend on an ever-increasing consumption of energy—to heat our homes, to provide more transport and, especially, to provide increasing quantities of manufactured articles which consume both energy and other mineral resources, some of which have limited reserves. If we continue in this belief the energy shortage initiated by the exhaustion of the world's oil reserves will, by the end of the century, forcibly curtail the present trends in the worst crisis civilisation has yet experienced".
I believe this wasteful use of our energy capital is closely associated with our obsession with consumption, which is another feature of this same period; and I believe that it may well be the task of this country and of other, similar minded countries to try to persuade people to limit consumption, in place of the common assumption made by all Parties that growth is the panacea for the future of Great Britain.
However, there is a wider, deeper and more crucial issue than arises from the use of energy in our century, and it comes from the fact that 80 per cent. of the energy now being used in the world is used by only 20 per cent. of the world's population; that the vast majority of mankind has to make do with one-fifth of our energy uses—and I am sure we have all seen the consequences of this imbalance. I have spent many years in the United States of America, and I am told by my American friends that more oil-produced fertiliser is used on their golf courses than is used throughout the whole sub-continent of India. We have seen these vast contrasts widening and deepening as more and more energy is used for useless or frivolous purposes. We have seen this wasteful use of energy at a time w hen but a little energy could save, not just the luxury life of mankind but life itself. Every minute that I am speaking here this

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afternoon, 30 people somewhere in the world are dying for lack of food. That, surely, is a sufficient challenge to our prospects as a nation to make us ask ourselves: How should our new resource be used if it is to contribute to the kind of world that we want to see our children and grandchildren living in?
My point to your Lordships this after-noon is that the possession of North Sea oil gives this country a brief opportunity to turn into new, constructive channels and to restructure the industry of this country, in association and cooperation with countries of the Third World, the untapped markets of the world, to provide them with what they need and to receive from them what they can produce—and obviously there will be opportunities for going more deeply into that issue. But, also associated with the refurbishing and restructuring of our industry, the redesigning of the direction of our industry, there should be our leadership, our persuasion, our education, to set up a new set of values among the people of this country. It is a very difficult task for politicians to call on their electorate to reduce consumption. I believe we have to do it; and for the past 18 months I have been a member of a committee of the Ministry of Overseas Development which has been looking at this very issue—the issue of how we inculcate into our educational system the basic needs to fit our children and our grandchildren to become citizens of the world.
I am glad to see that the Government have been spending an increasing amount of money on research into alternative sources of energy; and I am glad to see from this Paper that the Government believe that there must be a control over the depletion of our North Sea oil—a control and the direction of that depletion, just as, fortunately, the Norwegians have shown it can be done. But if we are to take on this new rôle, if we are to contribute to an international society where energy can be used equitably, then, with the help of our friends, we have both the responsibility and the opportunity, provided we are determined to use our new revenues for this purpose, to use the breathing space that we have been accorded, to control both the revenues and the extraction of the oil and to channel this new resource into the central purpose; that is, to create a world, which has be-
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come a village, the resources of which can be used for the benefit of all mankind.
4.41 p.m.
Lord CHALFONT: My Lords, it may surprise those of your Lordships who know me to find that I am attempting to contribute to a debate of this kind which is concerned with such abstruse, esoteric and technical matters but, like the noble Lord who has spoken before me, I should like to broaden the debate a little beyond the document which the noble Earl has mentioned in his opening speech and beyond the question of BNOC and its achievements and deficiencies. I should like to confine myself to two major points about the oil policy of Her Majesty's Government. They are points concerning military security and the impact of our national oil policy on our national security and our collective security. This, I hope, will be a speech which has no Party connotation of any kind. I believe and hope that it will raise points of national importance. The two issues that I want to raise are issues concerning the security of supplies of North Sea oil and the implications of North Sea oil for the military security of Western Europe.
Before doing this, it would clearly be not only discourteous but ridiculous of me not to refer to the distinguished maiden speech to which we have just listened. The speech of the noble Lord, Lord Hatch of Lusby, was modest; it was constructive, thoughtful, compassionate. It was, I believe, in the best tradition not only of maiden speeches in this House but of speeches in this House generally. He referred to Professor Martin Ryle's comments on the uses of energy generally. I believe that I am right in saying that the words he quoted are also quoted at the beginning of an extremely interesting pamphlet on the alternative uses of energy and the alternative sources of energy issued by an extremely interesting organisation in Wales which is devoted entirely to the investigation of alternative sources of energy. I believe that the noble Lord, in a maiden speech of remarkable impact, has opened for us a number of avenues of investigation and approach for the future. He is right in saying that our supplies of oil and reserves are not endless and that we must examine not only ways of finding alternative sources but other ways of using our energy. I, personally,

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am deeply grateful to the noble Lord for his contribution and like other Members of your Lordships' House I think that we shall look forward with lively interest to his future contributions to our debates.
As I say, I want to confine myself to two issues of security. The first is the issue of the security of our own North Sea oil. There are two possible threats against our supplies of North Sea oil. The first is posed by the alarming growth of international terrorism. I believe that no one who has followed international events over the last few months and years will deny that there is a widespread and growing network of international terrorism, that is highly organised, and is recruited in many nations of the world. It is trained in ruthless, destructive and lethal methods of terrorism. It is often trained—and there is reason to believe that the terrorists who attacked and murdered Aldo Moro in Italy recently had been trained—in East European and other Communist countries. The principal targets of these international terrorist groups are the countries of the Western democratic world. Just look at where all the recent attacks have taken place: in West Germany, in Italy, in France, in Holland and in Denmark. There have been even the earliest signs of terrorist activity in this country—so far, thank Heaven! comparatively mild if one relates them to the appalling things which have taken place in Italy, Holland and Germany.
It seems to me—and this is where I come to the specific subject of the debate—that these oil installations of ours, the platforms in the North Sea, the way in which that oil is brought ashore and the installations ashore that process it, are obvious targets for any international terrorist group, not from the point of view of taking hostages (although that may be the case) but specifically from the point of view of sabotage. Here is the one way in which an international terrorist group could strike at the very economic and political heart of this country. I believe that the Government, Her Majesty's Ministers, are already aware of this threat. One has seen reports in the Press of exercises that have taken place which are alleged to be exercises of a counterterrorist type. I say—at the moment without any sense of criticism—that my own information about these exercises is
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that they really do not inspire any confidence that they would be effective against the kind of ruthless and highly-organised international terrorist organisations which are abroad at the moment. I may be wrong.
I shall not ask Her Majesty's Government for any details of their defensive arrangements. That would be foolish and irresponsible. I ask only for assurance that Her Majesty's Government are satisfied that they have the resources to deal with possible terrorist attacks of this kind; that they have, or believe they have, the intelligence resources to warn them of possible attacks and that they have the resolution to defeat those attacks with a ruthlessness which is equal to that which I assure Her Majesty's Government will be applied by those who mount those attacks.
There is a second threat. It is the threat of the vulnerability of these installations in time of war or of confrontation. The interruption of oil supplies is an obvious strategy for any potential enemy. I have to be very careful nowadays about using the word, "enemy"; so I shall say, with great care, "potential enemy". I shall remind your Lordships' House, in the context of potential enemies, of the extraordinary growth of the Soviet Navy over recent years, especially in its capacity for submarine warfare. Again, I shall ask Her Majesty's Government for no details; for matters of defence are, quite rightly, matters that are secret in many cases and matters Her Majesty's Government have every right to keep in detail to themselves. I would only ask to be assured that this threat is recognised and that there are within the Western Alliance plans and resources to meet it.
I come now to the second of my points. It is the implications of North Sea oil for the general defence and security of Western Europe. Leaving aside the problem of whether or not we can secure our own supplies of oil, what is our policy about those supplies in the context of the defence of Western Europe and, by extension, the defence of this country against possible attack from outside? I am talking now of military security; I am not talking of the effect which oil embargoes and other outside action can have on the standard of living and the economic prosperity of Western Europe; I am talking specifically about our military security. The present

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positition is that Western Europe is to a very high degree dependent upon the primary fuels, especially upon oil. It is a generally known fact that, as a region, after the United States of America, Western Europe is the second largest oil consumer in the world. It has—and this is again a glimpse of the obvious—a very limited oil production of its own. So the first point that I should like to make in this argument is that over the next decade or so North Sea oil is likely to be a product of crucial significance to Western Europe.
We know that Western Europe has recognised the importance of oil, has recognised the unreliability of external sources of oil, and is planning to cut its energy requirements by something of the order of 10 per cent. Having considered its general energy requirements it is also planning to supply those reduced energy requirements from sources other than oil. One of those other sources—indeed, the principal one—is nuclear energy. We all know the profound and passionate arguments that are going on at the moment about the future of the peaceful uses of nuclear energy, arguments to do with the pollution of the environment, arguments of a real and serious kind about the implications of nuclear energy on the possible spread and proliferation of nuclear weapons. I am not proposing today to go into those arguments. I will only say that, whatever may be the outcome of those discussions, it seems to me—and this I believe is a generally held belief—that up to the end of this century Western Europe is likely to he still very, very heavily dependent upon the supplies of oil.
The supplies of oil from Arab countries are notoriously unreliable, so I just make this point as a step to my next argument that, although North Sea oil may be only a tiny proportion of the oil reserves of the whole world—some people estimate it at about 2 per cent.—it is still going to be of considerable importance to Western Europe. I mean importance not only to the economy of Western Europe, to the prosperity and to the quality of its life, but of vital importance in one respect which I think has been very largely ignored in the public debate, and that is our military security, the defence of Western Europe.
The major point that I want to make in this debate this afternoon is that the
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effective military defence of Western Europe, and therefore of this country by extension, depends to an almost total extent upon reliable supplies of oil. Without it, all our tanks, our guns, our vehicles, our aircraft and our ships will become, after quite a short period of time, useless hunks of metal. They will not be weapons of war any longer without reliable and continuing supplies of oil. In passing, let me note here that in the context of which I am speaking—which is the remote context, one which we must all think about and plan for—of a major war in which we are involved, we may be totally cut off from supplies of oil from the major supplying area of the world, the Middle East. Those people who are pretending or purporting at the moment to be complaisant about what is going on in Southern Africa, and what is going on in the Horn of Africa, had better well remember that if all that goes wrong, if the worst happens in the Continent of Africa, quite apart from what may happen to the people of Africa, we in Western Europe will be cut off from the vital supplies of oil upon which not only the economy but the defence of Western Europe will depend.
Furthermore, there is another point; it may be a technical point but it is a real one on which I think my friends on the Government Benches may care to ponder. The only weapons which are not made totally ineffective by deprivation of supplies of oil are nuclear weapons: the nuclear powered submarines and the nuclear missiles. So I elide a very complicated tactical argument here, but I ask you to believe it. If you do not believe it from me, I ask you to investigate it for yourselves. One of the effects of depriving Western Europe of its essential supplies of oil in time of war is to make the use of nuclear weapons more likely. That I believe is something which no one in your Lordships' House—and certainly no one sitting behind the Government Front Bench—would wish to contemplate.
I should like to ask the Government what their policy is regarding North Sea oil and Western Europe; I might remark in passing—although I do not wish to make a great point of this—that under the provisions of the Treaty of Rome we are supposed to have a common market in energy; but my argument goes deeper

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than that. I am asking Her Majesty's Government to give an assurance to your Lordships' House that, when we have our full supplies of North Sea oil, we shall not adopt the policy usually characterised by that well-known phrase: "I'm all right Jack". We are members now of a European Community. Europe needs a common energy policy. It needs many other things as well; it needs a common foreign policy and an economic and monetary union, but these are matters which are outside the context of this debate. I only recall for your Lordships as a lesson the disarray that disfigured the face of Europe at the time of the Arab oil embargo after the Yom Kippur war in 1973, when instead of facing this problem collectively and resolutely, all the countries of Europe rushed around like demented chickens in a thunderstorm, all pursuing what they perceived as their own national interests without any concern at all for what was the long-term interests of Western Europe.
Britain now has an opportunity to give a lead. With a co-operative and common energy policy in Europe not only shall we have negotiating strength in the future political and diplomatic crises that lie ahead, but we shall have—and this is the point of my remarks today—a more effective military security against external threat. The Common Market is the best market for any surplus products that are likely to be available from North Sea oil in the 1980s but only if there is a total energy policy and a common energy policy in Western Europe. I should like in passing to ask the Government to bear in mind something which has already been mentioned by one noble Lord. I think the noble Lord, Lord Orr-Ewing, in an intervention earlier mentioned the possibility of a dramatic fall in oil prices, and the impact that that would have on our policies.
I pass now to my conclusion, which is to ask Her Majesty's Government for a number of assurances. These, I believe, are constructive. They are not in any way abrasive or polemical, and I know that the noble Lord, Lord Strabolgi, who will answer the debate, is very much concerned with these matters. I should like to ask, first, whether we can be assured that there are resources and there are plans available to protect our North Sea oil against
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international terrorism and that Her Majesty's Government are satisfied with those resources and those plans. I would ask whether the Government are satisfied with the plans to defend the supplies of North Sea oil in times of crisis or of limited war, whoever may be the enemy.
I should like to ask whether Her Majesty's Government would agree that Western Europe and the Common Market will have priority of claim on any surplus of supplies that may arise from our North Sea oil operations. I should like to ask whether Her Majesty's Government, as a net exporter of oil in the 1980s, will take the lead—this may be a more difficult question—in helping to formulate an effective common energy policy for Western Europe. Finally, I should like to ask for an assurance to be given to your Lordships' House that Her Majesty's Government is giving due importance to the need for a common energy policy for Europe in the context of the military defence of Western Europe against a possible attack from outside. Perhaps I might end with a quotation from a monograph published by the Stockholm International Peace Research Institute—not a hawkish body by any means, but a body devoted to, and committed to, the principles of international co-operation and disarmament. The publication is called Oil and Security, and what it says is this:
"Oil is a commodity of basic stragegic importance. No modern defence system can be maintained and no war can be fought without a great supply of oil. A matter of vital importance for those responsible for planning national security, then, is the assurance that the country can count on sufficient supplies of oil to sustain its defence."
What that says about a country can be said equally of Western Europe. This is a truth of vital importance to Western Europe and I am grateful for the opportunity to take advantage of this short debate, initiated by the noble Earl. Perhaps I might say in passing that I listened with great care to his speech and found it not only a literate, thoughtful and constructive speech but one that is refreshingly candid and frank about the plans of a possible Conservative Government for the future. I should like also to take advantage of this debate to ask Her Majesty's Government, when they consider all the long-term implications of their future policies and when they are thinking about the implications, political, economic

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and military, of their policies in respect of North Sea oil, to bear in mind the security of this country and the security of Western Europe.
5.4 p.m.
Lord COCKFIELD: My Lords, having myself so very recently faced the same ordeal as the noble Lord, Lord Hatch, may I join in congratulating him on a most interesting and informative contribution to the debate. It has sketched in the picture against which the problems set by the Consultative Document need to be considered. I must apologise to the House for the fact that I, too, may have to leave before the end of the debate owing to a long-standing engagement which was entered into before this debate was arranged.
May I be forgiven for starting with a personal reminiscence: my own involvement in the problems of the oil industry, primarily from the taxation point of view, first arose in the early 1950s when I was working for the noble Lord, Lord Butler of Saffron Walden, who at that time was Chancellor of the Exchequer. More recently, in the period of four and a half years between 1973 and 1977, I was very directly concerned with the prices and profits of the oil industry and of all the major oil companies operating in the United Kingdom. I mention this experience, extending, as it does, over a period of some 25 years, because it is directly relevant to what I shall be saying later. I mention it also because, looking back over this period, one sees the great improvements which have occurred in the quality and availability of information about oil companies and their operations; and one has also seen a great growth in expertise and knowledge within the Government and within the Government agencies.
There are two quite separate aspects of the problems of North Sea oil. There is, first of all, the question of winning the wealth; that is, obtaining the wealth from the North Sea. Secondly, there is the question of utilising wealth; that is, what we do with it once it has been obtained. The winning of the wealth is, of course, of crucial importance because until we win it we cannot spend it and until we win it we cannot achieve the strategic aims of the noble Lord, Lord Chalfont.
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The Consultative Document deals with the question of winning the wealth, and what we have to ask ourselves is whether the proposals it contains represent the best and the most efficient way of winning the wealth. I suggest that they do not and I propose taking three specific provisions in the Consultative Document where the proposals do in fact differ from those in earlier rounds.
First, the terms proposed for BNOC's equity participation and for its carried interest are such that the bigger the share of the burden the licensee is prepared to carry and the smaller the proportion of the reward he is prepared to accept, the more likely he is to be granted the licence. In short, the licensee is being squeezed from both ends. This is highly ingenious. It may secure for BNOC the maximum share of what oil does happen to be discovered, but as a means of ensuring the maximum effort in exploration and discovery it is the exact reverse of what is required. It maximises the cost of failure to the licensee and minimises the reward of success. It is difficult to avoid the conclusion that these particular arrangements are designed primarily to promote the position of BNOC.
Secondly, for the first time, the licence to operate is to be separated from the licence to explore. The licence to operate will be granted only once a discovery has been made and the decision as to who is to be the operator will not be made until that time. It follows that the identity of the operator, which is a matter of considerable, if not crucial, importance, cannot be known when the original licence is applied for. This introduces a new and undesirable element of uncertainty into all the arrangements. The reasons given in the Consultative Document are not convincing. They would justify deferring the appointment of the operator where the applicant so wished, but not where the original licensee and the ultimate operator wished to he appointed together from the outset. Here, again, the suspicion must be that the arrangements are essentially a device to enable BNOC to extend its operations still further, if it is in a position to do so once a discovery is made.
Thirdly, for the first time, there are proposals to give BNOC the option to buy the licensee's share of the oil produced, and for BNOC—again, at its

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option—to sell its share of the oil to the licensee. Presumably, these arrangements are designed to ensure that BNOC becomes a major dealer in crude oil. But I think it is important that we should know whether they are also designed to enable BNOC to enter the downstream market. Are we to see BNOC refineries, despite the surplus capacity which exists at the moment? Are we to see BNOC garages selling BNOC petrol, despite the fact that there are already too many garages? I think that some enlightenment on these points really is required.
One would have thought that the national interest demanded, first, that the best qualified applicant should be selected; and, secondly, that the applicant, once selected, should be enabled to explore, to develop and to operate to the maximum advantage, both for himself and for the nation. The proposals in the Consultative Document are not designed to achieve these ends.
The inescapable conclusion is that their real objective is to build up the position of BNOC, as part of an active and aggressive policy of expanding the public sector at the expense of the private sector. I know it is argued that this is essential to enable the country to secure its fair share of the oil revenues, and it is claimed that without the entrenched position of BNOC as an operator, as a regulatory agency and now, as proposed, as a dealer in crude oil—
Lord STRABOLGI: My Lords, I am sorry to interrupt the noble Lord, but I said—and I emphasised it—that BNOC is not a regulatory agency.
Lord COCKFIELD: My Lords, I am most grateful to the noble Lord. But it carries out certain functions which are essentially functions of a regulatory agency. The noble Lord is entitled to apply whatever description he wishes. I am trying to ask: what is the reason for these proposals? The point that I really want to develop is that the argument is, I gather, that it would be impossible for the Government to ensure that they were receiving their due share of the revenues of the North Sea unless BNOC was put in the position into which it has been put —a position which it is proposed to extend under the terms of the Consultative Document.
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I know that it is also argued—and I am familiar with this argument, because it is one with which I had to deal—that profits can be manipulated by the under-statement of revenue and the over-statement of costs, with the result that it would be impossible, it is claimed, for the country to secure its rightful share of the revenues through the mechanism of taxation. I simply do not accept these arguments. In the 1950s, and to a lesser degree in the 1960s, there was a tradition of secrecy in the industry and information was hard to come by. But this has long since ceased to be so. It proved perfectly possible, during the lifetime of the 1973 price control, to get all the information which was needed about costs and prices, as well as about profits. There was no insuperable problem in checking the broad accuracy of the information from independent sources, and we were able satisfactorily to monitor performance after the event.
I see no reason to suppose that a taxation solution to the problem cannot be made to work. The Inland Revenue have greatly increased powers to deal with transfer pricing. It is, of course, essential that all the information needed should be made available, but it is quite unnecessary to set up BNOC as a major dealer in crude oil, in order to obtain this information.
I would go further than that and say that the argument that the Government neither have the information and cannot get it, nor have the expertise and cannot get it, is quite inconsistent with the argument that sufficient information and expertise is available within the ambit of Government to enable BNOC to enter into the trade of crude oil dealing. The only reservation which I should like to make is that if BNOC, nevertheless, ends up by buying too dear and selling too cheap, the net result of its activities will be to add a loss of tax revenue to a loss of trading income. Therefore, as a route to solving this problem, I cannot see that it has any very great advantage.
I do not propose repeating the arguments put forward by my noble friend Lord Gowrie, all of which called into question the present rôle of BNOC. There must, I suggest, be a better way of managing our affairs than through the further extension of BNOC's powers, as

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envisaged in the Consultative Document. We need to find the best and most efficient way of winning the wealth. We need to find the most efficient way of securing for the nation its proper share of the wealth. But a massive extension of the public sector will not, in my view, achieve either of these ends.
Lord DAVIES of LEEK: My Lords, before the noble Lord leaves that interesting argument, may I, as one who is aware of his expertise in this direction, put this point to him? Before the Thistle field could go on with exploration, it had to borrow some £70 million-odd from the Government, and the only argument that I have to put forward is that most of this major exploration is due to the fact that Government loans have been willingly given for the expertise. Consequently, Government organisations and the public should have a return on those loans, but that point has been completely missed.
Lord COCKFIELD: My Lords, I do not follow the noble Lord in his suggestion that the point has been completely missed. I specifically stated that, in my view, the problem of the nation acquiring its proper share of the wealth was one which could be tackled through the mechanism of taxation, and that it did not need an extension of the field of activities of BNOC to achieve this end. But the noble Lord has also confirmed—and I find this most interesting—that the exploration is done by the private sector and not by BNOC.
5.19 p.m.
Lord KALDOR: My Lords, if I may borrow for a moment the jargon of the United States Senate, I consider myself to be the junior Member of this House from Hungary. The senior Member, the noble Lord, Lord Balogh, cannot, as the noble Earl, Lord Gowrie, explained earlier this afternoon, be present at this debate because he is abroad. I should not like to say that I deputise for him; it would be quite wrong of me to do so. Nevertheless, I hope that what I have to say will not contain anything with which he would strongly disagree. But I should like to say that I was very greatly pleased and gratified by the tributes that were paid to the noble Lord, Lord Balogh, from all sides of the House, for the important
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work which he has done in connection with the development of Government policies and with the successful exploitation of North Sea oil.
Before I begin my speech, I should like to associate myself with the complimentary remarks made by the noble Lord, Lord Cockfield, about the maiden speech of my noble friend Lord Hatch. The views and the sentiments which my noble friend expressed about the excessive exploitation by the world of its exhaustible resources and the very unequal incidence of that exploitation command, I believe, universal agreement. I hope that my noble friend will forgive me if I do not follow his general thoughts but, at a more mundane and controversial level, concentrate my remarks upon the points which have been raised by the Opposition. Although I shall not directly begin by taking up the arguments of the previous speaker, the noble Lord, Lord Cockfield, I think that he will find in my remarks that there will be both implicit and explicit references to what he said.
The history of the exploitation of North Sea gas and oil reflects the shifting emphasis given to the public interest and to the private interest of the oil companies as Governments of different colour have alternated in power. During the last Conservative Government, the interests of the oil companies were favoured in two major ways. In the first place, although an experiment was conducted in putting licences up to tender, which showed that the companies would have been ready to pay very large sums for them, the great majority of licences were allotted on a discretionary basis. In June 1971, tenders were put out for 15 out of the 436 blocks for which applications were invited.
According to the First Report of the Public Accounts Committee, the tenders received on the 15 blocks, to be awarded by auction, were surprisingly large. They totalled £135 million for the 15 blocks from 30 applicants, the sum of the highest premiums hid for each of the blocks totalling £37 million. This was very much greater than had been expected. As the Committee records:
"Ministers were immediately informed but the policy decision to allocate other territory on a discretionary basis was not reopened."
Thus, after receiving £27 million on 15 blocks—far more than was anticipated—

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this experiment, which was intended to be only an initial step, was not followed up. Subsequently, the Government allotted 267 licences without any charge.
The second advantage enjoyed by the oil companies was that the only financial gain which accrued to the Government under the terms of these licences was a royalty payment of 12½ per cent. of the value of the oil brought ashore. This compared with the over 80 per cent. share which was secured at about the same time from private oil companies by the Norwegian Government on their part of the North Sea. It is true that the representatives of the Department of Trade and Industry maintained in their evidence to the Public Accounts Committee that the residual 87½ per cent. was subject to corporation tax at 50 per cent. so, taking the two together, 50 per cent. to 60 per cent. of the profit would accrue to the Government. But this claim was a hollow one.
As the subsequent testimony of a representative of the Inland Revenue before the Public Accounts Committee showed, under the then existing arrangements the oil companies could set off against their profits from the North Sea accumulated unabsorbed losses from their overseas operations to the tune of £1,500 million, a sum which was then increasing at the rate of about £500 million a year. That was on a pre-1973 basis, when the price of oil was only two dollars a barrel. At post-1973 prices, the rate of accumulation of losses to be set off against any possible tax liability of North Sea operators might have been very much greater. This meant that there was no chance that any benefit would accrue to the Exchequer other than the 12½ per cent. royalty payment. So far as the oil companies were concerned, whether or not this was fully known to the Government—and if I were to follow the argument of the noble Lord, Lord Cockfield, the Government must have fully known about it—the 50 per cent. corporation tax was a purely cosmetic tax.
Since then, the situation has been radically transformed. On the taxation side, as my noble friend Lord Strabolgi explained earlier this afternoon, the Government introduced a petroleum revenue tax of 45 per cent. which constitutes a first claim on the profits from North
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Sea oil. In addition, for the purposes of corporation tax, a ring fence was created around the North Sea which made it very difficult, if not quite impossible, to reduce corporation tax liabilities on the companies' North Sea operations on account of unabsorbed losses elsewhere. There were, however, very generous provisions for depreciation. Operating companies are entitled to write off 175 per cent. on all costs incurred on the exploration and development of any particular field before any tax is payable. I regret that the noble Earl, Lord Lauderdale, is not here, because this is the answer to his point that no interest is allowed against profits. The extra 75 per cent. was meant to represent, in a rough and ready but generous way, the interest accruing on amounts spent upon exploration and operations.
Further, to ensure that the taxation should not act as too much of a disincentive—we hear very much about the disincentive effects of taxation, and I was very surprised that the noble Lord, Lord Cockfield, who is such an expert on taxation, carefully avoided any reference to these effects when he said that all that we need to do is to tax profits sufficiently to prevent companies from obtaining an unreasonable return—and that companies did obtain a reasonable return on their investment, the first 1 million tons extracted per year from any one field was to be free of tax. If my memory serves me correctly, there is a further provision which ensures that a certain minimum rate of return on the capital invested is free of any tax, so as not to discourage companies, on account of taxation, from exploring and opening up less promising fields in the North Sea.
But no less important than these changes in tax provisions was the creation of the British National Oil Corporation, which was to be a partner, or at least a collaborator, of private companies in all North Sea operations. It is the existence and the activities of this Corporation which the large international oil companies regard as the main obstacle to the unhampered pursuit of their interests, and as we heard from several speeches this afternoon, these oil companies are not without their supporters.
In fact Britain treats the international oil companies—and this is something we

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have not heard mentioned today—more generously than most other countries where oil is produced: more generously than Norway, for example, and far more generously than the other main oil producing countries in the Middle East, in Africa or in Latin America, in all of which the oil industry has been completely nationalised. Even Canada has now set up a publicly-owned operating company. The only country where the oil industry is fully in private ownership and where the Government try to do everything through taxation and regulation, or through non-taxation and ineffective regulation, is the United States of America. It is certainly not an example for us to follow. Noble Lords opposite will not find there the harmonious relations between the oil companies and the Government which they apparently believe would exist here if the BNOC were abolished.
In this country the existence of BNOC is invaluable in helping to secure an overall policy which is in the best interests of the nation. There is first of all the fact that the Government through BNOC have potential control over the destination and use of at least 50 per cent. of the oil extracted from the North Sea, which may prove an invaluable safeguard in many of the situations which the noble Lord, Lord Chalfont, this afternoon envisaged as something which cannot be ruled out of court. Further, as an operating company, they acquire the know-how and the necessary experience without which civil servants would have to depend upon information supplied to them by private companies—a dependence which is dangerous since civil servants can scarcely spend their time eliciting information and giving advice to Ministers that is not in the interests of the supplier of that information. They can only pass on information which they receive.
It is the accumulating experience, both through its direct operational role in the Thistle field and through its representation on the committees of the operating companies, whether as an observer or as a participant, that permits BNOC to know not only what is happening but also what is not happening. In the absence of BNOC the only controls which the Government could exert, whether through taxation or through regulation, would be
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essentially of a negative character. They could discourage things or they could prevent them, but they could not ensure that oil from the North Sea was used to the best advantage both in the short run and in the long run.
It is the existence of BNOC, and that alone, which makes it possible for the Government to receive unbiased technical advice about the probable effects of any measure under consideration for example, a proposal to cut back production, or to leave particular fields as a reserve for future use, or to change methods of taxation, and so on. All this is the kind of technical knowledge and information which is very different from the kind of information that an accountant receives or the head of the Prices Commission receives in arriving at reasonable profit margins on costs or prices. It is therefore quite different from the sort of information which the noble Lord, Lord Cockfield, suggested that the Government possess already in ample measure.
At the same time it is not accurate to say, as was said by the noble Earl, Lord Gowrie, in a previous debate and implicitly at least repeated today, that BNOC operates as a regulatory body and therefore has a dual rôle; it acts both as a referee as well as being a participant in the game. What BNOC does is not to regulate but to acquire knowledge and thereby enable the Government to act upon advice that is both comprehensive and balanced. I regret to say that I detected almost a flavour of sour grapes in the opening speech made by the noble Earl, Lord Gowrie, this afternoon when he described, almost in tones of regret, what a dynamic institution BNOC has become; how much it achieved in the first two years of its operation, and how it secured one of our ablest business leaders for the head of its operations.
I also detected a note of regret that BNOC, being an operating company, fails to behave like a private operating company and fails to participate in that silent conspiracy of not telling the Government anything which it is not in the interests of this whole industry for the Government to know. I also detected a certain amount of regret or criticism in the remarks made by the noble Earl when he said that BNOC and the Government have tried to have the best of both

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worlds. They are trying to get all the knowledge, the expertise and the money of private industry and at the same time to secure the advantages of public enterprise and to safeguard the national interest in a way that only public enterprise can do.
The Earl of GOWRIE: My Lords, if the noble Lord will give way, as he was referring to me would he like to tell us this: since the formation of BNOC, since the fifth round licensing system, what single new or independent British company or single small company has been in any way encouraged to operate in the North Sea by the presence of BNOC?
Lord KALDOR: My Lords, I am afraid I am not able to give this information, but I should like to know whether, prior to the formation of BNOC, Governments have done anything to encourage the formulation of small new private companies? What have they done about it? All I wish to say is that in some ways the noble Earl is right; we are trying to have the best of both worlds. But since in this case "we" are the nation, what is wrong with trying to have the best of both worlds—what is against it? Of course, there are those who think—and the noble Earl, Lord Gowrie, as he made clear, is not among them—that there can be no conflict between private interests and public interests, the attitude which is epitomised by the well-known saying that "what is good for General Motors is good for the United States". Those who believe that will not, of course, perceive or acknowledge that there can be a problem here. If they believe that an invisible hand will compel the majority of the multinational oil companies to behave in the same way as if they were publicly owned, all I can say is that this is a very naive view which is not shared by those who are familiar with the oil industry either here or in other countries.
Much has been made of the fact or rather the allegation that the Consultative Document concerning the sixth round of allocations suggests additional criteria of preference in making awards that are far more onerous to the oil companies than the criteria of the previous round had been. All that the Consultative Document suggests by way of new criteria is, first,
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that in making awards preference should be given to applicants who are ready to offer training facilities for work on offshore installations. I cannot see that there is anything to be objected to in that; that is a most valuable suggestion which in no way can be regarded as unfair or onerous. Secondly, preference should be given to applicants who are prepared to be more flexible in accepting equity participation for BNOC or in meeting more than their share of exploration and appraisal costs. But we must not misunderstand the nature of the suggestions in the way the noble Earl, Loud Lauderdale, has done this afternoon—and I regret that he is no longer in his place to hear this. It is not true to say that BNOC will retain 51 per cent. equity interest and thus could receive 51 per cent, of the profits without contributing anything to the costs. What these propositions amount to is what is technically called "carried interest". BNOC has an option to acquire 51 per cent. of the equity, but if it exercises its option it must, of course, recompense the other operating companies in the consortium for its share of all the exploration, appraisal and development costs incurred. There is no question that it is going to try to get something for nothing. Carried interest means simply that if it has an option to acquire a participation, then, of course, if it does so, it must pay its due share of the costs. The third criterion is in granting options either to sell oil to BNOC in excess of BNOC's share or to buy oil in excess of the applicant's share, both at market prices.
The noble Lord, Lord Cockfield, characterised these proposals as grossly unfair, meaning as compelling the companies—I hope he will correct me if my memory is wrong—to minimise the rewards of success and to maximise the cost of failure. What he did not say, my Lords, is that no company needs to conform to any of these criteria if they do not want to. They are only suggestions; that is, that preference will he given to those companies who accept such criteria if they do. But if they do, it is either because they are not really regarded as so onerous as noble Lords opposite make out, or else they fear that their competitors will not regard them as so onerous. But, in either case, if they do in their application offer to give these preferences, this in itself is a sure indication that the terms offered are not

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terms with which companies would not willingly comply rather than lose the business. If, with all these conditions, they go on applying, it is because they expect that the net chance of profit is sufficient to undertake the venture. I should like to remind noble Lords that it is not our purpose, either on this side of the House or on the other side, to make profits as large as possible. Profit, as the great American economist, the late Henry Simons said, is a gift from the community given in order to operate the market mechanism in an efficient way. But the less profit you need to pay in order to obtain this service the better it is from the point of view of the community. It is, therefore, not a valid criticism, as the noble Lord, Lord Cock-field, says, that these provisions are bound to make the profits lower than they would have been if the provisions had not been made in the Consultative Document. Of course they do, but so what. We are speaking about the national interest and not the interest of shareholders, which is a very specific partial interest.

The major oil companies have been called the barons of the modern world. That may be an over-colourful expression. But certainly their power is such that a countervailing force is needed if the national interest is to be upheld. BNOC is such a force. Our main concern should be not to cut it down but to ensure that it is given sufficient resources and strength to do its job properly.
5.48 p.m.
The Earl of HALSBURY: My Lords, if my opening remarks appear to your Lordships not to be entirely to the point I hope that I may have your patience, because they will become more and more relevant as they proceed. I seek to persuade the noble Earl—for whose Motion we are all grateful since it gives us the opportunity to debate it this afternoon—equally with the noble Lord, Lord Strabolgi, who replies for the Government, not to peer down their microscopes at the contractual subsoil, but to stand up and turn their telescopes on to the horizon, where they will descry the monuments of past folly. I am sorry the noble Earl has just left the Chamber, but no doubt his noble friends will remind him of what I have said or he will read it tomorrow in Hansard. In particular, I want to draw your Lordships'
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attention to the possibility of using round six as a lever to renegotiate the disastrous terms on which we are being supplied with natural gas.
At this point your Lordships might well say, "This is a debate about oil. Why bring gas into it?" But, my Lords, you cannot discuss one without the other. An oil well is like a magnum of champagne, a bottle of Guinness or a syphon of soda water. It is under the pressure of the surrounding country rock. Release that pressure and it fizzes just like champagne, Guinness or soda water, and the fizz is the gas. You have a complete spectrum of wells, from wells with a very little gas to wells with a lot of gas, and wells which are almost entirely gas. Almost all natural gas wells will in fact produce a condensate if you reduce the pressure on them.
In our folly we have contracted to the supply of natural gas on terms which secure its wastage exactly on the lines described by the noble Lord, Lord Hatch of Lusby, in a remarkable maiden speech which was both knowledgeable and temperate—two qualities which always endear themselves to your Lordships' House.
Let me explain how the system malfunctions at present. The British Gas Corporation has contracted to take the output of natural gas from the North Sea. No matter how much gas is produced the British Gas Corporation is contracted to take it. Years ago, for ideological reasons, the production companies were screwed down on price. So if we put those two disastrous conditions together, how do they recover the interest on their investment? Simply by over-producing. What can the British Gas Corporation do except to sell that gas for purposes for which gas ought not be be sold.
I was horrified in the days when I was a member of the North Thames Gas Board—I was a member for 12 years—because towards the end of my term I found that we were almost under instructions from the Gas Council to supply interruptable gas to the Slough Trading Estate at very little more than a penny a therm in order to get rid of it—and, of course, the penny would have been marginal profits.
Gas is the ideal material for domestic use: in the kitchen, by the hearthside and

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even for central heating. It leaves no poisonous residues about and it produces nothing corrosive to pollute the atmosphere. The natural gas reserves in the North Sea are the heritage of our children and we ought not to be squandering them in industrial process heating which is a direct result of the terms of the contracts which have been entered into.
Something must be done and round six could easily be a lever—if people would wake up to the possibilities of this—to renegotiate those original contracts and limit the supplies of natural gas which must be taken up by the British Gas Corporation. There are two very differ-rent situations here. I recently went up to Sullom Voe because I like seeing things for myself. There they are building the world's biggest oil terminal in the Shetland Islands and I know roughly what will occur there, where the gas is a by-product.
The oil will be landed. The crude will be, as it is called, "topped"—that is, the gas and the volatiles will be taken out of it. They will be separated into their constituents. The liquefiable gases will be pressurised into containers and transshipped for sale, and the non-liquefiable gases will be burned in gas turbines to provide the power station requirements for the management of this big oil terminal. There may be some methane and ethane left over at the end. If there is sufficient, then it may pay to liquefy it and transport it to Canvey Island or it may not, in which case it may have to be flared or possibly become the basis of an indigenous gas supply for Lerwick and other places in the Shetland Islands. However, because the oil is the main product and the gas is the by-product there is no serious question of squandering resources of natural gas from that source.
But, in the southern North Sea where we are dealing primarily with gas fields we only have so much gas there and it ought not to be squandered by being burned in industrial process heat boilers. That squandering is the direct result of the foolish contractual terms that have been entered into. Therefore, I say again that we ought to use round six as a lever to renegotiate the terms on which we are buying natural gas from the Southern part of the North Sea.
5.54 p.m.
The Earl of LIMERICK: My Lords, I much enjoyed the speech of the noble Earl, Lord Halsbury. He will understand if I do not follow him in that way—indeed, there is no one, I think, who could follow him in that way. I propose to take a rather different line, but before doing so I should declare an interest in the debate as a director of two companies with small minority interests in North Sea blocks in both exploration and development stages.
I should like to apologise to my noble friend Lord Gowrie, on whose initiative we are debating this subject this afternoon, for the fact that owing to a prior engagement I missed the first few minutes of his speech.
I should also like to refer to the very notable maiden speech from the noble Lord, Lord Hatch of Lusby. He displayed a very thoughtful and sensitive approach to the subject and I should like to follow him in one of his thoughts. I agreed with him very strongly on the question of limitation of energy use. I share his concern about the rate of consumption of hydrocarbons and about the rate of economic growth of which this world is capable.
Our democratic systems are founded not so much upon economic growth as upon the expectation of economic growth. Even a small shortfall can spell discontent and finally may spell revolution. Therefore, it must be a matter of concern to us all to note the percentage of the growth of which the world is capable which is pre-empted by researching and producing new energy sources. We hope to hear the noble Lord again often.
Against the background of this debate and my own knowledge I am taking no doctrinaire line against a national oil company. I should contend that a national oil company is not necessary to secure a major British share in North Sea hydrocarbons—which were already vested in the Crown—and, of course, all oil companies operating in the North Sea, including BNOC, under the terms of their licences have only the right to produce the oil. Nevertheless, BNOC exists and it will not cease to exist.
Several speakers failed to acknowledge, or perhaps were unaware of, the inevitability of change in terms of the licensing

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rounds as the North Sea geology became better understood. I thought that the noble Lord, Lord Strabolgi, was perhaps a little guilty in that regard. The object of the fourth round—quite properly and desirably in the national interest at that time—was to encourage and accelerate what was high risk exploration in very largely unknown areas. Speed was then of the essence and speedy exploration was what was achieved. It was right then and it worked to our national benefit. To look back now with all the advantages of hindsight and to say that the fourth round was too generous is as futile as it is easy.
Of course, the fifth and now the sixth round can be negotiated in terms more favourable to the owner as against the concessionary, because on the basis of great and very rapid increases in geological knowledge, the odds of securing an acceptable return on investment are now quite different from what they were all those years ago. I make no complaint about the stiffening of terms in the fifth and sixth rounds. On the contrary, I should be complaining if they had not been stiffened. However, to complain retrospectively that the fourth round was too generous is, I think, claiming too much knowledge.
There was no shortage of applicants for the fifth round and on present evidence it seems unlikely that applicants will be lacking for the sixth round. Personally, I see nothing impossible about the terms proposed in the Consultative Document, provided—and this is the main point to which I shall return—there is confidence in the regulatory authority both in negotiation and in the procedure for licences granted under this round.
The question is: shall we get the best applications, and will the licences be awarded in response be on suitable terms so as to maximise our unrepeatable short-term national advantage represented by the hydrocarbons in the North Sea? The central point here is, I believe, the role of BNOC. The noble Lord, Lord Strabolgi, stressed that BNOC is not a regulatory body. In statutory terms, of course, he is absolutely correct. There can be no argument. A practical question, however, is to what extent, owing to its ambivalent relationship with the
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Secretary of State for Energy and his Department, it is able to influence or even indirectly, de facto, to exercise the role of such a regulatory body.
In another context recently Mr. Tom King commented:
"The basic structure in which oil companies do not know whether they are dealing with a competitor, a partner, or a boss, is at the root of this hostility to BNOC".
How real is this hostility and how justified might it be? I should like to cite five cases of what I think could be described as reasonable doubt or concern about the manner in which BNOC is exercising its triple role as competitor, as partner and as adviser to the regulatory authority. All the North Sea licensees with interests in producing fields were invited to negotiate participation on a "voluntary" basis. I place the word "voluntary" in inverted commas. It was also made clear that the companies who did not volunteer to negotiate participation would not be considered in any further applications for exploration licences either in the fifth round or in any subsequent round. Negotiations for fifth round participation were conducted by joint teams made up of BNOC personnel and nominees from the Department of Energy. For all practical purposes, this was a situation where the Government were negotiating direct with the private sector and it could hardly properly be described as a purely commercial negotiation at arm's length. I have heard first-hand accounts of negotiations in which the attitude adopted was that the terms of participation were standard, and that the other party could take it or leave it; hence the widely reported frustration and delay.
Secondly, prior to starting on participation negotiations, the Government imposed an embargo on all farm-outs. This delayed a considerable amount of exploration activity in the North Sea, much of which depended on the ability to farm into a favourable exploration situation or alternatively to farm out prospects judged to be marginal or high risk. Farming out is such a fundamental activity that any embargo on it is bound to have a strongly inhibiting effect on exploration. I think it became apparent why the Government had done this when they started to tell companies that they would only agree farm-outs if the applicant

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company was prepared to state its willingness to negotiate participation on the Government's terms. I have heard of a case in which two oil companies had agreed with the Department of Energy to the issue of a joint licence, which, on a technicality, involved the part assignment of a licence by one of them. Although the whole thing had been agreed in principle, BNOC withheld consent to the farm-out and made it clear that signing a participation agreement in BNOC's favour would be a precondition of its consent to a farm-out. I can think of no clearer example of negotiation under duress.
Another problem arose over the principle of the Area of Mutual Interest. This is a fundamental concept of the industry. It recognises the fact that geological work, whether seismic or drilling, conducted within a block may yield information of great commercial value in respect to a contiguous block. When companies joint venture to explore contiguous blocks they therefore agree that the contiguous blocks fall within an AMI, and also agree that no member of the joint venture will apply for an open acreage in contiguous blocks except in conjunction with or by agreement with the other joint venturers. BNOC has refused to endorse this principle, which means that it can apply at any time for open acreage on a basis of geological information leading to the expenditure by other parties.
The normal arrangements for licence allocation in Britain have up to now been that companies may only apply for licence areas on invitation from the Minister. Where, as is usually the case, there are competing applicants, the Minister will use his discretion to decide which applicant has the greater merit. Quite often in the past the Minister has advised the applicants to reach a joint venture agreement among themselves and to apply jointly for the licence. We now have a situation where BNOC and, incidentally, the British Gas Corporation can apply for any open acreage on an uninvited application basis. This gives BNOC a major competitive advantage over the private sector, especially bearing in mind its refusal to endorse the AMI principle to which I have referred.
My last example of non-commercial discrimination is that BNOC has sought
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and in many cases obtained a pre-emptive right in respect of the sale of licence interest. Normally where acreage is the subject of the licence held jointly be several parties there is agreement between them to the effect that a party wishing to sell its interest will offer it to the other parties pro rata. BNOC is demanding that the party wishing to sell should offer the whole interest to BNOC before offering it to the other licensees.
As a footnote to those points I reflect that, up to and including the fourth round allocation, a high degree of trust existed between representatives of the industry and officials administering North Sea oil. The officials have been increasingly involved in one-sided take-it-or-leave-it type discussions passing for negotiations with industry. A number of them have found it distateful and the old bonds of trust and confidence have been eroded. I cannot believe that it is in the long-term interest of the country that a major industry and the sponsoring Department should regard each other as adversaries.
Like my noble friend Lord Lauderdale, I endorse the principle of smaller and more frequent rounds. I suggest that the way to maximise benefit is fully to harness the skills and risk-taking proclivities of smaller as well as larger oil companies. Prima facie, Clause 4 of the Consultative Document is favourable to the smaller companies. The designation as operators can be for the exploration phrase only, in contrast with the fifth round, in which it was only BP among the United Kingdom oil companies which was named as the operator of a block. But there is a sting in the tail. It comes in Clause 9, where there is proposed—on an optional basis, I concede at once—a Dutch auction-type procedure as to who is prepared to give BNOC a more than 51 per cent. interest and/or carry some or all of BNOC's exploration costs.
The Dutch in fact do it differently and, in my opinion, better. They have a regime under which the oil companies carry all the exploration costs—and I see nothing wrong with the principle that the exploration costs should be borne by the private sector, provided that the companies are clear as to the terms on which the Government interest is going to "back in", as it is called later on. In the case of the

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Dutch State oil company, when they back in on certifying that a hydrocarbon discovery is commercial for development, they refund retrospectively their 40 per cent. share of the exploration costs and pick up a full interest from that point. That seems a sensible way of going on.
Lord KALDOR: My Lords, I am sorry to interrupt the noble Earl. I understand that this is also the case in this country and that if subsequently BNOC wishes to acquire its option of an equity interest, it will refund the share retrospectively.
The Earl of LIMERICK: Yes, my Lords, but there are two differences. One is that to get to this position now the British company must go through the Dutch-auction procedure. It cannot be certain that a licence will be awarded to it, other things being equal and satisfactory, unless it offers more than 51 per cent., or offers a carried interest, which is not required of it in the basic conditions of the round. This is the point of difficulty. Also, in relation to the fifth round, there was no procedure for retrospective refunding of exploration costs. What companies have found, as they have required consents for alterations in the licences or whatever it may be, is that it is being insisted that they sign a consent to participation by BNOC in terms of which, under the fifth round, they cannot get any refund of the exploration costs. That is why I think the Dutch system is superior.
These are the matters—and I recite them without pleasure—which raise suspicions of unfairness in this competitive, as I have called it, Dutch-auction, except that it is not Dutch: "Will you carry Big Brother, or will you be willing to make him even bigger?" It appears at least possible that it is an aim of current Government policy—it is at least inherent in the policies currently being applied—that the smaller companies should be squeezed out of the North Sea exploration business. If this is so, there would be no sense in the policy, since the industry has always functioned effectively on the basis of large and small companies operating in competion.
There is no monopoly of originality in the larger companies. Much exploration which is successful can be attributed to
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ideas of small companies, which are willing to take proportionately large risks. To the extent that companies are squeezed out, the parties involved in the North Sea will increasingly be BNOC, on the one hand, and the international majors, on the other. I doubt whether any limitation of competition of this kind would be in the longer-term national interest.
Like my noble friend Lord Gowrie, I am very conscious of the value of building up Britain's offshore technology. But this technology and expertise does not reside in Whitehall, in Glasgow, in Aberdeen, or in Peterhead. It resides on the oil rigs, in the design offices and workshops of numerous companies, nearly all of which are private and many of which are small. The point of acquiring technology for a company with 20 years of life might be debated. I could see a lot of point in it if it were to open up substantial export opportunities. However, this, I think, must be in doubt, because as a national oil company by definition BNOC will actually be precluded from participating in offshore concessions in many parts of the world—a case in point being Venezuela. The small companies feel, rightly or wrongly—and some of the evidence suggests rightly—that they are being leant on unnecessarily, or even unfairly, by Big Brother, who is counsel, judge and jury.
I should like to end with a suggestion. I apologise to the noble Lord, Lord Strabolgi, that I did not have the opportunity of putting this to him before. If he is unable to respond to it this afternoon, I shall understand. I hope that it will be seriously considered. I attach the highest importance to getting a sense of confidence, partnership and participation back into the whole business of exploiting this tremendous national resource which we have. My suggestion is that part of the disaffection sterns from the fact that there is no court of appeal. There is a Consultative Document which is larded with phrases such as, "in the opinion of", "subject to the consent of", and "if appropriate". The person who is the arbiter in every case is the Secretary of State. What would do immeasurable good in restoring confidence would be the appointment of some independent Commission or Commissioner on the lines of

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the Ombudsman, to whom cases of alleged unfair influence could be referred. If the policy is as Her Majesty's Government have stated, they have nothing to fear from such a procedure. It would greatly restore the confidence of those dealing with BNOC.
6.16 p.m.
Lord WYNNE-JONES: My Lords, this debate has been fascinating. It has been made notable by the maiden speech of my noble friend Lord Hatch, who contributed a new point of view to our discussions, and one which is certainly of great importance to us. The noble Earl, Lord Halsbury, took up this point later in his speech, where he had a suggestion to make which I think is an interesting one. I agree with him that the wastage of natural gas is really a tragedy. That is true, of course, of all our fuels. That is really, I suppose, what this debate is about. We are concerned with the oil in the North Sea.
In this country we are in a better position today than probably any country in the world, not in the extent of our resources but in the fact that we are trying to do something in the way of planning the use of those resources. Taking up Lord Halsbury's point, it refers to coal and gas. It also refers to nuclear power. It refers very much to oil. If one compares what is done here with what is done in America, for example, one finds that the planning for oil there is absolutely hamstrung by the fact that they have not got the ability to enforce a national oil policy in America. Of course, they have fiscal methods of doing it; but that is all. They have no other way of doing it. In consequence they have failed to get any effective policy. This has spread over the whole of their energy field and has obviously been a great worry to President Carter.
We may not have a perfect or a complete energy policy, but we at least have the elements of an energy policy which is much more effective than elsewhere. One of those elements—and an important one—is precisely oil, the very element which the Opposition would strike away, and from which they would remove the effective control. Yes, they will put on a fiscal control. They have already
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said that. They have been saying that for years. But the noble Earl, Lord Limerick, who in a speech of considerable moderation discussed this subject, said that we should not go back with hindsight and decide what might have been done. I do not go back with hindsight. I go back to Hansard of 7th June 1972, when the noble Lord, Lord Balogh, and the noble Lord, Lord Tanlaw, and others, took part in a debate in this House and pointed out the disastrous policy then being followed. They pointed out how our resources were being thrown away and that the oil companies were being made a present of thousands of millions of pounds.
The noble Lord, Lord Orr-Ewing, shakes his head. But may I quote the figures? He would like the figures, no doubt. The figures are as follows. Mr. Wadhams, who had been with Shell, made the following statement about the financial consequences to the oil companies of the method of taxation. He said that on an annual production of 1 billion barrels of oil the Government would receive, under the scheme in operation then, £30 million in taxation, whereas, for exactly the same amount, under the same conditions, Libya received £850 million in taxation from the oil companies. When one country taxes the oil companies to the extent of 30 times more—not 30 per cent. more—and yet is able to get the oil produced, one has to admit that we were being rather ridiculous in throwing away all this, and making a present to the oil companies.
Lord ORR-EWING: My Lords, I do not think that the noble Lord is comparing like with like. In the case of Libya, they are on-shore wells which have been in production for many many years; one would not expect there to be very much risk now. However, in the North Sea one was pioneering deep exploration wells which were very expensive and not altogether successful in the early phases. Therefore, the two are not of like character at all.
Lord WYNNE-JONES: My Lords, I was hoping that the noble Lord would say that because that is precisely the point to which I was about to come. The point is that, at the time, in 1972, just before the debate took place here, in the North

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Sea—not in Libya—the Conoco Oil Company announced that it had sunk nine wells and that six of them were successful. At the same time it was being put round by the public relations officers of the oil companies that only one in 20 wells was successful. However, the figures that they were using were the figures that applied to the Gulf of Mexico and not the figures that applied here. It has turned out to be a fact that the success rate in the North Sea has been far higher than it has been anywhere else.
The Earl of GOWRIE: My Lords, I am most grateful to the noble Lord for giving way. He is being so controversial that it is impossible not to leap up and down at him, and I hope that he will forgive me for interrupting. The fact is that in 1972—before a 400 per cent. increase in the oil prices and with a resource that was not known or widely understood—the situation was almost entirely different. As I said in my opening remarks—and this is the only point I make on this—if we had pursued what the noble Lord, Lord Balogh, and others wished us to do in 1972, with a bit of luck we should still be sniffing round the perimeters of the Forties Field. The whole show would not have got on the road. The noble Lord, Lord Wynne-Jones, knows that very well.
Lord WYNNE-JONES: My Lords, the real difference was that in 1972 there was a Conservative Government; since then there has been a Labour Government, and it is the Labour Government that has made all the difference.
The Earl of GOWRIE: My Lords—
Lord WYNNE-JONES: My Lords, the noble Earl has already interrupted me several times. It is precisely the fact that the Labour Government took a positive oil policy; it is precisely the fact that they introduced the idea of BNOC; it is precisely the drive that they put in it; and, if I may say so in the absence of the one who was largely responsible, the noble Lord, Lord Balogh, probably played a more important part in all this than anyone else in this country and I believe that the country owes a great deal to him for what he did.
Lord KALDOR: My Lords, perhaps I could interrupt in reply to the comment made by the noble Earl, Lord Gowrie. He spoke of 1972. The events which I described in my speech took place in 1971, a year earlier, and showed that in the very few cases—and they were by way of an experiment—the Government were willing to put up licences to auction or to tender on a competitive basis; and the companies were willing to bid enormous sums in order to get those licences. That was in 1971. Nevertheless, the experiment was not followed up.
Lord WYNNE-JONES: My Lords, I agree with what my noble friend has just said. Perhaps I could refer once more to what the noble Lord, Lord Orr-Ewing, said. He referred to the great expenditure of the oil companies. In a decade the Shell Company spent £250 million on a certain development. The return that it received afterwards was between £80 million and £120 million per annum. That is not exactly penury for the company; it is not exactly a return which is so small that it does not encourage the company to continue. In fact, even today, when the taxation is a good deal higher, they still want to do on.
What did Mr. McAllister of the Occidental Oil Company say only the other day, for which he was sent away to Canada? He stated that the Government had been too slow in allowing them to go ahead and develop. In other words, he did not want to pull out; he wanted to go ahead faster. But this is exactly the point; it is exactly the reason why we need a national control. This is precisely where the advice of BNOC becomes so important. Who knows what is the right rate of development? It is estimated that in the 1980s there will be so much oil about that there will be a glut on the market. Does it make sense to go ahead now with rapid development in order to contribute to that glut? Or is it more reasonable to look at the matter properly from a national point of view?
If we produce the oil for the early 1980s, when there is almost certain to be a glut, either we shall have difficulty in getting rid of it and we shall have to store it, or we shall have to sell it at a cheaper price. On the other hand, if we hold back our rate of development, there will certainly be a shortage of oil in the 1990s.

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No one can be certain of the exact date at which any of these things will happen. In fact, a letter on this very matter by Professor Peter Odell is published in today's issue of The Times. In his letter Professor Odell says that from its own production and from participation BNOC has more than enough crude oil to meet all possible short or medium-term sales opportunities, but that BNOC believes that the oil will be scarce by the late 1980s. Odell himself states that he does not believe this. This is obviously a matter which has to be looked into.
But how can one look into this unless one has an operator like BNOC which can supply the information to the Government? The Government themselves cannot obtain this information; they are not explorers. So BNOC will play a vital part in determining Government policy. If the noble Earl, Lord Gowrie, following usual Conservative policy, says: "When we get back we shall wipe out everything that Labour has done"—
The Earl of GOWRIE: My Lords, the noble Lord must not make unjustified accusations. That is not what I said.
Lord WYNNE-JONES: My Lords, the noble Earl said quite definitely that they would remove the advisory power from BNOC. That is what I was talking about. If the noble Earl chooses to interrupt me, he might at least interrupt me on a point where I said what he thinks I said, but I did not. It is really quite essential that if we are to have a proper control of oil policy—and gas policy comes into this—there should be active Government participation. Without that we shall not get control; without that the country will suffer, I, personally, hope that BNOC will continue to thrive and do the excellent job that it has begun.
6.29 p.m.
Lord ORR-EWING: My Lords, I should like to start with an apology. I understood that this would be a short debate with short speeches. It has been a debate with very well-informed speeches, but not all noble Lords have set the fine example of the last speaker in being short. I hope that it is not too discourteous, but I have a commitment at 7.15 p.m. which
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means that I may have to leave if I am not to avoid losing my wife—not for the reasons that noble Lords may think, but I have a date to take her out!
I should like to add my congratulations to those already offered to the noble Lord, Lord Hatch. Everything that has been said about him has been said with justice, and we hope to hear him again. I should also like to add my congratulations to the noble Earl, Lord Gowrie. He has chosen a subject with good timing because it lines up not only with the Government's White Paper but also with the publication last Friday of this admirable document, the 1977 British National Oil Corporation's annual report. I commend it. There are plenty of copies in the Printed Paper Office. It has been difficult to get from the other place because I think the demand has been high.
I am sorry that the noble Lord, Lord Kearton, probably through business, has not been able to be with us. I realise that he would not be able to take part in the debate, but as there is no annual general meeting where he can be questioned, or could listen to what shareholders say, I hoped that he might be here in a listening capacity. We miss him just as much as we miss the noble Lord, Lord Balogh, on this occasion. Perhaps on a future occasion they will both be here.
I wanted to concentrate briefly on the expansion, plans of BNOC, which I think I would describe as a "sprint for growth": secondly, on the pressures that they are exercising on private sector companies—and my noble friend Lord Limerick's speech was so powerful, and the instances so applicable, that I shall not have to dot the i's and cross the t's in that area; thirdly, on the effect their plans have on capital expenditure and, above all, on their cash flow, neither of which are set out in any detail in their report.
There is evidence that BNOC is spending taxpayers' money at an enormous, and I believe unjustifiable, rate. There are strong signs that the Benn/Kearton axis is now aiming at a sprint for growth, and I cannot help wondering whether that is because a General Election might change their powers in the future. In this sprint BNOC leans over backwards to help the powerful multinationals, and God help any small British company which is trying to get licences and to make its

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presence felt. The multinationals are known, as so many noble Lords know, as the "Seven Sisters". By 1980, at the present rate, BNOC's ambition seems to be that it shall become the eighth. It could do it. BP, worldwide, produce 1½ million barrels of oil a day, and BNOC could, through its 51 per cent. participation agreements, market 1 million barrels a day by 1980. If it is allowed to carry on with its ambitious plans, I ask myself: how is it going to finance the operation?
My noble friends may have seen the article in the Sunday Times of yesterday where it showed the growth of expenditure in a useful graph, and showed aptly and clearly that BNOC itself would be producing from its own wells about 100,000 barrels a day, but showed an enormous expansion of the oil it would be purchasing. In a year or two it would be purchasing 600,000 barrels a day of crude; that is six times as much. This would be bought from other companies who are obliged to sell it. This surely is going to bring about a tremendous cash flow problem, and I wonder whether both Houses are going to be asked, as a Parliament, to grant further cash for this expansion.
In the fifth round BNOC got 40 blocks. The cost of drilling a well now is around £4 million, and on one site normally at least two wells are drilled. Half the cost on a site would be borne by BNOC. So if it has 40, it would necessarily have to spend another £160 million on all this other expenditure if it is going to make use of the oil on those 40 blocks.
On 5th April there was announced yet another allocation; this time a further nine blocks. I think that this one should be called the fifth and a half round, because there was the fifth round and we are coming to the sixth round. This was an interim round with extremely unusual conditions, because nine blocks were let to BNOC with no competitive tendering, with none of the qualifications that we were always assured were going to take place; a straight allocation. Many of these blocks were very promising. Therefore, from what my noble friend Lord Limerick has said, none of us can help wondering whether some of the information that it gained as an operator has come from private sector companies, and that it knew that these were promising wells and it went for them direct with none
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of the normal tendering procedures. A suspicion that it got some of this basic information from those private sector companies must exist. My noble friend Lord Limerick pointed out, chapter and verse, why those suspicions arise.
We now learn that in round six BNOC will get priority on six blocks. Why, again, overriding priority? When the other tenders are in, BNOC is going to be able to select its six blocks. This is not fair competition by any standards. These are the points that we made throughout the debate on the Pipelines Bill. We kept saying, "Right, we go along with the idea that there should be a public oil company; but how are you going to ensure that there is fair competition between the two sides in every respect?" The examples we have had this afternoon certainly suggest that this is not to he. They prove that BNOC has increasingly crept in as a regulatory body and, at the same time, as an operating competitor.
I think that the Tory policy, which is flexible and was well set out by my noble friend in his opening speech, is to appoint either a regulatory agency which is separate from the producing company or, alternatively, again to rebuild the energy department in the Ministry. It is perfectly capable of undertaking it, and we should like to see responsibility pinned on the Secretary of State so that we may question and examine him. I think that there is something in the suggestion at the end of my noble friend's speech, that perhaps there ought to be some arbitration body which is called upon when there is any doubt about fairness.
I believe that this sprint for growth shows itself in the tremendous growth in the staff. There have now been recruited 745 people. I believe that many of them have been recruited from competitor oil companies and, of course, they have been tempted away, or bribed away, with higher salaries. Certainly, if noble Lords will turn to page 41 of the BNOC report, they will find that a very large percentage of that small number of 745 is very highly paid indeed. There are 106 people listed there who are paid between £10,000 and £15,000 a year; there are 17 people who are paid between £15,000 and £25,000 a year. This is a fairly small company, of 750 people. Admittedly, the sums are big; but surely one wants real experts with a

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knowledge of the industry, and not large numbers of clerks trying to carry out this job.
I turn further to the cash flow. In the pipelines Act it says that £600 million would be made available to BNOC, and that on the Secretary of State's say so that limit could be raised to £900 million. But it also says that that was the limit of all borrowing. I have given the noble Lord notice of this point. The Bill does not say that this was the limit from the National Oil Fund. Is not getting a loan from a United States bank, Citibank, which heads up a consortium and borrows another 825 million dollars, a contrivance to get round the cash limits imposed by Parliament? If Parliament does not control through cash, it loses all control altogether.
I would ask the noble Lord, Lord Strabolgi, when he comes to reply, whether Parliamentary authority is going to be sought to expand BNOC borrowing powers. I imagine that this loan was taken partly to reduce the percentage rate it was paying on its borrowed money (and that was revealed in this report), but also to get round Parliamentary control. Noble Lords will know that the Comptroller and Auditor General has asked some very pertinent questions indeed about this device. It seems that Britoil is set up under some charity umbrella. This is a strange thing to learn of a nationalised oil company. It is a strange arrangement, and while I have had it reported on good authority, if I am wrong I am sure the noble Lord will put me right.
The annual report also takes credit for the fact that this huge loan was achieved without any Treasury guarantee. But that is a rather naive viewpoint. Would any Government—foreigners,who are providing much of the money, would know this—let a nationalised concern like BNOC go to the wall or go into liquidation? That could not possibly happen, so ipso facto there is an unwritten standby arrangement from the Government of the day.
Finally, I wish to touch on the pressures, either partially hidden or otherwise, which amount almost to blackmail. If an oil company criticises BNOC then, as we have heard so many times this afternoon, its president—in this case Bob McAllister—is sent to Canada or elsewhere on a smaller job.
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Several noble Lords: Oh?
Lord ORR-EWING: Yes, indeed, my Lords, he was president of Inter-Continental for the United Kingdom and Western Europe, and it is fair to say that he has been sent to a smaller job in Canada. BNOC have let it be know n that Bob McAllister's sacking should be taken as a warning to other oil companies. It is difficult to get chapter and verse on this, but I have that on good authority.
Perhaps I may give one more example to add to those which my noble friend gave. BNOC must give to the North Sea oil companies authority for the expenditure of AFEs—authority for expenditure—and I believe that unless these orders are placed where they are politically advantageous, the North Sea oil companies do not get a chance on future licences, or delays are imposed in giving them approval so that they cannot develop their existing fields on time. This blackmail may not sound serious, but the power to throttle can greatly affect the cash flow of any of the big majors; and of course cash flow is of vital importance when developing a commodity like oil.
I have sought in a short speech—shorter than the average in this debate—to draw attention to the need to know a little more about the capital programme of BNOC, to know something about its cash flow and to expose once again the fact the pressures—undue, incorrect and unfair pressures—are being brought on the private sector. I hope that when the noble Lord, Lord Strabolgi, replies he will try to set our anxieties at rest, because we all want to see this great oil industry go forward in a spirit of amicable cooperation and not in a mood of grave suspicion.
Lord TANLAW: My Lords, I should be grateful if the noble Lord, Lord Orr-Ewing, would clarify two points. There has been criticism from other speakers on the Conservative Benches about BNOC going ahead too slowly, and Mr. McAllister has been mentioned in this respect; but Lord Orr-Ewing referred to a sprint for growth. Would he clarify what he meant by that?
Lord ORR-EWING: Certainly, my Lords; I meant a sprint for their own growth and a brake on anyone else's

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growth by arguing about the form and conditions of the agreement, a point that was made very purposefully by other speakers. That is the difference.
6.44 p.m.
Lord VAIZEY: My Lords, I wish at the outset to join other noble Lords in congratulating the noble Lord, Lord Hatch of Lusby, on his interesting and important maiden speech which touched on a central issue, an issue to which I am sure the House will return many times in the future, when we shall expect Lord Hatch to lead us. I also wish to thank the noble Earl, Lord Gowrie, for tabling a Motion on this vital question, and in the course of my, I hope, brief remarks I shall try to touch in a non-partisan way on the questions he raised for our consideration.
I also wish to join the noble Lord, Lord Kaldor, and others in saying how much I regret the absence of the noble Lord, Lord Balogh, this afternoon; I have learned a great deal from him and the nation stands very much in his debt for his con struction of an oil policy. When I was at Harvard, Professor Seymour Harris, used to claim that his adoption of Keynesian ideas had saved the United States Government so many billions of dollars that the rate of return on his salary ran into billions of per cent.: I am tempted at times to think that the interventions of Lord Balogh into oil controversies in this country have saved this country a not inconsiderable sum.
I begin by touching rather generally on a central question which the noble Earl, Lord Gowrie, raised—namely, the relative merits of public and private corporations. I thought I detected in some of his remarks a feeling that on the whole the public corporations were less efficient and less popular than the private corporations. The last time I addressed your Lordships' House—the subject was the problems of management—I suggested that the problems were rather more complicated; that the problems of running large organisations were common to both private and State corporations and that, broadly speaking, small businesses—small affairs and those engaged in mending things and so on—were best left to small firms. That is the area where the major criticism of the nationalised industries
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came in; criticism of the gas board, the electricity board, the public transport system and so on. I do not believe that the criticisms are broadly directed towards bodies like the Central Electricity Generating Board, the Atomic Energy Authority or, I suggest, a body which operates so major an enterprise as the British National Oil Corporation.
Noble Lords have given some examples of what they have in mind and perhaps I may illustrate what I have been saying by a very homely example. Perhaps unpatriotically, I drive a Renault car. That car is made by a State enterprise and it seems to be an extremely good car. I try to have it serviced at a Renault garage, which presumably is also nationalised, but it is just as hopeless as the gas board. I believe therefore that the broad categorisation of public as bad and private as good is something we should avoid. I appreciate that Lord Gowrie has an infinitely more sophisticated view of the economy than that, but as the election comes near we might be tempted into that kind of fruitless debate. I suggest that we should take a pragmatic view of the failures and successes of our economy.
There are special problems in the oil industry. The oil companies are enormously powerful. They have in the past controlled Governments. As Lord Kaldor —who I regret to see has left the Chamber —said, they are enormously powerful, especially in the United States, and it is difficult to see whether they control the Government or the Government control the oil companies in that great country. It is because of the enormous power of the oil companies that, as noble Lords have said, so many oil producers like ourselves have set up their own State oil corporations.
I listened with great care to the arguments of the noble Lord, Lord Cockfield, and I thought his conclusions were very powerful, but I begged to differ and I thought that much of what Lord Kaldor said answered some of the crucial points which Lord Cockfield raised. I think there is no question—and I was glad to hear Lord Cowrie make a quite positive statement in this respect—but that, if there were a change of Government, the BNOC should survive—
The Earl of GOWRIE: My Lords—
Lord VAIZEY:—and that assurance was an important one for him to give, because, if a Conservative Government were returned, they should surely try to retain what is good out of the achievements of the present Government and do away with only things with which they seriously disagree. We have before us the supreme example of the catestrophic abolition of the Prices and Incomes Board by the Heath Government in 1971, which was a major cause of the difficulties which led to the fall of that Government in 1974. Does the noble Earl, Lord Gowrie, wish to intervene?
The Earl of GOWRIE: My Lords, I am not taking up a debating point with the noble Lord, Lord Vaizey, but a point on which I think he misheard me. I said the British National Oil Corporation as presently constituted would, in my opinion, almost certainly not survive a change of Government.
Lord VAIZEY: I was coming to that—but I thought that the noble Earl had carefully moderated his statement to say that it would in fact survive, at least in embryonic or skeletal form. But if in fact he went rather further than that, I think it is a more serious question. I had taken it to be the crucial issue which the noble Earl was raising this afternoon, and I thought that some of his arguments were very persuasive; indeed, he persuaded me. So I hope that he has not gone too far overboard in disagreeing in advance with what I say.
The question is, if the British National Oil Corporation survives (as I think it should), how far should it continue to have the privileged position which has been given to it by the legislation under which it operates? I have gone as carefully as I can into this question, and I have consulted all kinds of people and have followed the debates with great interest and care.
First, I think it important that the Government should have access to the specialised geological marketing and other expertise which is available to the international oil companies, but which, by its very nature, could be available only at second hand to the Civil Service. Therefore, I think it very important that the existence of a State-owned British National
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Oil Corporation gives the Government information of a direct character about the business operations of this crucial sector of the economy which could not be available to a regulatory agency. So the fact that this corporation is directly responsible to the Secretary of State for Energy is enormously important for the Government's regulatory work. I think that the noble Lord, Lord Tanlaw, made that point, and I hope that in the end it is non-controversial, because I think it is the central argument.
Secondly, there is the question of whether the corporation should continue to have the privileged option to take up 51 per cent. in the oil fields newly developed by its competitors. Comparing the speeches of the noble Lords, Lord Cockfield and Lord Kaldor, on this particular point, I thought that the noble Lord, Lord Kaldor, had it. On the whole the arguments against taxation, and the arguments for participation, seem to me to be broadly very convincing. It is a much more straightforward way of getting the money into the Treasury. It is more likely to be based upon realistic assessment of what the operating conditions are, and what the marketing conditions are. It is more likely that the decisions will be taken in the interests of the nation and of the firms in which the State has a participating share, because they are working in cooperation and partnership, than if it is a straight tax deal. The interests of the State as a tax collector are, for obvious reasons to some extent allied to those of private firms for making profits: the higher the profits, the higher the tax. They are also equally obviously diametrically opposed, because the higher the tax, the lower the profits, and the less likely, therefore, the firm is to be successful in its operation. So I should have thought that on the whole the partnership, if it works, is probably a good idea, rather than a bad idea.
Here, we come to the crucial question which has been raised several times this afternoon. The noble Lord, Lord Strabolgi, on the Front Bench, has intervened several times to point out that the British National Oil Corporation is not a regulatory agency. Perhaps I may put it this way: should the BNOC take part in the regulatory process? I think that the noble Lord on the Front Bench would not disagree if I said that

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in some sense the information which the BNOC provides to the Secretary of State for Energy is a rather important part of the information which is available for him when he is undertaking his regulatory duties.
Here, I believe it is perfectly clear that there is some degree of conflict of interest, and one which begins to sound a certain number of alarm bells in my own mind about the whole possibility of a conflict of interests. Again, I can see that the argument would be rather conclusive on the side of the Government Front Bench if the information itself was so crucial to the decisions which were taken. Those decisions could not be taken without the close and constant co-operation with the BNOC which I understood from my reading of the consultations was the central part of the argument for the way in which the present system was set up.
Therefore, by and large, I do not quite share the noble Earl's fears and worries, which were expressed with extreme eloquence and force, about the role of the British National Oil Corporation. I would be somewhat sad if a Conservative Government were returned heavily committed to savaging this new beast, which in its turn ravages the North Sea. This might be a commitment which was unwise, and which in the long run the Conservative Government (if one came in) might greatly regret.
I very much took the point made by the noble Lord, Lord Tanlaw, on the Liberal Front Bench, to the effect that the slowness in allocating licences, indeed the slowness in exploration, may very well be no bad thing. One listened with care to what the noble Lord, Lord Hatch, said, and to what the noble Lord, Lord Wynne-Jones, said in what I thought was a very telling intervention. The whole question of the rate of depletion is absolutely crucial. I should have thought that the balance of the evidence so far was in favour of slow take-up, rather than fast take-up. There has been a consistent ambivalence throughout the debate in that speakers have argued (sometimes within the same speech) that we should have a slow rate of depreciation and that we have been unnecessarily slow in our discovery and development of these fields. I can see that these are not necessarily contradictory positions, but I
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think that when one listens to them they almost inevitably seem to some extent to be contradictory positions.
Up to the point at which I rose to my own feet this has been a fascinating and important debate; one in which your Lordships' House has been behaving—as, in my view, it should—as a forum for the discussion of long-term questions, and not for the making of immediate points of Party advantage. On the whole, the question of the future of Britain's oil reserves and of the future of this very important corporation deserves a lengthy period of consideration outside this House, in the public Press, and perhaps a period of abstention from over-strong criticism until we are absolutely sure which way it is going to develop.
6.57 p.m.
Lord GISBOROUGH: My Lords, I should like first to congratulate the noble Lord, Lord Hatch of Lusby, on what can only be described as a model maiden speech. I want to add a few words to those said already by the noble Lord, Lord Orr-Ewing, and the noble Earl, Lord Limerick, on the small independent companies. It appears that the awards of licences will largely depend on the size of contributions to BNOC, as well as other factors, such as trade union representation, snd so on, and on the proviso that applicants should indicate how much over the 51 per cent. they are prepared to offer BNOC and that they will carry BNOC's share of exploration and appraisal costs. That seems to me to have all the features of a Dutch auction. Not only has the huge and risky cost of wildcat wells to be carried for the BNOC by the oil companies, but it has to be carried to the stage when the actual development programme is approved by the Department of Energy. This proposal would mean that many small British companies would be spending more than twice as much as the cost proportionate to their interest for wildcat wells, through the unsuccessful wells that would be drilled, and throughout the development phases.
In a speech which I thought was jolly good Election knockabout, the noble Lord, Lord Strabolgi, mentioned the ring fence. As I understand it, the point is that the major oil companies have ring fence income already, and therefore will be

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effectively able to pass 52 per cent. of the cost of carrying the BNOC back to the Government; but independent companies, without this advantage of standing income, may be unable to compete with the major multinationals. The effect will be seriously to harm smaller British companies, particularly those coming into the field, whose potential contribution to the British economy far outweighs the interest of multinationals, whose profits do not remain in this country any more than they can help.
Another criterion for obtaining a licence is the option of the BNOC to have the right either to buy or to sell its share of the oil or gas, so as to protect the BNOC from unattractive market situations. This could be a tremendous burden on the independent companies, many of which have no capacity as refiners to take the oil or to sell it. Furthermore, the six months' notice which the BNOC is to give the companies of its intention to sell or buy, is far too short in view of the long-term contracts which oil companies are used to making. These conditions have been described as very objectionable. The price at which the oil is to be bought or sold is described as "market price". There is no particular denition of "market price", and if the fact is that the price is to be dictated by an expert, then the question is: Who is the expert, and how could that be necessarily acceptable?
In the proposals, BNOC are effectively to dominate all operating committees, but the minority interest holders must go along with exploration and appraisal programmes provided by the majority on these committees. This is the first time that any participant in a licence has been denied the opportunity to step out of work obligations after statutory obligations have been met. BNOC dominance in this situation could make the position of smaller companies once again impossible. Most of the smaller British independent companies have been built round the North Sea exploration and development. They need a strong, sound and good future, not only to survive but also to expand. It is a vast capital-intensive industry, and obviously requires enormous resources. Unlike the major international companies, most British independents have very little overseas interests and must rely on work in the North Sea.
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Thus, it is only a few, and the majors at that—Chevron, Occidental, Shell and BP (and heads have rolled for it already, as has been mentioned)—that have had the courage to protest at the rôle of BNOC and the domination of the Government in the North Sea exploration.
The domination is increasingly severe each round, but the independent companies cannot afford to commit commercial suicide by expressing their concern at the rôle of BNOC and at the increasing domination of the Secretary of State and certain of his civil servants. These civil servants are acting at their own discretion within the sweeping powers given to the Secretary of State, and are acting in a political rôle, needless to say. They are justifying their actions as being, according to their view, in the national interest. Surely there is too much ministerial discretion in the Department of Energy, and there should be more control by statutory enactment.
Up to now, Britain has encouraged investment in North Sea oil and a large number of companies have therefore got into the act. There has been a great number of ideas, and the success is evident by the amount of oil that is coming out. But it is a vast investment. I have figures which disagree with those already produced, and I do not know which are correct, but it is reported that Shell now have a total investment of £1,000 million in the area, and that they will not get a positive cash flow from that sum until 1980. The costs are huge and the risks are enormous, particularly for the independents, without the vast resources. But the British independent companies have a great rôle to play and need every encouragement, with the ever-increasing high costs, the potential loss of buoyancy of the oil market and the fact that, as more and more areas get known, the areas left are less likely to have oil and to have been, in the words of one of the oil magazines, "well kicked over". The general thrust of the proposed terms will squeeze the independents and put the future of the North Sea development increasingly in the hands of the multinationals. As the BNOC rides entirely on the backs of major companies and independents, it is surely vital that BNOC should ensure the success, the wealth and the increase in numbers of all the companies, large and small on which

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it relies to be carried. If ever a rider starves his horse, the horse will either disappear or no longer be able to carry the rider.
7.4 p.m.
Lord STRABOLGI: My Lords, I think we have had a most interesting debate, and I should like to join with other noble Lords in saying how indebted we are to the noble Earl, Lord Gowrie, for initiating it. Before replying in detail to points raised by noble Lords, I should like to join in the congratulations to my noble friend Lord Hatch for a most notable and thoughtful maiden speech, if I may say so. I hope it will not be long before my noble friend addresses your Lordships again. He stressed in his speech, by implication, the great importance of a proper depletion policy, and how we shall have an oil crisis one day through the wasteful use of this resource. I am also grateful to my noble friend Lord Kaldor, who played such a distinguished role in the question of North Sea oil for his support., I think we were all interested in his account of the early arrangements; and, of course, he also reminded us of the strong criticism contained in the 1974 White Paper about the loss to the Exchequer of taxation through the previous Government's policy. This was supported, too, by my noble friend Lord Wynne-Jones in a very vigorous and emphatic speech. I am grateful to the noble Lord, Lord Tanlaw, for his support of our policy. He asked me to whom BNOC is financially accountable. The answer is that the Corporation is accountable to the Secretary of State for Energy. The Secretary of State is of course accountable to Parliament.
The noble Earl, Lord Lauderdale, who apologised for not being able to stay, asked how the proposed arrangements for awarding exploration contracts first would help the small companies, as I alluded to that in my speech. It has previously been the practice when considering the technical competence of applicants to look to see whether the nominated operator is capable, not only of exploration but also of development; but the massive demands of the North Sea in terms of skills and manpower mean that only the largest companies have access to the resources to meet those demands. So our proposal that operators
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will initially be approved only for the exploration means that the applicants will have to satisfy a less rigorous standard of examination, and that must assist the smaller companies. But it is not true that the smaller companies have been unable to compete in the North Sea. Indeed, several were successful in the fifth round.
The noble Lord, Lord Cockfield, also asked whether an operator who had been successful in an exploration contract would be awarded the development contract. Licences are granted for exploration, and, if anything is discovered, for development and production of the resources in the discovery. Under the licence, the operator, who is usually a licensee and a partner in the consortium holding the licence—because most of this work is done by consortia, as the noble Lord, Lord Orr-Ewing, knows well —can function as such only with the approval of the Secretary of State. Under earlier licences, approval has been for the whole licence activity—exploration plus development if it occurred. The intention now is to introduce a natural break at the end of the exploration phase. The Secretary of State's approval will be given for the exploration phase only in the first instance. Resources generally for the development of the discovery are relatively scarce because they are on a much greater scale than those required for exploration. To regulate the pressure on those scarce resources, the prospective development operators, who are very probably also members of the licensee consortium—indeed it could be an exploration operator —will have to have their operatorship endorsed by the Secretary of State before functioning as such.
The noble Earl, Lord Lauderdale, also made a reference to the Eighth Report of the Public Accounts Committee. We do not consider it appropriate that orders should be made under Section 41 of the Petroleum and Submarine Pipelines Act 1975 in respect of any of the participation agreements we have so far signed. The Act confers power on the Secretary of State to make provision by order for the making of payments by BNOC to licensees who are parties to participation agreements. When the draft legislation was before Parliament, it was envisaged that participation in existing licences would

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occur through acquisition by BNOC of a 51 per cent. beneficial interest. Ministers made it clear that the licensees would be compensated in respect of that acquisition. In practice, none of the agreements so far concluded provides for State participation in this way. The noble Earl, Lord Limerick, made the suggestion that there should be a court of appeal for—I take it— the unsuccessful applicants. The law authorises the Secretary of State to exercise discretion in awarding licences. There is no evidence of disquiet about fairness of allocations. Indeed, there have been no complaints from any quarter; but I will inform my right honourable friend the Secretary of State about the noble Earl's suggestion.
The Earl of LIMERICK: My Lords, I am grateful to the noble Lord for giving way. I must have expressed myself badly. I was not referring to allocation of licences but to cases of negotiation in which it was felt by the party other than BNOC that they had been leaned on in a rather heavy manner along the lines of the examples that I cited. Those are the cases that I had in mind, where I thought there should be some reference to an Ombudsman —I used that parallel—in cases which may approach maladministration.
Lord STRABOLGI: My Lords, I take the point the noble Earl has made, but this is so always. If there is any complaint about this so-called "arm twisting" that the Opposition are always talking about, they can let my right honourable friend have the information. I should like now to deal with the carried interest which was also mentioned by the noble Earl, Lord Limerick, and the noble Lord, Lord Cockfield. The carried interest for BNOC is a reflection of our policy to obtain the fullest national benefit from our offshore oil resources. The Opposition claim that to carry BNOC would place a heavy burden on the companies.
Let me put the matter in perspective. The position is that it will be open to the applicants to offer to meet some or all of BNOC's share of exploration and appraisal costs. There is no compulsion on them to make such an offer or to pitch the offer at any particular level. Where such offers are made, the companies no
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doubt will have satisfied themselves that the offer makes commercial sense in their interests. I cannot predict what the cost of carrying BNOC would be as this will chiefly depend on the offers applicants choose to make. I should like to repeat what was said by my noble friend Lord Kaldor; that is, that BNOC will, as in fifth round licences, pay its share of development costs as these are incurred.
The noble Earls, Lord Gowrie, Lord Lauderdale and Lord Limerick and the noble Lord, Lord Gisborough, all spoke about the lack of opportunities for the smaller firms. The noble Earl, Lord Limerick, implied, I thought, that the Government had some prejudice against small companies. I should like to deny that. The Government have followed the line of their predecessors in having no special attitude towards any particular category of company. It has been the policy of all Administrations that there should be no discrimination between applicants on grounds of nationality. All applicants are considered against a common set of published criteria. It is by reference to how well a company meets these criteria and not whether it is large, small or independent, that discretion is exercised in the grant of licences. I am sure that that is the proper policy. Any other policy surely would be inconsistent with our international obligations. That said, small British companies have, as one would expect, continued to put up a good performance in the rounds of licensing. In the fifth round, several such companies were successful, despite very strong competition from the blocks. I understand that the Association of British Independent Exploration Companies were very pleased with their success, and so, of course, were the Government. Twenty-four British companies were successful in the fifth round of which 16 came within the category of "small". I can publish a list of these in the Official Report if required.
I should like also to say a word now about our licensing policy. It is useful, I think, to make a few comparisons between our policy and that of the previous Administration. As was said in this debate, in their four years in office, the Conservatives had one huge round of licensing in which they allocated nearly 300 blocks. That resulted in a serious overdemand which our offshore industry

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was unable to meet. This is the offshore industry which gives the back-up to the oil development and which I think has not been mentioned so far in this debate. The lesson that we learned from that was to introduce a more orderly approach to licensing, offering smaller amounts of the territory at more frequent intervals. I was glad to note that this had the approval of the noble Earl, Lord Lauderdale.
Despite the increasing evidence of oil potential in the North Sea, the previous Administration issued licences the terms or which showed little change from licences issued five years earlier. I was interested in what my noble friend Lord Kaldor, with his intimate knowledge, said about this. The licences made no provision for the nation to obtain royalty oil; they included inadequate controls over development and had no controls at all over the rate of depletion or the flaring of gas. This is something, I think, which the noble Earl, Lord Gowrie, with this enthusiasm for laissez-faire should study, if I may suggest it, because this question of gas flaring has not been mentioned today. They included no provision to require exploration after the initial years of the licence; nor were the controls over the transfer of licence interests adequate.
The Earl of GOWRIE: My Lords, I am grateful to the noble Lord for giving way. I was at pains to try to distinguish between Conservative intervention traditions and Liberal laissez-faire. I am one of the least laissez-faire Members of your Lordships' House.
Lord STRABOLGI: My Lords, I was really remembering the speech the noble Earl made on 8th February when he seemed to think that the best way of controlling the North Sea was through taxation. In fact, his honourable friend in another place, the official spokesman for Energy, giving his reaction to the Press about the Consultative Document, said—and I have the Press cuttings—that the best way to control the North Sea was through taxation.
The Earl of GOWRIE: My Lords, what has that to do with laissez-faire?
The Earl of HALSBURY: My Lords, if the noble Lord will allow me to interrupt, I appear to be unfortunate because the noble Earl left the Chamber when I
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started to speak and the noble Lord must have been asleep; because I made a speech about nothing but gas.
Lord STRABOLGI: My Lords, I do not think I have yet referred to what the noble Earl, Lord Halsbury, has said.
The Earl of HALSBURY: My Lords, the noble Lord said that nobody had made a speech about gas.
Lord STRABOLGI: My Lords. I am glad that the noble Earl, Lord Halsbury, has intervened. I was talking about gas flaring which, as the noble Earl with his great technical knowledge will know, is a subject on its own. I am going to come to the points that were made by the noble Earl, Lord Halsbury, about British Gas later on in my speech.
Several noble Lords spoke about and complained about the sole licences for BNOC. The Government's policy on the issue of sole licences to State corporations is not a new development. The intention that BNOC should be able to acquire its own licences has been made clear on a number of occasions. My noble friend Lord Balogh, whose absence oil duty abroad we all greatly regret, referred to the prospect when the Petroleum and Submarine Pipelines Act was before this House.
The Government first used the power when we had sole licences, when two blocks were awarded to British Gas in 1976, and we recently decided that the time was right for this policy to be developed. Doing so will extend the expertise and experience of BNOC and British Gas, as the corporations will themselves be block operators. Apart from this, sole licensing provides a flexible and therefore most valuable tool for depletion, because the corporations each in their way have a ready identity of view with the Government on what is appropriate solely in the national interest. Thus BNOC could sit on the discovery until such time as it was in the national interest to develop it, even though this might be for several years. This would not be suitable with a commercial operator.
The noble Earl, Lord Limerick, spoke about "farm-ins" and "farm-outs". The new policy, as noble Lords will know,

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is that when a licensee wishes to give up some of its licence interest, it will be expected first to provide the corporation and British Gas with an opportunity to negotiate to acquire that equity interest. Let me emphasise to the noble Earl that these agreements will be freely negotiated. If the corporation does not wish to acquire the interest, or if genuine attempts at negotiation are unsuccessful, then the licensee will be at liberty to assign his interest to a third party. Naturally, as in the past, the terms of any assignment will be subject to the approval of the Secretary of State. This policy was introduced because the Government consider that the present State corporation's holdings in earlier licensing rounds—which is only about 12 per cent—is inadequate. It is much too modest a share. Even with the new policy, the private sector will still hold the major part of equity interests in these licences.
Various points have been made and there were complaints that British Gas and BNOC have been treated preferentially. Those were well answered by my noble friend Lord Kaldor. The noble Lord, Lord Orr-Ewing, said that there had been some delay in the award of fifth round licences and that BNOC was responsible for this delay. The continuing repetition of these allegations shows, if I may say so, some prejudice. The Government recognise that settlement of the joint operating agreements takes time and indeed has taken more time than we earlier thought it might. But there has been no undue delay. These are very important matters and contracts to be decided and some of them may of course last for a period of nearly 40 years. I do not want to go into the question of Mr. MacAlister, except that I thought that the noble Lord, Lord Orr-Ewing, implied somehow that he had been dismissed and sent back to Canada by BNOC. But of course he was sent back by his chairman, Mr. Armand Hammer, who strongly disassociated himself from Mr. MacAlister's remarks. Indeed, I have a cutting from the Guardian which is headed "Public rap for MacAlister".
The noble Earl, Lord Gowrie, complained that, in allocating fifth round blocks, the Secretary of State was disregarding the claims of United Kingdom companies. That again is not true.
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There were 40 blocks awarded to the private sector and United Kingdom companies had an interest in no less than 27 of these. I should like to say a few brief words about BNOC. I do not want to say—for I think the third time this afternoon—that BNOC is not a regulatory agency. One of the reasons for establishing the corporation was that it could provide a source of informed comment on which Government policy could be formulated.
The noble Lord, Lord Orr-Ewing, also spoke about links. BNOC have acquired information from its involvement in licences and by normal commercial processes. It is quite wrong to suggest that it has acquired the information improperly. There have been a number of allegations that BNOC has indulged in arm twisting. Let me make the point that licensing is entirely a matter for the Secretary of State. Of course where BNOC is in commercial negotiations it will take a robust and vigorous approach with those with whom it has negotiations. That is entirely appropriate, both as a commercial approach which any company would employ, and in the national interest. The noble Lord, Lord Orr-Ewing, also mentioned the question of training. Of course we are now arranging that there will be training by the commercial companies so that BNOC can build up its expert staff. I am sorry that he complained about the salaries; I thought they were fully competitive—in fact rather less than those paid in the private sector.
I must now deal briefly with Britoil because this was raised by the noble Earl, Lord Gowrie, and the noble Lord, Lord Orr-Ewing. I was asked a number of questions. Last year, with the approval of the Government, BNOC raised some 825 million dollars on the United States market by means of a forward sale of oil. The financing was structured as a forward sale in order to secure the most advantageous terms in the American market. It was a notable achievement on the part of BNOC to raise money at very low rates of interest without mortgaging any of its assets and without a Treasury guarantee. The particular way that the deal was structured has meant money so raised does not count against the corporation's statutory £600 million borrowing limit, since the transaction is not in the legal sense a borrowing by BNOC. However,

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the deal was in no sense designed with this view. The proceeds of the forward sale were used to repay BNOC's NLF loans. The only borrowings that the corporation has at the present time, which are counted against the borrowing limits, are those to a maximum of £15 million under an overdraft facility. It will be appreciated that, even if the forward sale proceeds had counted against the borrowing limit, BNOC would still have been well within its £600 million ceiling.
The noble Lord, Lord Chalfont, who apologised that he has not been able to stay to listen to my speech, rather widened the terms of the debate by extending it into the field of defence. Of course he is an acknowledged defence expert. He raised the very important question of the defence of our oil wells against terrorist attack. He asked whether the Government were satisfied with the arrangements. This is a matter that comes within the province of the Secretary of State for Defence. I will certainly bring what the noble Lord has said to the notice of my right honourable friend. North Sea oil is controlled by ourselves and the Norwegians, and we are both members of NATO. In the event of war, special arrangements will be made. That is as far as the House would expect me to go on that matter. The noble Lord, Lord Chalfont, also asked whether we were going to take the lead on a common European energy policy. As my right honourable friend the Secretary of State has made clear on a number of occasions, a positive European energy policy should be based on a proper recognition of each individual State's needs.
Lastly, the noble Earl, Lord Halsbury, gave as always a most notable speech, and he made the suggestion that the sixth round should be used as a lever for enforcing renegotiation of the contracts between British Gas and the companies supplying gas from the Southern basin. The renegotiation of contracts freely entered into is not a matter for the sixth round of licensing, but the noble Earl has made a number of interesting points, of which we will certainly take note. I hope that has answered all the various points raised by noble Lords. I can assure your Lordships that everything which has been said in this debate today will be noted carefully
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by my right honourable friend the Secretary of State.
7.31 p.m.
The Earl of GOWRIE: My Lords, I am happy to say that our debate did from time to time get controversial—I do not think that we should be afraid of controversy in this House—and as controvery raged I thought of sending over a note to the noble Baroness the Chief Whip to demand equal time with the noble Lord, Lord Strabolgi. But I think I have certainly been given a good run. I am very pleased with the way the debate has gone; I think we have learnt a lot from it, and so I have resisted that particular temptation.
I would just like to say to the noble Earl, Lord Halsbury, that I am acutely conscious that I did leave during his speech, which was rather shorter than I expected. This raises a difficulty in which the Opposition sometimes finds itself, because Government Ministers are able to send their private secretaries to Hansard to read their speeches but we have to do it ourselves. At some point or another one has to go and do that.
I should like to add my thanks and gratitude to the noble Lord, Lord Hatch of Lusby, for very properly widening the debate in his maiden speech, and for bringing us back to the humane values involved in this subject. We have debated them before and I do not apologise for not bringing them in this time; but he was quite right, particularly in a maiden speech, to refer to them.
I would add only one short point of my own to close the debate. I do not think that anything which the noble Lord, Lord Strabolgi, with his courtesy and friendliness, has said has really allayed my suspicions about BNOC. Indeed, I rather fear they have been strengthened a little bit. I will take the advice of the noble Lord, Lord Vaizey, and look very carefully at what the noble Lord the Minister has said, to see whether we can find more and greater areas of agreement between us. I am a little sceptical that we shall, but I agree with all noble Lords that it is desirable that we should. With those sentiments, I beg leave to withdraw my Motion for Papers.
Motion for Papers, by leave, withdrawn.

REFUGEES: STATUS IN THE UNITED KINGDOM
7.33 p.m.
Lord AVEBURY Lord AVEBURY rose to ask Her Majesty's Government what consideration they have given to the Note on the application of the 1951 Convention and the 1967 Protocol relating to the status of refugees in the United Kingdom submitted by the representative in the United Kingdom of the United Nations High Commission Representation (UNHCR), and whether they will make a Statement. The Noble Lord said: My Lords, I beg leave to ask the Question standing in my name on the Order Paper. The fact that the representative has submitted this memorandum to Her Majesty's Government indicates that the arrangements we have made for the reception and classification of refugees are not entirely satisfactory. But before going on to the criticisms, may I say that, as I think everybody would agree, (including the UNHCR) this country has a long and honourable tradition of granting asylum to refugees and of extending to them warm and generous hospitality once they have reached our shores. In the 19th century we received the heroes of the struggle for liberty in Europe such as Garibaldi and Kossuth; at the beginning of the 20th century, we took in the Jews escaping from the vicious anti-semitism of Czarist Russia, and in the 1930s we gave shelter to the thousands who fled from Nazi persecution in Germany.
As the noble Lord, Lord Ashby, reminded us in a radio talk last July, our generosity to these people has been more than repaid during the course of the years. He pointed out that no fewer than 53 Fellows of the Royal Society have been refugees or the children of refugees, while 15 have won Nobel Prizes. He reminded us, indeed, that Einstein himself was a refugee. I believe that we can expect a similar enrichment of our national life from those refugees who have come to us more recently from Hungary, Czechoslovakia, Uganda, Cyprus, Chile, Argentina, Uruguay, South Africa and Ethiopia.
The UNHCR representative paid tribute to the part Britain has played in the international community's efforts on behalf of refugees, and he said that our record of treatment of people granted the
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status of refugees has been "quite outstanding". However, he also says that this fine record has been spoiled by the existence of legal and administrative obstacles facing a person claiming the status of a refugee, which he says are incompatible with our obligations under the 1951 Convention and the 1967 Protocol.
The memorandum is concerned mainly with the problems faced by people who have been granted admission to the United Kingdom under some other provisions of the immigration rules. For example, they may be visitors or students and then apply to be recognised, once they are here, as refugees. However, before coming to those problems I must refer to some difficulties which arise overseas, at the application stage. A person who wants to come here from his country of origin is not, of course, a refugee within the meaning of the Convention, however severe the persecution he may have sustained or may reasonably fear that he is likely to sustain. Thus, someone for example, who is imprisoned without trial and may be brutally tortured, cannot normally expect to gain admission to the United Kingdom even if his own country is prepared to let him go. That is particularly important in the case of some South American countries, notably Argentina, where a discretion on the right of option exists, under which a person who is convicted of a political offence may be allowed to go into exile as an alternative to serving the whole of his prison sentence.
Hitherto we have been extremely reluctant to grant entry to any of these South American refugees who have applied to come to us directly from their countries of origin, although in one or two cases recently we have done so. I should like to ask the Government whether there is going to be any general change in their policy in that respect. But if the victim of persecution does succeed in crossing the frontier to a neighbouring State and makes a formal application there to come to Britain as a refugee, he has to pass what is called a test of personal acceptability which, in my view, is unsatisfactory because it takes a long time to apply, it is lacking in any sense of objectivity and is subject to no proper appeal procedures. Delays in processing applications from Argentina have caused

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particular concern, because from time to time the refugees from neighbouring States living there have been murdered, or abducted and taken illegally over the frontiers back to their own countries, where they may be severely ill-treated or even murdered. That happens during the time they are awaiting visas—a process which can last for several months.
Also, perhaps I might mention that in Lesotho, Swaziland and Botswana there are many thousands of refugees from South Africa, who constitute a severe burden on those small countries which have to maintain them while they are seeking asylum in a third country. I believe that, in collaboration with the Governments of those countries, we could seek means of speeding up the resettlement of those refugees who cannot remain in their own territories, in places such as the United Kingdom or elsewhere where they may be seeking to continue their education.
Appeals from overseas against refusal to admit someone as a refugee are bound to fail, as the honourable lady, Dr. Shirley Summerskill, admitted to me in a letter dated 3rd November last year. She pointed out that the immigration rules apply only to a person who presents himself at the port of entry; thus, if an application from overseas is refused, then the adjudicator or the appeals tribunal would have no grounds for reversing the decision. But, as I said, the main points of criticism in the UNHCR's Note concern the arrangements for designating a person as a refugee, once he has arrived within the boundaries of the United Kingdom, when he may have every right to that status.
It is not our normal practice in this country to incorporate instruments, such as the Convention, into our domestic law, as other countries often do. All we have instead is a provision of last resort in the rules for control after entry, and in the rules for control on entry, to the effect that a person who does not qualify to remain here, or to enter, under any other heading may claim that if returned to his country of origin he would face persecution by reason of his race, religion, nationality, membership of a social group or political opinion.
The UNHCR's Note makes the very important point that, since refugees are
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treated as just another kind of immigrant, that is how they are seen both by officials and by the public at large. Over the last 10 years, while there has been a very marked tightening up of the controls over immigration in general, there has been no change in the legal status of the refugee. That has meant that an increasing number of cases are coming to the attention of the UNHCR, and the voluntary agencies, of people being denied the rights supposed to be conferred on them by the Convention and the protocol, while, at the same time, those people have no remedies before the immigration appellate authorities or before the courts.
I wrote to the noble Lord, Lord Harris, on 18th July last, drawing his attention to the fact that in 146 appeals which had been determined since the beginning of 1974, from persons claiming to be refugees, only one was successful and that concerned a person who did not in fact come within the terms of the Convention. At about the same time, I asked a Question to establish the number of persons seeking to enter or remain in the United Kingdom as refugees. The noble Lord, Lord Harris, said that he was attracted by the idea of identifying refugees as a separate category in the immigration figures, but that it could not be done without great expense. He defended the last resort character of the rules, which I mentioned, on the grounds that if somebody had a good case for entering the United Kingdom, or remaining, under some other heading, then the need for a claim to asylum did not arise. He also did not think that it would be desirable to create a separate category of "Convention refugees", because he said that this would act against the interests of people who do not strictly qualify under the Convention, but who may be quite generously treated as the rules at present stand.
I think that this argument can be refuted fairly simply, because what we could do is to leave alone the existing permissive rules on political asylum—for example, paragraph 30 of the rules on control after entry for Commonwealth citizens—and then add in a new paragraph which states that where a person establishes that he comes within the provisions of Article 1 of the Convention, he shall be permitted to remain indefinitely and without conditions. I think that this

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would have the consequence—as some people might see it, the undesirable consequence—that the adjudicators and tribunals, who are at present dealing with illegal immigration and overstaying, would have the job of deciding who is a refugee; a job for which some people might say they were not particularly well equipped. But the UNHCR representative shows in his Note that in some European countries the representative himself is involved in the process.
One answer here might be to ask him to sit on any tribunal which considered refugee cases, either in person or through a panel of experts which he would appoint. I submit that that solution might be implemented as an interim measure while further consideration was given to the main proposal in the memorandum that totally separate machinery should be established for determining who is entitled to the status of refugee. I think that in the longer term we ought, surely, to think about harmonisation of the law on refugees throughout the Community, because Annex III of the Note shows that the procedures vary widely, though in all four of the countries which were examined there are formal steps which an individual can take to secure recognition.
Some of those who are treated generously in this country are admitted outside the rules, by the discretion of the Home Secretary. In this category, of course, were the stateless people from Uganda, as well as all those Africans who have, more recently fled from the tyranny of Amin. Those people are certainly Convention refugees but like most, if not all, Commonwealth citizens, they have been denied that status, and, by consistently refusing to treat anybody from a Commonwealth country as a refugee, we are, according to the memorandum in breach of Article 3 of the Convention, which requires that it be applied without discrimination as to country of origin. I should like to know whether the noble Lord can explain why this practice has grown up of refusing to classify as a refugee anybody from a Commonwealth country.
The other category of persons who are denied their rights under the Convention are those admitted, or allowed to remain,
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under some other heading of the rules, as I mentioned at the beginning. Once somebody arrives as a student or dependant, for example, it is practically impossible for his status ever to be changed. If he is both a student and a refugee then, invariably, he is admitted as the former, and this can be an extremely important distinction—which the noble Lord, Lord Harris, did not quite seem to appreciate when he wrote to me about it—because many and may be all universities charge recognised refugees the domestic rate for fees, which is of course much lower than the rate for overseas students.
However, as he points out, the most vital reason for a person wishing to be classified as a refugee is the strength of protection which it gives to the individual concerned against the risk of expulsion. That must obviously mean a great deal to any person who has had to leave his own country, and whose immediate and uppermost need is to have a feeling of security. As the memorandum states, this risk of being kicked out is not a remote or a theoretical one. Some examples are given, with one of which I was personally concerned, w here certain people were under threat of being expelled, and I am sure that many other examples on lines very similar to those set out in the memorandum could have been produced.
Another very significant advantage of being classified as a refugee is that it entitles a person, as is pointed out, to the possession of a Convention travel document, which makes international travel very much easier than the certificate of identity which is issued to stateless persons who are not refugees. I shall not go into the whole catalogue of advantages, but it is far better for a person who is a refugee to have that status, then to have, for example, the status of dependant or student.
The UNHCR has as its governing body a committee of 31 members, which includes the United Kingdom, and in 1977 this executive committee unanimously urged Governments to establish formal procedures for the determination of refugee status. We have taken no steps that I know of to comply with this resolution, although the noble Lord, Lord Harris, said to me in a letter which he wrote on 2nd September last, that the Home Office

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would have a look at the rules. He said:
"I do not think there is any question of their preventing us complying with our obligation under the … Convention, and I should have expected the UNHCR to agree with that as a general proposition."
We see from this Note that the UNHCR would not agree with that as a general proposition; or, at any rate, they would say that, while the rules do not prevent us from complying with our obligations, they certainly do not place any requirement on us that we should properly satisfy them as is suggested. It is now clear to me that we have been urging others to do the things that we have failed to carry out ourselves.
I suggested to the Home Secretary, in a letter of 13th October last, that he should take the initiative in promoting a discussion on the way in which the rules apply, and on the changes needed in this system for determining who is, and who is not, a refugee. I proposed that a small working party should be established consisting of Home Office officials and of representatives of the agencies concerned with refugees, and I offered to give any assistance in this process that was within my power. This has now become a matter of great urgency, since we voted for a resolution in the General Assembly while we were in breach of many of its provisions. I think that it should be a matter of honour that we put ourselves in compliance with that Resolution as quickly as we can.
I am sure that the noble Lord will realise that if an anodyne reply is given to my Unstarred Question this evening, it will certainly not be the end of the matter. The Parliamentary Human Rights group is interested and is hoping that the UNHCR's representative will come to address it at its next meeting on the subject. Arising from that, questions on Government policy will no doubt be asked in another place. The High Commissioner himself is expected to pay a visit to this country in a week's time, and I imagine that he will be very interested to see what the noble Lord has to say at the conclusion of this debate. I have every confidence that the arguments put forward in this powerful memorandum will already have convinced the Government and that it will now only be necessary for them to work out the details of its implementation.
7.51 p.m.
Lord SANDYS: My Lords, your Lordships will be grateful to the noble Lord, Lord Avebury, for having introduced this very interesting Unstarred Question on a subject which so clearly needs the attention of your Lordships and in particular the Government to resolve. I take as my starting point the situation with regard to the 1951 Convention. I believe that a study of this document is fundamental to the note which we have received, so helpfully circulated by Mr. Heidler and of which the Government have their own copy. Even to look at Article 1 of the Convention, which gives the definition of a refugee, is illuminating, if one has not previously realised the very considerable complications which arise from terms of definition. However, the 1951 Convention was not the end of it. This country was also a signatory to the 1954 Convention relating to the Status of Stateless Persons, to the 1957 Refugee Seamen's Agreement, to the 1959 European Agreement on the Abolition of Visas for Refugees and to the 1967 Potocol which has the effect of extending the 1951 Convention.
Taking together those five instruments, may I go back in particular to the 25th July 1951, when the birth pangs of the 1951 Convention were taking place. I should like to draw your Lordships' attention to one very significant recommendation which was made by Mr. Hoare, the delegate of the United Kingdom at the conference. Mr. Hall submitted a resolution to the Convention, and if I may burden your Lordships with its annotation, it is A/Conf/2/107. It asks the signatories to the Convention to apply it in a manner which errs on the side of generosity. I think that possibly it would be beneficial if I read this resolution so that it is placed on the record, for it was the contribution of the United Kingdom to the Final Act.
If I may quote the exact words, the United Kingdom:
"…expresses the hope that this Convention will have value as an example exceeding its contractual scope and that all nations will be guided by it in granting, so far as possible, to persons present in their territory as refugees and who would not be covered by the terms of Paragraph A of Article 1 the treatment for which this Convention provides".
Therefore, in that Final Act the United Kingdom said to its would be co-signatories, "Let us interpret this Convention,

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which we have had great difficulty in drawing up, in a generous and liberal manner". That resolution was passed, and I think that the Government should take note of it, because that was our view in 1951. This Convention is one of many international treaties and conventions entered into by this country. I deem it, as I am sure that the noble Lord, Lord Avebury, deems it, to be a matter of national honour that we should give currency to it.
The right of asylum was dwelt upon by the noble Lord. I should like to make a short comment upon it at this point, because I believe that asylum is a matter which is sometimes misunderstood. The United Nations' High Commissioner's representative mentioned this morning that the right of asylum is the right by a sovereign State to grant asylum and not the right on the part of a refugee to receive it. In other words, it is the act of a sovereign State which can be either given or withheld.
Asylum itself is a matter of definition, and the definition of "asylum" which is given by the Oxford English Dictionary is that it is:
"a sanctuary or inviolable place of refuge".
The granting of asylum, therefore, is a matter of discretion. Very often it occurs that a person is granted permission—this was the case mentioned by the noble Lord, Lord Avebury—to enter another country and that subsequently he applies for asylum. In all probability this will he denied to him; the grant of asylum fails because the application to enter this country was made on other grounds. In the case, which very frequently occurs, of refugee students seeking to enter a country for the purpose of, perhaps, a 12 months' visit, the application for asylum will almost certainly fail on these grounds. It is very important to recognise what a sacrosanct right this is and also, as again the noble Lord, Lord Avebury, mentioned, how important is the need for co-ordination of the European signatories to the Convention.
I was very interested to read Annexe V to the note which has been circulated, for it deals with the figures of those entering this country. The figures for the past three years have been given in depth, but in order to be brief I shall quote only
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those for last year. If the figures can be relied upon, it is interesting to note that Commonwealth immigrants amounted to 37,396, and foreign nationals to 31,917, making a total of 69,313 persons who were admitted to this country, of whom only 1,300 were believed to be refugees. In the present circumstances, the Home Office say that from their statistics they are unable to identify separately the refugees. Nevertheless, this figure of 1,300 is only approximate and has been arrived at with very great difficulty. However, it represents a minute proportion—that is, 1·9 per cent. of the total of those persons entering this country.
I believe that a very important comparison and differentiation has to be made between the status of an immigrant and the status of a refugee. In our earlier debate I believe that it was the noble Earl, Lord Lauderdale, who said that the British never draw a line without blurring it. That is particularly true of the situation of immigrants and refugees. Immigrants have one supreme advantage. In coming to this country—or, indeed, to another country from their own home territory—immigrants have the advantage of being able to return to it. In the case of a refugee, no such facility is afforded to him. Therefore, some very specific advantages are guaranteed under the Convention and I hope that it will not weary your Lordships I if state the four particular articles and the four particular advantages which differentiate it. These are not all, but they are four very significant ones and they are as follows: Article 27 deals with identity papers, Article 28 with the highly important travel documents for international travel and Articles 32 and 33 are perhaps the most significant. Article 32 deals with expulsion and Article 33 with the prohibition from expulsion. That is the Article which is known as the "Non refoulement" Article.
I think it can be said that there is the strongest possible case for asking the Government to look again at the categories which are afforded for separating refugees from immigrants. I believe that the fact that the United Kingdom has apparently taken no special steps to safeguard the particular category of refugees needs urgent amendment. I should like to say here that of course this country has a particularly fine record and I echo every word spoken by the noble Lord, Lord

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Avebury, in regard to our historic refuge afforded to those persons fleeing from foreign territories under persecution. I believe that this fine record can be both enhanced and improved if the measures which have been suggested are put in hand.
There is one further important matter to be considered; namely, the arbitration procedure. I believe that the Home Office should consider the membership of the arbitration tribunals; I believe that they should consider the possibility of entering into discussion with the representative of the United Nations High Commissioner in the United Kingdom to see whether his representation on the body would not be beneficial. It is most interesting, in making a comparison with other countries in Europe, to see how they have treated it. In the case of Belgium, the whole task of managing the question of arbitration is handled by the United Nations High Commissioner, on licence, as it were. This has recently been reviewed. In the case of Italy, it is a 50 per cent. representation by the United Nations High Commissioner's representatives and the Government concerned. In Western Germany, the situation is somewhat different: it is wholly in the hands of the Federal Republic.
Here, once again, is a case where those European signatories to the convention might indeed look again in greater detail to see how best they may co-ordinate their views. Under the European Communities Act of 1972 there were special arrangements under which the European laws were co-ordinated; that is, under Section 2 of that Act, which of course reflects Article 177 of the Treaty of Rome. We are under a dual obligation here, and I believe it calls for the Government to examine the situation most carefully.
8.4 p.m.
Baroness ELLIOT of HARWOOD: My Lords, I shall be brief, but I am anxious to support the noble Lord, Lord Avebury, in his Question, and also my noble friend Lord Sandys in his remarks. Both of them are great experts; both have studied these matters in great detail, and I was enormously impressed by the amount of information which they were able to put forward for the Government to consider. My interest in refugees harks back a while. After I had been a delegate to the United Nations for some years, in
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1959–60 I was invited to head the committee in this country which ran the United Kingdom Committee for World Refugee Year. I suddenly found myself absolutely involved in this and deeply interested and concerned about it. What was so amazing in that one World Refugee Year was the astonishing response which came throughout the whole United Kingdom to that appeal. I think I am right in saying that there was only one other country in Europe—and I think that was Holland—which raised more money for refugees per head of the population than we did. In one year this tiny country with only 50 million people raised £10½ million for refugees.

The great appeal at that time was to clear the camps in Europe, to help those countries particularly which had taken great numbers of refugees—we were still in the aftermath of the war disturbances. We distributed the money, with the advice of course of the United Nations' High Commissioner, to the European countries, to Israel with thousands of refugees and to UNRWA which was also engaged with refugees.
When I look back on that I realise what a great moment that was in our history that the British public should respond in that way. I am afraid I passed on to others the continuing interest and the committees arising out of the World Refugee Year; I am now only an observer rather than an active participant. I should like to pay a tribute to the Standing Conference on Refugees who are the continuing body arising from the World Refugee Year Committee, who have carried on and who have continued to meet—because alas! these things go on all the time—the challenges of the last 10 or 15 years.
The tragedy about the refugee situation is that, while one hopes and thinks that one great campaign or great movement will solve this terrible problem, year after year something else happens and there are more refugees. So, far from being something which ends, I fear it is something which continues all the time. That is what makes it so necessary for us to continue to take a keen interest in your Lordships' House, and tonight we have heard a great deal from the two experts on the present situation.
I have also read the memorandum which has been circulated to us and I was

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very much impressed by all that is in it. I was impressed by the account of the different ways in which countries treat this problem. I had intended to mention the four nations which are quoted—Germany, France, Belgium and Italy—but my noble friend Lord Sandys has already told your Lordships how they deal with their problems. I think we could learn something from that, but I do not want the noble Lord, Lord Wells-Pestell, to think that I am highly critical of what the Home Office and other Departments do now. I am not critical at all. I am sure that they have a great problem and they try to solve it in the best way they can. But I think we could learn from other countries, and as a result of our participation in the debates in the United Nations I think we might go a step further than we have gone so far. On the resolution passed in November, 1977, which we supported, we appear not to have taken very much action since then. In a way, what seems to be our weakness is that there is the Home Office, which is the Government Department responsible, and then come into the picture a great many other agencies and Government Departments. In the European position, as I understand it. there is more concentration in one group, whether it is a group, as in Belgium, which works with the United Nations High Commission and the Ministry of Justice, or as in Germany, where it is more or less an independent group, a high administrative body with a top official who is responsible to the Minister of the Interior and who controls the administrative courts. There are different ways involved, but the system seems to be concentrated more in one group. I think it would be a good idea if, to some extent, we could copy that idea, to see whether it is possible to set up an independent body to review the cases on the lines of other nations with the help of the UNHCR representative, who would be able to concentrate on getting these cases dealt with more swiftly. What I think is wanted is one Department, and a group in that Department, who have authority rather than involving widespread interest, which at the present moment is the way in which our refugee problems are dealt with.
I do not think this would necessarily lead to an increase in refugees. In fact
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the High Commission does not know of refugees who have been refused admission or expelled under the present Convention rules. But it would speed up the processes. It would save the Home Office immigration and nationality department much time and trouble; and, of course, it would save a lot of money because time is money, and naturally one is anxious not to spend more money than necessary. I understand from my study of these documents that if anybody who was considered to be unsuitable or to be a risk, was trying to get into this country the authority would be there, in this committee or council or whatever it is called, which would prevent them being allowed in. If we could adopt a more simple system we would save money and save time, and also much unhappiness.
In the modern world—and I am not talking of the World Refugee Year as I knew it nearly 20 years ago—one reads of the awful cases of people who are persecuted and detained without fair trial, and of other things. Indeed, only yesterday and the day before the appalling experiences in Zaire and other parts of Africa created at once a further number of refugees. This is a tragic problem. I think that we in Britain can feel that we really have made a great contribution towards alleviating suffering in this way, and we want to go on making a great contribution. I am sure we should ask the Home Office to see whether or not we cannot improve our contribution, and whether or not some more simplified scheme can be evolved. I am sure the noble Lord who is to reply will be very sympathetic. I hope very much that the Home Office will consider some reorganisation or some new schemes which would simplify our methods and make them more effective concerning the refugee problem.
8.14 p.m.
Lord WELLS-PESTELL: My Lords, in many respects this is rather a timely debate, and I am glad to be able to answer on behalf of the Government the matter referred to in the Question put by the noble Lord, Lord Avebury. I think it is fair to say that the debate has ranged a wee bit wider than that. I would not pretend that I could deal with every point raised tonight, but I shall certainly do my best to do so.

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My Lords, on 15th March last the United Kingdom representative of the United Nations High Commissioner for Refugees forwarded to my right honourable friend the Home Secretary a paper that he had promised to let him have when they met in January last. Copies were sent at the same time to the Parliamentary Under-Secretary of State at the Foreign and Commonwealth Office and to the Solicitor-General. Since then a further memorandum has been prepared by the legal adviser to the United Kingdom representative. I think perhaps I ought to say, as I am going to use the term "United Kingdom representative", that the United Kingdom representative is not a citizen of the United Kingdom but a representative appointed by the United Nations High Commissioner. I mention this for no other reason than to clearly indicate that this is not just a matter between a United Kingdom individual and the Government. It is something much more important, much wider; it is a matter between the Government and a representative of the United Nations, and therefore sets the whole thing on a much more important and, if I may say so, higher plane.
At the January meeting and in his memorandum the United Kingdom representative pays tribute to the United Kingdom record in the refugee field, and I am grateful to noble Lords who have taken part for subscribing to that. Looking at our record of admissions, and bearing in mind our economic, demographic and social constraints, the United Kingdom representative says that the United Kingdom is indeed playing its part in the international community's effort on behalf of refugees, and that the situation of the refugee once he has been granted asylum compares favourably with that in any other refugee receiving country.
Perhaps I may mention here that in their recent report the Select Committee on Race Relations and Immigration in another place said that they regarded the maintenance of the United Kingdom's historically long and proved record of generosity as one of the greatest importance and value. They pointed out that many people are admitted who do not come within the definition of a refugee in the 1951 United Nations Convention on the Status of Refugees. They recommended that the Government should make
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it clear that in the foreseeable future there would be no further major primary immigration—and I understand that this relates to such people as heads of households, as distinct from those who come as dependents of people already settled here. The Committee recommend that if events compelled an exception to be made on the grounds of political asylum, this should be done by the United Kingdom discharging its responsibilities within agreed international arrangements.
Clearly, when considering the memorandum received by the United Nations representative in the United Kingdom, we shall have to take the Select Committee's recommendations and views into account; but I think it right to make it clear that the United Kingdom can justly be proud of its record in the refugee field. The Government are engaged in amicable discussion with the office of the United Nations High Commissioner for Refugees about our practice and procedure for recognising as Convention refugees those who fall within the terms of the 1951 Convention. There is a fund of goodwill and a wide measure of common ground between us which bodes well, I think, for the final outcome.
The noble Lord, Lord Avebury, made reference to Southern America. He will know that we took part, I think on a fairly substantial scale, so far as the Chileans were concerned. I agree and accept that it was a special exercise brought about at the request of the United Nations High Commissioner. I may be able to say something more about other South American countries before the end of my reply.
It is worth bearing in mind that we do accept as de facto refugees people who would not normally qualify as Convention refugees. Perhaps it is an impertinence on my part to interpret what I mean by "Convention refugees". They are people who have a well-founded fear of being persecuted for reasons of race, religion, nationality, membership of a particular social group, or political opinion. We accept de facto refugees—that is, people from some of the Eastern European countries and others, for example—who have overstayed their period in this country and who have satisfied us that they would suffer very severe penalties if they were sent back. So, we meet the

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Convention refugee and we acknowledge a large number of others as de facto refugees.
May I come to the memorandum which I myself read in detail. The memorandum was submitted by the representative in the United Kingdom of the United Nations High Commission Representation. It discusses at some length the background of the Convention, its implementation in a number of other countries and the weaknesses, as he sees them, in the United Kingdom procedures for recognising people as Convention refugees. We find it an interesting document which we are considering in detail and with care. The memorandum has been in our hands for only two months and we have already had two exploratory meetings on it and a third meeting has been arranged. That is not too had, bearing in mind that we have had it for only two months. I do not think that I have ever known a Government Department to move so quickly.
Lord AVEBURY: My Lords, would the noble Lord not agree that, in accordance with the policy of open government which is adopted by so many other Departments, the Home Office might care to involve some of the voluntary agencies and some Members of your Lordships' House who have taken an interest in the refugee problem? I asked the Home Secretary whether there was any assistance that I could give him in consideration of these matters, and so far I have received no reply.
Lord WELLS-PESTELL: My Lords, I am grateful to the noble Lord and I give him an undertaking that I shall draw his remarks to the attention of my noble friend. I do not feel that I can say more than that, and I do not think that he would expect me to do so.
The recommendations fall into two parts. The first is that legislation should be passed incorporating into United Kingdom law
"all those provisions of the 1951 Convention and the 1967 Protocol which are not provided for in the existing law".
The Convention and the Protocol cover a wide range of subjects and I must say that the language of international agreements, which is designed to cover countries with widely differing legal and administra-
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tive systems, is rarely suitable for direct incorporation into United Kingdom law, even when a decision has been taken that some legal provision is necessary to enable us to comply with obligations which we have undertaken. Work at official level has, however begun in this connection, but, because of the complexity of the matter, I think it would be unrealistic of me to suggest that there will be a very early outcome.
The second part of the memorandum is the establishment of a formal procedure for the determination of refugee status by an independent body in accordance with recommendations made by the executive committee of the High Commissioner's programme of which the United Kingdom is a member. These, in brief, are that border officials should have clear instructions and should refer cases to higher authority; applicants should receive guidance as to procedure; there should be an identified authority to take the first decision; and applicant should have the necessary facilities for submitting his case; a successful applicant should be informed and issued with a document; an unsuccessful applicant should be able to appeal to another judicial or administrative authority as appropriate, and the applicant should he able to remain, pending determination of his case, unless his request was clearly abusive. The recommendations made by the executive committee are broadly in line, we think, with our own practice at present. Whether or not they are, we are most anxious not to be seen in default of our obligations under the Convention.
The first task here will be to identify whether, and if so, what changes are necessary in our recognition procedures. In this we have already made a useful start and have taken on board for consideration certain related points; but I think two general observations are relevant. First, in his memorandum the United Kingdom representative expresses the view that the adoption of the changes he proposes would not be likely to lead to any change in the number of refugees received in the United Kingdom, but rather to speed up the process of recognition. Secondly, my right honourable friend has made it clear that his concern is that cases should be considered on their merits and not hampered by inflexible procedures. The crucial importance of the second point

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is that in practice we allow many people to stay on here who may regard themselves as refugees, although they do not fall within the definition of a refugee for the purposes of the 1951 Convention.
We are approaching our discussions on the memorandum in a positive and constructive spirit. As I have said, there have already been two extended meetings at official level with the United Kingdom representative's legal adviser and more are planned. The issues are being examined in detail and we are most grateful for the helpful attitude that has been brought to these talks. When the process is complete, my right honourable friend will be able to decide on any changes that he considers should be made and how those changes should be made. This will not necessarily be a single operation. Some matters will, we think, be able to be treated separately, and in those cases we may well be able to initiate changes quite early. I think that we must face the fact that, while some of the changes may be possible without legislation, some might require legislation.
The short answer—because it has been a short answer—to the noble Lord's Question, is that we have received the Memorandum and we have only had it, as I have said, for two months. We have received a further paper from the office of the United Kingdom Representative, since then, and we are engaged in detailed discussions with his legal adviser over the points raised. There are many points to be dealt with and they are not easy ones, but largely thanks to the good feeling on both sides we think that not only has a satisfactory start been made, but it should prove to be quite fruitful.
The noble Lord, Lord Avebury, asked me a number of questions, one in relation to Commonwealth citizens. We are now considering whether to make it a general rule to regard Commonwealth citizens as not own nationals so as to bring them within the Convention. However, as they are British subjects we shall clearly have to have regard to international as well as domestic implications. We have granted a number of—
Lord AVEBURY: My Lords, will the noble Lord allow me to intervene? In many cases they are British subjects under our law but not under their own
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law. For example, an Australian citizen is not a British subject under Australian law.
Lord WELLS-PESTELL: I will bear in mind what the noble Lord has said but, as he probably knows, we have granted a number of Convention travel documents to Commonwealth citizens. With regard to change of status, I understand that there is no difficulty about a person who has come to this country changing his status to that of a refugee. He merely has to state his case and this will not in any way be prejudiced by his existing status. He can then apply for a Convention travel document and get it.
I think the noble Lord referred to applications from the Argentine. As I said, in response to an appeal by the High Commissioner, we did something about people from Chile, and in response to another appeal we have admitted a number of people said by the United Nations High Commission Office in the Argentine to be in special danger. The Home Secretary is reviewing his South American policy at the moment. As I said, we have admitted a number from the Argentine because we were given to understand that they had been in special danger.
Regarding the noble Lord's points about statistics they are at present under discussion and they are in the memorandum that we have been waiting for. The actual figures, and the conclusions that are suggested by them, are at present under discussion. I think it would be premature for the Government to accept all the claims and statements made by the United Kingdom representative while we are having preliminary discussions with his office. The Home Secretary's concern is to let in people who should come and not be caught in a straitjacket of formal procedure.
I think the EEC was referred to. It is not necessarily a matter of EEC harmonisation. We are taking part in Council of Europe discussions about refugee conventions and in separate and continuing United Nations discussions. Harmonisation of actual procedures between the Nine would be very difficult, and one has to face the fact that the practice varies considerably.

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I think the only other thing which I have to deal with is the special category. The United Nations' representative particularly praised the position of people accepted as refugees, both Convention and de facto. This is because anyone once admitted on a permanent basis is treated as though he were native born. The issue of identity cards for refugees might be regarded as offensive and I think many people would take that view. But we are considering the issue of a document saying that we recognise a person as a Convention refugee. I do not think I can take it any further than that, except to say that the Government welcome the comments and observations that have been made which will obviously be useful in view of the discussions which have only recently started through the office and with the representative in the United Kingdom.

DOMESTIC PROCEEDINGS AND MAGISTRATES' COURTS BILL [H.L.]
Returned from the Commons agreed to with Amendments; the said Amendments to be printed.
INDEPENDENT BROADCASTING AUTHORITY BILL
Brought from the Commons; read 1a, and to be printed.