§ 4 p.m.
§ The Minister of State, Scottish Office (The Earl of Mansfield)
My Lords, with the leave of the House, I shall now repeat a Statement being made in another place by my right honourable friend the Secretary of State for Scotland. The Statement is as follows:
"With permission, I wish to make a statement about the closure of the British Aluminium Company's smelter at Invergordon.
"Towards the end of last year the company told the Government that the very large losses it was incurring at Invergordon had reached the point at which the survival of the whole group was seriously 432 and immediately threatened; it was therefore proposing to close the smelter by the end of 1981. The Government nevertheless decided that our first priority should be to try to keep the smelter in operation, and urgent discussions took place with the company in search of a basis on which the smelter could continue.
"To enable it to continue in operation the company would have required the disputed charges of £47 million due to the North of Scotland Hydro-Electric Board to be written off and electricity charges to be reduced to a level which would have caused the board to make annual losses on the power contract of around £16 million a year, continuing at that level, and possibly increasing, until the year 2000. The Government therefore concluded with great reluctance that such commitments in respect of one company would be an unacceptable burden to the taxpayer and that the closure would have to proceed. The company then entered into discussions with the board about the termination of its power contract. Because these discussions were still in progress, the Government were not in a position to make any announcement to the House before the beginning of the Recess.
"Under the terms of the settlement reached between the company and the board, the company's rights under the contract to electricity supplies from Hunterston B to the year 2000 were valued at £79.328 million. From this sum the board deducted £47.049 million in settlement of disputed power charges. At the date of termination of the contract the outstanding balance of the Government loans to the company, including interest due, totalled £33.527 million. Because it was the Government's intention that there should be an equitable settlement which would reduce the threat to the company's other activities caused by the continuing losses at the smelter, my right honourable friend the Secretary of State for Industry did not insist, as he was entitled to do, that the whole of the remainder should go towards repayment of the outstanding balances of the company's loans. Of the remaining £32.279 million the company paid £4.488 million to the board in settlement of current debts for electricity supplied and £12.279 million to my right honourable friend in part repayment of the loan, and received £15.512 million.
"The payment of £12.279 million was sufficient to repay the principal and interest of the 1975 loan in full (£6.547 million) and the interest due and part of the principal of the 1968 loan (£5.732 million). With the approval of the Treasury, the remainder of the principal of the 1968 loan, amounting to £21.248 million, was waived. The European Commission are being notified.
"As I said on the day the closure was announced, the Government regard it as a profound disaster for the area. We fully understand the serious consequences which it will have for Invergordon, and the wider Moray Firth area, both in terms of jobs lost and its effect on the local economy.
"The company has undertaken to maintain the smelter in a usable condition for a period of six months and to co-operate with the Highlands and 433 Islands Development Board in its efforts to find a new operator for the plant. We are already working with the Highlands and Islands Development Board and Locate in Scotland to ensure that every effort is being made to find a new operator. We are ready to assist the North of Scotland Hydro-Electric Board and any potential new operator in their negotiations.
" In the event that no new operator comes forward every effort will be made to try to attract new jobs to the area. The Government have agreed to provide a special extra allocation of funds, amounting to up to £10 million over the next three years, to enable the Highlands and Islands Development Board to undertake special measures to provide new employment opportunities. My department, the Highlands and Islands Development Board and the Scottish Development Agency will give the highest priority to finding new projects which may be established in the area."
§ My Lords, that concludes the Statement.
§ 4.4 p.m.
§ Lord Ross of Marnock
My Lords, one of the outstanding features of this closure is the brutal sudden-ness with which it was announced and the speed with which it is being effected. In any other area of Scotland (or of the United Kingdom, for that matter) the loss of 890 jobs would be serious: in this particular area it is really shattering—a disaster of major proportions. Can the Minister, who we thank for repeating this Statement, tell us when the negotiations in fact started? Can he tell us whether Ministers were personally involved in these negotiations; and, if so, which Ministers? Did the Government at any time offer a package to BACO, the British Aluminium Company, which would have allowed them to carry on operations at Invergordon? Altogether, how long did the negotiations last from start to finish, to the point where the Government (and I stress this) informed the British Aluminium Company that termination was the only way?
On the terms of what is a complex and complicated financial settlement, can the Government tell us why there would appear to be very considerable generosity to the company? The workers get nothing out of this; and all that the local authorities which have been involved with the Scottish Office in building up the infrastructure over a period at a cost of millions get out of it is losses. But it would appear to me that we have been fairly generous to the company. In particular, I should like to know why the £21 million repayment of the original loan was waived. Had it anything to do with the smelter at all?
What is the position now? Who owns the plant? Is it the British Aluminium Company? Bearing in mind what the Minister has said about seeking anxiously to get a new operator, I think we must be careful not to mislead people or raise hopes here. What can the Government offer to a new operator in order to encourage it to come in and operate this smelter that they failed to offer BACO to continue its operation? Are BACO now in a position (because I presume the answer to my previous question is that they own the smelter and the site) to veto any new 434 operator coming in? Have the Government any guarantees about scrap value, say, for the smelter and sites if someone does want to take it over?
Further, do the Government appreciate that not only are the 890 jobs in the smelter directly affected here but that there are a lot more affected in transport and British Railways? The British Steel Corporation, I believe, have just announced the closure of a plant in the centre of Scotland which was directly related to the smelter. So the knock-on effect is very considerable, and we shall probably have to double the number that we have already suggested here. The Government say that they are anxiously seeking new jobs. Remember, of course—the North will remember—that it was the Government who turned down the gas-gathering project, on which many hopes had been pinned in respect of new jobs, not necessarily only in this area but in other parts of Scotland.
Lastly, can the noble Earl tell me what are the special measures that the Highlands and Islands Board have in mind, or the Government have in mind? I do not think that at the moment the Highlands and Islands Board are short of money for any viable project that they can get, and this £10 million over three years is a bit of financial windowdressing, but it will deceive no one in the Highlands. It is a sad day, and certainly it is a sad day for me, too. I can remember the competition that there was for aluminium companies to get Invergordon. There were other companies as well; and it is sad that they have reached this particular stage. I wish the Government well in their efforts to attract new industry, but I fear it will be a long time before we get anything employing that number of people. This really was the linchpin of the Highlands development project, and it has gone.
§ Lord Tanlaw
My Lords, from these Benches we, too, wish to thank the Minister for his Statement, his first in the New Year, and would wish to repeat what was said to the families of the workforce there. The message that the Statement contains will bring no joy to the New Year in that district and far beyond it. I will not repeat the questions already raised and to which we shall be interested to hear the answers. I have three questions for the Minister. I cannot understand how calculations can have gone so far out of kilter as to create a sudden closure of the smelter. Smelters operate with hydro-electric plants because one can forecast the cost of electricity for many years ahead. It is not related to OPEC prices. The first question is this. How do other smelters with their costs of electricity manage to continue, and how does the North of Scotland Hydro-Electric Board base its charge for hydro-electricity? Is it on a cost-plus basis; or has the company tried to relate the cost of electricity to the consumer to OPEC prices?
Secondly, can the noble Earl explain to the House, if the North of Scotland Hydro-Electric Board is to lose £16 million a year due to not having adequate charges paid to it for its electricity, who is going to consume the extra electricity of approximately 200 megawatts? If no one is to consume it then the North of Scotland Hydro-Electric Board will receive a nil return for their electricity generation costs. Is it not better for them to get something rather than nothing for their electricity, as apparently they are going to get at the moment? 435 Can the Minister give the House any information of any new industrial complex which is going to come to the area—and I hope it will—with the encouragement of the Government? We wish the Minister well in his efforts to attract it.
§ The Earl of Mansfield
My Lords, I should like to thank both noble Lords for their reaction to this Statement. So far as suddenness is concerned, I understand that British Aluminium losses were by September running at half a million pounds a week and it was in those circumstances, when the company apparently decided that its whole viability as a group was coming under threat, that matters started to move. There were considerable and very urgent negotiations thereafter. The noble Lord, Lord Ross, asked who has taken part, I think, on the part of the Government. Many officials from different departments in the Scottish Office started the process off, particularly in the Scottish Economic Planning Department, but as things developed my honourable friend Mr. Fletcher and subsequently my right honourable friend the Secretary of State were both consistently and to a large extent of their time involved in these negotiations. The negotiations took place with representatives of British Aluminium, among others.
A number of points were put forward on the part of the company upon which they would need to be satisfied before they would continue to operate this plant. I do not intend to go into the details of them all now, but in the end the matter came back to the question of the disputed charges as between the company and the North of Scotland Hydro-Electric Board and the continuing losses which would be made by the board if the company was to continue in operation at an energy cost which was satisfactory to itself. It was in those circumstances that eventually the question became as stark as I have illustrated and the Government, with great reluctance, had to come to the conclusion that the cost of £16 million—which represented something like £16,000 a job, which would escalate as the year 2000 approached—was not in the public interest.
The noble Lord, Lord Ross, asked in effect, why the Government behaved generously—I think that was the word he used—to British Aluminium in the matter of the £20 million with which it has been left. I have to go back to the original encouragement which the Government—when I think the noble Lord was Secretary of State for Scotland in the late 1960s—gave to British Aluminium in the first place. There was what was described as a letter of comfort sent from the Minister of State of the Board of Trade, then Mr. Edmund Dell, to the company. That letter, and the sentiment, played some part in the Government's thinking now.
Furthermore, in view of the very serious situation in which the whole group found itself, and particularly because the Government had in mind the continued operation of the smelters at Lochaber and Kinlochleven and the continued operation of the company's other plants, for instance, at Falkirk and Burntisland, the Government wanted to see the settlement—and it was a settlement—equitable and one which would enable the company to close Invergordon without further heavy losses and which would enable it to carry 436 on these other plants. Out of the £20 million, the company has had to meet all closure and redundancy costs and has already met a bill of £4.9 million in respect of its December electricity.
I am replying at length because of the number and detail of the questions which the noble Lord, Lord Ross, quite properly asked. He asked who owns the plant. The plant is owned by British Aluminium, as I think the noble Lord realises. He asked what offers would be made to any other company or undertaking which might show an interest. That would depend upon the commercial judgment of any potential purchaser, and I have no doubt that his judgment would depend upon the terms of any power contract which could be negotiated with the electricity board. The Government obviously will want to discuss any proposal made with the board. I cannot offer any commitment at this stage, but we would consider carefully any proposals which came forward.
The noble Lord asked what special measures the Highlands Board is taking apart from the £10 million, which the noble Lord rather dismissed with the phrase " window dressing ", which it has been given to help it in its work. There is at the moment an urgent study being carried out between the Scottish Economic Planning Department and the Highlands and Islands Development Board to see what are the best ways of urgently carrying out this extremely important and vital work to attract new industry into the area even if a buyer cannot be found for the whole undertaking. Finally, I think the noble Lord asked about the scrap value and any guarantees. The answer is that the Government at the moment are negotiating with British Aluminium on this point.
The noble Lord, Lord Tanlaw, also asked about the sudden closure. I hope that I dealt adequately with that. He also asked about other smelters. Of course, the other two that I mentioned at Lochaber and Kinlochleven have old but nevertheless serviceable and extremely valuable private hydro-electric generating machines which supply their electricity; and therefore their costs are very much less than that which the unfortunate undertaking at Invergordon had to face. It is a long and complicated story of how this came about. Basically, British Aluminium bought a slice of the Hunterston " B " nuclear generating undertaking. In return they were to be given a very large amount of electricity, lasting until the year 2000, at the cost of production. Unfortunately, the cost of production, and also measures which have been rendered necessary by safety considerations, have escalated those on-going costs. That is the reason why all this trouble ensued over the years. I hope that I have answered the noble Lord, Lord Tanlaw, sufficiently. As I have said, it is a long and extremely complicated history.
§ Lord Wynne-Jones
My Lords, in view of the noble Earl's reply, in which he referred to the cost of electricity, can he tell us whether the closing down at Invergordon is going to add substantially to the surplus of productive capacity in Scotland for electricity? If so, why are we continuing with building a nuclear power station?
§ The Earl of Mansfield
My Lords, it is not possible at the moment to predict future electrical demand. The 437 real point of the noble Lord's question is: Why are we continuing to build the nuclear station at Torness? The answer is three-fold. First, arrangements for the building and the equipment which has been ordered are at a very advanced stage. To cancel them now would cost a very great deal of money indeed. Of special importance is the fact that we estimate that if we cancel them we would lose 2,000 jobs. That must bear very heavily on any decision that a Government makes.
Thirdly, Governments have always been castigated in the past because they have underestimated the amount of electricity that would be needed by industry. We are in the midst of a very deep and severe recession. I believe that as we pick up and leave it we shall need in the future all the electricity that we can supply. Electricity is going to be increasingly important to us in the future because it will take the place of hydrocarbon fuels, particularly oil.
§ Lord Ross of Marnock
My Lords, I think the Minister is right in stressing that we may need all the electricity that we have on-stream at the moment. We also may need the aluminium smelting capacity. From the point of view of the economic wellbeing of the country I hope that he will continue his efforts to try and find someone who is prepared to do it and that he will he a little bit more forthcoming to them than he has been in respect of British Aluminium there.
Has any estimate been made of the cost to the Government and the country of the actual losses involved? This is not just the loss of jobs, the cost of unemployment, but the loss to the North of Scotland Hydro-Electricity Board of the contract, of the take up of electricity, but the loss to the Inland Revenue in respect of the tax that perhaps over 1,000 men would have been paying. I hope these matters were taken into the equation before the Government made their decision. There is also the cost of any new industry going in. That could be very high indeed. I hope the Government took that into account.
§ The Earl of Mansfield
My Lords, in so far as these matters which the noble Lord raised are quantifiable—and some which the noble Lord illustrated are not and others which he did not mention are—the Government took all these into account in so far as they could.