§ 8.14 p.m.
§ House again in Committee on Clause 1.
§ [Amendment No. 6 not moved]:
§ Lord Bishopston moved Amendment No. 7:
§ Page 2, line 10, at end insert—
§ ("( ) The Secretary of State shall not give consent pursuant to subsection (2) above until the Comptroller and Auditor General has prepared a valuation of the shares of which disposal is to be made and has submitted to Parliament a report of such valuation,").
§ The noble Lord said: As the House knows, Clause 1 deals with the oil corporation's powers of disposal, and with this amendment I should like to speak to Amendment No. 8 which is associated with it. That amendment requires that in the exercise of powers under subsection (1), the oil corporation shall not dispose of more than 1 per cent. of the shares in any equity oil subsidiary to any one purchaser and so on.
§ I shall be as brief as I can on this amendment. However, it is an important one, because, as I and other noble Lords have said, after the Amersham International situation there has been an increasing need in the minds of many for accountability to Parliament. There is a need for Parliament and the country to know what the Government propose in regard to the disposal of these valuable assets, and this amendment will give the Minister an opportunity of saying what the Government have in mind in relation to the disposal of the BNOC assets.
§ As we know, the Amersham sale was undervalued and over-subscribed, and the undervaluation was said to be in the region of 30 per cent. It caused a great deal of concern, if not anger, about the meaning of disposal and we are anxious to know what the Government have in mind in relation to BNOC, because this is not only a great national asset but also national money.
§ In the Bill, the Government seek enabling powers. There was no prior debate on the value of Amersham International, or on the best methods of disposal, and this issue is one of great importance to a range of other disposals as well. This amendment is not a party one of whether or not to dispose of BNOC, but is a matter of how the Government are going to do it, which must be of concern to every noble Lord. The undervaluing of assets is a very bad thing, but it is made worse when people make money through advising on and conducting sales, and when the advice is not 1122 always as good as it might be. In addition, purchasers, including some speculators, also make fat profits.
§ There is concern when other people, many on very low income levels, get money to which they are not entitled, but it is possible for richer people to get even richer by methods such as the purchase of shares put on the market by the Government, as in the case of Amersham International. I am sure that the Committee is very anxious that this should not be repeated in the case of the matter about which we are now concerned. Parliament ought not to have to read in the public press, as it did in the latter case, with full page adverts, about the Government's intentions. We believe that the time has come for Parliament to be let into the thinking of the Government as to how disposals shall be made and Amendments Nos. 7 and 8 help towards this end.
Amendment No. 7 requires that,
The Secretary of State shall not give consent pursuant to subsection (2) above until the Comptroller and Auditor General has prepared a valuation of the shares of which disposal is to be made and has submitted to Parliament a report of such valuation".
I also commend Amendment No. 8 to your Lordships, because it requires that,
In exercising the power under subsection (1) above the Oil Corporation shall not dispose of more than one per cent. of the shares in any equity oil subsidiary to any one purchaser and shall not dispose of any such shares to any company which is the holder of any interest in any licence granted on the North Sea, or to any company which is a subsidiary of any such company".
We believe that in view of the Government's declared policy of wanting the ownership of shares to be spread over a wide range of people, this second amendment has its justification. With those comments, I beg to move Amendment No. 7, with which I have spoken to Amendment No. 8.
§ 8.20 p.m.
§ Lord Tanlaw
In supporting this amendment, put forward in my name as well as in the name of the noble Lord, Lord Bishopston, may I raise again the timing of this issue. Perhaps the noble Earl in his reply to this amendment—which does not specify this—will reassure the Committee that the Government will take into consideration market conditions at the time, which this amendment is about. I support entirely the noble Lord, Lord Bishopston, in Amendment No. 7: that the Comptroller and Auditor-General should look at the valuation of the shares and give a second opinion, apart from those who are the merchant banking advisers of the Government. This would give some reassurance that there will not be a repeat of what happened before.
However, these matters can never be judged to a nicety, as anybody who has any experience in the City is fully aware. Nevertheless, in the case of the Amersham International issue the Government were overcautious in their determination to make a success of it. They used a belt-and-braces approach by undervaluing and at the same time underwriting it, just in case nobody took it up. I see some reason for this because this was a new venture for the Government. But experience has now been gained and the Government have had a success, in one sense (though a failure in another) with Amersham International. That is why we do not disagree with privatisation. It 1123 gives wider share ownership, and the emphasis is on wider share ownership. I hope that the lesson of Amersham International has been learned. We do not worry if the Government have an occasional success. Good luck to them. But what we were annoyed about in the case of the Amersham issue was that the small shareholder, as was mentioned by the noble Lord, Lord Bishopston, did not get a proper chance.
I hope that whatever method is used—and I believe that the tender method has been considered—will mean that the small shareholder, somebody who wants to put £50 of his savings into a national oil company, on the basis that the price of oil will go up and that the company has a good future, will get a fair chance to invest. There are great administrative costs. The small shareholder applications are very numerous and very difficult to sift and it will take time and money to make sure that this is right. In his reply the noble Earl should tell the Committee that the Government are prepared to bear this extra expense in order to substantiate the principle of wider share ownership, which I believe they want just as much as we on these Benches want it. It would certainly be most helpful.
In the same way, I suppose one could say that if the Government go ahead, regardless of the price of oil on world markets because they say that it is irrelevant, this will give considerable bargains to investors. I suppose one could also say that if that is the way they want to present it, the investors should be told. If, on the other hand, the Treasury is behind this Bill, as I suspect it is, the Government may listen to the Treasury who say that they want to maximise the capital benefits to the public sector borrowing requirement and that therefore they should delay the Bill.
Some guidance in tins area would be helpful, as would the method of issue of Britoil shares. Whatever method is used, I hope that there will be a very clear explanation for people who have not had previous experience of owning shares, if they want to invest, of how to invest—perhaps through the Post Office. Many people who may want to invest in Britoil may not have a bank account. It may also require explanation in very simple terms. Working people do not have stockbrokers. Although it is assumed that everybody has a stockbroker, this is not the case. I hope more money will be spent upon advertisements in order to assist the small shareholder and the principle of wider share ownership.
§ Lord Underhill
As the noble Lord, Lord Bishopston and the noble Lord, Lord Tanlaw, have said, to a great extent additional importance has been laid on this amendment because of the experience of Amersham International. I link with it the experience of Cable and Wireless and British Aerospace. Reference has been made to the desire for widespread ownership, but there has been so much public concern, particularly in the financial columns of the newspapers, about the report of the Public Accounts Committee in the other place that it is worthwhile recounting some of the details which have been brought out and the behaviour of some of the small shareholders.
In the case of British Aerospace, I understand that soon after the flotation there were something like 1124 158,000 shareholders. However, 11 months later that number had shrunk to 27,000. The numbers holding 1 million, plus, shares rose from one at the original flotation to 13, while those holding fewer than 100 shares sank from 44,000 to 3,300. So far as the widespread ownership of shares is concerned, there was a cashing in because, two months after the flotation, I understand that the trading price was 47 per cent. above the flotation price. In the case of Cable and Wireless, we were told that it was five times over-subscribed; that 150,000 successfully applied at the outset but that two months later the number of shareholders on the register had fallen to 27,000. And it is still falling. In the case of Amersham International, we were told that 10 weeks ago 65,000 applied successfully, but nearly half of the shares—25 million—had changed hands by last Friday. And the register showed there were only 10,000 shareholders compared with the 65,000 who successfully applied. Again the initial dealings were 32 per cent. above the original price. Obviously people were cashing in very quickly after the flotation of these three companies, which was well under the actual value. Originally, therefore, there was a desire for widespread shareholdings, but the shareholders sold out pretty quickly and we are left with the large institutions. A large sum of money is involved in this flotation. If the story is repeated, the bulk of the shares will eventually be in the hands of the major institutions—unless, as the noble Lord, Lord Tanlaw, has said, the Government can devise a different way of ensuring that the position is handled differently.
The Secretary of State has said that he hopes this flotation will be completed by the end of the year. There are two problems, one of which has been mentioned already: whether the present position on oil prices is commensurate with a flotation before the end of the year. Secondly, so many parts of national assets are being sold that they will all be competing with each other on the market at the same time. That problem also needs to be considered. This is an important issue, and the terms of my noble friend's amendment are such that the Committee ought readily to agree that the details should be before Parliament so that the matter can be fully considered.
§ The Earl of Mansfield
The noble Lord, Lord Bishopston, moved both of these amendments, Nos. 7 and 8, together, which is probably helpful from the time point of view, but he does, I know, appreciate that the two amendments do relate to two rather different subjects. Amendment No. 7 relates to the valuation of the shares and to the role, if there is to be one, of the Comptroller and Auditor General and the submission of his report to Parliament. Those are three distinct issues. Amendment No. 8 deals with what I might call the spread of ownership of shares. That raises rather different considerations—so I shall have to deal with both amendments together. I hope that the Committee will bear with me, although I get the impression that these are in the nature of probing amendments which seek to make plain the attitude of the Government so far as it has not been made plain up till now.
Amendment No. 7 relates to Clause 1. As I have already said to the Committee, the intention is that the shares of Britoil should be first of all transferred 1125 to the Secretary of State under Clause 3(4) of the Bill, and that the Secretary of State should then sell 51 per cent. of those shares to the public. In other words, Clause I would not be the vehicle of sale. It follows from what I have said that the Secretary of State will have direct responsibility for the disposal of the shares and will be closely concerned in respect of pricing decisions, and will be in a position to engage professional advisers and to accept their advice and assistance.
The amendment seeks to bring the Comptroller and Auditor General into this role so far as that arrangement is concerned. There are a number of drawbacks to that proposal. I say that in the light of the report of the Public Accounts Committee which was published last week. That Committee came to a number of conclusions, having examined certain previous privatisation exercises. The Government will, of course, be studying the report of the committee with great care, but it should be noted that the committee has not made any suggestion that the Comptroller and Auditor General should be given the task of valuing the shares of a company in future privatisations. Having said that, I should also say that the sale of shares in Britoil and the way in which that is handled by the Government will be subject to examination by the Comptroller and Auditor General just as in any examination he may make of any other operation which has major implications for Government revenues. The Comptroller and Auditor General will have access to departmental papers in the normal way. But, as I said when we considered and discussed the last amendment, the actual disposal of these shares is a matter for executive action—in other words, for decision by the Government—to be carried out within the statutory powers which this Bill is intended to provide.
Any student if not expert of the stock market will appreciate that a valuation which would be consequent to the writing in of this amendment to the Bill could he very harmful to the success of the flotation. The offer price published in the prospectus can only be decided by the Government in consultation with its professional advisers. They have to assess as best they can the market conditions at the time of the offer. I suggest that it would be quite wrong to anticipate the prospectus by publishing a valuation of the company in advance. Indeed, this could have the effect of misleading future shareholders and prejudicing the propects of a successful sale.
I just put this forward. If you are going to bring the Comptroller and Auditor General into this and he is to make a valuation, and that valuation is to be published and laid before Parliament, it follows that Parliament must be given the opportunity of at least discussing and commenting upon whatever it is that the Comptroller and Auditor General publishes by way of a report. If one considers the long parliamentary recess in the summer, one could go for longer than three months with a valuation having been published, and at the same time market conditions changing, and yet the whole operation having to hang fire while some form of parliamentary scrutiny took place so far as the Comptroller and Auditor General's report was concerned.
1126 The methods of sale in previous privatisation exercises and the fact that the shares of companies have been traded above the price at which they were originally offered has excited a great deal of comment and debate, both in the media and in another place. One has to say that it is very easy on these occasions to be wise after the event. Nevertheless, the Government are by no means complacent. We are giving serious consideration to various methods of sale for the Britoil shares and are considering which of these various methods might be appropriate. A number of suggestions have been put forward in the light of the recent report from the Public Accounts Committee. These suggestions include ways in which the problems of stagging and multiple applications might be addressed, and of making the shares more accessible to small investors. Obviously, I cannot tell the Committee what the result of the Government's cogitation is going to be, but I can say that we have not closed our minds to any possibility which may be available.
The overriding consideration on the part of the Government is to see that the taxpayer receives a fair price for the shares of Britoil. We shall, as I have said, be subject to examination by the Public Accounts Committee and we will give their deliberations very careful study. Having said that, I reject the notion that the Comptroller and Auditor General should be asked to take on the role of valuing Britoil in advance of the offer for sale. I have touched upon the disadvantages which that course could entail.
The flotation of a major company such as Britoil is an exercise which requires a number of decisions, which have to he taken quite near to the time of sale. As I have said, if the procedures in Amendment No. 7 were adopted, there may be a prejudicial effect which could damage the taxpayers' interest by deflating what would be regarded as a fair price for Britoil shares. I am quite sure that that is the last thing the noble Lord opposite would want to achieve.
The question which remains is, how will the Government put into effect the lessons which have been learned from British Aerospace, Cable and Wireless, and Amersham International—if indeed there are lessons to be learnt? I say that purely from the point of view that, as I have said, it is very easy to be wise after the event. The price of these shares has to be pitched at a level which ensures a good return, and an equitable return to the taxpayer, but which is at the same time a level at which the shares will be acceptable to the market. I am not, unless I am urged, going into details tonight on the valuation of, for example, Amersham International and how many times the price achieved was above the price earnings ratio—but it was very high.
In any major public offering, some margin is allowed between the offer price and the price at which the shares are expected to trade in the market following the issue. This is necessary because to ensure the success of the offer the issue price has to be attractive enough to sell a larger volume of shares than are normally traded in individual transactions on the exchange. As I have said, in the case of Amersham International—but it applies equally to British Aerospace and to Cable and Wireless—the fact that the shares have been traded above the issue price does not show necessarily that the issues were under-priced, but 1127 one obviously has to keep the margin within reasonable limits. We have not yet taken any decisions on how the sale of Britoil shares will be handled, but I have no doubt that we shall be able to obtain a fair price.
Perhaps I may now turn to Amendment No. 8. The point of the noble Lord's amendment is to try to obtain a wide spread of ownership in the shares of Britoil. That is an entirely laudable ambition, which the Government share. The interests of small investors are something to which any Government, and this Government particularly, are pledged to have regard. My right honourable friend in another place pointed out on more than one occasion that one of the reasons for privatising the oil-producing side of BNOC's business is to give ordinary people the opportunity to share more directly in the oil wealth of the country. I do take issue with the noble Lord, Lord Underhill, when he implies—and I say no more than that—that the ownership of shares by the financial institutions of this country is in some way inimical to the public interest. If one appreciates that a very large amount of this money is in fact owned by the pension funds, which represent, after all, the accumulated pension rights of people who are employed in industry and suchlike, it seems to me that there is nothing against the public interest in the shares of what one is quite sure will be a successful and prosperous enterprise such as Britoil in fact being owned by pension funds and institutions, which will use the profits to spread the benefits among their policyholders and pension funds.
§ Lord Underhill
I am grateful to the noble Earl for giving way. He infers, although he says it very nicely, that I was critical of ownership by the large institutions. Let me assure him that I was not. The purpose of my comment was because both the noble Earl and others had referred to the desire to have the widest spread of shareholders. I was pointing out that within a very short space of time the bulk of the small holders of shares had disposed of their shares and we found the bulk of them in the hands of the major institutions. Of course I am not opposed to pension funds, because I have an idea that part of my superannuation comes from the same source.
§ The Earl of Mansfield
The trouble is, and it has frequently become apparent with employee share arrangements, that if the employees and small shareholders see the opportunity of a quick profit they are more concerned to take it than to wait for the long-term advantages which will accrue if they hang on to the shares. That is human nature and not the fault of the system, if I may say so. If small shareholders avail themselves of the shares, and they are at a fair price, and the shares subsequently appreciate, I am afraid nothing that any of us can do will compel them to retain their shares if they happen to want to realise their capital gain and have some useful purpose to which to devote the money. Obviously, as I have said, we want to pay particular heed to the interests of small shareholders and above all to give them the opportunity to acquire shares in Britoil.
One still has to have as much flexibility as one can for a successful flotation. I do not believe that an amendment such as this is going to help flexibility at 1128 all. Nor do I think that it is going to help keep the shares in the hands of small investors. As I have said, pension funds and institutions will have a legitimate role to play, and, as I think the noble Lord, Lord Underhill, would agree, such institutions can ensure that the earnings of Britoil, through its dividends, can be widely distributed to the people of this country. I see no justification for depriving the institutions of the opportunity to purchase Britoil shares on flotation above an artificial ceiling of 1 per cent. of the issued share capital.
To, as it were, carry out the policy which would be laid down by this amendment, it would be necessary to scrutinise share purchases not only on flotation but always thereafter, and it would be a very difficult matter to police. It would involve regular checking of the register of shareholders, a complicated system of tracing back beneficial ownership of Britoil shares, and, moreover, some sort of procedure to divest the rights of shareholders who had exceeded the 1 per cent. limit. The operation of a ceiling as low as 1 per cent. would be complex and expensive to administer.
There are over 250 companies which hold an interest in a licence granted on the United Kingdom continental shelf. We have debated foreign ownership of the shares in Britoil and the provisions of the articles which can safeguard the company against any unacceptable change of control, although we have not as yet gone into the details of the articles. But I do not believe that those considerations justify the exclusion of companies which have interests in the North Sea from buying Britoil shares on flotation in whatever quantity they are prepared to pay for, within the limits of whatever system of allocation is used. These companies have made an outstanding contribution to the development of the North Sea and they have made substantial long-term investments in the effort to recover these valuable resources.
The noble Lord, Lord Underhill, quoted from the Public Accounts Committee report so far as British Aerospace shares are concerned. So far as I know, those are the only shareholdings which have in fact been published as yet. In fact I am told that the Amersham register has not yet been published, whatever may have been read by the noble Lord, Lord Underhill, or anybody else in the press. Nevertheless, the Government will pay heed to the fact, and I think it is generally agreed, that the number of shareholders has gone down since the original flotation. These anxieties, if there are such, have been ventilated in the Public Accounts Committee, which in its report makes a number of recommendations which we shall have to consider very carefully. And we will, of course, reply formally to the Public Accounts Committee's report in due course.
By way of summary on Amendment No. 8, we are considering very carefully how it would be most appropriate for the shares of Britoil to be offered for sale to the public. We shall use the experience which has been gained from the previous privatisation exercises, and this will, I think, be relevant to the way in which we set about our task. We intend to concern ourselves with the genuine small investors and how they can be encouraged. We also intend to address ourselves to the problems of stagging and of multiple applications. I cannot at this stage announce how the offer for sale 1129 will be managed because final decisions will have to be taken nearer the time of flotation. But I assure the Committee that the lessons which are there to be learnt from past history will be taken very carefully into account.
§ Lord Bishopston
I think that we have had a helpful reply from the Minister who seems to have taken into account the merits of the two amendments which we have been discussing. Of course the fact remains that, if we privatise any public undertaking, and we say, "You must sell", we are saying, "You must sell at any cost or regardless of price", because that is the condition. We are not deciding whether or not to sell; we are selling regardless of the return. In those circumstances the price will not always represent the best or the most adequate return.
As the Minister says, timing and method are all important. The two amendments are related in so far as one concerns the method of sale and the other expresses concern that the small investor should have adequate opportunity of partaking in the purchase of shares, and that would obviously have its effect upon the method to be employed. The Minister says quite rightly, of course, that we are all wise after the event. This is a situation where we hope that we are wise after the event and take into account the lessons which have been learnt from Amersham and, as my noble friend Lord Underhill has said, from other occasions.
There was naturally concern not only by Members of the Opposition but by Government Ministers themselves about the unseemly scrimmage on the Stock Exchange floor and about the fact, as the Financial Times put it, that short-term traders had been handed a paper profit of over £20 million at the expense of the taxpayer. Now that the British National Oil Corporation assets are to be sold, it is probably appropriate to say that we are anxious to know what plans the Government have in the pipeline for such a sale. The Minister seems to have taken note of the anxiety of those noble Lords of the Committee who have expressed views on this matter. As the Minister has said, the Public Accounts Committee has been looking into the matter and has made observations and the Government are considering what conclusions they may reach in the light of the views of the committee and, undoubtedly, of its recommendations.
I think that it may be untimely to press the matter at this moment and that it would be wise, in the light of what we may learn at a later date, to return to the matter at a later stage. With those comments I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendments Nos. 8 and 9 not moved.]
§ 8.54 p.m.
Lord Tanlaw moved Amendment No. 10:
Page 2, line 15, at end insert ("and once implemented would require representation by not more than one director elected by the said employees.").
§ The noble Lord said: I beg to move Amendment No. 10. I move this amendment partly to welcome the stance which the Government have taken on employees' shareholding. Secondly, it is to take one stage further the whole question of employee representation 1130 on the board which was raised by my right honourable friend Mr. Jo Grimond in another place. He received a reply from the Secretary of State who said that he would look into this matter. It is my hope that, in the intervening period, he has looked into the matter, possibly favourably, and therefore that, although perhaps the wording may not be perfect, the principle at least will be accepted by Her Majesty's Government that the employees will have a director on the board.
§ I have also asked the noble Earl, in earlier amendments that have been moved, about the function of the two Government directors. With respect to the noble Earl, the more I ask about them the less of a function they appear to have. I fully accept the fact that there should obviously be one director to represent the Secretary of State and the so-called "golden shareholding". I think that that is most important. But what does the other director do? We are told by the noble Earl that he does not have any function in policy making and that he does not want to interfere with the running of the company. I do not want to use the term "stooge directors" again, but it seems to me that that is what the other director is at the moment without this further job description. Therefore, it would seem to me that this is a perfect opportunity to have the second director, who appears to be functionless in the company, to represent the employee shareholding. The Government, who have taken some very original steps in the Bill, could possibly do something original by accepting this principle and making this Bill and this company, Britoil, the right one to have an employee director of this kind.
§ There is another reason for it. If the employees had a director chosen by the Secretary of State—we have no objection to that—even if the Government sold their 49 per cent. of the shares, at least the employees would still have a say on the board and they may have a director who may possibly have an influence on the policy of Britoil against what I call the worry of "foreignisation" which we have already discussed and which I shall not raise again.
§ Therefore, I see this as a constructive amendment in principle. If the wording is not entirely correct, I am sure that it can be put right. This is a matter of principle to us on these Benches. We want to see it accepted not only in Britoil but accepted as a normal working principle, as it is in other countries, that the employees may have a director representing them on the main board. Without anymore ado, I cannot wait to hear the Government's reaction to this amendment because I think it has important implications that go beyond the Bill. I beg to move.
§ Lord Mottistone
I should like to ask the noble Lord, Lord Tanlaw, a couple of questions. First—and this relates to wording—is it really necessary to have the words, "not more than"? If we had:not more than two directors",it would make sense because it could mean one or two. But if it is, "not more than one" it might be simpler to say, "by one director".
Secondly, what sort of a director? Where is he coming from? Is he one of the employees? Is he somebody chosen out of the air? How does somebody put himself up for election by the employees? What sort of person has the noble Lord in mind?
§ Lord Beswick
I should also like to ask a question on the same point and it might be convenient for the noble Lord, Lord Tanlaw, to answer it when he answers the noble Lord, Lord Mottistone. I am bound to say that I find it rather strange that there should be in this Liberal amendment:not more than one director".I could have understood it if it had said:not less than one director".That would make sense. But as it is drafted at the moment it looks to me like a Liberal amendment. I also thought I heard the noble Lord say that he might be elected or chosen by the Minister although in the words of the amendment it says:elected by the said employees".I hope that the noble Lord will clarify his mind and the thinking a little more than that.
Leaving aside those vagaries in the wording and what the noble Lord said in moving the amendment, let me say that I support him in the principle. It always seemed to me that here we had a hopeful development in what I do not regard as being a very hopeful policy of privatisation. In the case of one company that I happen to know quite well it was hoped that possibly 2 per cent. of the total shareholding would be owned by the employees—perhaps 21/2 per cent. That is quite a considerable block of shares. It would not be unusual for a shareholder of that size to have a nomination on the board—it would not be unusual at all.
However, as I see it, the advantage is this. We have been told and we have seen examples of how shares have been allocated to employees and then, when the opportunity has arisen, they make a quick profit and sell them. I should like to think that a shareholding could be much more constructive and much more purposeful than that; that it is not just a question of share dealing or quick profits, but a way of having a say in the policy-making of the company for which the said employee works. This is something that could be developed. I argued very strongly in one case that there should be something in the relevant legislation which would make it possible for the employees to elect someone to a particular position on the board.
The question has been raised as to how such an employee would be chosen, how he would be elected by the employees. In many companies—and I know for certain and in detail one of them—the pension fund has a trustee committee and the members of that committee are elected by voting among the employees. There are constituencies and they have proper elections. There is a very useful line of communication through the trustee committee. I can see that such machinery could be adapted for the purpose of electing someone to sit on the board.
I think that the principle of this amendment has some merit and I wonder what further thinking the Government have given to this problem since it first became an issue. As to the actual wording of the amendment, I agree that the phrase "not more than one" is probably not apposite.
§ Lord Tanlaw
The noble Lord asked me two questions. I have said that the wording is not perfect. The point is that the Government have two director appointees on the board, and only one of them should be elected and appointed by the employees. I think that there may have been a slip of the tongue; the noble Lord is quite right. I think that it is "with the consent of the Secretary of State", if I said "would be appointed by the Secretary of State", my intention was to imply that the directors were already appointed by the Secretary of State and it was one of his appointee directors who should be elected by the employees.
§ Lord Mottistone
Where does he come from? I had not finished my contribution when the noble Lord, Lord Beswick, intervened. What puzzles me is what sort of person are we talking about, because we want to understand what the noble Lord has in mind.
§ Lord Tanlaw
I particularly left this point open. He need not necessarily be an employee. I do not see why it should be restricted to an employee, provided that he is elected by the employees. I would hope that he might be an employee; in fact, perhaps he should be. But I do not necessarily see why he has to be an employee, as long as the employees can choose a director, with the consent of the Secretary of State, to represent them on the board of the company.
§ Lord Mottistone
So they would have to choose from at least two people in order to have a choice. I can see all sorts of difficulties arising here. The pension funds are one thing, but the directors of a major company are another. However, I think that I shall leave the matter at this stage.
§ Lord Wynne-Jones
We have here a fascinating example of the problems which arise when one tries to deal with private enterprise with a capitalist organisation and one tries to control it, modify it and bring it under some sort of sensible control by the workers themselves. The Government keep on saying that they are trying to put the ownership of all these industries, which have been in national control, into the hands of the people. But who are the people about whom they are talking? It becomes perfectly clear that they do not mean the people working in the industry. It becomes equally clear that they do not want to put the ownership in the hands of the people as a whole, because it is the exact opposite at which they aim. So when they talk about this they really want to be a little honest with us. They want to tell us what they are really aiming at. This, of course, they do not like to do. It is very much better that they should keep their aims hidden and publish only the gloss which they like to put on them.
But what has been suggested in this amendment, if the Government are serious, is perfectly sensible. If the Government are serious in saying that they want to put the ownership of the industry in the hands of the people of the country and they believe that the proper thing to do is to sell shares to all and sundry—let us assume that all and sundry can buy these shares—then must they not also put the control in the hands of 1133 the people who buy the shares? Must they not also say that if the workers in the industry are having shares, they will also have some say in the direction of that industry? I do not believe that in the past we—and, by "we", I am referring specifically to my side of the House—have done all that we should have done in ensuring that the workers in industry do have a proper say and control inside the industry. We should have gone a lot further.
However, what is being said now is that an offer is being made to the people of the country, the individual people of the country, and to the individual workers in the industry to have shares in the industry. All right, then let them also have a share in running the industry. Let them have the right to have at least one director. It is a very slight favour. I would go further than that, but let them have at least one director. If the Government are not prepared to accept this, then it is pure humbug that they are trying to impose upon the country. They are coming to this House and telling this House a set of absolute untruths. They are trying to persuade this House to accept something which has no meaning at all in terms of what the Government themselves say they want to do. In their own interests, if the Government are going to be able to look people in the face and say, "We are honest. We are trying to do something", they must accept at least this amendment.
§ 9.10 p.m.
§ The Earl of Mansfield
There is no doubt that Lord Tanlaw's amendment has prompted an interesting debate which came to a fiery conclusion—up until now, at any rate—with the noble Lord, Lord Wynne-Jones. May I just say that the Government are not saying anything except that they wish to put Britoil on exactly the same footing as any other company in the private sector? The matters which have been raised by this amendment go very wide indeed. We get to all sorts of questions to which the last Government addressed themselves. The European Parliament, when I was in it, if I may reminisce on a personal basis for a little, for over two years in the Legal Affairs Committee addressed themselves to this question, and they have never come to any conclusion at all. The difficulties of definition, apart from anything else—what is, and what is not, an employee—are quite bad enough, without trying to legislate for representation.
I can only restate what the Government's policy is so far as labour relations are concerned and then try to put that into the general context of what this will be—an ordinary public company. The Government are firmly committed to the principle of management informing and consulting employees at all levels about matters which affect them. We have tried to urge, and indeed have urged, companies to develop procedures of consultation with their staff which are appropriate to their particular circumstances. Above all, there must be a flexible approach to industrial relations, which includes procedures which can be formal and indeed informal. But we are opposed to the introduction of a rigid requirement for any form of employee involvement because we think that good industrial relations depend on co-operation and understanding as between management and employees, 1134 and that is not something which can be legislated for.
It would be quite inappropriate for a new company such as Britoil to be made the vehicle for an experiment of this nature. We want Britoil to be established as a normal Companies Act company. It should be free to develop its own policy and its own strategy after privatisation, and one therefore asks why should it be singled out in an unprecedented manner by having a legislative requirement such as this imposed on it.
§ Lord Beswick
Will the noble Earl allow me? When he said that they want this company to be the same as any other normal privately owned company, would he say that it was normal to have employees' share schemes in the normal private company?
§ The Earl of Mansfield
Share schemes, which are not the subject of this amendment, are coming more and more into private industry, and of course the Government have given their blessing to that. What I am talking about is what, on the Continent, is referred to as worker directors. I am saying that it is inappropriate for such a framework to be imposed on Britoil at its inception.
§ Lord Beswick
But the noble Earl is imposing something new; provision is being made for employees' share schemes. Is that not a new departure, something which many Ministers have said is part of the privatisation scheme?
§ The Earl of Mansfield
I fully accept that, but it is quite a different consideration from what is being suggested in the amendment. I do not see anything inconsistent between what I have been saying and what the noble Lord is saying.
§ Lord Mottistone
Perhaps my noble friend will allow me to assist. I think it is fair to say that the selling of shares to employees is, if not as extensive as it should be, an established fact; it is in existence in private enterprise. On the other hand, shareholders voted for by the employees is not a practice in private enterprise.
§ Lord Beswick
I quite understand what the Minister is saying—namely, one reason why the Government cannot accept the amendment is that it is something different. I am saying that we are already dealing with something different. The whole context here and the whole privatisation policy is designed to embody something different. Ministers have said that they are trying to do something different and are trying to incorporate the concept of employees' shareholdings, something quite separate and different from the way in which that has been developed in normal industry outside. Although I accept that the amendment suggests that even further steps should be taken, may I ask the Minister whether he thinks he is justified in saying he cannot accept it because it is something different, when the Government are already doing something different in the Bill?
§ The Earl of Mansfield
I am grateful to my noble friend Lord Mottistone for coming to my aid, though I scarcely think that was necessary. The noble Lord, 1135 Lord Beswick, raises a thoroughly tautologous point. Subsection (3) gives a permissive power to the corporation to have an employees' share scheme, but they have been going for years; the corporation which employed me before I came into Government had been running such a scheme. There is all the difference in the world between that and imposing ab initio on the company some form of representation by worker directors. There must be a difference.
§ Lord Wynne-Jones
Does the noble Earl recollect that, when we were discussing the aircraft industry and the question of bringing it back into private ownership, this same question was raised, so it is not a new question at all? If every time it is raised we are told it is not being done anywhere else, we must reply that it is not being done anywhere else because the present Government refuse to allow it to be discussed.
§ The Earl of Mansfield
There is no question of the Government refusing to allow anything to be discussed. I am saying it is undesirable in the context of the Bill to impose that sort of framework by statute. There is absolutely nothing to stop the company, if it so wishes, from taking a course parallel with or similar to that which is promoted by the noble Lord, Lord Tanlaw. I am saying it is inappropriate in a Bill such as this to try to impose something which is difficult and complex on a company such as Britoil.
§ Lord Bishopston
There is a great deal of support for the principle of the amendment. I would refer the Minister to the Second Reading debate, when the Secretary of State said:I hope to see ownership of the shares in the new company spread as widely as possible. I also hope that the management will take advantage of the special provisions for employees' share schemes in the Bill".It would be helpful if the Minister would tell us a little more about what the Secretary of State called,special provisions for employees' share schemes in the Bill".— [Official Report, Commons, 19/1/82; col. 170].We go along with the noble Earl about the need for more industrial democracy, but it would be helpful if, either now or at a later stage, we were told what those special provisions are, and that may satisfy some of the doubts which have been raised.
§ The Earl of Mansfield
Share schemes are catered for in Clause 1(3) and that is quite different from imposing on the company a framework of worker directors or employee representative directors.
I did not, when we considered the last amendment, pay sufficient heed to the points which were raised by the noble Lord, Lord Tanlaw, in relation to Government directors, and of course he was referring to Article 85. It is, I believe, appropriate that the Government, who will have a large residual shareholding in Britoil, should be represented, and should make 1136 provision to be represented, by directors on the board. Those directors would, I expect, be in a somewhat similar position to those on the BP board. They would have the same duties and the same obligations as the other Britoil directors, but they would be in a position to keep the Government informed. They would be under the same fiduciary obligations and they would have the same statutory responsibility as any other company director, and in particular the other directors on the board of Britoil.
However having said that, having said in effect that the Government directors will be playing the same role as any other non-executive director on the board of Britoil, I want to emphasise to the noble Lord that it is not the purpose of the Government to intervene in the commercial affairs of the company. As I have said, what is envisaged is that the directors on the board representing, as it were, the Secretary of State and the Government will play a full part in discussions and will keep the Government informed of the affairs of the company.
I have, I think, said that the Government do not regard it as desirable to use the Bill to impose on the company some kind of worker directorship scheme, and above all we do not think that it would be right to use the Britoil flotation as a vehicle for some form of experimentation by legislation when such experiment would not have been properly thought out or indeed considered. So I cannot invite the Committee to accept the amendment.
§ Lord Tanlaw
I am somewhat disappointed by the noble Earl's response. First, I must apologise to the Committee for what is perhaps rather poor wording in the amendment, but I do not think that that in any way takes away the principle which lay behind my moving it. Judging from the support received from other sections of the Committee, it is quite clear that many noble Lords consider that there is here an opportunity for the Government to take. The noble Lord, Lord Beswick, was absolutely correct. How many prospectuses of new companies contain an insistence that the employees must have a proportion of the equity, or the capital?— none that I can think of.
This is a new departure. It is no good the noble Earl saying that this is a run-of-the-mill oil company going on to the market, without anything special attached to it. I do not accept that argument against the amendment; nor do I accept the view that that is how it should remain. I say that because when launching the Bill the Secretary of State himself said that it was one of the most important Bills ever to come to either House of Parliament, it was revolutionary, it was going to change the world, and so on. Bearing in mind that introduction, I feel that the Bill contains many highly original and dramatic provisions in all its clauses. So why not bring in the employee-directors?
A noble Lord opposite asked what kind of director I had in mind. I would say that I had in mind quite simply a director similar to a trustee of an employees' pension fund. Such people are sometimes directors of the company concerned, or sometimes directors or representatives of an insurance company. The employees feel quite happy at having their choice of person as their trustee. So in this instance I see the director 1137 in a trustee role; I do not in any way see him in a union role, undertaking representation in industrial disputes and so on. I see the director as a kind of trustee, and it is on those lines that I put forward the amendment to the Committee. Since the noble Earl has not said that he will take away the amendment and consider it, as I believe the Secretary of State said to my right honourable friend Mr. Grimond, I wish to test the opinion of the Committee on the amendment in the Lobbies.
§ 9.25 p.m.
§ On Question, Whether the said amendment (No. 10) shall be agreed to?
§ Their Lordships divided: Contents, 24; Not-Contents, 52.
|DIVISION. NO. 3|
|Airedale, L.||Pitt of Hampstead, L.|
|Aylestone, L.||Sefton of Garston, L.|
|Beswick, L.||Stewart of Alvechurch, B.|
|Bishopston, L. [Teller]||Stewart of Fulham, L.|
|David, B.||Stone, L.|
|Davies of Leek, L.||Tanlaw, L. [Teller]|
|Harris of Greenwich, L.||Tordoff, L.|
|Howie of Troon, L.||Underhill, L.|
|John-Mackie, L.||Whaddon, L.|
|Llewelyn-Davies of Hastoe, B.||White, B.|
|McCarthy, L.||Wigoder, L.|
|Mountevans, L.||Wynne-Jones, L.|
|Avon, E.||Loudoun, C.|
|Balfour of Inchrye, L.||McFadzenan, L.|
|Bellwin, L.||Mackay of Clashfern, L.|
|Beloff, L.||Macleod of Borve, B.|
|Belstead, L.||Mansfield, E.|
|Boardman, L.||Margadale, L.|
|Broadbridge, L.||Marley, L.|
|Brougham and Vaux, L.||Marshall of Leeds, L.|
|Campbell of Alloway, L.||Mersey, V.|
|Colville of Culross, V.||Moltistone, L.|
|Craigavon, V.||Murton of Lindisfarne, L|
|Cullen of Ashbourne, L.||Orkney, E.|
|Denham, L. [Teller]||Orr-Ewing, L.|
|Drumalbyn, L.||Plummer of St. Marylebone, L.|
|Elliot of Harwood, B.||Renton, L.|
|Elton, L.||Romney, E.|
|Faithfull, B.||Sandys, L. [Teller]|
|Ferrers, E.||Skelmersdale, L.|
|Forester, L.||Stodart of Leaston, L.|
|Fortescue, E.||Trumpington, B.|
|Gisborough, L.||Vaux of Harrowden, L.|
|Glenarthur, L.||Vivian, L.|
|Grimston of Wesbury, L.||Ward of Whitley, V.|
|Henley, L.||Windlesham, L.|
|Hives, L.||Young, B.|
§ Resolved in the negative, and amendment disagreed to accordingly.
§ 9.33 p.m.
§ Lord Tanlaw moved Amendment No. 11:
§ Page 2, line 15, at end insert—
§ ("( ) In exercising powers under subsections (1) and (3) above the Oil Corporation shall not dispose of any shares to an existing member of the board of the Oil Corporation or to any company of which such a member is a director, or to any company which is a subsidiary of a company of which such member 1138 is a director and no such member shall participate in the employee share scheme established under subsection (3) above.").
§ The noble Lord said: I beg to move the amendment standing in my name and in that of the noble Lord, Lord Bishopston. I am not happy with the wording of this amendment. Indeed, in respect of the first half of it, I must make clear (as was done in Committee) that this does not refer merely to the directors' share. It was said in Committee that directors had a share by right, a single share. A director's share is normal practice. But this does not refer to that. As the noble Earl has said that it is not the intention of the Government to have a director to represent the employees, therefore no director should be eligible for participation in an employees' share scheme. This is quite simply to indicate that the employees' share scheme is entirely separate from the board and would not have participation by a director who buys into it. I beg to move.
§ The Earl of Mansfield
I was waiting for some justification from noble Lords opposite for this amendment, but there has been none. What the amendment seeks to do is to prevent BNOC from disposing of Britoil shares to members of its board or to companies in which BNOC board members are involved as directors. The Committee will know, since I have said it already on more than one occasion, that it is going to be the Government who will carry out the sale of the shares. I take the noble Lord's point to the extent that what he seeks to achieve, as I understand it, is to prevent members of the board of Britoil from owning shares in the company particularly under an employees' pay scheme.
I can see no reason for this restriction on the disposal of the shares of Britoil. Such disposal is normal. It is within the normal commercial practice and, indeed, I should have said that it was desirable for people closely involved in an enterprise to be able to express their confidence in the enterprise by giving it their financial backing. Many companies have a condition in their articles of association that directors must have a minimum shareholding. It is regarded as being an additional incentive, particularly for profitability. It seems to me that the noble Lord's amendment is undesirable from that point of view alone.
I do not think that the noble Lord means that he intends to differentiate between a director of Britoil and BNOC so far as the two boards are concerned and the shareholding of the shares in Britoil. In any event, it does not make any difference. I cannot see why the directors of either corporation should not be entitled to purchase Britoil shares if they want to. One then asks: Why should present members of BNOC who become eligible for participating in an employee share scheme be prevented from doing so? Any share scheme which is produced under the clause will have to receive the consent of the Secretary of State. It seems to me proper that all employees of the corporation—whether directors or not—should have the opportunity to share in its fortunes when it moves into the private sector.
I had wondered whether the point would be taken that the directors of BNOC might be considered to have some inside knowledge which should bar them from purchasing Britoil shares. I see the noble Lord 1139 is nodding. I do not agree that the purchase of the shares of a company in a public flotation by directors of that company, or persons who have been in a position to control the company, constitutes insider dealing within the terms of Part IV of the Companies Act 1980. Part IV describes a number of transactions which are examples of insider dealing and those transactions do not include applications by members of the board of BNOC for shares of Britoil when those shares are offered for sale as we intend later this year.
Of course, members of BNOC will have to exercise their own personal judgment like anybody else whether or not to purchase any Britoil shares. Likewise, if they become subsequently eligible to participate in a Britoil employee share scheme they will have to reach their own decisions in exactly the same way as any other employee as to how far they wish to participate, if at all. In other words, the directors of Britoil will be subject to the law in exactly the same way as any other directors of companies are subject to that law and I see no reason to depart from the normal provisions in this Bill. If the noble Lord, or any other noble Lord for that matter, can produce considerations which are different in this particular instance or which make the consideration differ from the norm, I will consider the matter; but, at present, I cannot see that this amendment is going to achieve anything and I do not see any reasons for writing it into the Bill.
§ Lord Bishopston
The Minister expressed some surprise that this side of the Committee was not forthcoming, but surely this amendment falls into line with what we thought the Government had in mind over the dispersal of shares to individual British people so that they can have some stake in their national asset. Also, it aims to prevent shares being bought by foreign corporations or individuals and thereby ensures that the maximum dispersal takes place within the United Kingdom, as opposed to the very substantial oil corporations and others who would obviously seek to benefit by this flotation. It is really aimed at the widest possible share ownership within the reach of the British people generally, and I am rather surprised that the Minister has expressed any surprise with an aim which I would have thought was compatible with the Government's objectives.
§ The Earl of Mansfield
Either I am being denser than usual or the noble Lord's mind is not running with the amendment. What I thought we were discussing was the sale of shares in Britoil to directors of what at the moment is BNOC, which has really nothing to do with large corporations or multi-national share ownership, or anything else. It concerns the desirability or otherwise of directors in effect being allowed to buy shares in the flotation of Britoil. What I have sought 1140 to show is that, as at present advised, taking all the considerations into mind that I can, I cannot see anything against it.
§ Lord Davies of Leek
I agree with what the noble Lord says pretty well. I will put this interrogatively. Are not some of the dangers the possibility of pre-knowledge of people on the inside pocketing shares and thus getting a corner in them? I do not want to delay the Committee; but is that a problem or is it not?
§ The Earl of Mansfield
I am obliged to the noble Lord. Obviously one must take seriously any concern which any Member of the Committee expresses. What we are talking about is individual directors of BNOC being given a chance to buy a few shares—because I do not suppose they can afford more than a few—in what is going to be the privatised Britoil. It is a matter for their own judgment as to whether they should seek to subscribe for shares. We are not talking about cornering the market or some unjust or some undue advantage being taken of an individual's position. Therefore, I am saying that an individual should be treated like any other director of a company which is to have a flotation.
§ Lord Tanlaw
The noble Earl has been most helpful over this. As I said, because of the slightly poor wording, he could have been much harsher in his criticism than he was. In fact, he has been extremely constructive, because I think there are two main points here on which we wish to have clarification from the noble Earl; that is, whether a director of the company should not really buy up, with his opportunity, large tracts of the employees' shares. He has said he is against that in principle, which is common sense and I am delighted to hear it.
The second point, which is a much more difficult one is the one of insider trading. The noble Earl has made it clear that a civil servant or anyone else in the corporation can buy a share in Britoil quite happily, without having the worry that he is in any way infringing insider trading rules, because he may have been privy to some information which could have an effect. The point of this probing amendment is to make sure what is the position. The noble Earl has made that clear and has been most helpful. As a result of that, I am pleased to beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 1 agreed to.
§ [Amendment No. 12 not moved.]
§ Clause 2 agreed to.1141
§ Clause 3 [Powers of Secretary, of State as respects disposal by Oil Corporation]:
§ 9.45 p.m.
§ Lord Whaddon moved Amendment No. 13:
§ Page 4, line 15, at end insert—
§ ("( ) When the Secretary of State directs the Oil Corporation to dispose of subsidiaries or assets under clause 3(1) above, he shall on each occasion seek independent professional advice as to the value of the subsidiary or assets to be disposed of and any valuation so made shall be laid before Parliament:
§ Provided that such disposal shall not take place unless the total net sum to be realised from that sale is at least equal to ninety-five per cent. of the aforementioned independent valuation.").
§ The noble Lord said: This amendment is intended to be of assistance to the Government in a somewhat difficult situation. They have been concerned with looking after the interests of small investors. It is absolutely right that they should do so and, in a sense, we are all small investors in the British National Oil Corporation. What I am concerned with is that they shall get the best deal they can for the mass of us small investors in the nation.
§ The Government have been having difficulty in fixing the price of shares in assets which they have been selling and have come under considerable criticism, including some from this Committee today. The Public Accounts Committee have added their weight in the last few days. Cable and Wireless and British Aerospace were grossly over-subscribed. Amersham were 23 times over-subscribed and, on coming to the market, immediately rose 34 per cent. I mention those facts again, because wrong marketing of the oil shares would be infinitely more damaging and we would be dealing with a loss to the nation not of tens of millions of pounds, but of hundreds of millions of pounds. Therefore, it is imperative that the Government base their actions on the very best possible advice.
§ Shares, in themselves, are very tricky to price but oil shares are in a particularly difficult condition at the moment. Indeed, very many people would consider that present oil share prices do not reflect the real value of the assets underlying them. This is why simple advice on share values at the present period may not represent the real interests of the country. Oil shares are particularly depressed. The oil shares index is down 25 per cent. in the last 18 months up to the end of April, whereas in the same period the ordinary shares index is up 7 per cent., showing that oil is in a very special position. BP peaked during 1980 at £5.02 a share, but last Friday they were £3.16—down 37 per cent. in that period. Prices for North Sea oil in 1981 were 39 dollars 25 cents a barrel, but they are now down to 31 dollars a barrel. Therefore, even if they are correctly fixed in respect of other oil shares at the moment, share prices are likely to result in a very poor bargain indeed for the nation, and we have seen that the Government do not have a very good record even in getting share prices right.
§ Apart from the technical reasons applying to the oil industry, these shares are subject to very special political depressing factors. The Committee will be only too well aware of the comments that were passed during the Second Reading of the Bill in another place, 1142 and of suggestions from one Labour spokesman of renationalisation without compensation. That that would happen I do not take seriously, but the threat of what may happen to these shares is certain to act as a depressing factor. Therefore, for various reasons—technical reasons, world market reasons and political reasons—these shares are under particular pressure at the moment. It is very important, therefore, that the Government should get the best technical advice on the underlying asset value and not allow themselves to be rushed into selling the shares at a price which would he a betrayal of the national interest.
§ The method used by Energy Resource Consultants is highly technical and certainly not something to be gone into this evening in Committee. However, it is very widely used in the industry for valuing the underlying assets of oil finds and oil prospecting areas, particularly when outside interests, such as banks, are moving into the shares and want to be sure of the value of what they are getting into. The advice of the consultants is a very good indication of whether the share values applying at the time bear any close relationship to the real long-term values underlying the shares.
§ The noble Earl said with regard to the criticisms of the Amersham sale that it was easy to be wise after the event. I have sympathy with that point of view, but in the present situation we can enable Her Majesty's Government to be a little wiser before the event by adopting this method of valuation which is so widely used by the experts within industry. I can see no reason why it should not be used to the advantage of Her Majesty's Government and the nation in the case of this sale. The amendment will enable Her Majesty's Government to show that they are not allowing political doctrine to override normal prudence in the disposal of this asset. I urge that it should be given the most serious consideration as being normal practice among those experienced in the industry. I beg to move.
§ Lord Beswick
It is conceivable that the Government will not accept the amendment, but if they do not accept it I wonder whether they can give an assurance about the advice that they will take into account. I am quite certain that if they did go, as has been very wisely suggested, to independent professional advice, that advice would take into account timing. It is not just a question of the valuation of the shares. It is a question of when they are placed on the market. I have no doubt that the appropriate professional advisers would say whether or not such and such a date was appropriate for getting the best possible price.
If the Government are not prepared to accept the amendment, can they give an assurance to this Committee that the flotation will not be determined by any parliamentary considerations, any political considerations or any parliamentary timetable, but will be dependent upon the state of the market, the idea being to get the best possible price?
§ Lord Bishopston
Although one can display some sympathy for the aims behind the amendment, following my suggestion relating to a previous amendment that we ought to await the report of the Public Accounts 1143 Committee and the Government's observations upon it, there may be another occasion when we can discuss the merits of this amendment. I believe that it is one of great importance. Public concern about the method of disposal, and, as my noble friend Lord Beswick has said, its timing, will be a matter of concern for some time to come. However, it would be helpful to have the Government's views on this amendment.
§ The Earl of Mansfield
This amendment falls into two parts. The first part of this amendment would require the Government to seek independent advice before pricing the shares in Britoil. The Government are very much aware of the need to have such advice and an independent firm of consulting petroleum engineers, Energy Resource Consultants, are already preparing a study of Britoil's oil assets. This study will be available to the Government and their advisers in pricing the shares, and a summary of it will be published in the prospectus. The Government are also receiving advice from S. G. Warburg and Company Limited on the offer and we will be consulting them on the price. I hope that the Committee will agree with me that there is no doubt about the Government's intention to obtain proper professional advice in connection with the offer for sale. I do not believe that there really is any requirement to write this into the Bill.
Then we come to the second part of the amendment—
§ Lord Beswick
Surely the noble Earl is going to deal with this question of the timing? Is he or is he not going to give an assurance to the Committee that the timing will be dependant upon the advice received from these independant professional advisers—or is it just going to be a question of parliamentary conveinence?
§ The Earl of Mansfield
Ever eager in his lust for pursuit, the noble Lord, Lord Beswick, has anticipated my remarks. He himself said that he hoped the offer would not be, as it were, subject to the parliamentary timetable—which, of course, it would be if this amendment was accepted. So perhaps I can develop my remarks, and I promise the noble Lord that I will come to his particular point of concern.
What I was going to say before I was interrupted was that the second part of the amendment would in effect require that an independent valuation of Britoil be laid before Parliament and that the price of the shares in the offer for sale should reflect at least 95 per cent. of this value. The noble Lord, Lord Beswick, will now see how the importance of timing comes into the whole matter, when one considers what the second part of the amendment would write into the Bill.
The noble Lord, I am sure, with his commercial experience, will agree that pricing in a flotation such as this has to be done at the last possible moment. I am sure the noble Lord, Lord Whaddon, will agree that that moment comes and, when it comes, whoever is doing the pricing has to take into account all the relevant factors which obtain at the time when the pricing is made. They may include such matters as future oil prices, the exchange rates so far as the dollar is concerned, and the discount rate at which future 1144 earnings have to be assessed. All these things have to be taken into account.
We also have to look closely at the expected after-tax earnings of Britoil and the dividends that it may be in a position to pay. We have to compare those dividends with other quoted companies in a similar position. In the light of those assessments, we have to discuss with our merchant bank advisers the price that reasonably can be obtained in a particular state of the market. I do not believe that this can be done, possibly, in a simplistic rule of thumb manner. In fact the remark I made in respect of a previous amendment still holds good so far as this amendment is concerned: that the publication of a valuation of the company in advance of the offer, which is implied in this particular amendment, could be prejudicial to the success of the offer and it might very well mislead future shareholders.
What I say to the Committee, and in particular to the noble Lord, Lord Beswick, is that the precise timing of the sale of the shares remains subject to market conditions. The Government will have to be satisfied that the price obtained for the shares represents fair value for the taxpayer. I have already said words like these in a debate on a previous amendment today. We have always made it clear that our aim of selling the shares in the autumn is subject to market conditions. We will not go ahead unless we are satisfied that the selling price represents fair value to the taxpayer. If there is a convincing case for delaying the sale until next year then of course we shall, as it were, proceed along that particular path.
I hope, therefore, that I have satisfied the Committee that on both these points the Government are taking a very serious and close look at the position which will obtain at the time when the shares are to be sold. We are taking the very best advice that can be obtained, and I can assure the Committee that there is no question of rushing headlong into the sale of these shares. There is no question of selling them at all unless there is advice, which will be taken, that the price which is likely to be obtained will be satisfactory from the point of view of the public.
§ Lord Whaddon
I understood the noble Earl to say that he was taking technical advice in connection with the present sales of shares, which I am pleased to hear. Can he assure the Committee that such practice will apply in any future sale of shares so as to make sure they are not sold at considerably below the real asset value underlying the share value?
§ The Earl of Mansfield
I would have thought that that was implicit in my argument. I have not taken the point which is implied in the noble Lord's amendment, that it is not going to be BNOC that sells these shares to the public, it is going to be the Secretary of State. I do not believe in taking technical points of this nature so far as this type of amendment is concerned. But it is going to be the Secretary of State who is going to be responsible for the sale of these shares, both at the original flotation and on any subsequent occasion.
§ Lord Whaddon
I thank the noble Earl. I feel that his reply warrants consideration and possibly the 1145 tabling of a similar amendment at a later stage. I therefore beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 14 not moved.]
§ Clause 3 agreed to.
§ Clause 4 [New financial structure of Oil Corporation]:
Lord Bishopston moved Amendment No. 15:
Page 5, line 39, at end insert ("so long as the amount does not exceed £1 million").
§ The noble Lord said: This is a probing amendment to give the Government an opportunity to give the Committee more information regarding the position after privatisation of BNOC and when some of its functions have been taken away. I think the Committee would be grateful to know more about the financial and capital structure. BNOC will be a trading undertaking with few assets on which money can be borrowed, and there will be restrictions, of course, on its purchase and sale of oil; the prospects for the oil undertaking are uncertain, to say the least. The possibility of loss of sums of money appears to be likely. I wonder whether the Minister would tell us how BNOC is to be financed. Can he say something about its potential for profit and something about its cash flow?
I notice in Clause 4(2) that the Government anticipate a debt at the start, because the clause says:
On the commencement date the Oil Corporation shall assume a debt due to the Secretary of State (in this section referred to as the Oil Corporation's commencing debt) of such amount as may be determined by the Secretary of State, with the approval of the Treasury and after consultation with the Corporation, to be the excess of the aggregate of the sums paid out of the Account under
the sections mentioned.
§ It would be interesting to have some idea of what size this kind of indebtedness might be. If the corporation is to do the job which will be expected of it, it would be helpful to know how it is going to cope with its liabilities and with such assets as it has at the time of the changeover. We would certainly like to use this probing amendment for the Government to give some information on the lines that I have put forward.
§ The Lord Advocate (Lord Mackay of Clashfern)
It has been explained that the purpose of this amendment is to probe the Government's proposals in this area and therefore I shall not say anything particular about the figure of £1 million which has been selected for the amendment.
The purpose of Clause 4 is to set up a new financial structure for the corporation. Under the Petroleum and Submarine Pipe-lines Act 1975, BNOC is obliged to pay all its receipts, except where the Secretary of State has issued exemptions, into the National Oil Account. It is able to draw on the account to meet its expenditure. No interest is payable on the sums drawn. We have taken the view that there is no reason for the corporation to continue to have privileged access through the National Oil Account, to royalty and other moneys—that is to moneys to which the corporation itself is not directly entitled. Nor should it 1146 have access to interest-free money. As noble Lords know, this access to interest-free money has been much criticised by the Public Accounts Committee. Clause 4, therefore, ends BNOC's access to the National Oil Account and in place of the corporation's net drawings from the account enables the Secretary of State to set a commencing debt at the appropriate level. The provision has, however, been drafted to cover a number of situations.
First, if privatisation were delayed. As this House knows, our intention is to proceed with the privatisation of the corporation's upstream business. But in terms of the financial framework replacing the link with the National Oil Account we have thought it right to cover the possibility of privatisation being delayed for any reason—for example, because of the market situation or something of that sort. In these circumstances, since we would still wish to see an end to the National Oil Account, the clause could be used in the meantime, until flotation took place, to set up an appropriate capital structure for the corporation as a whole based on its net drawings from the account.
Secondly, the clause could be used to set a commencing debt for a transitional period, after the ending of the link with the National Oil Account but before flotation. This could enable the National Oil Account debt to be refinanced. Although no decisions have yet been taken on Britoil's capital structure, it would be possible for the company to negotiate a new loan to replace the whole or part of the corporation's net drawings from the National Oil Account. We shall, of course, want to be sure that the company is set up with a sound financial structure in order to get fair value for its shares.
Thirdly, turning to the corporation's position after privatisation of Britoil, it is not our intention to require the trading corporation to carry the commencing debt envisaged in Clause 4. BNOC has drawn from the National Oil Account primarily to finance its capital expenditure programme which relates to the upstream side of the business. The trading corporation itself will need little in the way of fixed assets. It will, however, need working capital and we therefore believe it is right that BNOC should be allowed to retain an element of the reserves it has built up in recent years. This, together with a short-term borrowing facility, would be sufficient to meet its financial needs.
Clearly, to enable this clause to be used effectively, there needs to be flexibility to determine the level of the commencing debt and accordingly, although the formula is given that I have indicated, the Secretary of State may fix another figure if he thinks that to be right.
As regards the present situation, I think that I can give some indication of the level of the figure that would be arrived at using the formula if I say that the level of the commencing debt on the basis of the formula in subsection (2) of the clause would have been just under £200 million at 31st December 1981. I hope that that gives the noble Lord the sort of information which he was seeking.
§ Lord Tanlaw
Before the noble and learned Lord sits down, I should like to ask him one question on 1147 accountability. After privatisation, the corporation will, in effect, be commodity trading on the spot market with oil to the tune of about 500,000 barrels a day. Four hundred thousand barrels a day would be in the area of what I would call "actuals", with 100,000 based on market conditions. There could be very considerable risks in this and also very considerable profits. The question I wish to ask the noble and learned Lord, Lord Mackay, is: will the Public Accounts Committee have sight of the daily open position book of the trading corporation in order to see its trading movements on a daily basis before arriving at either its net profit or net loss at the end of the financial year?
§ Lord Mackay of Clashfern
Certainly the Public Accounts Committee will be able to review the situation of the trading corporation in accordance with the ordinary principles. I am not certain whether the noble Lord is asking me whether that would happen on a day-to-day basis. If that is the question, I would think not. In other words, I do not think that the review would take place on a day-to-day basis, but I think that the Public Accounts Committee would be able to get any information it wished about the basis on which the ultimate accounts of the trading corporation were made up.
§ Lord Bishopston
I thank the Minister for his clarification, but he will, of course, be aware that this will now be a major one-product company and will no longer be part of a major international concern. But it certainly warrants the Government keeping in mind some of the problems with which the new undertaking will have to deal, and the points made by the noble Lord, Lord Tanlaw, seem to be relevant in this situation. In view of the Minister's reply and clarification of some of the issues, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 4 agreed to.
§ Clause 5 agreed to.
§ Clause 6 [Grants by Secretary of State to Oil Corporation]:
Lord Mackay of Clashfern moved Amendment No. 16:
Page 6, line 39, leave out from ("Act") to end of line 40 and insert ("(power to enter into, and give effect to, participation agreements)").
§ The noble and learned Lord said: I beg to move Amendment No. 16. I hope that this amendment need not detain your Lordships long. As the Committee is aware, the power to pay grants to BNOC under Clause 6 is limited to expenditure incurred by, or in connection with, the corporation's power to give effect to participation agreements.
§ The reference to participation derives originally from Section 2(1)(e) of the Petroleum and Submarine Pipe-lines Act 1975, and it is to that section that Clause 6(1) refers. However, Section 2(1)(e) of the 1975 Act was drafted with a rather different concept of 1148 participation in mind than has, in fact, developed since then.
The first difference is that participation policy now extends to onshore as well as offshore oil fields. It is for this reason that the description of participation in parenthesis at the end of Clause 6(1)—
activities connected with petroleum beneath controlled waters"—
needs to be adjusted.
§ The second difference is that in 1975 participation was conceived in terms of BNOC acquiring a majority equity stake in producing fields. In practice, however, it has developed into the present system of options to purchase at market price up to 51 per cent. of the oil produced.
§ I should like to refer briefly to a later amendment to Schedule 3—No. 54 on the Marshalled List—which is linked to this amendment. Because of the way participation policy has developed, there is the possibility of a difference of interpretation between the definition in the 1975 Act and the more recent definition in the Participation Agreements Act 1978. It is this second Act that requires a statement giving particulars of agreements to be laid before Parliament, as has been mentioned earlier. The purpose of the amendment in Schedule 3, therefore, is simply to bring the reference to participation in the 1975 Act up to date. With that slight digression I ask the Committee to accept Amendment No. 16. I beg to move.
§ On Question, amendment agreed to.
§ 10.16 p.m.
Lord Bishopston moved Amendment No. 17:
Page 6, line 43, at end insert ("and the total of all grants made to the oil corporation in any one financial year shall not exceed £1 million").
The noble Lord said: Following the amendment which has just been approved concerning grants, this amendment is also concerned with grants made by the Secretary of State to the oil corporation. Clause 6(2) says:
Grants under this section may be made subject to such conditions as the Secretary of State with the approval of the Treasury may determine".
The addition of the words on the Marshalled List are meant to give the Minister once again an opportunity, this time to refer to the grant situation.
§ Under Clause 6(2) grants may be made, but it would be useful to be able to get the reply to the question, what does this mean in the case of the exercise of the powers of the BNOC?
§ As we all know, the Industry Act 1972, and indeed other legislation, has qualifications. It has limits and restrictions as to what is granted and how it is to be granted, and for what purposes. Can the Minister tell the Committee for what reasons grants will be necessary, and under what provisos will grants be made to the corporation?
§ Can the Minister tell us more about the financial structure so far as the grant side is concerned? He has already made some reference to the aspect so far as the debt is concerned, but we should like to know in relation to grant need something more about the assets and reserves of the corporation and also something about its capitalisation. Of course, not all state 1149 enterprises need grants. Indeed, the gas corporation makes grants to the Government in order to help reduce taxation. It may not wish to but it has no alternative. Indeed, this is happening in the case of other public enterprises which are helping the right honourable lady with her national housekeeping. We have tabled the ceiling figure of £1 million in order to probe what the Government have in mind, and we need to know more about the finances after privatisation, and something more about grant availability. With those words, I beg to move.
§ Lord Mackay of Clashfern
Participation agreements will remain in the public sector after privatisation. The trading arm of BNOC is to continue as a public sector corporation; its prime purpose will be trading in participation oil. It is in the national interest that BNOC should continue to give effect to the participation agreements. The purpose of Clause 6 is to provide a reserve power which would enable the Government to pay grants to the corporation to help meet expenditure incurred in connection with giving effect to the agreements, should this ever prove necessary. I hope that answers the question about the purpose.
The trading arm has operated successfully and to a large extent separately from the rest of the corporation for a number of years. There is no reason why this should not continue. Normally, as a trader, BNOC arranges purchases and sales of oil on a back-to-back basis. But finance is needed to cover any mismatch which may occur in the timing of payments. In normal times we would expect the corporation's reserves to be sufficient for this purpose. There may, however, be occasions on which BNOC may be unable to match exactly the buying and selling price for all the oil which it must take and a loss could ensue. In such a situation, if the loss were unexpectedly large, or in the case where reserves had gradually been used up, after privatisation the trading arm would no longer be able to rely on the rest of the corporation for support. We have therefore thought it prudent to include provisions in the Bill to enable grant to be paid to the corporation should unexpected circumstances arise.
For the powers under this clause to be effective, they must be sufficient to cope with any reasonable need. Oil trading, by its very nature, must involve some risk; a single cargo of 100,000 tonnes is worth around £10 million. The corporation will continue to handle a very large number of cargoes each year, amounting to some 50 per cent. of North Sea output. While they have so far run their operations successfully, the risk of making a trading loss does exist. It always has existed and is not, of course, increased by privatising the upstream business of the corporation.
Against that background, we believe it would be imprudent to limit the payment to any particular figure—say, £1 million—in any one year. I would stress, however, that this is very much a reserve power. We do not envisage the payment of grant in the normal course of affairs. Any grants paid will be subject to parliamentary scrutiny through the standard Estimates and Vote procedure. If the corporation were subsequently able to make good any losses, we should still have the powers under Clause 5 to extract surplus cash from the corporation. So, if, on a long view, too much 1150 had actually been paid in grant, the powers are available to recover what has turned out in the longer view to have been an overpayment. I hope that, in the light of that explanation, the noble Lord will feel able to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 6, as amended, agreed to.
§ Clause 7 agreed to.
§ [Amendment No. 18 not moved.]
§ Clause 8 agreed to.
§ Lord Skelmersdale
This seems an appropriate moment at which to adjourn the Committee stage. I therefore beg to move that the House be now resumed.
§ Moved accordingly, and, on Question, Motion agreed to.
§ House resumed.