§ 7.46 p.m.
§ Lord Bishopston rose to move, That an humble Address be presented to Her Majesty praying that the British Gas Corporation (Disposal of Offshore Oilfield Interests) Directions 1982 [S.I. 1982 No. 1131], laid before the House on 6th August 1982, be annulled.
§ The noble Lord said: My Lords, we had some comments on parts of the Oil and Gas (Enterprise) Act 1982 earlier today, and doubtless we shall be returning to the subject on future occasions. That Act, as we all know, was debated in great detail in both Houses and Her Majesty's Opposition made their views on the measure very clear during the long and contested stages of the measure over a period of some months. One aspect was very clear to Members of both Houses on all sides, namely, that the Government were anxious to rush the measure through, indeed with indecent haste, as shown by the tabling of this order a few days after the House rose for the Summer Recess. The reasons have nothing to do with the best use and conservation of vitally important national energy and power resources. There could rarely have been such dubious reasons for a policy affecting assets owned by the nation and vital to its future.
§ Under the order, the British Gas Corporation is required, with no choice whatever, to establish a 580 subsidiary A, having as its main object the searching, boring and getting of petroleum and to make a scheme for the transfer of the property, rights and liabilities of the corporation and Gas Council (Exploration) Limited, a wholly owned corporation subsidiary. The Government direct that the BGC shall establish six subsidiaries, one to hold all of the very considerable assets of BGC. Subsidiary A will transfer property, rights and liabilities between itself and subsidiaries B, C, D and E. Not satisfied with five subsidiaries, the Government bring in Subsidiary F, and they will be concerned with the exploration and production of oil.
§ We have a situation, to put it bluntly, where the privatised bodies will be concerned with the explorations and, indeed, the exploitation, of now publicly-owned assets. So from henceforth the aim will not he, as in the case of the British Gas Corporation at the moment, to use these resources in the national interest. Rather, the main objective will be the privatisation of oilfields and the exploitation of their resources for private commercial gain. So if there is any help to the national interest it will come as a mere by-product of the other private interests.
§ The disposal of the BGC's offshore oilfield interests required by the order takes away what has been described as modest holdings in a predominently American-controlled and owned North Sea oilfield. Yet the Government say, "We want to take away these assets from the public sector, from public control, and hand them over to private enterprise". These powers are whipped away despite the fact that the powers of diversification came from the Gas Act 1972, which was produced when the party opposite was in power, and I believe has still not been repealed. So the party opposite has changed its mind and believes that this kind of diversification, which is in the interests of the Gas Council and indeed of the British consumer, is no longer justified.
§ These diversification powers have helped BGC and the consumer, and indeed the taxpayer. They have helped the corporation to fulfill its duties admirably. It is extraordinary that the Government should say that the case for privatisation is proved because public ownership has failed the nation and it means bad service and high costs. Here we have probably one of the best loved commercial institutions in the country. The gas service is admired for its efficiency and indeed for its profitability—a profitability which would have been even greater had it not been for the tax burdens laid upon it by the present Government.
§ The order brings in a piecemeal operation, with subsidiaries taking well-used assets from the public sector. Under the Act the BGC will be excluded from oil production. Of course in exploring for gas the corporation has to deal with the oil that it finds in the process, and instead of that source of income being used commercially to offset some of the corporation's other social liabilities, it will be taken over by others.
§ I believe that it was in July of last year that the Government directed the BGC to dispose of its 50 per cent. interest in production licensing, covering over 100 square miles in Dorset, including the Wytch Farm oilfield. We know the sorry story about the sales following privatisation in a number of areas, and I think that the time has come when we should be insisting that the BGC oil assets are not sold below valuation. Perhaps the Minister will say something 581 about that, because if we are talking about the transfer of assets from BGC to subsidiaries, we ought to know something about the income which BGC will receive from the assets being taken away.
§ The BGC oil assets produced profits which helped to subsidise some of its social responsibilities, and helped the consumers with gas prices. It seems that that help will not be available because the profits will go elsewhere; and I think that the Minister ought to comment on ways in which this shortcoming will be met. Perhaps he will tell the House whether private operators will pay tax, as the BGC does at the moment. Will he say whether private enterprise will pay the taxes which have been imposed upon the Gas Council up until now? Will they be paying tax to the Government in the way in which previous owners have done? There are of course considerable oil reserves which the BGC should be allowed not only to explore, but to develop and to profit from. But the Act takes away that facility.
§ British Gas makes a substantial contribution to the Treasury. I understand that the corporation tax paid in January 1982 amounted to about £130 million. From its oilfield interests it also is liable for petroleum revenue tax and supplementary petroleum duty. The Government imposed a gas levy payable on gas that they buy from the North Sea oilfields; that was introduced in the period 1980–81. In that year the gas levy was £129 million—a tax on gas paid by the consumer into the Exchequer. In 1981–82 the gas levy was £394 million, and it is forecast that in the year 1982–83 the figure will be about £600 million. I am not sure whether the forecast will be affected by the present policy and the first steps in the order towards privatising the assets that are now publicly held.
§ Can the Minister tell the House how the changes in the order and other orders for privatisation that are to follow will affect such taxation prospects and the returns to the Treasury? It is all very well for the Prime Minister and others on the Government side to say that public ownership means higher costs; but of course they have imposed this taxation on the Gas Council, the Gas Council gets the blame for putting up prices, and the Government have always had the assets which arise from that policy.
§ What is to be the future of the subsidiaries mentioned in the order when they are privatised? Is there to be a sale of the major percentage of the BGC interests?—not just 51 per cent. but up to 100 per cent. I ask that because I believe that in the course of the debates on the legislation the Government have said that there is no limit. We start at 51 per cent., which takes away the public control and accountability from this massively successful enterprise, and we could end up with the whole lot being sold off. During the earlier debates the Government said that though they were selling 51 per cent. or more, they could still retain control with a "golden share". How will that happen if we have no shareholdings whatsoever?
§ I realise that the Minister might say that these points will have to follow later in future orders, but if we are starting on the road, with this early order, we have a right to know what the Government have in mind. So, how will control over the general assets which have been privatised continue to be exercised? These are questions to which I believe the House will want to know the answers.582
§ Although the BGC is to be excluded from oil production under the Act, it can still continue to explore for gas. In that case, can the Minister assure the house that when its oil is taken over the the BNOC, the BGC will still be able to exercise its rights to gather gas? This is an important question in the light of the changes which are taking place in the North Sea areas and with privatisation coming on.
§ Although we are debating what appears to be a limited order—the first steps towards privatisation—it is important for us to see a few steps ahead so far as Government policy in this matter is concerned, so that we can determine not only the relevance, but also the rightness, of the policy that we are discussing tonight. We have been told that subsidiary A could be sold to an individual purchaser, and that subsidiaries B, C, D and E could be sold separately to other buyers.
§ I am sure that there is concern on all sides of the House about the need for an overall fuel and energy policy, but how does this make it easier for the Government of the day to make sure that the stewardship of the resources is being properly handled? How can we still be represented on the various boards, councils, and organisations which run both publicly- and privately-owned resources in the North Sea area? Shall we still be at the table, or shall we be shut out while the private sector takes over completely?
§ In my final remarks I want to put to the Minister a number of questions that I believe arise from the order. I am sure that the replies will be of interest not only to my noble friends, but also to noble Lords on the Government side. I say that because the fact is—and this should be recognised as being increasingly important—that whatever may be our views about the policy, about the rightness of selling or not selling the assets, once the decision is taken, all sides of the House, all parties, have an increasing responsibility to see that the mechanism for so doing contains adequate safeguards.
§ Therefore it is so important that we should not take sides, saying perhaps that we are for what is said on this side, or against what is said on the Government side, because we are all in this together. During the stages of the Bill it was quite clear that to many of the policy questions there were no answers at all. I shall not suggest with any great force that the Government had no right to bring forward a Bill before having thought out every single conclusion. But I do suggest that on major policy decisions, or on policy matters which may point us in one direction or another, we have a right to know what the Government have been thinking during the long weeks of the Recess and since the Bill received the Royal Assent.
§ I must say—and I say this sincerely—that some of the Ministers here tonight and, indeed, those who took part in the discussions on the Bill probably did as good a job in getting the Bill through as anyone could do in view of the lack of policy decisions and the details that were available at that time; but the time for them to be more specific has now arrived and, indeed, is long overdue. So the order brings into effect, as we say, several sections of the Oil and Gas (Enterprise) Act 1982.
§ With regard to Section 32, which was debated here as putting the Secretary of State above the law in so far 583 as he could order both corporations, the Gas Corporation and BNOC, to do things which were not covered by legislation, will the noble Earl say what action has been taken with regard to Section 32 in relation to the overriding of any enactment? That, I think, is an important question. The House gave the Minister that massive power, and I think he should account for that particular section of it. Will the noble Earl say what consultations have taken place with regard to the disposal of British Gas Corporation assets since the passing of the Act, and with what result? Can we be told what method of disposal is to be adopted? Obviously, we do not expect the Minister to come with a detailed survey of that, but we should like to know what thinking has taken place, especially since the issue of the review by the Public Accounts Committee of the early effects of privatisation—Amersham and all that.
§ May I ask whether the Secretary of State will be taking advantage of Section 11(5) of the Act by transferring the assets to himself, which he has power to do? Under the operating agreements the Gas Corporation partners have a first right of refusal in the event of any party wishing to dispose of its shares. Can we be told how these rights will he looked after, and how the BGC partners in the various consortia are to be protected? Because it seems to me that the order goes against those built-in rights. Or perhaps the Government may say that the massive powers of the Secretary of State enable him to extinguish all these rights which have existed up till now and which I hope will continue into the future. Are the Government aware that many have been saying—experts in the City, and many others who should know—that the present time is not the best time to sell? The Minister may say, "We are not selling by this order", but we hope he will take into account the concern on all sides of the House, and, indeed, in many areas of the country, about the future aspects of this policy.
§ Another question—I am sorry to ask so many, but I think they are important questions—is: Can we be told about the Government's intentions regarding compensation to BGC? Here we have assets being taken away, and, obviously, the use of these assets were all a part of the financial and commercial structure of the corporation. If they are being taken away, what about compensation? These assets, as we told the Government during the passage of the Bill, have been created and financed by the consumers of British Gas, as British Gas has been self-financing for many years. If subsidiaries holding the assets are to be sold or deleted from the balance sheet, the cost falls on the consumer. So if there is no counterbalance to these assets which are going out, then, of course, the consumer and the Gas Corporation will be at a disadvantage.
§ I believe that the need for a comprehensive and overall fuel policy is important, and I hope that in the changes that will follow from the implementation of this Act the Government will bear in mind very much the need to keep a comprehensive policy as far as possible under public control, as indeed such a vital asset must be in the interests of the nation. We have debated the possibility of the disposal of assets to foreign or non-EEC hands, and I think that in future policy-making the Government should bear this in 584 mind. Noble Lords may recall that the first five amendments at the Committee stage of the Bill were all concerned with keeping control of the assets—not selling more than 49 per cent. That has been decided. We also wanted to ensure that the assets, when sold, did not go into foreign hands; and there were other safeguards that we sought as well.
§ Of course, we shall expect the Government to keep Parliament informed on future developments, especially, as I say, the Secretary of State has power to override legislation. In that case I am sure the House would agree that to whom much power is given much accountability is expected.
§ Finally, British Gas has a commendable record and is a great asset by way of the service it has given over many years. We want to ensure that, whatever changes take place, the British public will continue to be as well served in the future, though it may be under different auspices, as it has been in the past. I beg to move.
§ Moved, That an humble Address be presented to Her Majesty praying that the British Gas Corporation (Disposal of Offshore Oilfield Interests) Directions 1982 [S.I. 1982 No. 1131], laid before the House on 6th August 1982, be annulled.—(Lord Bishopston.)
§ 8.7 p.m.
§ Lord Tanlaw
My Lords, while supporting the noble Lord, Lord Bishopston, from these Benches, I think we should make it quite clear that the reason we do so is that, as far as I understand it, these orders are the technical enactment trigger that will start making the privatisation process a reality. All we are asking the Government in this case (if you call this the first pressure, as I believe it is called in military terms) is to restrain their finger on the trigger until perhaps the market conditions are a little better.
But now that the orders are before us, I think the first question that must arise is: Why is the complexity of the scheme apparently so necessary? I seem to recall that there was a very straightforward scheme, to which I do not think we on these Benches objected, under which these assets were to be hived off into one company in which the BGC could still retain an interest. That seems to me a very straightforward way if these assets have to be hived off from the British Gas Corporation, and I have no objection in principle that they should dispose of their oil assets. Nevertheless, I think there is a complexity in the orders put before us. It may be that they have to go this way under the procedures in the Act; but there is obviously much more to privatisation than meets the eye, and I think much more than the Government first thought of when they wished to implement this ideological view.
But now that we are on this road, I think the other question we should like to ask is: What value is being put on the assets which are to be disposed of under these orders, bearing in mind that the asset value of oil companies relative to their share prices is very far removed? I would think that in many cases oil companies in the market are now as low as 10 per cent. of their asset value, in others it is not so much. Therefore, on what basis is the valuation going to be made? If it is on asset value, I have a suspicion that the British Gas Corporation will be jolly pleased to be rid of them. It is very difficult to sell oil shares in the present market conditions, and if the Corporation can 585 find a good buyer on asset value then they will do a very good deal. On the other hand, if they sell off at a market value, bearing in mind the depressed state of the market, which we keep emphasising to the Government, they will have a bad deal. In the same way, so will all those shareholders who have been encouraged to invest in Britoil. This is not the right time to launch a project of this size and, indeed, of this complexity.
There was another point raised by the noble Lord, Lord Bishopston. I thought he was going on to say that the British Gas Corporation should be encouraged—and, indeed, we had a whole debate on this subject in the House—to continue and to expand their exploration activities until we know what the strength of our reserves really is. What happens if they hit oil? It is quite possible that while searching for gas—and it is a risky business in many ways—they will strike oil. What is going to happen when, although they were searching quite genuinely and their technicans said that they were looking for gas, they hit oil? Are they going to be licensed to develop this as part of their normal development of the rig, or have they got to give away the oil and start all over again until they find a pure gas well?
I think the Government are going to say that, of course, if they are boring for gas and they strike oil, they will devolop the well. It is ridiculous to consider anything else. But let us look again at the complexity of these orders and wonder why! The only time I have seen a scheme of this complexity was, I think, in a capital tax avoidance scheme which was put to me some time ago. This was a wonderful way in which, by using subsidiaries in this way, one could transfer assets and somehow apparently escape the rigours of capital gains tax. It may be that the Government advisers found this scheme somewhere else and found it was suitable for the scheme that they had in mind. I wonder what that scheme is. Its complexity makes me slightly suspicious. Could it be that the Government are looking for £200 million to put into Britoil in order to get the balance sheet right before it is presented to the public, and that they are telling us that this is a very complicated procedure, that all this transfer of assets is very difficult and so on?
But the reality of the matter is that they are £200 million short before they go to the market. I am not going to bring out the Britoil prospectus or develop ideas of what is wrong with it; but this £200 million is essential if Britoil is to be successful, Therefore, I should like to know what is the total value that the Secretary of State wishes to obtain from the sale of these assets. If it is in the region of £200 million, then I think that all this complexity really may be simply to bolster up the balance sheet of Britoil. Otherwise, perhaps the noble Earl would be able to explain from where they are going to get £200 million before they launch the prospectus. This is a matter which I am sure will come out in the course of other orders which will come before us.
Let us bear in mind that because of the anticipated yields that Britoil is going to have, the Government will have to discount the assets of £ 1.5 billion (which apparently they are) by 30 per cent. That produces net assets, up to that stage, of £1 billion and 51 per cent. is about £500 million, less of course the £200 million necessary for the working capital and the window 586 dressing of the balance sheet. Therefore net gain overall for the taxpayer for the whole operation, by my very rough calculation, is only about £300 million. I ask the noble Earl whether he could give us his guidance on what is the value that he expects to obtain from the sale of these assets.
I have three more questions. Will these orders in any way affect good relations that the British Gas Corporation already enjoy with the oil companies? I assume the answer must he no; but I think it only correct for the noble Earl to put on the record that this working relationship will continue. The other question I have for the Minister is this: Will there be an opportunity for employee participation in the shares of these multiple subsidiaries from B to F? Will the employees have an opportunity to participate, as they do under the Statement that he made earlier this afternoon in the House?
Finally, my Lords, I come back to the point that I started with, the point that I am here tonight to support the noble Lord, Lord Bishopston, and, in doing so, to ask the Government whether they will not hesitate a little longer and at least give the House a clearer indication as to what they consider are the right market conditions before they pull the trigger on this massive Bill.
§ 8.15 p.m.
§ Lord Davies of Leek
My Lords, there are many reasons why I am interested in this and one of them is the importance to employment in the pottery industry. Gas is being used quite a lot in the pottery industry and the price of this gas has a great deal to do with the value of our exports and in keeping up employment. At the present moment North Staffordshire and the Stoke-on-Trent area, which is one of the most famous in the world for the pottery industry, is in difficulties. The question that arises is this. What benefit are these intricate orders going to give to those people who use their sources of energy to build up our exports? We are now discussing Statutory Instrument 1982 No. 1131 on the British Gas Corporation. I do not think that one person in a hundred in Britain and probably not five out of 20 in both Houses of Parliament really appreciate what will be the impetus of this statutory instrument upon the privatisation and the subsidies that will be necessary. What does the order do? Frankly, I consider it is petty, contemptible and shot through with the spiteful acquisitiveness of a Government which is probably the most heartless Government in the 20th century. Even financiers have found fault, and with good reason, with some of the methods of privatisation that have been entered into. I will quote the Financial Times on that a little later. I am not plucking that out of the air—as I was accused of doing the other day over the fair wages clause, when the Minister himself did not seem to be aware.
§ Lord Davies of Leek
We had to find jobs and shares for somebody under this order, which is a preparation for privatisation, to set up six subsidiaries and to fiddle and mess around with production and profits. British Gas has four minority interests in four North Sea oil licences. A 64,000-dollar question has just been asked by the noble Lord, Lord Tanlaw—what if the gas 587 people, in their search for gas, discover oil? What is the puzzle we are then faced with in this apotheosis of privatisation? Have we abandoned completely the middle-of-the-road approach that 20 per cent. of British industry could very well be public enterprise. I will not use the old-fashioned word "nationalisation" which in the Coal Board and others has served its purpose, and certainly so in the Post Office.
British Gas then has these four minority interests which have been qualified and mentioned by both noble Lords who have already spoken. The Government's apparent interest in monetarism fails to realise that, in the United States of America, 11 million people are looking for jobs and the walls of the temple of monetarism are crumbling. So are they in this country. The human misery and the massive unemployment and the indignity imposed upon the British people by the apotheosis of monetarism is partly seen in this statutory instrument. What do they do? They set up new minor and (1 use the expression) "tory quangos". There are to be these subsidiary concerns: "B", "C", "D", "E", each of which will hold little hits of the British Gas Corporation's oil interests. Into one subsidiary we will put about 25 per cent. shares in one British Gas Corporation licence in the Fulmar field, for example. A completely new subsidiary will be established into which will be put a 25 per cent. share in, say, the North-West Hutton Field. All is a mixture, with no analysis of what happens when they come across oil in their own right; and this grand principle of privatisation is introduced by the party opposite because it is in power. "It is right to do that", they may say, "because we won the last election. "But they did not bring all these features of their policy before the public. We are going to set up four new chairmen. We are going to set up new companies, boards, rooms, chandeliers, cigar cutters and the lot. It is one of the biggest quangos and it is going to put money into the pockets of those who are able to invest in it. The House should have a full debate on this matter, and we should know what happens. What are we doing by this piece of tricky inosculated legislation? We are privatising public money. We are using public money to prop up these quangos. Amersham was a typical example. Our control will be completely lost.
Now I want to quote something. Even the City is cynical about these high subsidies to the stock market and speculators buying public bargains. The man in the street has not a clue about this. The Financial Times "Lex" column referring to British Airways, pointed out:the Government seems determined to stuff…British Airways, with hefty sums of cash (not to mention what may have to be provided to top up its pension fund) and tow it down the privatisation runway…to sell off a sick company in a cyclically depressed industry—in which much of the competition is state-subsidised".People have forgotten this. It is subsidies backwards to private enterprise. It is through an artificial injection of funds and they are trying to justify it. The Financial Times said on 11th October of this year:The Government should not, with troubled industries, be allowed to underwrite their prospectus profits with taxpayers' money".588 The question that arises from me is: How much of a taxpayer's money ultimately will have to subsidise these enterprises? The acquisitive society in which we are living seems to have gone mad and the country must know at the next election, from whichever party may win, that we cannot go on like this, crumbling the walls of public enterprise that has been set up over many years and a generation to please pettifogging party ideas which are interfering with the standard of living and the possibilities of our exports. This is one of the major mistakes of the Government opposite.
I have spoken for long enough at the end of the term and I do not want to bore the House and I hope I have not bored the House. I am sure that the Government will give us an opportunity to have a full debate. The Government have many men who are as kindhearted as I am with the world. On both sides of the House we want to see a different system of living. I assure the House that there is something wrong about this apotheosis of a monetary system and of the whole business of privatisation of things that have been built up by the mass of the people whatever their politics. Are we going to have 20 per cent. of enterprise in Britain under public control? Most of it is as profitable as most of the international companies.
§ 8.25 p.m.
§ Lord Briginshaw
My Lords, I join my noble friend Lord Davies in assuring the House that I do not propose to make a lengthy speech at the end of the proceedings. But I must congratulate my noble friend Lord Bishopston and also the noble Lord, Lord Tanlaw, if I may, on leaving the Minister with a number of pertinent questions, which I am sure he will deal with in due course. In speaking to the Motion for annulment, and in support of my noble friend Lord Bishopston, it seems to me not only appropriate but necessary to restate some key contributions made when this House, in Committee on 4th May 1982, discussed the Oil and Gas (Enterprise) Bill, Clause I, entitled: "Oil Corporation's power of disposal". On that occasion Lord Bishopston moved Amendment No. 1:Page 2, line 2, after ('shares') insert ('not exceeding in value 49 per cent. of the total').".These are worth restating in justification of the Motion this evening, because my noble friend brought out the essence of the problems before us. The noble Lord said at col. 1051 of Hansard:I beg to move the amendment standing in my name and in the names of my noble friend and the noble Lord, Lord Tanlaw. This is a very important and controversial Bill and is the legislative background for the privatisation of much of the BNOC and some of the British Gas Corporation".My noble friend Lord Bishopston emphasised this at that time—and I reiterate it:The oil-producing business of BNOC is to be transferred to a subsidiary called Britoil, and 51 per cent. of the shares are to be sold to the public. The Bill is an important one because it concerns a very significant aspect of our national resources—energy assets—and the Committee will want to proceed responsibily and constructively to look at some of the provisions within it.".Lord Bishopston went on in his contribution to say that in some ways Amendments Nos. 1 to 5 which have been restated this evening,are all very much concerned with the control of the assets, with whether they shall be in the hand of the nation, as we believe they must be, or whether they shall be privatised and fragmented.".589 That is another important aspect. He continued.This is an important measure, but in some respects it has little, or very little, to do with the enhancing of Britain's fuel and power policy, as one will conclude from the Minister's Second Reading speech.".With respect, I could have drawn noble Lord's attention to the foregoing in the record for their reading; but we are here today to give emphasis to our Motion for annulment of the order, to which we refer in the Motion. If it is true that the Bill itself is controversial—and it certainly is—then it is perfectly proper for us to localise—as I am trying to do—the points of contest and bring the circumstances and the importance of matters into reality. As we examine the privatisation phraseology, in addition to what has already been contributed this evening, we see that it is a word being used, I suggest, as a cosmetic to cover the inner reality of the Government's intentions—and detail has already come into our discussions here.
The enabling of the public to take shares in Britoil diverts attention. I am suggesting, from the realities of the Goverment's intent which my noble friend Lord Bishopston so ably and responsibly drew to your Lordships' attention earlier—and he has done so this evening—in his original contribution in Committee which I feel justified in restating today.
What I think we are trying to do on this side of your Lordships' House is to avoid our country being taken on this dangerous journey which the Government have chosen. The noble Lord, Lord Tanlaw, on 4th May drew timely attention to what is lacking in policy direction; and with your Lordships' indulgence, even at this late hour, I would quote him, because it appears to be almost classic. He posed a question. He said at col. 105 and I quote:I stand to be corrected, but l think there is nothing said on what will he the future policy of the Government. Who will devise it? If the government answer if that it is a public company, it is like any other oil company and can decide policies which best suit them or what they believe to be their shareholders, in terms of investment and of purchasing equipment from abroad or from British companies. It is fair enough to say that, but I ask: What is this 49 per cent. there for? Is it just to sit there and watch the company become non-British, or is it there to protect the Britishness"—I like that word—of Britoil? That is what I believe most people imagine Britoil to be as a company: and they will put their money in it on that basis.I personally feel sure that your Lordships will accept the logic of what the noble Lord, Lord Tanlaw, poses. I have not heard any answers so far as policy is concerned to the questions posed at that time.
The amendment for annulment seeks at this eleventh hour to save the nation from what is a possible severe loss in the Goverment's reckless pursuance of its doctrinaire course in so fragmenting a part of the nation's energy resources. I suggest that the world is awash with oil at the present time and is likely to continue to be so for some years to come. That is the view I put forward for your Lordships' consideration today.
The price the Government expect to derive from this sale of a national asset may seriously fall short of the target. It is a great gamble. It is, I am suggesting, a wanton distribution of the nation's assets, and I hope we shall have persuaded your Lordships to support the annulment as proposed in the Motion this evening.
§ Lord Balogh
My Lords, this measure before you is a foolish effort on the basis of a foolish theory and a foolish Government. What is quite certain is that the percentage of profits taken by the Government will decrease. The Prime Minister and the Secretary of State for Energy extol a return to the market—a market which automatically secures an optimal distribution of resources. But such a market never existed and it will certainly never exist in the future with bigger and bigger companies depressing the numbers in order to get a full scope for their accumulating. What .they imply is a general existence of free and perfect competition, but what we have is a very imperfect market in which the big units fight each other but at the same time try to break through to the source of profits.
No better illustration can be given of what sort of market we have than the price of oil, which is going up and down and up at the same time as the price for the purchase of these companies diminishes. They bewail the policy of the previous Government and condemn it, but what the previous Government did was to depress the price of the gas and oil which they took from the foreign companies and increase the "take". Therefore, any upward pressure on the prices of oil is likely to go with an increase in the take of the public.
Together with the mutilating of Britoil, one can foresee increases in price, in the price margins and in the profits flowing to the main private companies. But the main private companies are mostly foreign owned, or at least foreign controlled, so that the situation is at least very galling. Perhaps there will be a time when the present Government realise the evil aspects of their way and will allow us to get back to a steady growth.
§ 8.37 p.m.
§ The Earl of Mansfield
My Lords, I welcome this debate for a variety of reasons, and not least because it will, I hope, enable me to explain the purpose of these regulations and what it is that we are about. The debate has given noble Lords an opportunity of raking over the still warm ashes of the Gas and Oil (Enterprise) Act, and a few old prejudices have been produced for the general edification of your Lordships. I do not know why it is that when the Labour Party carries out its policy it is regarded, at least by it, as leading to a new Jerusalem or a new Garden of Eden—I suppose according to whether one is urban or landward orientated. But when this side of the House, so to speak, starts to do what it was elected to do, great cries so up.
The noble Lord, Lord Tanlaw—and I really wonder whether he was thinking about what he was saying—said that the complexity of these regulations was due to some nefarious desire on the part of the Government to salt away £200 million, which has something to do with Britoil, and absolutely nothing to do with the issue that we are discussing tonight. I really wonder, when he looks at what he said in Hansard, whether he will think that is a great contribution to our times as a debating Chamber.
I take issue with the noble Lord, Lord Briginshaw, when he said that a number of pertinent questions had been put to me. In fact most of them are impertinent. I use the word in its very strict sense, and for a particular reason—because these are preliminary regulations and will in no sense affect the tactical way 591 in which privatisation will eventually take place. I shall explain why in a moment.
The general objective is to initiate preliminary work—and I stress that phrase—towards the disposal of the British Gas Corporation's interest in the Beryl A and B, Montrose, Hutton, North West Hutton and Fulmar oilfields. But no decisions have yet been taken on how the disposal will subsequently be carried out. The intention is, therefore, to keep open all possible options.
The noble Lord, Lord Tanlaw said: "Don't pull the trigger". But in order to pull the trigger and to achieve something you must have a gun in your hand and, hopefully, something in the chamber. If we are to continue with this illustration, what these directions do is to open up a number of different options as to the type of weaponry which might be employed.
Within this framework, the directions have four detailed objectives. The first is to provide for the interests to be "packaged" into new companies, so as to open up the option of disposing of them in company form. On this point, we could have provided for all the interests to be transferred to a single new company, but this would have limited unnecessarily the disposal options available. The interests relate to four licence areas. They can, therefore, be separated into four different companies. In the interests of maintaining flexibility, we have provided for such a separation. We have also provided for the four separate companies to be all owned by a new holding company, so that a disposal of all the companies together could easily be carried out simply by disposing of the holding company.
Clauses 2 and 4 of the directions accordingly require BGC to establish five subsidiaries, referred to, simply and graphically, as A, B, C, D and E. The intention is that B, C, D and E will each hold the interests relating to one of the licence areas. Subsidiary A will be the holding company which will own B, C, D and E.
Clauses 3 and 5 of the directions provide for schemes to be drawn up, under Section 10 of the Oil and Gas (Enterprise) Act, to transfer the interests to the new companies. In order to arrive at the position we are aiming for, two schemes are needed. The first will transfer all the interests to subsdiary A, in return for the issue of shares by subsdiary A to the corporation. The second will then transfer the interests on to B, C. D and E, in return for the issue of shares by B, C. D and E to A.
Once these schemes have been implemented, a number of disposal options will be available. All of the assets, in the form of subsidiary A, could be floated on the Stock Exchange. Alternatively, A could be sold to a single purchaser. Subsidiaries B, C, D and E could be sold separately to different purchasers. It would also still be possible to undertake a direct sale of the interests themselves, rather than of the companies holding the interests. Of course, it is complicated, but, as I have said, it is to provide as many options as possible.
I appreciate that noble Lords will be disappointed that I cannot say at this juncture which of these options will be adopted. There will, though, be a further opportunity for the House to debate the Government's proposals if it so wishes. The directions 592 laid in the Recess—and I shall come to these—are not sufficient by themselves to bring about the disposal. This will require a further statutory instrument, which will either consist of a second direction to BGC instructing them to carry out the disposal, or an order, under Section 11(5) of the Act, transferring the new subsidiaries to the Secretary of State prior to the disposal being carried out by him. As has been guessed at—I do not use that word "guessed" in the pejorative sense—on present plans, the Government envisage issuing a Section 11(5) order. But in either case the statutory instrument involved would be subject to the negative resolution procedure as this one is. Therefore, Parliament will definitely have an opportunity to call for a further debate. At that stage, I anticipate that the Government would certainly be in a position to say which disposal option was being proposed. It will be at that point as well that we will be able to give our views on issues such as whether it would be appropriate for the articles of association to include any provisions against undesirable changes in control, and the sort of things that we debated when the main Act was before your Lordships. I cannot speculate tonight, simply because such points have not yet been settled.
The second objective of the directions is to provide for participation arrangements to be established in relation to the interests before they are disposed of. Clause 3(2) of the directions calls, first, for arrangements for 51 per cent. participation to be established between subsidiary A and BGC. Subsidiary A's obligations under these arrangements will then, by virtue of Clause 5(1), be passed to B, C. D and E. The corporation's corresponding rights will, by virtue of Clause 7, he transferred to a sixth new subsidiary, referred to as subsidiary F.
The net effect at this stage will be the establishment of participation arrangements between the four subsidiaries holding the interests and subsidiary F. But the Government intend subsequently to use Section 11(5) of the Act to transfer subsidiary F's shares to the Secretary of State, with a view to vesting them in BNOC. The final outcome will, therefore, be the establishment of participation arrangements between BNOC and the four new companies holding the interests. These arrangements will then continue to apply after the disposal regardless of the disposal route adopted.
Of course, I appreciate that this is complicated, but I anticipate that, having read the Official Report, the matter will be quite clear, particularly so far as participation is concerned. One has to get the rights vesting, as they are at the moment, back to BNOC. At least so far as participation is concerned, I hope that this part of the exercise will be welcome to noble Lords opposite, who I know are not over-enthusiastic about the main object of these directions.
The third objective of the directions is to provide for an independent petroleum consultant to prepare reports evaluating the interests. Such reports will be an essential requirement for the disposal, whichever way it is ultimately carried out. In parenthesis, it is obvious that at this stage I cannot say what conclusion the independent consultant will come to. The fourth objective is to require BGC to compile, or cause to be compiled, such information about the activities of subsidiaries A, B, C. D and E as may facilitate their disposal. In particular, this will involve the prepara 593 tion of an accountant's report of the sort which appears in a prospectus for an offer for sale. The compilation of this will enable the Government to keep the flotation option open.
That explains the matter and what I shall now try to do, shortly, is to answer some of the points which have been put to me. If I do not answer them all, I will try to do so by correspondence. The first matter which the noble Lord, Lord Bishopston, raised was about the regulations being laid in August. I have to confess that the Government would have liked to lay them before the end of term, so to speak, but, unfortunately, it proved impracticable. In fact, nothing has really been lost.
I say that for a number of reasons. First, there is no question of concealment, or of trying to get something through without its being known and debated. As these directions deal only with preliminary work towards the disposal of BGC's offshore oil assets, and do not bring about the disposal, nor do they say how the disposal will he carried out, nothing has been done under these regulations which is irreversible. It is therefore, in my submission, by no means improper for the regulations to have been laid in the Parliamentary Recess. No money has been spent and thrown away. Nothing has been done which could not be reversed if Parliament decided that what the Government are doing is wrong.
The next point which was raised by the noble Lord was the taxation policy. The new owners, if I may use a slightly sloppy phrase, will he subject to exactly the same tax régime as at present obtains for all other private companies operating in the North Sea. So they will be subject to the same general taxation régime as applies at present. The noble Lord then asked whether there will be any changes to the gas levy. The answer to that is, no. The gas levy relates to the corporation's gas business. It will be entirely unaffected by the disposal of the corporation's oil interests in the business. The noble Lord asked what proportion of the British Gas Corporation's oil interests will be disposed of. The present plans of the Government are that 100 per cent. of its oil interests should be disposed of.
The noble Lord next asked about the exploration role of the British Gas Corporation and, I think, quoted Section 2(2) of the 1972 Act. What I say to the noble Lord about that is that no decisions have been taken to change the exploration role of the British Gas Corporation. Its proper role is to supply and distribute gas rather than oil. Therefore, the Government have in effect told the corporation that in applying for Eighth Round licences it should limit applications to areas of gas prospectivity.
I now come to a question which was asked by a number of noble Lords, but in particular by the noble Lord, Lord Davies of Leek: what happens if the corporation, while pursuing its role of trying to discover gas, in effect gets a gusher of oil? It will be the Government's intention to privatise any future oil discovery in due course, and I make no bones about saying that. I think that the noble Lord, Lord Bishopston, thought that this was at variance with Section 2(2); but I would remind him that what it says is that the corporation shall have power in particular to search and bore for and get natural gas and to bore for and get petroleum found in the form of crude oil in the course of searching, boring for or getting natural gas.
594 In other words, if it does get oil, even under the 1972 Act, it is an ancillary part of its role to obtain and distribute gas.
The noble Lord asked whether there had been any consultation. I would remind him that under Section 11(1) of the Oil and Gas (Enterprise) Act the Secretary of State is required to consult the corporation before issuing directions. The corporation was fully consulted before the directions were issued. It is only right to say that the points raised by the corporation are confidential to the corporation and the Government, but the Government consider that the points raised were satisfactorily resolved.
The noble Lord—if I am taking time to answer his questions it is because I treat them seriously—asked whether the eventual disposal of the oil interests of the British Gas Corporation would in any way lead to a lessening of control by the Government over North Sea oil. A point I want to emphasise is that the framework of regulatory controls which the Government, and in particular my right honourable friend, can exercise, the participation agreements and the tax régime are, taken together, fully adequate to ensure that the nation derives proper and, indeed, all possible benefit from our oil. All this will remain in force. I do not think I need to remind the House of all the various regulatory controls which the Secretary of State for Energy can call upon, if necessary. The noble Lord asked whether the Government or the Secretary of State would make use of Section 11(5). As I have said, that is at the moment the road which the Government see themselves going down.
Finally, there was the point that this is not the right time to do it. I hope that, whatever the differences as between one side of the House and the other on either the wisdom or the desirability of privatising the British Gas Corporation's oil interests, the noble Lord now understands that at some stage one has to get the preliminaries settled and the framework erected. That is what these regulations do.
I come to the noble Lord, Lord Tanlaw, who asked about the valuation of the assets. I think I have pretty well answered that point. I cannot comment on the extent or the value of the assets, but what I can say is that the actual disposal—the next stage—will go ahead, as I explained to the House earlier this afternoon in relation to Britoil, only if the position is right in the circumstances of the time which then obtain.
The noble Lord asked about employee participation. I have to tell him that this has not yet been considered, but I have no doubt that it will be and that, in the same way as my right honourable friend and the Government are keen that employees should, in a proper way, participate in a disposal of this kind, their interests will be taken into account.
"Will the directions affect the British Gas Corporation's relations with oil companies?", asked the noble Lord. For the life of me, I cannot see that they can and no reason, indeed, why they should. However, I shall reflect upon that and, if I do see a reason, I will get in touch with the noble Lord. The noble Lord then spoke about the Britoil part of it. I hope he now realises that this is nothing to do with Britoil. It is entirely the British Gas Corporation.
The noble Lord, Lord Briginshaw, spoke about the 49 per cent. of state shareholding. He is going back to 595 the oil side of the Oil and Gas Enterprise Act. This has nothing to do with the present exercise which, as I have said, is a preliminary towards the privatisation of the oil interests of the British Gas Corporation.
I hope that I have reasonably comprehensively answered the points, or most of them. I want to emphasise that what is included in these proposals should not and does not constitute an attack on the British Gas Corporation. The corporation has many successes to its credit and one hopes that it will respond constructively to the challenges which it faces and which it will continue to face in carrying out its main business—that is, the supply of gas. But I have to repeat that we see no reason why nationalised gas utilities, such as the British Gas Corporation, should be involved in oil production, when the history of North Sea oil development is one essentially of successful private enterprise. Contrary to what has been said by some noble Lords opposite this evening, we believe that the nation's best interests will be served by providing for the oilfields to be developed in the private sector. Therefore. I commend the directions to the House as the first step towards this goal.
§ 9 p.m.
§ Lord Bishopston
My Lords, I will not detain the House for more than a minute amount of time of about 60 seconds in making my final remarks. I believe that your Lordships will feel that, whether we agree with the Minister's conclusions or not, he has done his hest to answer the many questions which we have asked of him tonight. I want to stress a point I made during my speech: that whether we agree with the Government's overall policy or not, we all have a real duty and responsibility, when these orders or legislation come before us in relation to this Act, to give them the closest examination—and this applies particularly to Members on the other side as well.
I believe the Government will accept that those who accept their policy of privatisation and those who do not have a right to see the future policy of the Government in more than little pieces. One felt tonight that this was a rather small part of the policy. No managing director, if I might use that term in relation to the noble Earl tonight, would go to his board of directors and give them just a small part of his policy. They would naturally and rightly demand to see more of the prospective and future policy as well, to see how it all fits together. So although one recognises that there are areas of confidentiality which the Government cannot disclose, we do expect—and tonight we have been given it—the fullest co-operation from the Government in respect of these matters.
I shall not be pressing the amendment of the order. We welcome the opportunity we have had to debate the replies from the Minister, and I am grateful to my noble friends and others who have taken part in the debate. I believe we would all agree in our hope that the Government will take note of the many constructive suggestions which have been made tonight, and we hope that the Government will bear them in mind when future policy decisions are to be taken.
§ Motion, by leave, withdrawn.
§ House adjourned at two minutes past nine o'clock.