§ 7.45 p.m.
§ Lord Sanderson of Bowden
My Lords, I beg to move that the Bill be now read a second time.
This Bill makes provision for the statutory limit on the borrowings of the Scottish electricity boards to be increased from £2,700 million to £3,000 million. Because the boards' plan and operate the generating system jointly the limit applies to the total outstanding borrowings of the two boards taken together, including any borrowings from abroad and temporary borrowings.
Borrowings against the existing limit of £2,700 million amounted to £2,615 million at the end of June, including temporary borrowings of £130 million. The proposed new limit of £3,000 million is based on projections for 1991, which show the level of borrowings peaking at around £2,760 million towards the end of this year. From around mid-1990 borrowings are expected to fall steadily as the benefits of the boards' investment in Torness begin to flow through to the business. The proposed new limit is therefore sufficient to meet the boards' expected requirements, with a contingency cover of about 10 per cent. It is therefore unlikely that in the foreseeable future there will be any need to increase the borrowing limit. In this Bill we are taking the opportunity to repeal the power to amend the limit by order. Of course if for any reason the board's borrowings look set to rise above the new limit, fresh legislation would be required and there would be a further opportunity at that time to review the board's performance in relation to the borrowing limits.
The main reason for the boards' borrowing is the need to finance capital expenditure. In part this expenditure is met from internal resources and at March 1987 approximately two-thirds of the boards' current cost net assets of £7.5 billion were financed internally. But many of the boards' investments are very large and the assets have long lives. It would not be reasonable to assume that the boards could find the necessary internal resources without having recourse to borrowing.
Obviously Torness nuclear power station has been by far the largest investment in recent years. The station, which will cost £1.8 billion, is now nearing completion and reactor I began to supply electricity to the grid in May this year. Full commissioning of both reactors should be achieved by the first half of 1989 and, as I have already mentioned, as the benefits of this low cost output begin to be realised the boards' borrowing requirement will start to fall.
However new power stations are not the only capital projects carried out by the boards. Existing power stations require refurbishment, while the 327 maintenance and upgrading of their extensive transmission and distribution lines are other major areas which require outlay of capital by the boards. The South of Scotland Electricity Board, for example, spends over £33 million a year on expanding its distribution network. The north board will be investing around £32 million in connecting the Western Isles to the mainland system by submarine cable and is spending a further £23 million a year on refurbishing ageing distribution and hydro assets. Excluding Torness, total capital expenditure for both boards in 1987–88 was £170 million and is planned at £180 million in the current year.
Other important factors when considering borrowings are the level of the boards' costs and their prices. The boards are to be congratulated on their success in holding down costs while delivering a high level of service to their customers. Both boards emerged well from the recent Monopolies and Mergers Commission inquiries, which concluded that they are skilled in the management of their main function of electricity generation and supply and that they deserve their good reputation for the efficient conduct of their business. The commission, however, noted several areas where further improvements might be made.
As far as prices are concerned since 1983 average tariffs in Scotland have fallen by 9 per cent. in real terms and domestic prices, which have fallen by 7.5 per cent. over the same period, are below those in England and Wales.
This Bill will enable the boards to borrow the sums necessary to finance their day-to-day business and their investment programme. I commend the Bill to your Lordships.
§ Moved, That the Bill be now read a second time.—(Lord Sanderson of Bowden.)
§ Lord Morton of Shuna
My Lords, normally a Bill such as this to increase the borrowing limits of a profitable and, as the Minister has said, well run, well managed industry would be passed in very much less time than the two and a half hours which the other place took to discuss the matter. Everything the Minister has said is an illustration—and many more could be given—of the ridiculous nature of the Government's proposals for privatisation.
As the Minister has said, there is a well run, well managed and efficient monopoly which over the years has pursued a very careful social policy. That policy has provided electricity in less populated areas and by doing so has managed to distribute industry around less populated areas. That apparently is now to be changed in some unnecessary way. The Government are to substitute some private monopoly for the public monopoly.
We have discussed many times in this House why there should be a great advantage in having a private monopoly rather than a public monopoly. But that is apparently what we are to have. That appears merely to suggest that the short-term view will replace the long-term view that the two electricity boards have taken in the past. We are to have the kind of short-term approach that this Government apply to 328 everything. An example of that was the way they forced the closure of the pulp mill at Fort William, and then a few years later they had to spend vast sums of government money in grants in order to build another pulp mill at Irvine. They closed the smelter at Invergordon which was newly provided and then spent years regretting that it was no longer there.
Now there is the intended closure of the Dounreay plant, with disastrous effects on industry in the north of Scotland. It just seems that the whole of the Government's attitude to the privatisation of electricity is entirely irrelevant to the real needs of Scotland. I have taken this occasion to make that point clear while in no way seeking to oppose this Bill.
§ Lord Sanderson of Bowden
My Lords, I thank the noble Lord for speaking and giving the matter before us—the passing of the Bill—his blessing. I am not surprised that he took the opportunity to raise the question of privatisation, although it is not strictly concerned with this Bill, but it was very much a feature of the debates in another place on this matter. As he knows very well, the Government firmly believe that the requirement to operate in the private sector will provide added incentives to and sustain pressure on the boards further to improve performance and minimise costs to the benefit of customers and shareholders.
The Government's aim is to build on the strengths of the boards. The proposal for two companies, each responsible for generating, transmitting and distributing electricity in its own area, reflects the success of the present structure of the industry and is well suited to the circumstances of Scotland. Obviously, a great deal of preparatory work is required to shape the proposals in detail, but discussions in which the boards are closely involved are progressing well.
Noble Lords will be aware that my right honourable friend the Secretary of State for Scotland announced last week in another place his decisions on the reorganisation necessary to give effect to the White Paper's intentions on the structure of the companies. I commend his decisions to your Lordships. They ensure that two viable utilities will be privatised and that the necessary reorganisation will be achieved with the minimum of disruption within the industry. By virtue of the contractual arrangements which are being negotiated between the boards, each company will have available to it the full generating mix at present in the Scottish system-nuclear, hydro, pumped storage, coke, coal and gas/oil. This will make them the envy of the utility world and very attractive investments.
Each company will continue its present expertise—the south company in nuclear and thermal stations, the north company in hydro expertise. The decisions of my right honourable friend continue to recognise the importance of hydro assets to the consumers of the north of Scotland. He has made it clear that the benefit of the hydro assets in terms of the very low running costs will continue to be enjoyed by those consumers. This will ensure that the company is able to pursue a common tariff policy within its area—in other words a continuation 329 of the social clause—despite the very high distribution costs in the more remote areas. It will ensure that these tariffs continue at levels compatible with the rest of Scotland. It is the Government's intention to bring forward these proposals to enable the industry to be privatised within the lifetime of this Parliament.
As regards the remarks of the noble Lord, Lord Morton of Shuna, about the pulp mill in Fort William and the smelter in Invergordon, I draw his attention to the fact that Invergordon is designated as an enterprise zone. I just wish to remind him that at the time when these mills were closed, the inflation rate and the economic outlook in the late 1970s and the early 1980s were such that they gave very little confidence to industrial investment.
I am happy to say that now we see a return of pulp mill production at Irvine next year. I should just like to draw the noble Lord's attention to the fact that the eonomic situation, which has been debated at great length in the past hour or two, gives some confidence to industry that investment is worth while in Scotland.
§ Lord Morton of Shuna
My Lords, does not the noble Lord remember that the closure of Invergordon was related to the Government's control decision on the pricing of electricity? Their insistence on increasing the price of electricity unnecessarily was one of the reasons for the closure of the mill at Fort William.
§ Lord Sanderson of Bowden
My Lords, the Government, like any other institution, have to bear costs in mind. It was costs that closed the Invergordon smelter.
On Question, Bill read a second time; Committee negatived.
Then, Standing Order No. 44 having been suspended (pursuant to Resolution of 21st July), Bill read a third time, and passed.