HL Deb 16 January 1990 vol 514 cc588-93

7.35 p.m.

The Parliamentary Under-Secretary of State, Northern Ireland Office (Lord Skelmersdale) rose to move, That the draft order laid before the House on 24th October be approved.

The noble Lord said: My Lords, the purpose of the draft order in Council is to give Northern Ireland Electricity explicit statutory authority to contribute to preparations for the privatisation of the electricity supply industry in Northern Ireland. The order will allow NIE to take steps to facilitate implementation of the general privatisation proposals which the Government will bring forward in due course and to influence the detailed working out of these proposals. The draft order mirrors powers provided to water authorities and electricity boards in Great Britain under Section 1 of the Public Utility Transfers and Water Charges Act 1988. That Act was, in effect, an enabling measure which paved the way for the presentation to Parliament of the substantive legislation to privatise those industries.

I should stress at the outset that the present draft order, like its GB counterpart, does not itself permit privatisation to proceed. During the course of this year the Government intend to publish their proposals for the privatisation of NIE, and substantive legislation will be needed to give effect to these. The draft order is presented now for two reasons. First, it will enable NIE to begin planning to ensure that once the Government's proposals have been approved by Parliament they can be implemented quickly and methodically. Secondly, it will enable NIE both to be involved in working out the practical details of the privatisation proposals and, where appropriate, to suggest how they might be improved. To help it follow through the ramifications of the Government's proposals and develop its own suggestions, NIE may well wish to obtain specialist advice on a range of economic, financial, technical and legal issues. The order will establish NIE's powers to engage in these and related activities and to incur expenditure on them.

NIE already has authority to do such things in support of its duty to provide an efficient and economical electricity supply system for the Province. The order will merely remove any doubt that NIE might not have the powers to do that in matters related to privatisation.

In 1988 the Government confirmed that their policy of transferring the electricity supply industry to the private sector would apply in Northern Ireland as in the rest of the United Kingdom. It is only fitting that Northern Ireland should share in the benefits which the private sector can bring to the operation of such an important utility. Exposure to the pressures of the capital market; the application of private sector management skills; a more directly commercial orientation in the running of the enterprise —all these factors together have, we believe, the potential to produce real improvements in the performance of the industry, in the interest of consumers and shareholders alike.

Progress in developing proposals for the privatisation of NIE has been good. An initial examination of the key elements involved —structure, regulation, method of sale, and so on —has been completed and further work is being carried out by Government and their advisers on these and related issues. Expert advice on the privatisation is being sought as appropriate by the Department of Economic Development: its financial, economic and legal advisers have already been appointed and it will call upon other expertise as circumstances demand. NIE also, for its part, will want to take expert advice in these areas so that it can contribute to detailed development of privatisation proposals in the months ahead. The present order will facilitate this. As I have said, Government will not bring forward their proposals until later this year and I am therefore not in a position tonight to give details of what they will be.

This order now before the House does not invest government with additional powers, nor does it allow privatisation of NIE to begin. The powers it confers on NIE are limited, in that NIE may only react to proposals for privatisation put to it by government. NIE may seek modifications of related proposals giving effect to government's basic privatisation proposals, but cannot seek to modify the basic proposals themselves. The powers conferred, or rather clarified, by this order are therefore modest, but they are nevertheless important. It is only proper and sensible that NIE should be able: o contribute its practical experience and expertise to the development of sound proposals. The successful privatisation of the electricity supply industry in Northern Ireland will depend in no small measure on the active and full participation of Northern Ireland Electricity. I therefore commend this order to your Lordships. I beg to move.

Moved, That the draft order laid before the House on 24th October be approved. —(Lord Skelmersdale.)

7.45 p.m.

Lord Prys-Davies

My Lords, the House is grateful to the Minister for his introduction of this very short but important order which we are asked to approve. It is important because, as the Minister explained, it enables the department and Northern Ireland Electricity to take the necessary steps to pave the way for the transfer of the electricity industry in Northern Ireland from the public to the private sector although, of course, privatisation itself is an issue for another time.

We on these Benches are opposed to the privatisation of the electricity industry in Northern Ireland. For that reason we are unable to extend a welcome to the order. However, that does not require us to be totally silent about the general circumstances.

We should be interested to know whether the Government consider that there are particular and specific reasons why the industry in Northern Ireland should be privatised. If so, what are those reasons? It is well recognised that Northern Ireland Electricity faces many complex and difficult problems which, in combination, are probably unique to Northern Ireland. Each area of activity, whether it be generation, supply or distribution, has intrinsic problems of its own which operate to the disadvantage of the industry. I am advised that it is not apparent that those problems will simply vanish with the privatisation of the industry. Rather, they will follow the indsutry as it moves from the private to the public sector.

The House will know that during the past nine or 10 years it has been necessary in Northern Ireland, in order to protect the consumer, to cap the electricity tariff at a figure equal to the highest tariff operating in the rest of the United Kingdom. I understand that there is a very real risk that privatisation will lead to a significantly higher tariff. If that were to happen, then we do not see how it can be said that privatisation will benefit the customer. Therefore, we are particularly interested to know whether the Government are satisfied that the tariff is not likely to increase or whether they are, in any event, prepared to cap the tariff. Of course, that might be rather puzzling.

I noted that there was very little reference in the speech of the Minister to the interests of the employees of the industry in Northern Ireland. It may be that I missed one or two sentences but I do not think so. That prompts me to ask what importance the Government attach to retaining the confidence of those who work in the industry.

The Minister advised the House that preliminary studies have been undertaken by the department and outside experts and that more studies are to be commissioned. Can the Minister tell the House how much money has been spent or is due to the consultants for their services to date? I sent a note to the Minister yesterday asking whether the information was available but I understand that that note has probably gone adrift and I am sorry about that. If it is necessary for the department to obtain authorisation for that payment, I am particularly interested to know whether that has been authorised by any one of the appropriation orders put before the House during the past 18 months.

I should also be interested to know when the department considers that it will be in a position to publish the relevant conclusions of the experts in a White Paper. Meanwhile, as I understand that studies have been commissioned and the department has received reports, can the Minister confirm whether those reports have been disclosed to Northern Ireland Electricity? We should also like to know how the department and the industry propose to work together over the next 18 months. For example, is it intended to set up a joint working group of representatives of the department and the electricity service so that they have a full understanding of each other's position?

We are all agreed that the order points to major changes which lie ahead. Hitherto, Northern Ireland Electricity and its employees have been the guardians of the industry in Northern Ireland. From these Benches we urge the Government to listen carefully to the advice which they tender.

Lord Skelmersdale

My Lords, there is no intention by the Government not to listen very carefully to any advice tendered either by NIE, the consultants, the noble Lord or, most important, as he underlined, employees of the industry. Of course, we shall watch their reactions with great interest.

This draft order is intended to ensure that NIE can participate effectively in the discussions about the future of the electricity supply industry in the private sector in Northern Ireland and that it can help to shape that future. Clearly that is important because it is its future which we are talking about and will be discussing when we come before your Lordships later in the year with a fully fledged privatisation order.

The noble Lord cast doubt upon the very concept of privatisation of the electricity supply in Northern Ireland. It probably goes without saying that I do not accept those views. I have acknowledged that there will be challenges in privatising Northern Ireland Electricity because of the nature of the system, and I go along with him that far. However, they are challenges which can and will be met. We have been told in the past that it would be inappropriate to privatise this or that industry. Most recently we were told that the water industry ought not to be sold and that this would be the most unpopular privatisation ever. The reality however has been very different, as I am sure it will be for Northern Ireland Electricity.

The great majority of privatised companies have seen higher output and investment, improved morale, better industrial relations and increased profits. As I said in introducing the draft order, the commercial disciplines to which the industries are exposed in the private sector, the freedom from interference on investment decisions, the private sector's greater incentive to contain costs and the threat of competition or takeover, are all factors which exert pressure for greater efficiency.

The noble Lord, although he did not put it in quite these words, was concerned that there might be a "rip-of' of consumers. There is certainly no intention whatever that that should happen. Whatever proposals we bring forward, the future interests of consumers will be properly addressed and protected. Consumers should not feel threatened. As I said, we believe that the privatised industries have proved to be more accountable and more responsive to their customers than their public sector predecessors.

I cannot at this stage predict future tariff levels; but in general the Government believe that the private sector will be better at containing and, indeed, in areas, reducing costs than the public sector has been. The intention is to ensure that the regulatory regime will give the private sector an incentive to minimise costs. Having said that, there will clearly have to be a price control mechanism. Details have yet to be worked out, but the RPI minus X formula being adopted in Great Britain is clearly one possible method. The joint working party of the Department of Economic Development and Northern Ireland Electricity is already in existence and has met on a number of occasions.

I should at this point thank the noble Lord for the note to which he referred in his speech, but regret that I only received it about three minutes before coming into the Chamber and therefore I am not able to provide the figures for which he asks on the costs of the consultants employed by the department. I should say, however, that there is no intention to publish the reports. The recommendations and conclusions will be taken into account as appropriate in the privatisation proposals that the Government will publish in due course. The results of the consultants' work so far have been disclosed to NIE and discussed with it. That was one of the points made by the noble Lord. With regard to how much we paid for that, as I said, I do not have the figures available but I reassure him and the House that the department has authority already under appropriation orders for this expenditure. Money for consultancy has been voted by Parliament.

We believe that by careful formulation of our privatisation proposals and taking account of the principles I outlined in opening this debate, we will be able to confer significant benefits on the consumer and the industry through greater efficiency, better use of resources and the introduction of new thinking and new skills. All of these issues will have to be discussed at greater length when the substantive legislation for the privatisation of Northern Ireland Electricity is introduced. The present draft order is a small but significant part of a much larger process and I commend it to the House.

On Question, Motion agreed to.