HL Deb 31 January 1992 vol 534 cc1577-91

1.5 p.m.

The Paymaster General (Lord Belstead)

rose to move, That the draft order laid before the House on 27th November be approved.

The noble Lord said: My Lords, I beg to move the order and at the same time would like to speak to the draft Electricity (Northern Ireland Consequential Amendments) Order 1991.

The purpose of the order is to facilitate privatisation of the electricity supply industry in Northern Ireland. This marks the latest in a series of successful privatisations and heralds the final stage of the transfer of the entire UK electricity industry to the private sector.

We believe that Northern Ireland Electricity as a company will benefit by being freer from government control; that consumers will get a better service and lower prices than would otherwise have been the case; and that taxpayers will no longer be burdened with financing the operations of a public monopoly.

The electricity industry in Northern Ireland today labours under a number of disadvantages. It is a small system and is unconnected to any other; the low population density of Northern Ireland makes for higher costs per customer; and for its generation capacity it relies very heavily (up to 70 per cent.) on imported oil. In making these comments I intend no disrespect to the existing management and workforce of NIE who have worked with great dedication within the limitations imposed on them. They have made strides to evolve new structures and increase efficiency, and I believe privatisation will accelerate that progress. But radical change on the scale which is needed cannot be expected to come from within.

Many of the inherent characteristics of the Northern Ireland electricity industry do not apply in the rest of the United Kingdom. Therefore, we have been careful in drawing up our proposals not to fall into the trap of believing that, because it has worked over here, the GB privatisation model can simply be dusted down and imposed on Northern Ireland.

However, as in the Electricity Act, there is to be a regulator, a director general of electricity supply for Northern Ireland, who is to be operationally independent of ministerial oversight (Article 5). The regulator will have a number of duties, the most important being to ensure that all reasonable demands for electricity are met; that operators are financially sound; that competition is developed in the generation and supply of electricity; and that consumers, especially the elderly and disabled, are adequately protected.

One particular addition made in your Lordships' House to the Electricity Act 1989 is that in terms of prices and supply the interests of consumers in rural areas shall in particular be taken into account. One other important duty of the regulator is that energy efficiency and a cleaner environment are to be promoted.

The director general will appoint a consumer committee for electricity to help him in protecting the interests of electricity consumers (Article 7).

In future, electricity operators will normally require a licence from the Department of Economic Development and subsequently the regulator authorising them to generate, transmit or supply electricity (Articles 8–10). The director general will have important powers to enforce the requirements placed on licence holders either by the order itself or by virtue of the terms and conditions contained in the licences (Articles 28–31).

The main supplier in Northern Ireland—in other words, the public electricity supplier —will be the company which carries out the functions of transmission, distribution and supply and which for convenience I will refer to hereafter as "TDS". Both the order and the licence will place special obligations on that company.

Articles 19 to 25 of the order place a duty on TDS to supply electricity on request, and enable it to make charges for doing so.

Under Articles 42 and 43, the regulator will demand high standards of performance from the supplier in relation to the services provided to customers. The licence, too, will require the public electricity supplier to put in place a number of important measures to assist customers: for example, he will have to draw up and adhere to strict codes of practice for dealing with customers who are behind with their payments, and for the provision of special services for the elderly and the disabled.

I should also briefly mention in this context that we propose to replicate promptly in Northern Ireland any improvements which are made to the powers of the GB regulator by means of the Competition and Service (Utilities) Bill now before Parliament.

The proposed regime also contains important provisions for, as I have said, protecting the environment (Article 4), and for promoting energy efficiency (also Article 4) and the use of renewable forms of electricity generation. (Articles 35 and 36). Perhaps I may mention briefly one or two recent developments. In order to maximise the potential for competition we have taken the decision to break up the monopolistic structure of Northern Ireland Electricity. We propose to separate the generation functions from those of transmission, distribution and supply. As I have already indicated, the transmission, distribution and supply functions will be incorporated into a separate company (TDS). We plan to float it on the stock market, probably in November this year. The small size of the generation stations make them unsuited for flotation, and they are being sold to independent bidders following an open competition. Bids have been under consideration since last November.

At present, the parties whose bids best meet the Government's objectives are an American/Belgian consortium (AES/Tracetebel) which is interested in acquiring the stations at Kilroot and Belfast West; British Gas, which is seeking to secure the station at Ballylumford; and a management/employee buyout, which wishes to take over one of the smaller stations at Coolkeeragh. Negotiations with interested parties are still under way, so the House will understand that I cannot give further details at present. We hope to be able to sign sale contracts soon after Parliament has approved the legislation.

I referred earlier to the importance that we attach to competition as a means of keeping costs as low as possible, and I should like to say a few words about how we see that developing. The transmission and distribution element of the industry—by which we mean, in effect, the network of pylons and wires which criss-cross the countryside—does not lend itself to competition, although we shall take measures to ensure that it is used fairly.

We see the greatest scope for competition arising when new generation capacity is being ordered. The TDS company will announce a competition for new capacity later this year, and will reach agreement with the company which offers the best deal. I should underscore the point that no such competition would be held if TDS and the generators merely formed self-supporting parts of the same organisation.

On the supply side, we propose to introduce competition gradually as conditions warrant. The Northern Ireland system is small and vulnerable to disruption if proper regard is not had to the technical aspects of its operation. We cannot therefore throw it open to competing parties immediately. Our objective is to give freedom of choice to consumers in deciding on their electricity supplier, to the extent that it is possible to do so without jeopardising security of supply, or the stability of the market. We have asked the regulator to involve himself closely in how that should be developed.

Because of geographic location, the lack of local fuel supplies, and the small size of the system, Northern Ireland's energy prices are always liable to be higher than those in other parts of the UK. That is why we believe that competition is so important as a means of creating downward pressure on prices, without us having to resort to intrusive regulation.

The provisions of the main order require certain amendments to be made to a small number of GB enactments. For constitutional reasons, the order, which comes before us under the Northern Ireland Act 1974, is not competent to make those amendments. A separate order, made by virtue of the Northern Ireland Constitution Act 1973, is the appropriate vehicle for these provisions. That is why I am speaking to the second order.

In introducing this draft Order I have tried to outline its most important proposals, and to put them in the context in which we envisage them operating.

The NI economy has suffered from a variety of adverse circumstances—in particular, the combination of recession and terrorist activity—which together are unique in the UK. Anything we can do to promote economic growth in the Province must be considered carefully. Helping local industry to curtail its costs, and thereby retain a competitive ability, must be high on the scale of priorities. That is especially true with 1992 now here and as we progress towards a truly common market in Europe. I believe that the order will help in that respect and I commend it to the House. I beg to move.

Moved, That the draft order laid before the House on 27th November be approved—(Lord Belstead.)

1.15 p.m.

Lord Prys-Davies

My Lords, I thank the Minister for outlining the main provisions of this complex and detailed order which brings us to the end of what has been a long-running serial.

The Minister has explained that Northern Ireland Electricity is a small industry, very much smaller than the smallest electricity system in Great Britain. Yet it is the second largest employer in Northern Ireland and its employer/employee relationship is excellent. Northern Ireland industry, as the Minister has explained, is almost entirely dependent upon electricity so the decision to privatise Northern Ireland Electricity is crucial to the people of Northern Ireland.

The Government's decision, in principle, to privatise NIE was announced in July 1988. The decision was immediately examined by the Northern Ireland Economic Council, which is, after all, the Government's own advisory body. I should like to emphasise that the council's conclusion was that every possible alternative to privatisation should be explored with an open mind and great care. It went on to draw attention to a number of middle solutions between the status quo and privatisation.

The Northern Ireland Economic Council was mindful of the unique situation in which NIE found itself—a small industry serving a small population, part of which is thinly scattered over rural areas, and possibly inherently incapable of taking full advantage of economies of scale.

Apart from two or three organisations, one of which was specifically set up to press the case for privatisation of the electricity industry, there is little support for the privatisation of the electricity industry in Northern Ireland. There have been widespread and substantial objections to the proposal. If we leave aside those who are opposed, in principle, to privatisation—my colleagues and I on these Benches are opposed in principle to privatisation —the opponents of privatisation rest their case on one of three arguments. There has been objection to the structure proposed in the order because it involves the splitting up of the present integrated structure. That is one argument. Then there is a strong body of opinion which has not been satisfied that the proposal will achieve the fundamental aim of privatisation: namely, the reliable supply of electricity at a reasonable price to the consumer. We know that that aim has been asserted repeatedly, but there is a strong body of opinion which is not satisfied that it will be achieved. A growing body of opinion considers that it is premature to take a decision until about 1997, by which time the pros and cons should be much clearer.

Of those three arguments, I am unable to comment on the structure argument. As for the second, I believe that if we are fair-minded we should say that the jury is still out. Therefore, the decision should have been delayed, as advocated by the third group of opponents.

I have read most of the documents which have been made available to the public, but nowhere have I seen the Government's estimated costs of privatisation. When the Parliamentary Under-Secretary responsible for the order gave evidence to the Energy Committee of the House of Commons on 16th October 1991, he was specifically asked what he estimated the cost would be of privatising electricity in Northern Ireland. That was the second question addressed to the Under-Secretary of State and he replied: the costs … are pretty small in relationship to the benefits". Then he went on to say in abstract terms what the alleged benefits would be. That is recorded on page 2 of the report. However, it is no answer; it does not help us to assess the balance between the costs and the benefits. The reply is particularly unsatisfactory because it is a relative answer, and relative to a figure which has not been quantified because the benefits have not been quantified.

Having read and re-read the Parliamentary Under-Secretary's evidence to the Select Committee, I must sadly confess that I am uneasy about his approach to the Northern Ireland electricity system; uneasy, because he acknowledged that he was a passionate believer in privatisation. There is plenty of evidence from Northern Ireland that passionate belief in a doctrine generates a great deal of heat but seldom does it generate light and understanding.

The case for delaying a decision was put succinctly in the written evidence of Mr. Michael McGurnaghan of The Queen's University of Belfast, to the Select Committee. That evidence is summarised in paragraph 7 on page 102 of the committee's report. Mr. McGurnaghan said: Assessing whether or not the proposed privatisation of NIE will result in significant benefits for consumers and the wider Northern Ireland economy is not clear at this early stage. From an economic point of view, the main strength of the White Paper lies in its fundamental aim of proposing to change the general structure of the electricity industry in Northern Ireland in order to introduce a measure of competition into a monopoly. Against this, the inherent weakness of the plan would seem to lie in attempting to impose a competitive structure on a system whose small size provides little opportunity for competition. … The problem facing the government is that the provision of electricity in Northern Ireland may be inherently high cost due mainly to factors outside the local industry's control". That appears to me to be a fair and balanced assessment of the privatisation proposals.

Notwithstanding the reasoned objections, the deputations to Ministers and a deputation to Parliament, and notwithstanding that a general election is now imminent, the Government have pressed ahead to privatise the industry. The debate on Monday on this order in the House of Commons demonstrated the strength of feeling among all the Northern Ireland Members of Parliament who spoke. So far as I can judge, the Government have not won over any one of their opponents on the issue.

I thought that Northern Ireland Electricity received a great deal of unfair criticism from government quarters in the course of the debate. I am sure that the kind words of the noble Lord, Lord Belstead, in your Lordships' House today will be much appreciated by the men and women who have given service to the electricity industry in Northern Ireland.

Of course, the board has its faults. We on these Benches have been critical of its policies towards discrimination. However, the board was the agent of the department, the department was its principal. The board was accountable to the department, so I do not believe for one moment that it is right or fair that the Government should now transfer to the board all the blame for past investment decisions which, with hindsight, we can see were mistaken.

However, I wish to be fair to the department. The Government must take a huge slice of the blame for the investment decisions of the past 20 years made by the electricity board. The order, predictably, was passed by the House of Commons last Monday and in accordance with our stance in this House we shall not divide on its merits.

Thus, privatisation is to proceed apace. That being so, I obviously welcome some provisions in the order which the noble Lord, Lord Belstead, quite rightly underlined in his opening speech. We welcome the non-fossil fuel obligation written into Article 35, the duty to promote the efficient use of electricity in Article 45; and the emphasis on research to be found in Article 4.

I am pleased that there will be an electricity consumer council of lay people with special interests in the electricity industry. I was delighted to read yesterday that the General Consumer Council for Northern Ireland has given the proposed council its benediction, if I may use a theological term without causing offence.

I very much hope that the precedent established by the order in setting up the specialist consumer body of lay people will be followed in other sectors of the public services in Northern Ireland, particularly in the health service.

On the other hand, I am not so sure that the Government were wise in not appointing an independent director general of electricity supply for Northern Ireland. I acknowledge the weight of some technical arguments in favour of linkage with the director general for Great Britain, but there are and will be differences between the two systems and there is always the political dimension which, in the view of many of us, probably outweighs the benefit of those technical arguments supporting linkage with the director general for Great Britain.

I have three specific anxieties that I wish to place on record. I should be delighted if experience were to show that my anxieties are groundless. Indeed, they may be based on ignorance on my part of how this order will in practice work. My first fear is that in a few years' time privatisation of the industry will lead to a high percentage of the skilled, experienced craftsmen now employed in the industry being made redundant in the drive towards reducing the unit cost. I fear that that is a predictable outcome.

One can envisage station managers coming under increasing pressure to reduce unit cost, and to that end labour costs will be cut down to the bone. If that were to happen, that could undermine significantly the good employer/employee relationship which has developed over the years at Northern Ireland Electricity. I have already referred to that relationship. The new management structure at the interface between transmission, distribution and supply will require more managers but they will not be recruited from the ranks of the redundant skilled craftsmen.

Secondly, I fear that, again in pursuit of reduced costs and increased profit margins, station managers will also be driven to demand a local wages agreement for each station in the Province. I wonder what that would lead to.

Thirdly, I fear that the regulator may not be in a position effectively to monitor and control the unit price charged by station managers. I acknowledge that I have not seen a power purchase agreement. Therefore my comment may be expressed in some ignorance of the contents of a power purchase agreement. I must confess that I do not fully understand how the system will work. I am told that in practice the unit price does not remain constant over days or weeks let alone months, but may vary daily. That occurs for a number of reasons such as the condition of the boilers or the turbines on a particular day, or the need to generate maximum output to meet excessive demands due to exceptionally cold weather. We certainly welcome the appointment of the regulator but I am not so sure that he will be as effective as is hoped for.

There is no more I can usefully say about this complicated and detailed order. I repeat that our main regret is that the Government have failed, in Northern Ireland of all places, to come up with an answer to the problems of the industry which would rest within the middle solution and be supported by the people of Northern Ireland in general.

1.33 p.m.

Lord Holme of Cheltenham

My Lords, I join the noble Lord, Lord Prys-Davies, in thanking the Minister for his customary lucid exposition. It is of great help on a complicated issue that he should be leading us by the hand through it. Like the noble Lord, Lord Prys-Davies, we on these Benches are opposed to the order. I shall explain why shortly. We are not opposed to it for the reason the Labour Party opposes it; that is, on the grounds of the privatisation of electricity. We on these Benches believe, if anything, that the Government's privatisation proposals in the rest of the United Kingdom have not gone far enough and have not provided for enough competition.

I believe we all agree that Northern Ireland is a special case. I know the noble Lord appreciates my next point more than anyone. This House and Parliament as a whole have dealt with most issues that involve Northern Ireland on the basis of bipartisanship. There has been a great degree of agreement across and between the parties on the need to act first and foremost in the interests of the welfare of the people of Northern Ireland.

The problem the order confronts us with is that it appears that two out of the three main parties in Great Britain, the Energy Select Committee, the Northern Ireland Electricity trade unions, various consumer bodies—mentioned by the noble Lord, Lord Prys-Davies —and, according to a recent survey, over two-thirds of the general public in Northern Ireland, have grave reservations about the good sense of this legislation. It seems as if the Government are being led by mainland ideology rather than being influenced by a perception of what is right and proper for Northern Ireland. In other words, this is a piece of filling-in legislation. It is what the Government wanted in Great Britain and therefore feel obliged to impose on Northern Ireland. It does not appear that the Government are starting—as we would have hoped —from the basis of an analysis of what would be best for the organisation of electricity in the Province.

The problem with the electricity industry in Northern Ireland is its scale. The Minister has referred to that. It is a small-scale industry. The Government's response is to say that within that relatively Lilliputian market—I hope I may use that expression without sounding pejorative —we should have competition. However, they should really be asking how they can enlarge the market by making sure there is interconnection of Northern Ireland not only with the Republic of Ireland—we all appreciate the great security problems that have been posed in the past and might be posed again—but also with Scotland. That latter interconnection is possible and is in contemplation. If that occurred, Northern Ireland would become part of a larger electricity and energy market in which some of the ideas on competition begin to make more sense.

The specific problem with the order is that it does not seem to meet the Government's own objectives as originally set out in the White Paper. Noble Lords will recall that one of the objectives is that of competition and lower prices. As I said, the tiny size of the industry poses a problem, as does the need to have all four generators running most of the time in order to preserve sufficient reserve spinning capacity to make up for the isolation from other sources of energy. That means that any competition will necessarily be limited.

In some respects there is already competition. The Minister knows that competition has operated in respect of tendering arrangements for power station construction. The only real benefit is that potential operators will have control over design and fuel choice for the new generating capacity.

As regards lower prices, there must be an obvious concern that once the industry has been privatised, the interests and needs of consumers will become secondary to the financial interests of the purchasing companies, particularly if those companies do not come from the Province. If that is the case, they will have little direct commitment and interest in Northern Ireland's future as a society.

There will be environmental and new investment requirements laid upon the companies, especially as regards the purchaser —I shall come back to this—who takes on the obligations of the interconnector. Whoever takes on the installation at Kilroot 2 will have to make a substantial investment. That will create pressures to increase prices.

I have already mentioned the interconnector. The cost of the interconnector is relevant to the sell-off. I hope when the Minister replies he will be able to enlighten the House on the matter. We certainly need an assurance from the Government that funds—we all know EC funds are in contemplation—are earmarked and are potentially available for the interconnector. If the cost of the interconnector, which provides the best way of introducing lower electricity prices into Northern Ireland, is to fall in part or in whole on private companies, is it not obvious that that cost must be passed on to the consumer in the form of higher prices? The House may know that the estimated cost of interconnection with Scotland is between £180 billion and £350 billion.

Secondly, the Government set out as their objective the welfare of the consumer. On the question of regulation, they made a virtue of the fact that in a privatised industry regulation of the consumer interest will be possible. We agree that in a privatised industry good regulation is important. Like the noble Lord, Lord Prys-Davies, I express some anxiety that it appears to be envisaged that Professor Littlechild, the GB regulator, will take on the job of regulation in Northern Ireland. I may not be right about that; perhaps the Minister will enlighten me. It would be good to hear the definitive answer. On these Benches we agree with the Energy Committee report that it would be better for Northern Ireland to have its own regulator, since it has its own problems.

I should like to raise one other specific matter on the question of the welfare of the consumer; namely, that £120 million has already been sunk into Kilroot 2 equipment. As I understand it there is now no obligation on the purchaser to install that equipment, thus making the company easier to sell. That is potentially a financial disaster for the taxpayer as great as the DeLorean fiasco. Again, it would be interesting to hear what the Minister has to say about the future of Kilroot 2.

Finally, I should like to deal with the Government's other aim of promoting participation by employees of Northern Ireland Electricity and electricity consumers in the ownership of the industry. As your Lordships know, there are four stations which may be bought. It seems likely that two or three of the stations may now pass into the hands of foreign competition as a result of higher bids. If one of the objectives was to create local ownership it would be cold comfort for Northern Ireland consumers to see Belgians and others with a large stake in the ownership of their electricity generators. Normally on these Benches we would be happy to see international movement of ownership, particularly within the European Community. We have no objection to that. However, the Government will acknowledge that in view of the sensitivities in Northern Ireland, and when they themselves set out with the objective of local ownership, that would not be in accordance with their intention.

The orders are clearly a fait accompli. This is a last chance for parliamentarians to express a view on them. Given that the Government are determined, at this very inopportune time, on the eve of a general election, to press ahead, there are questions which should be answered.

1.45 p.m.

Lord Fitt

My Lords, during the passage of this order through another place every voice representing the electorate of Northern Ireland expressed grave apprehension and anxiety about the Government's intention to privatise the Northern Ireland electricity service. Here we are today in this part of the building faced once again with an order which cannot be amended. The Government have made up their mind, irrespective of all of the views which have been forthcoming from Northern Ireland about the people's worries about the issue.

It was said during the course of the debate in another place that massive legislation of this kind—I believe that there are 98 clauses and a number of schedules—affecting any other part of the United Kingdom would have necessitated a Bill, which could have been amended by those who would be affected by its provisions.

I also noted that, in expressing his enthusiasm for what he considered was likely to happen after privatisation, the Minister in another place referred constantly to the success of British Telecom since privatisation. I have not noticed any great success. The Minister is telling the people of Northern Ireland that their telephone calls are 27 per cent. cheaper and that they are getting a fair deal from the privatised telecommunications service. I have not heard anyone express enthusiasm for British Telecom since privatisation.

It has already been said by both noble Lords who have spoken that Northern Ireland is unique. Northern Ireland is not as British as Finchley, as we were once told. What is good for Edinburgh or Cardiff may not necessarily be good for Belfast. In spite of the difficulties they have in agreeing with each other on any subject, many Members of Parliament in another place expressed their opposition to the provisions of the order.

In justifying his stance the Minister quoted selectively from those organisations in Northern Ireland which seemed to support his view. It is recognised that the Conservative Party believes wholeheartedly in privatisation. Therefore, the Minister would accept any views put forward by any organisation which supported his own dogmatic political view. However, one of the organisations in Northern Ireland which is under his control and whose members were appointed by the British Government is the Northern Ireland Economic Council. After all, the British Government have been in control of everyday affairs in Northern Ireland since 1972 following the abolition of Stormont, since when many councils have been set up under the aegis of a succession of governments, both Labour and Conservative. The Northern Ireland Economic Council, after deliberating on every aspect of the proposed changes, told the Minister that there is no obvious case that they will bring benefits to the people of Northern Ireland. Yet the Minister persists in disregarding such advice while accepting other advice from less important organisations in Northern Ireland which seem to support his view.

There has been a public monopoly in electricity in Northern Ireland for many years. As my noble friend Lord Prys-Davies said, since the introduction of direct rule the Northern Ireland electricity authority has been the child of the Northern Ireland Office, which is in effect the government of Northern Ireland. We have heard that over the years mistakes have been made, that investment decisions have been made which proved to be disastrous, and that the management has been totally wrong. The Minister in another place used the term "a mindset" —that because it was a public undertaking people's minds were set on the view that the industry should be allowed to continue as it wished without worrying about success.

The problems were not solely the responsibility of the NI electricity service. It was the responsibility of the Government to examine how the organisation was run since 1972. It was said in another part of the building, at a time when I was living in Northern Ireland, that the Northern Ireland electricity service had an obvious political slant. It had taken many decisions, with which I would not have agreed, which involved discrimination. Again, it was the policy of the Government to give directions to NI electricity service to ensure that it had a better political image and economic record. They did not. Now that they have taken the decision to privatise the service they place all the blame on the Northern Ireland electricity service.

That is not in fact an attitude that will be accepted by the people of Northern Ireland. They are now asked to accept that there will be a private monopoly rather than a public monopoly. Again, there are those who are opposed to the Northern Ireland electricity services. The very fact that one opposes the order does not mean that we are all great enthusiasts for the Northern Ireland electricity service; it does mean that we are asked to take a leap in the dark because of the Government's dogmatic views on privatisation. Their view is that everything will be all right in future and they have proved it with British Telecom. If any reading is taken from British Telecom and made applicable to what is likely to happen in a future Northern Ireland electricity undertaking, there is nothing there to make anyone very enthusiastic.

Again, there is the matter of how this order comes before the House. Elected representatives in Northern Ireland say that it should have been a Bill or have come before a Select Committee and the opportunity given to amend it. There is some validity in those observations. We have seen what has been happening over a number of years and particularly over a number of weeks. A poll has taken place in Scotland, in which it now appears that over 50 per cent. of the population in Scotland favour independence and a break from Westminster government.

One of the reasons why that attitude has become so prevalent in Scotland is that Scotland returns a majority of Labour MPs who are opposed to the Conservative Government. They feel that their views are not heard in relation to serious issues such as the poll tax, and so on. Naturally, where there is such discontent it will be fed upon by those who want to see a break-up of the United Kingdom.

The same can happen in Northern Ireland. In fact, Northern Ireland presents a much more serious situation. There have been ongoing constitutional problems since the creation of the state, and more particularly over the past 20 years. The Government should be careful when introducing orders of this kind to ensure that the views of ordinary people in the street and their representatives have been taken into consideration. It appears to me that in the introduction of this order that has not been done.

I believe that there is great apprehension about how the electricity organisations in Northern Ireland will act under privatisation. I have great concern about it. I believe that there was no need for the Government to push forward legislation at this time with such enthusiasm. It may be that in doing so they will create difficulties which at the moment cannot be foreseen.

1.53 p.m.

Lord Skelmersdale

My Lords, I had not intended to intervene in this debate. However, there are occasions in your Lordships' House when the Ministers on the Front Bench, and occasionally Members from the Opposition Front Bench, are in a rather lonely position. This afternoon is one of those occasions. The British taxpayer has always willingly taken on board the special requirements of Northern Ireland in the amount of finance which is projected in that direction; as, indeed, has also been done for Scotland and for Wales.

In this debate on the privatisation of electricity in Northern Ireland there is another point of view which needs to be put; namely, the view of the British taxpayer. In 1982 I had the enormous privilege of co-sponsoring in your Lordships' House, the Bill which undertook the first of the current series of privatisation exercises—that of Amersham International. I formed the view then, and I retain it today, that there is no justifiable reason for a Government of this country, or indeed any other country, to perform tasks which can realistically, rationally and better be done by other people—"other people" in this context meaning the private sector.

That view has been strengthened during the course of this debate. We all know that electricity generation in Northern Ireland, which is to be provided privately in the future on a competitive basis, is undertaken in four stations (if my memory serves me rightly) which are in need of substantial modernisation. That involves quite a large cost. I believe that that is not for the taxpayers of the whole of the United Kingdom to finance. It would be done far better by the City institutions and private capital.

I also believe that the department in Northern Ireland has taken enormous care over this order. As we heard, not only are the generating stations to be competitively tendered for individually, but the difficult problem of distribution is to be carried out by a single entity. In the particular and peculiar circumstances of Northern Ireland, I believe that that is right. My noble friend gave a very clear exposition when introducing this order. He and the Government as a whole are to be congratulated on it.

1.57 p.m.

Lord Belstead

My Lords, I am grateful to my noble friend Lord Skelmersdale for saying a few words in support of the order at the end of the short exchange that we have had this afternoon. I am also grateful for some of the remarks that noble Lords have made, particularly the noble Lord, Lord Prys-Davies, from the Front Bench opposite who, although critical of the order, welcomed certain aspects of it. He also put his finger on, for instance, the specific statutory provisions for research, the emphasis on environmental matters and the setting up of the Electricity Consumer Council. I have taken only three of the points made by the noble Lord in his rejoinder.

Both the noble Lords, Lord Prys-Davies and Lord Holme of Cheltenham, asserted that not only was there very little support for the new structure being set up in Northern Ireland for electricity privatisation, but that there would be inherent problems. Indeed, the noble Lord, Lord Holme, went so far as to say that he felt that the legislation did not fulfil the objective of competition set out in the White Paper.

In reply to him to begin with, perhaps in a rather general way let me urge noble Lords to remember that we start off with a comparatively small system, which has not been good, particularly for industry and commerce, in terms of cost. In Northern Ireland so long as I can remember it has been a concern that in cost terms, taking corresponding types of business across the water in Great Britain, there has been a power disadvantage in Northern Ireland.

In addition, the noble Lord, Lord Prys-Davies, put his finger on what is always an important point—whether we would be able to rely on supply. At the present time one of the problems is that some 70 per cent. of the power for the four stations in Northern Ireland comes from oil. There is a very heavy dependence on one particular fuel. In that context I believe that there are some good spin-offs from the privatisation proposals. I shall put my finger on four of them.

First of all, British Gas is interested in the Ballylumford power station. We believe that by stipulating in the proposals that we have made that there should be dual oil-gas firing, we shall find that gas will at last come to Northern Ireland. The exciting prospect is the possibility of developing that for the industrial and domestic markets.

Secondly, we have been asking the industry as a whole to think about its sources of supply perhaps more deeply than it otherwise would have done in a monopoly situation. We now have heads of agreement signed for a Scottish interconnector between Scottish Power and Northern Ireland Electricity. The noble Lord, Lord Holme, asked me a specific question about costs. All I can say today is that Ministers in Northern Ireland have already initiated discussions with the European Community authorities. There were discussions quite recently in the Community about a subvention from EC funding for that. In principle, Community funding will be made available but the details remain to be worked out.

Thirdly, I believe there is a good spin off from privatisation proposals. We have sources of lignite in Northern Ireland, to be found in the north around Crumlin and Ballymoney. When there is an open competition as the two oldest stations come up for retirement, we shall find that a competitor fuel will be lignite. I am advised that it is a comparatively clean fuel. That again will be important in terms of European Community rules about power station emissions.

Finally, if, only a few years ago, one had asked whether anyone would be interested in the sale of the four power stations in Northern Ireland, I believe that people would have been sceptical. Today we know that not only do we have bids for the four power stations but those bids are of a high quality. Therefore when considering the problems that Northern Ireland faces in a monopoly situation with regard to electricity generation, distribution and supply, I beg your Lordships to note that we are beginning to see those spin offs.

Noble Lords have understandably referred to the devoted people who work in Northern Ireland Electricity. I go along entirely with what the noble Lord, Lord Fitt, and others have said. Those people have done a good job in a typically Northern Ireland way. However, I depart from what noble Lords said in that I believe the structure has been against those people. The noble Lord, Lord Prys-Davies, referred to problems in the past of investment. If there has been a problem, it is the inherent problem of trying to produce money—for what ought to be a commercial undertaking—from public sources; and it does not work. It is one of the arguments in favour of privatisation.

The noble Lords, Lord Prys-Davies and Lord Holme, asked in particular about the status of the regulator. Mr. Geoff Horton who has been appointed is indeed closely involved in the Great Britain office and in the Great Britain OFFER. However, his office will be a separate office. When he takes up his post it will be a separate post from that on the mainland. We shall have "the Northern Ireland regulator". The intention is that he will carry out his duties in full in April.

The noble Lord, Lord Holme, also spoke of the danger of foreign bids. As I mentioned in my opening remarks, there is a bid from the combined United States Belgian consortium. I believe that the main area where competition can be introduced for the Northern Ireland electricity industry is in new generation capacity. We hope to see it reflected in later supplies. It is reflected in the Government's proposals for the structure of the industry and for competitive tendering which will help to reduce the cost to the consumers. At present the Government have said nothing about a special share. We have not stated whether or not we shall go for one. When considering those who bid, whether or not they come from outside the shores of Northern Ireland, if it is a high quality bid, that will be good for the consumers of electricity in Northern Ireland.

The noble Lord, Lord Prys-Davies, asked me about possible redundancies of skilled workmen. I do not believe that that is inevitable. I believe that skill will always be required. Indeed the noble Lord will be well aware that usually the great cry when the economy revives is that it is difficult to obtain the skills that are required. A balance has to be struck between overmanning—which is obviously inefficient and costly for consumers—and decimating the workforce. The unions are already discussing personnel issues with those who are interested in the new generating stations.

The noble Lord, Lord Prys-Davies, indicated three areas which particularly worry him. The third referred to the control of the unit prices paid to the generators. The prices to be paid by the firm, which will be called TDS, to the generators depend on the power purchase agreements. For new plant Northern Ireland Electricity will have an incentive to contract at the lowest possible cost. In addition, NIE will have a duty to purchase electricity economically. That is a key condition of its transmission and public electricity supply licences. That requirement will of course be enforced by the director.

The noble Lord, Lord Holme, was concerned about a conflict of financial interests versus consumers' interests. I believe that competition is the best safeguard of consumers' interests. Where competition is not feasible the regulator will have the best possible powers to protect the consumers. The licensing regime has specifically been tailored to the special features of the small presently isolated Northern Ireland system. It has been designed to encourage NIE and the generators to behave as far as possible in the best interests of the consumers and economy. In particular the price regulation conditions applying to TDS encourage it to promote energy conservation.

The noble Lord also asked me about Kilroot 2. In order to maximise the opportunities for competition, it has been decided, as the noble Lord well knows, that the next tranche of generating capacity required by NIE (to be TDS) will be commissioned following an open competition. If Kilroot 2 proves to be the cheapest option, it will win the competition. However, the objective is to ensure the lowest price for consumers.

I hope that I have answered all your Lordships' questions. I shall read the debate and, if not, I shall write to noble Lords. After a lengthy debate and with another piece of business to be dealt with, I commend the order.

On Question, Motion agreed to.