Baglan Energy Park Project

HL Deb 17 December 1998 vol 595 cc1502-16

2.21 p.m.

Lord Howe of Aberavon rose to ask Her Majesty's Government what proposals they have to secure the future of the Baglan Energy Park project in Neath-Port Talbot.

The noble and learned Lord said: My Lords, in asking Her Majesty's Government what proposals they have to secure the future of the Baglan Energy project in Neath-Port Talbot, my principal purpose is to impress upon the Secretary of State for Trade and Industry and indeed his colleagues the urgency of the case for enabling that project to go ahead as soon as possible and without further delay.

The problem and the related proposal for an energy park both arise from the relocation over some years of BP activities from south-west Wales to sites closer to the North Sea oil and gas fields. They started, as far as concerns Baglan, in 1994, with the closure of the ethylene cracker there. The most recent announcement, about a month ago, foreshadowed the disappearance over some time of half the remaining 300 jobs at Baglan.

Ironically, that announcement was accompanied by the further announcement of new investment by BP in Hull and Grangemouth, creating on that side of the country more than 3,000 jobs and supported by the granting of two consents under Section 36 of the Electricity Act 1939, precisely the consent required for the Baglan Energy Park. The answer in the form of the energy park, about which I shall say a word in a moment, is put forward not just by BP but with the full support of all the local authorities in the region and of the Welsh Development Agency. It is a project for which Section 36 approval has so far been withheld because of the moratorium imposed under the energy policy, announced initially by the Government last December and confirmed in October this year in the White Paper, Cmd. 6041.

I wish to say just a few words about the position of BP and my own position. BP's position in relation to the project at Baglan is overwhelmingly driven by a wish on its part to mitigate benignly the consequences of its eventual departure and is much to be supported for that reason. I mention myself merely to say that I currently have a consultancy relationship with BP in relation to quite different matters outside this country altogether.

The energy park is a unique and imaginative venture. It seeks to make good use of the large site, up to 1,500 acres, which will become available on the departure of BP, alongside the M.4 between Neath and Port Talbot, with a convenient exit nearby. The project is capable of creating some 6,000 jobs if it is granted the availability of new on-site power generation. The proposal relates to combined cycle gas turbine plant which would offer competitive energy to investors. That would be the unique selling point of the location. In an ideal place, electricity would be available at up to 30 per cent. below the cost of its availability elsewhere because of the presence of the generator on site. At last there would be a chance so far as concerns south-west Wales of offsetting the disadvantage there as compared with sites further east. The volume of direct inward investment coming to south-west Wales per head of the population has been only one-tenth of the volume coming to south-east Wales.

The idea for the energy park has been developed from 1994 onwards by the Neath-Port Talbot county borough council. It is the borough in which I was born and of which I and the noble and learned Lord the Attorney-General are both freemen. The idea was brought forward by that council in partnership with the Welsh Development Agency and BP and possible prospective independent power producers. It was launched formally in 1996 and the first of the two consents necessary—that under Section 14 of the Energy Act 1976—was granted as long ago as October 1997. It is the second licence under Section 36 of the Electricity Act applied for in 1996 which is still awaited and which has been held in abeyance since the moratorium was announced in December last year. A year later this project, which is so important for employment, is still waiting, and in the current 12 months some 2,800 job losses have been announced in the borough, to add to a total of some 20,000 over the past 20 years.

The most important underlying long-term cause for the decline in employment is undoubtedly the decline of the coal industry. Thirty years ago, when the cousin of the noble Lord, Lord Hooson, the late Tom Hooson, and I wrote a booklet about the Welsh economy, some 10 million tonnes of coal a year were being exported from Swansea and Port Talbot; 109,000 people were employed in the coal industry in Wales; and seven pits were working in the Afan Valley and the Aberavon constituency. Now, for Wales, in effect the age of coal is all over. That is why the proposers of the energy park so desperately need that project to replace the pits. It has been advanced with the firmest possible support of the City of Swansea; the South-West Wales Economic Forum; the West Wales Training and Enterprise Council; the West and South-West Wales Chambers of Commerce; the Welsh Local Government Association; and the Welsh Development Agency, which has already committed in principle almost £5 million to the development project and has secured positive expressions of interest from 14 investors capable of creating some 1,600 jobs.

So I come to consider the only obstacle to the progress of this enormously worthwhile project. I refer to the evolution and apparent application of the Government's energy policy as confirmed in the White Paper published just over a month ago. I emphasise that it is no part of my purpose today to overthrow that policy. It would be futile to try to do so. I understand why it was brought forward. I wish merely to dispel its serious negative impact on this very positive project. The trigger for the revised energy policy was the impact of the dash-for-gas and its impact on the coal industry in places where it still survived.

The very same factor as that which inspired the project was the inspiration of the policy. The task is to achieve a sensible reconciliation of those two. It would be ironic, indeed tragic, if one should impede the other.

So I invite your Lordships to consider for a moment some of the details of the White Paper CM/4071 which, in my judgment, show no reason why the policies should be in competition with each other. First, in paragraph 10.05 of the White Paper, the director of energy supply, Professor Littlechild, said that if the policy then in prospect was adopted—about which he was less than enthusiastic—it would be helpful if it could be operated in a flexible fashion and reviewed and relaxed at the earliest possible opportunity.

To that, the Government responded in paragraph 10.19 of the White Paper that their policy consisted of a general presumption that new gas-fired stations will normally be inconsistent with the policy objective. I emphasise the two words "general" and "normally" because they set out a presumption which is, by definition, a rebuttable presumption. If one turns to what is said elsewhere, the Government say: The policy will be short-term, temporary and aimed specifically at protecting diversity and security of supply". More important than that, they say that, particularly where one of the two necessary consents has already been granted, in paragraphs 10.26, 10.30 and 10.31: The Government commits itself to taking account of all the circumstances of a particular case, taking care to weigh the impact of the interests of the promoter against the wider public interest and diversity and security of supply". They emphasise that even more strongly in the case of any project which is a combined heat and power project.

It follows from all that that any attempt to confine approval within the precise wording of the White Paper, whether wording of principle or of the exception, would be not only unnecessary but actually misconceived. The Government are committed and, indeed, obliged—as one would expect—in law and in fact to consider any application on the basis of all the circumstances of that case. The legitimacy of that approach has been confirmed by experience, first, in Wales, at Shotton—admittedly in relation to a combined heat and power project—where a consent has been granted. Also, in reference to cases on the part of BP, at Grangemouth and at Saltend in Hull Section 36 permits have been granted. It is notable that in those places the permits have been granted where employment opportunities are expanding dramatically as a result of BP's transplantation. It would be most unfortunate if permits were denied in South Wales where exactly the opposite is happening.

I come to three closing points, the last being the most important. First, what effect will an approval here have on security and diversity of supply? The director of operations of Swalec confirms that South Wales itself suffers from a serious deficiency in generating capacity, with the coal-fired station at Aberthaw being the only operational station. So in his judgment, the addition of the Baglan Bay project would positively contribute to the Government's objective in that respect.

Secondly, environmentally there were some objections from local interests. That is understandable because I know as well as anyone that Port Talbot is not notorious for the universal permanent cleanliness of its atmosphere. The most important feature is that 1,100 megawatt CCGT, even on that scale, would represent a substantial environmental benefit because it would have lower emissions to air than the existing BP generator which burns heavy fuel oil, (HFO) and gas.

I now come to my final point. BP's application is in two alternative forms. The application remains on the table, open for approval in more than one of those forms. The original application was for an 1100 megawatt station. That is to remain on the table. The alternative application put forward quite clearly is for a two-stage or three-stage approach to the matter. The two stages of the first part of it would be, first, a 270 megawatts combined heat and power scheme. Secondly, if no investors with heat load equivalent to BP came forward, it would comprise the fitting of a steam turbine to make a single module of 400 megawatts GCGT. Both those two things together form part of that alternative. However, BP stresses that that is viable only if consent to both those two parts is forthcoming together. At a later stage BP would be happy to seek consent for the full 1100 megawatt project.

I received from the Secretary of State this morning a letter dated 14th December which states that BP had notified his officials that it would not proceed with any application for a smaller station. I want to say as emphatically as I can that that is neither my understanding nor the understanding of the Chief Executive of the Port Talbot and Neath Borough Council, to whom I spoke this morning, because we are each in possession of a letter from BP dated 16th December which states, Please be assured that BP has not withdrawn its application to build a power station at Baglan Bay. We remain, as ever, fully committed to the regeneration of employment through the energy park and to the provision of competitive energy. We believe that we are flexible in evaluating any options which meet the current stricter consents policy … We have looked hard to identify alternatives which meet the above criteria and thus far have been unsuccessful … A balanced CHP scheme would meet the existing consents policy". And that has not yet been arrived at.

There is clearly confusion somewhere here about the nature, scope and impact of the existing consents policy, because CHP is not an essential feature for approval under the existing policy. It is one of the alternatives identified. The existing policy is for each proposal to be considered on its own, with all the circumstances being taken into account. That existing policy on that basis not only permits, but also requires, full consideration of all the factors adding to the merits of the case. It requires Ministers to address the right question. That question is not: does this case fit the minutiae of existing policy formulae already published? The right question surely—and above all in these circumstances—is: how can we be sure that a policy or formula originally propounded to help people or places threatened or affected by the decline of the coal industry does not work gravely to the disadvantage of one of those areas, and thousands of people, who are already most gravely affected by the decline of that industry?

The BP letter states—this is the optimistic point—that it has not found the right answer "thus far". However, BP, the borough council, the Welsh Development Agency, and all those who support them, are eager to find the right answer. So, too, are the two local Members of Parliament in whose constituencies this project arises. Happily both of them are Members of the Government. Peter Hain at the Welsh Office is the Member for Neath and my old and learned friend, the well respected lawyer, the Attorney-General, John Morris, is the Member of Parliament for Aberavon. Moreover, he is a former Secretary of State for Wales. He is a lawyer for whom I have great respect because he is the kind of lawyer of whom most laymen would most approve. He is not someone who tells you why you cannot do what makes total sense; he is someone who helps you to work out the best way to achieve an objective, if it is possible to achieve it. According to the newspapers he is due to meet the Secretary of State on the 21st of this month, three days before Christmas. I hope that nothing that the Minister will say this afternoon—I am sure I can be confident about that—will do anything to impede a lawyer of that talent and of that interest, working together with a Secretary of State of such well advertised talent, to find the right answer to this question.

The cry of the Prime Minister at his previous attendance at the European Council was, "jobs, jobs, jobs". This application is about jobs, jobs, jobs in an area that desperately needs them. The Ministers have it in their power to arrive at the right answer.

2.39 p.m.

Lord Crickhowell

My Lords, I congratulate my noble and learned friend Lord Howe of Aberavon on asking this important Question on behalf of the community in which he was born and brought up. First I must declare an interest. I am a director of Associated British Ports Holdings plc, the owner of the port at Swansea, Port Talbot dock and the Port Talbot tidal harbour, and a strong supporter of the Baglan Energy Park project.

I have interests, but not of a commercial kind, that go back much further. When I became Secretary of State for Wales in 1979 I found Welsh industry in a parlous condition. Much of it was overmanned and uncompetitive. The British Steel Corporation was forced to reduce huge overmanning at the Llanwern and Port Talbot strip mills and to close its tinplate works in South Wales. Further west at Llanelli the steel works and car component manufacturers closed down. Coalmines closed with a rapidity which exceeded even the most pessimistic forecasts. The impact on suppliers, the ports and other trades has been severe. The development of the North Sea oil fields dashed hopes that the oil terminals at Milford Haven would provide a long-term foundation for industrial development in south-west Wales. In due course it meant that long-established oil and chemical operations would move to the east coast.

In the years that followed the Welsh Office, government agencies, local government and the private sector have been remarkably successful in attracting inward investment to Wales and re-establishing a diversified industrialised economy, but it has been much easier to do it in the north east and south east corners of Wales. Further to the west it becomes more difficult. There is almost an invisible barrier somewhere to the west of Bridgend. That was a fact of which I was acutely conscious as the Member of Parliament for Pembroke.

Much has been done even in the Swansea and West Wales region. Port Talbot is now one of the two most modern strip mills in the world and BSC is one of the most efficient steel companies in the world. That is a remarkable and encouraging step forward. The Swansea valley is no longer one of the most polluted spots on earth but home to many modern industries and commercial organisations. Inward investment has been attracted to sites around Baglan. I am glad to say that ABP has been able to re-open the long-closed Port Talbot dock. The tidal harbour can now take the largest coal and ore carriers needed to service the steel works and has the capacity to handle traffic for other projects that require that kind of facility.

However, as my noble and learned friend has informed the House, much more needs to be done particularly at a time when we are confronted with another severe spate of job losses. I have no doubt at all that it will be a high priority of the Welsh Development Agency and the new Welsh Assembly to move industrial investment west to Port Talbot and beyond as far as they have the ability to influence the decisions of industrialists.

Against that background, government policy appears to be perverse and inflexible. A central object of the Government's energy policy is to assist the coal industry and to save jobs. If we are to have such a policy it makes sense only if it avoids the creation of job losses elsewhere. It needs to be flexible enough to reinforce job-creating projects and not undermine or destroy them.

The press release of Neath-Port Talbot County Borough Council issued on 26th November makes disturbing reading. It tells us that, A delegation from South Wales led by Noel Crowley, Leader of Neath-Port Talbot Council, walked out of a meeting with Department of Trade and Industry officials … in a row over the future of the Baglan Energy Park". The press release goes on to say that, according to Mr. Crowley, it became clear just after one hour that all the officials were interested in was whether the precise words of their energy document fitted the scheme. He said that they were not concerned with job losses, extra jobs or the fact that the whole of south-west Wales was behind the project, despite what my noble and learned friend said with such authority about the assurances given in the White Paper, their legal implications, and the wording of the energy policy.

This is an imaginative project. Instead of blocking this BP-led initiative the Government should be seeking energetically to reinforce the company's efforts. This is a remarkable, almost unique, site of 1,500 acres, of which 750 are readily capable of development with magnificent road and rail communications, good port facilities, cheap energy and steel.

When Secretary of State I was confronted with the decision of the Nissan company to establish a major car manufacturing plant in this country. I discovered that there was no large industrial site readily available anywhere in Wales. During the planning procedures of the previous decade no one had apparently considered that such a site might ever again be needed. We learnt then, as we have learnt subsequently, the value of having such sites available.

This is a magnificent site. It is magnificently located and with the advantage of the cheaper energy and steam it surely will be able to attract significant new projects. Indeed, there are encouraging prospects from the inquiries which have already been made if—it is an important "if"—the project is allowed to proceed. I believe that if there is the political will, it can proceed. We ask the House this afternoon to assure us that they will create that political will and the desperately needed jobs in that part of South Wales.

2.46 p.m.

Lord Hooson

My Lords, I thank the noble and learned Lord, Lord Howe, for alerting me to the problem and for the way in which he couched the Question. It is interesting to note the terms of the Question which no doubt the noble Lord, Lord McIntosh, will bear very much in mind. The Question asks what proposals Her Majesty's Government have to secure the future of the Baglan Energy Park project in the present situation. I suppose that I have an interest to declare. I am chairman of the Severn River Crossing Company which is responsible for both bridges across the Severn. It is arguable that if there were an increase or decrease in bridge traffic it is an interest that I should declare and I so do.

Two things seem obvious about developments in industry in Wales. I regret as much as anyone the decline in industrial production and in the industrial health of this country in general, and in Wales in particular. Of two criteria for success, the first is close proximity to good communications. The Baglan Energy Park is on an all-important junction of the M.4. It is virtually at the end of the M.4 corridor. It is at the wrong end from the point of view of prosperity, and that is the great problem. Nevertheless, it is a well-placed site. The second is that any development must be close to a cheap and reliable source of energy. With the decision announced some time ago by BP to close its oil-fired electricity generating plant, and with the Government putting consideration of the future application and use of the park on ice, this area has suffered what can be called a double whammy.

The real issue seems to be this. However anxious the Government are to help what remains of the coal industry, which one can perfectly understand, can they afford in the discharge of their duty to Wales, and in particular to this vulnerable part of south-west Wales, to allow the moratorium to override the desperate need of the area for this development? There is not the slightest doubt of the desperate need. This is not a party political issue of any kind. I think that Members of all parties are very anxious about it.

It really depends upon the Government's appreciation, it seems to me, of two factors: first, the local factors, the likely short-term and long-term effect of frustrating the development by delay. What does that entail for the short-term and the long-term future of the area? I would have thought that for the long-term it would be very serious indeed and for the short-term the cause of alarm and despondency to a high degree.

The second consideration is to appreciate the depth and seriousness of the present economic problems facing this country generally and indeed the global economy. Private investors do not hang about if there are rejections or delays. The noble and learned Lord, Lord Howe of Aberavon and the noble Lord, Lord Crickhowell, both adverted to this point. Of course developments go elsewhere. People have been lined up by BP to assist with the development of an energy park and they are not going to hang on if the matter is delayed indefinitely.

There is really no alternative here either on environmental or economic grounds. I have had representations made to me of how desirable it would be to have a green development of the park. However much we would like to see a green development—and the noble and learned Lord, Lord Howe, who has much greater knowledge of the area than I have, referred to environmental problems throughout the area—a coal-fired generating station is not a feasible project here, on environmental grounds if nothing else. And of course on economic grounds there is no available alternative.

I have no doubt really that everything points to the urgent need to approve the development. South Wales generally, and the south west of Wales in particular, need regular, guaranteed and cheap electricity supplies. We will not attract inward investment without that kind of provision being made. It seems to me, from everything I have read, that this development would provide an additional secure source of production. I understand that Mr. Mandelson is to deal with this matter. Should he really allow this moratorium at the present juncture? I happen to believe that the economic crisis facing this country—and it is also a global one—is much more serious than most people have acknowledged so far. If we miss this opportunity, months and weeks are very important now. It is not a matter of years. There is an urgent necessity to approve the development unless we are prepared to see the prospect of 6,000 jobs disappear in a part of Wales which simply cannot afford that.

Mr. Mandelson appears to me—although I have no recollection of ever meeting him—to be introducing a much more flexible approach in his department, which I entirely commend. I hope he will listen carefully to the views of Mr. John Morris MP and Mr. Hain, both of whom are very much involved in this matter. All parties in Wales regard it as of vital importance for the future prosperity of the Principality. I warmly support all the efforts made by the noble and learned Lord, Lord Howe. We look forward with interest to hearing the Minister today deal with the actual question: how are Her Majesty's Government going to deal with this problem?

2.55 p.m.

Lord Roberts of Conwy

My Lords, first, I apologise for the poor quality of my voice due to the onset of one of those colds which has laid low so many Members of your Lordships' House over the past few weeks.

I begin by adding my congratulations to those already given to my noble and learned friend Lord Howe of Aberavon on initiating this debate on a subject of great interest and relevance to the area associated with my noble and learned friend's title.

Baglan is at the heart of the new county of Neath-Port Talbot which is giving its full support to the energy park proposal along with all the other major players in that heavily industrialised area—BP Chemicals, Swalec, the electricity distributor, British Steel, the Welsh Development Agency and a host of other bodies reeled off by my noble and learned friend.

But the fact that the project has attracted the support of my noble and learned friend carries considerable weight. I am sure that the Government will pay due regard to the powerful and detailed case which my noble and learned friend advanced for this project. He has been ably supported in that by my noble friend Lord Crickhowell and the noble Lord, Lord Hooson.

My approach to the project was via the combined heat and power station to be sited close to the Shotton Paper Mill in the Deeside Industrial Park in North Wales. That application, too, was caught for a time by the moratorium resulting from the Government's review and restatement of energy policy in the White Paper of October 1998. I was among one of those who made representations that the scheme should be allowed to go ahead. I am glad to say that the Secretary of State for Trade and Industry has now given his consent for that excellent scheme.

Although the Shotton scheme was intrinsically sound and fully integrated, there were planning objections of an environmental nature. Those were the main cause of the hold-up, together with the fact that the Government had to consider the scheme in the context of their new statement of policy. Some 51 planning conditions were agreed between the company and the planning authority. They are now attached to the planning permission deemed to be granted.

The difficulties facing the Baglan energy scheme appear to be of a very different order. First, there is the difficulty that BP Chemicals cannot guarantee that it will be available to provide steam to the site indefinitely. As I understand it, there is a planned run-down of the BP chemical plant. Therefore, the long-term feasibility of the first stage proposal for a 270 megawatt combined heat and power plant has been called into question.

Such a proposal, were it feasible, may well accord with the Government's energy policy and may receive the go-ahead, as Shotton has done. But as I understand it, no alternative supplier of steam to BP Chemicals has yet been identified and so the entire scheme is stymied, if I may use that golfing expression, with the Government's energy policy constraints lying between the scheme and its realisation, hence the importance of the smaller starter scheme.

But it has already been pointed out in the debate that the concerns which underlie the Government's energy policy, well understood as they are, derive themselves from other factors. But there are other equally valid concerns such as the promotion of industrial and manufacturing development and the consequential preservation and creation of jobs. Those considerations are of tremendous importance, particularly to us in South Wales. It is such concerns that originally inspired the Baglan Energy Park scheme, as my noble and learned friend said in his opening speech, with the power plant as its centrepiece. The original proposal was for a 1100 megawatt plant that would provide energy on a highly competitive basis, thereby attracting new users to the site and helping to stabilise the current fragile supply situation in South Wales. The new plant was to replace the existing BP Chemicals generation plant and deliver substantial environmental benefits by reducing emissions to the atmosphere.

That is clearly an important consideration to local people who, according to Monday's Western Mail petitioned against the 1100 megawatt plant on the grounds that Port Talbot already has, one of the worst records of air quality in the country". I am inclined to agree with my noble and learned friend who commented on this; I do not believe that the petitioners fully appreciated the improvements in emissions that the 1,100 megawatt scheme was intended to bring.

The raison d'etre of such a scheme is probably stronger now than ever and arguably transcends the reasoning behind the Government's restrictive energy policy in the particular circumstances of the Neath-Port Talbot area. Those of us familiar with the area know of its high dependence on heavy industry; we have heard a great deal about coal and there is a heavy dependence on steel. There has been an abiding desire to attract alternative businesses to the area. It is estimated that some 2,800 manufacturing jobs, many at British Steel and BP, have recently been lost. The need to replace them is becoming acute and likely to become more so as time passes.

Unemployment in the area is above the Welsh average and clearly causing concern. The role of the Baglan Energy Park in creating eventually some 6,000 jobs has been well thought through and accords with the thinking of the Welsh Affairs Committee which published its report in November of this year under the title Investment in Industry in Wales. It said, A necessary aspect of infrastructure is the guaranteed availability of power. CBI Wales witnesses complained to us of the consequences for industry of continued uncertainty over gas exploitation and the development of power stations". The committee concluded: A properly planned energy policy, though largely outside the remit of the Welsh Office, is vital to the economic development of Wales". I wholeheartedly endorse that conclusion and trust that the Welsh Office will take a fresh and vigorous interest in the formulation of such a policy. I am bound to say that it will come as news to many people in Wales that the Welsh Office is not as deeply involved in the formulation of energy policy as it should be.

The Baglan Energy Park, with its sound aims and objectives, must have a pivotal role in such a policy, especially at this time when a substantial part of Wales is likely to achieve Objective 1 status and attract European investment. Neath-Port Talbot is within the West Wales and Valleys Region which meets the GDP criterion for Objective 1 status; in short, the region's GDP is below 75 per cent. of the European Union average. In the prospect of Objective 1 status, I see a powerful additional reason for the scheme to be given consent. It will act as a magnet for new industrial and business development and help draw such developments westwards beyond Bridgend and nearer to Neath and Swansea. It would be a crying shame if projects under the Objective 1 scheme could not be developed for lack of power in the area.

As pointed out to us by the West Wales Chamber of Commerce, it should be noted that in contrast to south-east Wales, inward investment to south-west Wales has been sparse. Between 1985 and 1996 the region, which contains 25 per cent. of the population of Wales, attracted only 10.5 per cent. of the inward capital investment per head. The need is great.

I have no wish to prolong the debate. but I believe that the case for promoting the Baglan Energy Park and its power station centrepiece is overwhelming, bearing in mind the location on the coastal plain at the lower end of the valleys in what is very likely to be an Objective 1 area. As has been pointed out, alternatives to gas-fired combined cycled gas and turbine plant have, I am assured, been evaluated and found to be inadequate to meet the needs of this unique situation. Therefore, I urge the Government to act as soon as possible and grant the necessary consents.

3.6 p.m.

Lord McIntosh of Haringey

My Lords, in welcoming the Unstarred Question of the noble and learned Lord, Lord Howe of Aberavon, I have no hesitation in saying that he has secured unanimity in debate. Every single speaker is in favour of the Baglan Energy Park and seems to think that the Government are against it. In responding, I hope that I am able to convince your Lordships that we are in favour of the park going ahead as quickly as possible and in favour of removing whatever obstacles exist to its successful development.

It is an important element in the Government's regeneration strategy for the whole of the south-west Wales economy whether or not it involves an energy park element. Creating and safeguarding jobs in this area of Wales is seen as one of the Welsh Office's main priorities. If the business park is to be an energy park, the development must be consistent with the Government's energy policy. I need to set out our views as clearly as I can and the action that we are taking on the business park itself.

Wales as a whole has been relatively successful in securing inward investment and encouraging the growth of its indigenous industries. But the south-west area of the country has had particular problems, to which the noble Lords, Lord Crickhowell and Lord Roberts of Conwy, referred. That is mainly due to global market conditions in the oil, chemical and steel industries. Another factor is the chemical and oil industries' preference for siting plants nearer to North Sea developments. There have been particular problems in the west Wales area, referred to eloquently by the noble Lord, Lord Crickhowell, who knows it so well. The Government have pressed the Welsh Development Agency and other economic support agencies to focus on the area as a priority for economic development. That is clearly set out in the Government's document Pathway to Prosperity—A New Economic Agenda for Wales.

As for the business park development, everything possible is being done to support the development partners: BP Chemicals, Neath and Port Talbot Borough Council and the Welsh Development Agency. I hasten to agree with the noble and learned Lord, Lord Howe of Aberavon, and his description of the benign motives behind BP's involvement in that project. It has been truly admirable. It is concerned about the social obligations that it feels it has as a result of the necessity to wind down some of its activities.

I agree also with noble Lords' description of the wider support for the plant in South Wales. Everything said on that was right. The only exception, which he recognised, is the opposition of some environmental groups—notably, Friends of the Earth—and the Baglan Park Pressure Group which has achieved a petition containing 10,000 names, plus 500 letters, and which has written to me on this subject. Their views deserve consideration.

The Welsh Development Agency has already committed significant sums of money on site access and infrastructure works and allocated around £4 million for phase 1A of the development. The following phase (phase 2) involves public expenditure of nearly £9 million, some of which will be European funding.

Baglan has many advantages, to which noble Lords have properly referred. One such advantage is its location. It has first-class road, rail and sea links. The M.4 is close by, as is Talbot Parkway station. The local workforce is skilled, hardworking and flexible. The area has powerful and well established economic development agencies which are available to help firms wanting to settle there. There have been firm inquiries from firms of varying sizes which could provide employment for over 1,500 people, and there have been many more expressions of initial interest.

As the noble Lord, Lord Roberts of Conwy, recognised, the area is likely to be designated as an Objective 1 region for European structural funds. If that happens—it looks highly likely, given the figures—development status will follow, and plant and machinery grants will be available wherever the safeguarding or expansion of employment is possible. Regional selective assistance would also be available.

It is clearly an important additional selling point for the business park if on-site, low-cost energy supplies are available. As I said, that is important, but it is by no means essential. We are talking about a difference of 30 per cent. in energy costs. However, for many of the businesses that are likely to enter the park, energy costs represent a small portion of their total costs and therefore of the considerations which influence them when deciding where to locate. As has been said, the business park has many other advantages. As electricity prices are falling in any case, the energy component may now be less strong as an influencing factor. Nevertheless, the Government intend to address questions relating to the energy aspect of Baglan Park sympathetically within the framework of our energy policy. That policy was arrived at after extensive consultation and is set out in our White Paper of October this year, which is snappily entitled, Conclusions of the Review of Energy Sources for Power Generation and Government Response to the Fourth and Fifth Reports of the Trade and Industry Committee. I said that without taking a breath! The White Paper considered in detail the issues facing the electricity market, especially in England and Wales. It emphasised that our energy policy should be to achieve secure, diverse and sustainable supplies of energy at competitive prices. However, the way in which the energy industry was privatised, with the market concentration of National Power and PowerGen and with the electricity pool that the extraordinary auction system left untouched resulted in a distorted market, with electricity prices higher than necessary and with serious risk to the diversity and security of electricity supplies.

Therefore, in the White Paper the Government drew up a radical programme of reform of the electricity markets. The programme will enable us to achieve secure, diverse and sustainable supplies of energy at competitive prices. In the meantime, the White Paper concluded that it was necessary to have a stricter policy on consents for new power stations to avoid a serious risk of our security and diversity—and the option of coal playing a major part in electricity generation—being lost permanently before the distortions could be addressed.

I was interested to hear what the noble Lord, Lord Roberts of Conwy, said about the report of the Welsh Select Committee; indeed, it sounded to me as if it was endorsing that policy in general. If I were to apply that policy to South Wales, because the issue of supply in South Wales has been raised, I would have to say that the electricity generation and transmission system in this country is an integrated one in England and Wales. I have been told that the National Grid company has stated that the supply arrangements for South Wales meet the set quality standards. I acknowledge that electricity prices in South Wales are slightly higher than in other parts of the country, but it is not necessary for there to be local electricity generation capacity in every region of the country. I give way to the noble Lord.

Lord Crickhowell

My Lords, I am most grateful to the Minister. I should like to make a comment. I happen to have in front of me a letter from Swalec to BP, which was written in January 1998. It spells out in some detail some of the risks of interruption, and so on, that exist at present. It makes absolutely clear that Swalec considers that this plant would improve the security of supply and produce considerable benefits, quite apart from cost.

Lord McIntosh of Haringey

My Lords, I acknowledge that. Indeed, the noble and learned Lord, Lord Howe of Aberavon, referred to Swalec's views. However, it is important for us to take a national view and that is why I quoted the views of the National Grid.

The stricter consent policy to which I referred will be temporary and is only required for as long as it is needed to enable our market reforms to be carried through. I can confirm the quotations which the noble and learned Lord, Lord Howe, gave from the White Paper; he certainly quoted correctly. During that period, new natural gas fired generation, except for combined heat and power and black start units, will normally be inconsistent with the Government's policy. While the policy remains, all applications to build gas-fired generation, including Baglan, will be measured against it.

At this point I believe that I should attempt to clarify the situation of the status of the BP application, to which the noble and learned Lord referred in detail. On 27th November BP wrote to the Department of Trade and Industry stating that it does not propose to submit any new application for the 1100 megawatt plant. The noble and learned Lord referred to the two possibilities of smaller plants—one for combined heat and power and the other a 400 megawatt plant. Clearly, the economic justification for a combined heat and power plant depends on the ability of the developers at Baglan to attract the right kind of industry. I have in mind, most notably, chemicals and food and paper, which have heavy steam use and would therefore justify the construction of a combined heat and power plant. However, the example of Shotton given by the noble and learned Lord, Lord Howe, was a combined heat and power plant. We are sympathetic to that suggestion and have set it out as a reasonable exception to the general policy. We are also prepared to listen to arguments about the other smaller plant, which the noble and learned Lord referred to as coming from BP.

The result of all this is a challenge for the promoters of Baglan to find a way in which the park can proceed which is in accordance with the Government's energy policy. The Welsh Office has discussed options with the partnership and remains willing to contribute to the process of finding a way to develop a successful business park. I give way to the noble and learned Lord.

Lord Howe of Aberavon

My Lords, I am grateful for what the noble Lord says. Of course we understand the objectives and constraints set out in the policy document, but in any particular case—perhaps above all in this case—there remains available to the Government a discretion to take account of circumstances. Accepting a smaller plant at this point would be an enormous contribution and the decision would be widely acclaimed. Does the noble Lord acknowledge that the discretion exists to consider the case in that way?

Lord McIntosh of Haringey

My Lords, I acknowledge that the noble and learned Lord was quoting correctly from the White Paper. My use of the word "normally" makes that clear. I cannot deny that the Member of Parliament for Aberavon will see the Secretary of State on Monday next. That is evidence that the issue is not closed.

I have to resist the notion that somehow the Government are opposed to this business park. The noble and learned Lord, Lord Howe, said that we are keeping it waiting; the noble Lord, Lord Crickhowell, said that we were blocking it; the noble Lord, Lord Hooson, said that there was an urgent need to approve the development. The development is approved; it is all going ahead. There remains only the secondary issue of the contribution of electricity generation there, and that is open for negotiation.

We are committed to the business park at Baglan. We will continue to work with the development partnership, drawing on the advantages which we have all recognised to give the project the best possible chance of success. The Government have concluded that the new energy policy which, in the longer term, has been designed to ensure that market conditions deliver competitive, low-price electricity for the whole country, should not be a barrier to the development of the business park at Baglan Bay.