Hyder

HC Deb 12 July 2000 vol 353 cc222-8WH 12.30 pm

Mr. Richard Livsey (Brecon and Radnorshire)

I am grateful for the opportunity to debate the impact of the proposed takeover of Hyder plc on water, gas and electricity services. In the mid-1980s, the Liberals initiated a debate on the future of the water industry. When the then Secretary of State for the Environment, the late Nicholas Ridley, was challenged on whether he would privatise the water industry, amazingly, he said yes. He was then asked whether he would include that policy in the next Conservative party manifesto. Again, he said yes—much to the amazement of the Conservative Members sitting behind him, as he was announcing an entirely new policy off the cuff.

The Thatcherite juggernaut steamrollered on, and we have now reached a point when Hyder, one of the successor companies to the water authorities, could be taken over by a Japanese bank or an American power company. As for the Welsh assets, the choice is between a rock and a hard place. John Elfed Jones, chairman of Welsh Water, or Dwr Cymru, built up the company in the late 1980s. It was meant to be an enterprise icon for the new Wales, and it might have happened. However, once Mr. Jones retired, the Government's golden share was abandoned and the public veto therefore disappeared. Hyder was created by a new management team and in its early days that company, too, was successful.

We could dwell on why Hyder failed, but I do not want to speak of the past except to say that the Government levied a windfall tax of nearly £300 million, the regulators imposed full-value cuts on the company and the City forced it to borrow to buy Swalec. The Government and the City took £400 million out of the company, the regulators took another chunk, and the shares lost half their value; the company is now said to be £1.5 billion in debt.

After that debacle, Wales wants a phoenix to arise—a company based in Wales that will take over the water, electricity and gas businesses and which can provide services of good quality and value. I want the Minister to ensure that that will happen because the Government contributed to Hyder's downfall. The Welsh word "hyder" means confidence. I ask the Minister to give us confidence that the company will have a good and successful future.

Hyder has one of its headquarters in my constituency, where it has 60 employees. Its water division, Dwr Cymru, has 14 major reservoirs and associated land in my constituency. The three Taf Fechan reservoirs supply Cardiff, Talybont reservoir supplies Newport, Crai reservoir supplies Swansea and the four Elan valley reservoirs supply Birmingham and so forth. We want to be assured that the former massive public investment and the jobs that go with it will be in safe hands. Hyder employs about 9,000 people in its water, electricity and gas businesses. Their future must be secured.

Mr. Nigel Evans (Ribble Valley)

Does the hon. Gentleman remember that, when the windfall tax was introduced, we were told that it was a victimless crime? However, it has put Hyder into an impossible situation and it is now up for grabs, with two companies interested in buying it. Does he agree that if it goes wrong, the victims of the windfall tax will be those employees who work for the company and consumers in Wales who receive their utility supplies from it?

Mr. Livsey

I certainly agree that that is the case; the cause is partially the Government's, but it is not theirs alone. The Liberal Democrats believe that the successful new deal ought to have been financed differently.

The Minister will know that two takeover bids for Hyder are on the table—one from the Japanese bank Nomura and the other from Western Power Distribution, an American subsidiary of Southern Power that generates electricity. It distributes electricity in the west of England and has its headquarters in Bristol. WPD wants to run Swalec and arrange for United Utilities, which is based in Warrington, to run the Welsh Water business in conjunction with North West Water. There are serious reservations about competition regulations connected with the WPD bid. Those issues must be handled in the United Kingdom. Nomura International, through St. David's Capital plc, is bidding for Hyder, and it intends to make it a Welsh-based company, operating from its Cardiff headquarters.

All political parties in the Welsh Assembly have agreed a strategy, which must succeed in the interests of Wales, Welsh consumers, the company's employees and the company and its assets. I can do no better than to state that strategy. It says that any new company should: preserve the integrity and identity of Hyder as a distinctively Welsh business and keep its headquarters in Wales…preserve the maximum number of jobs and, as a minimum, limit the number of job losses to those already announced by Hyder plc and agreed with trade unions. It then states that it must be committed to investment and development of the regulated and non-regulated businesses of Hyder plc and that, as a minimum, it must maintain Hyder's environmental record and implement the Dwr Cymru investment programme within existing price limits. It states that it must note that the Assembly has a duty under section 121 of the Government of Wales Act to promote sustainable development (and that the Assembly has powers to call in applications for planning permission for decision under section 77 of the Town and Country Planning Act 1990 where an application raises planning issues of more than local importance). Next, it states that a new company should recognise the potential of Welsh water as an economic resource and acknowledge the wish of the National Assembly that the people of Wales should benefit from the use of this resource, especially when water is sold outside Wales…provide a high quality water and sewerage service for the people of Wales, and a high quality electricity service for the region of Wales that depends on SWALEC. Finally, the strategy stated that the new company should operate a fair pricing policy and consider the formula set by the industry regulators as setting the maximum charge to be levied, rather than the norm. I cannot underestimate how important water is as a natural resource to Wales, especially as water will one day be in short supply worldwide. The First Secretary of the National Assembly endorsed the views of the Environment, Planning and Transport and the Economic Affairs Committees, which drew up the statement that I just quoted. The Liberal Democrats in the Welsh Assembly endorsed that statement only too willingly.

The First Secretary has written to the Secretary of State for Trade and Industry about the competition worries resulting from the Western Power Distribution bid. He endorses the Assembly Committees' calls for the bid to be repatriated to the United Kingdom from the EU competition authorities under the provisions of article 9 of European Community Council regulation 4064/89 as amended by regulation 1310/97; he also confirms that the UK should be enabled to take appropriate measures under the provisions of article 21. I hope that the Minister will deal with that matter.

Our main concerns are the combination of two neighbouring electricity distribution businesses, Swalec and SWEB, and the fact that the United Utilities company, under its other aegis of North West Water, will be supplying water in two contiguous geographical areas. Those concerns are to the fore in Wales. The link between the two water companies—United Utilities and what is at present Dwr Cymru—will not be conducive to the promotion of competition in the water industry. Hon. Members will know that the Assembly issued a joint consultation paper with the Government on the subject earlier in the year.

The separation of the ownership of Dwr Cymru's assets from its operations, as well as the possible creation of a mutual company to own it, raises wider regulation issues. The resulting modifications that the Director General of Water Services proposed to the Dwr Cymru licence might raise the possibility of the Assembly using its powers of direction under section 13 of the Water Industries Act 1991. If it did so, the director general would have to consider whether he wanted to pursue the proposals by way of a reference to the Competition Commission and section 14 of the Act. No apparent implications from the bid give rise to competition considerations outside the UK. Such considerations in the UK are sufficient to provide grounds to seek repatriation under article 9. Wider measures may be appropriate under article 21, as well as public interest issues and concerns such as those identified by the Assembly Committee, which have been communicated to the commission.

The First Secretary and all the political parties in Wales believe that there is strong reason to refer the WPD bid to the Competition Commission. The Minister should be able to assure us that that will be done. The bid must be repatriated from the European Union competition authorities, in particular its electricity supply aspects. I have already mentioned those concerns as they affect the water industry. At present, it appears that the Nomura International bid satisfies UK competition criteria but the WPD bid does not. In the public interest, I ask that public documents relating to WPD's relationship with United Utilities are made available and placed in the Library. They have a material influence on how the company proposes to manage Welsh Water, given that there will be two water companies operating geographically side by side.

The deal is complex and it also affects other businesses and professional services operated by Hyder. Another factor that must be accounted for is that the United States controlling company, Southern Power, must clear its bid with the US Securities and Exchange Commission. So far, it has not done so. There may well be conflicts with Southern Power taking over, through its WPD subsidiary, a water company, for example. That process must be monitored and examined in the United Kingdom not only by the Office of Fair Trading, but more importantly by the Competition Commission.

Will the Competition Commission exclusively handle the WPD bid for Hyder? What key points can the Minister assure us will be primarily considered by the Department of Trade and Industry in the investigation? I am especially concerned about those matters that will have a material influence on the final decision. Will the Minister give us the timetable leading to the conclusion of a Department of Trade and Industry decision? What time scale would that process have? Time is not on Hyder's side and an early conclusion of any investigation will give confidence to its customers in Wales, its work force and its shareholders and give security to its assets. Decisive action is required now for the benefit of all concerned.

12.45 pm

The Minister for Energy and Competitiveness in Europe (Mrs. Helen Liddell)

I take this opportunity to congratulate the hon. Member for Brecon and Radnorshire (Mr. Livsey) on securing this important debate, although the timing is inappropriate for me and I am constrained in what I may say in reply.

The hon. Gentleman has made a cogent explanation of his position that will appear in the Official Report and will, I am sure, be borne in mind by the relevant authorities. I am constrained because, as a Minister, I have responsibilities in relation to the competition process. Therefore, it would be inappropriate for me to respond to some of the hon. Gentleman's specific points.

The hon. Gentleman will be aware that I am accompanied by my hon. Friend the Under-Secretary of State for Wales, the Member for Delyn (Mr. Hanson). He is listening closely to the debate, as Wales has a legitimate interest, and my hon. Friend the First Secretary will soon address the National Assembly for Wales on the matter. The Secretary of State, other Ministers and I have been in communication about the issues that my hon. Friend the First Secretary raised.

The hon. Member for Brecon and Radnorshire referred to the windfall tax; he may care to reflect that the tax was a consequence of the bungled privatisation of the utilities by the previous Government. That tax was not some wheeze dreamt up at the last minute; it was presented by the Labour party in opposition as a clear route for finding resources to help young people into work. Today, as we celebrate the lowest unemployment figures for 25 years, the hon. Gentleman will recognise that many of our constituents have benefited as a consequence of that tax. As it appeared two years ago, company managements have had time to reassess liabilities and put their companies into a position in which they can continue to operate.

Mr. Lembit Öpik (Montgomeryshire)

Would the Minister accept that Hyder's situation is a consequence not only of the windfall tax but of the City squeezing that company dry for dividend shares? One does not need to lay all the blame at the Government's doorstep.

Mrs. Liddell

I am sure that the hon. Gentleman would not want me to comment, especially in subjective language, on the behaviour of City institutions. Rather than talking about the past, we must deal with the situation as we find it.

The proposed acquisition of Hyder by St. David's Capital plc was considered by the competition authorities under the merger provisions of the Fair Trading Act 1973. The Secretary of State for Trade and Industry decided, in accordance with the recommendation of the Director General of Fair Trading, not to refer the case to the Competition Commission. The Department announced the merger clearance on 7 June.

The bid by Western Power Distribution for Hyder has fallen, as the hon. Gentleman knows, to the consideration of the European Commission competition authorities under the European Commission merger regulations. My hon. Friend the Minister for Competition and Consumer Affairs announced on 7 July that the United Kingdom had decided not to request the European Commission to refer the proposed acquisition by WPD of Hyder to the United Kingdom competition authorities under article 9 of the EC merger regulations, as it did not satisfy the relevant criteria in the regulation.

Mr. Livsey

Will the Minister ask the Secretary of State to reconsider that decision, because many issues will affect the United Kingdom? I drew her attention to them earlier, not least the fact that two electricity companies will be running side by side in the south, as will two water companies further north. Surely such matters should be considered within the United Kingdom.

Mrs. Liddell

The decision was made in accordance with the advice of the Director General of Fair Trading and the sectoral regulators, and we must act within the terms of that advice. It may help the hon. Gentleman to know that the European Commission will decide by 14 July whether to initiate a detailed investigation of the case.

The hon. Gentleman referred to the situation in which WPD proposes to procure certain services from United Utilities. I understand why he wants documentation relating to that matter placed in the Library, but he will appreciate that such information is commercially sensitive. The documents have been made available to the United Kingdom competition authorities in confidence and it is beyond my powers to place them in the Library, given that UK merger legislation protects such information from release unless the relevant companies agree to it being made public.

Mr. Livsey

Does the Minister agree that such matters are in the public interest? A monopoly-type situation is being created, which it is in the public interest to investigate. Such documentation should be in the public domain, so that people can judge the matter for themselves. The issues are more important than those of commercial confidentiality to which the right hon. Lady refers.

Mrs. Liddell

The hon. Gentleman should take into account the fact that Ministers can act only within the terms of what is available to them. It would not be possible for them to place such commercially sensitive information in the Library without the express permission of the two companies involved. The action that the hon. Gentleman wants to be taken is not at my disposal.

As my hon. Friend the Minister for Competition and Consumer Affairs said on 7 July, the WPD proposal did not fall within the remit of the EC competition authorities. I confirm that the United Kingdom competition authorities, including the sectoral regulators, are examining carefully whether the transaction falls to be considered under United Kingdom competition law and whether considerations are on-going. Irrespective of the changes in ownership of the licensed utilities involved in the bids, the regulatory regimes will continue to apply. That is of direct relevance to the hon. Gentleman's constituency.

I shall outline how the regulatory regimes operate. In response to each of the bids for Hyder, the Director General of Water Services and the Director General of Gas and Electricity Markets issued a joint consultation paper on the consequences of the bids for Hyder-regulated subsidiaries, Dwr Cymru and South Wales Electricity.

First, on the water issues, the Office of Water Services, the economic regulator for the water industry, is required to discharge the functions in the manner best calculated to ensure that the regulated utilities perform their functions properly and can therefore finance the performance of the company. Subject to that requirement, it must secure protection for water and sewerage customers on charges and the quality of service, promote efficiency and facilitate effective competition.

Ofwat considers that proposed mergers and those competition and regulatory issues raised before the Director General of Fair Trading are a legitimate area for the regulator to have in mind. Ofwat has to identify necessary licence modifications that deal with concerns that might arise from proposals. I am sure that the points made by the hon. Member for Brecon and Radnorshire will be taken into account.

As an example in relation to the bid for Hyder, Ofwat was interested in whether any prospective owner of DC would be fit and proper to assume the role of statutory water and sewerage undertaker, and whether DC's conditions of appointment might need to be strengthened so that any involvement as part of a larger group should not impede its ability to discharge its duties. In the bids by St. David's Capital and WPD, the director general secured the bidder's agreement to the modification of DC's conditions of appointment, which dealt with the consequences of its possible absorption into a much larger group than Hyder.

The WPD bid raises wider issues, because WPD intends to separate DC's roles as statutory undertaker and owner of the core assets from the day-to-day operation of the business. It proposes an initial contract with a company that is to be purchased by United Utilities, which owns North West Water, the statutory water and sewerage undertaker for the north-west of England. Ofwat considered in particular whether such a proposed operating arrangement would be acceptable.

As a result of negotiations with WPD on the issue and following a public consultation, Ofwat secured WPD's agreement that, if the bid were successful, DC's conditions of appointment would be modified to include a new obligation to replace the initial contract with a programme of competitive outsourcing acceptable to the regulator. As the DTI press notice of last week stated, irrespective of changes in the ownership of the licensed water and sewerage undertaker (DC) owned by Hyder, the water regulatory regime will continue to apply to it. The hon. Gentleman raised several other matters. If I am not able to answer them all in the few minutes left to me, I shall write to him. On the electricity issues, Hyder distributes through Swalec, so the Office of Gas and Electricity Markets also took an interest in the competing bids for Hyder. Ofgem's function is clear. It is to protect the interests of consumers, ensuring that they have genuine value and choice by promoting effective competition in gas and electricity markets. It also regulates the monopoly elements. Ofgem considers the competition implications of any proposed merger on its individual characteristics, taking into account the precedent that applies from previous policy statements. It consults the public and third parties, and examines the issue internally before making recommendations to the Director General of Fair Trading.

Ofgem considered the competing bids and took a balanced approach to the consideration of the merger. It applied similar conditions to the equivalent aspects of the offers, and plans to seek licence amendments and assurances from any successful bidder for Hyder. The hon. Gentleman made several points, which I shall ensure that the director general can consider.

I cannot comment on the two bids, or on some of the broader issues that the hon. Gentleman invited me to consider. However, I want to emphasise what all the regulators require from the bidders. They need to ensure that the regulated utilities will comply with their legal obligations and that the quality of service to customers is at least as good as that presently provided. Whoever owns Hyder must ensure that staff and systems are in place so that networks keep working, necessary investments for reinforcement and improvements are made, emergencies can be handled quickly and professionally, and customers continue to be at the centre of the business.

I have not answered all of the hon. Gentleman's questions. I shall happily answer those that I can legitimately answer, within the constraints of my position as a Minister, in a letter and I congratulate him on securing the debate.