HC Deb 18 March 1983 vol 39 cc296-8W
Sir William van Straubenzee

asked the Secretary of State for Energy if he has set objectives for any of the industries for which he is responsible.

Mr. Nigel Lawson

Following the statement by my right hon. Friend the Secretary of State for Industry about the relationship between the Government and the nationalised industries, I have settled objectives for their respective boards with the chairmen of the Central Electricity Generating Board, the National Coal Board and the British National Oil Corporation.

The Central Electricity Generating Board's objectives were settled with Sir Walter Marshall, CBE, FRS, in the following terms: This letter sets out the objectives which the Government wish you to pursue as Chairman of the CEGB. The objectives elaborate on the responsibilities and obligations placed by Statute on the Board as a whole, and in particular the development and maintenance of an efficient, co-ordinated and economic system for the secure supply of electricity in bulk.

  1. 1. Your prime objective must be to run the Board with maximum efficiency, ensuring that sustained and detailed attention to cost control extends through all aspects of the Board's activities. In this context:
    1. (a) challenging cost control targets should be set wherever practicable, and carefully monitored;
    2. (b) the Board should achieve its part of industry-wide performance targets which are set by Government;
    3. (c) every effort should be made to ensure that power stations are built to time and cost.
  2. 2. It must also be your objective to increase the scope for competition in electricity supply. You should review the prospects for the injection of private risk capital into areas of the Board's operations, and make positive recommendations to me wherever possible. In co-operation with Area Boards when appropriate you should seek to develop co-operation with private generators, ensuring that effective commercial and technical arrangments exist to take full economic advantage of their potential contribution to supply.
  3. 3. In developing proposals for capital investment, your objective should be the production and distribution of electricity at the lowest possible cost consistent with maintaining adequate standards, e.g., of security of supply. Capital investment proposals should be set out comprehensively for my approval, giving an account of the strategic framework against which they have been developed. The Board should continue to pay close attention to the methodology used in capital investment appraisals.
  4. 4. You should ensure that the Board does all possible to explore and exploit the full potential of nuclear power to contribute to the cheap, effective and safe production of electricity.
  5. 5. The Board's plans for effective operation, and cost-reducing investment, should be developed within the framework of a corporate plan for the industry, which will 297 be reviewed annually with Government. They should take full account of the financial targets agreed with Government and of the industry's External Financing Limits. The Board should ensure regular and effective information flows to assist the Government and the Electricity Council to monitor performance in relation to those targets and limits.
  6. 6. The Board should set its prices so as to reflect the costs at the margin of meeting demands on a continuing basis. It should pay careful attention to the impact of the bulk supply tariff on different categories of the electricity supply industry's consumers. In appropriate cases, the Board should be ready, subject to the provisions of Section 2(6) of the 1957 Electricity Act, to discuss with bulk industrial users and the Area Boards the possibilities of direct supply by the CEGB.
  7. 7. You should work closely with the Chairman of the Electricity Council on all major issues affecting the industry. I shall be sending him a copy of this letter for his personal information. The need for close working relationships within the industry as a whole was stressed in David Howell's statement of July 1980 which I attach.
Finally, I should make clear that the Government may wish to give further guidance to you at a later date or to impose constraints from time to time, for wider reasons, on your ability to achieve one or other of these objectives.

The National Coal Board's objectives were settled with Mr. Norman Siddall, CBE, in the following terms:

  1. 1. Although coal is one of the United Kingdom's major natural resources, in the Government's view the justification for coal production, like that for any other business, lies in the ability of those engaged in it to earn a satisfactory return on capital while competing in the market place. The basic objective for the National Coal Board therefore must be to earn a satisfactory return on its assets in real terms after payment of social grants. This return will be quantified in due course.
  2. 2. The NCB should aim at that share of the market which they can profitably sustain in competition with other fuels. The Board should not plan on any continuing tranche of sales which will not be profitable. The Board should bring its productive capacity into line with its continuing share of the market.
  3. 3. The Board's objective should be to ensure that over the next five years its operating costs (including depreciation and capital charges but excluding interest) per tonne of coal produced are reduced in real terms for deep-mined and for opencast production separately. (In this calculation, the GDP deflator should be used). This objective will be quantified in due course.
  4. 4. Either the Board or the Government may propose additional objectives from time to time. Any consequent adjustment to existing objectives would need to be discussed.

The British National Oil Corporation's objectives were published in the report on the national oil account—HC 175 of 1982–83.