Lords amendment: No. 20, in page 20, line 42, leave out from beginning to end of line 2 in page 21 and insert
then, subject to subsection (5) and section 17(4) below, the Secretary of State may give directions to the Corporation in accordance with subsection (4A) below.
(4A) Directions under subsection (4) above may—
- (a) require the Gas Corporation to secure that the pipeline, or any length of it specified in the direction, shall be so constructed as to be capable of conveying quantities so specified of gas of, or of a kind similar to, the kind specified in the notice under subsection (1) above;
- (b) specify the sums or the method of determining the sums which the Secretary of State considers should be paid to the Corporation by such of the persons who made representations to the Secretary of State as are specified in the directions for the purpose of defraying so much of the cost of constructing the pipe-line as is attributable to that requirement;
- (c)specify the arrangements which the Secretary of State considers should be made by each of those persons, within a period specified in that behalf in the directions, for the purpose of securing that those sums will be paid to the Corporation if it constructs the pipeline in accordance with that requirement;
- (d)provide that the Corporation may, if such arrangements are not made by any of those persons within the period aforesaid, elect in the manner specified in the directions that the requirement shall have effect with such modifications as are so specified with aview to eliminating the consequences of the representations made by that person."
§ Mr. Mellor
I beg to move, That this House doth agree with the Lords in the said amendment.
I hope that the amendment will be welcomed in all parts of the House. It represents a considerable move by the Government in response to anxieties expressed here and in another place. The amendments introduce into clause 15 provisions permitting the Secretary of State, when he gives a direction under the clause, to provide that BGC shall be appropriately reimbursed by the person whose representations have given rise to the requirement to build the proposed new pipeline with increased capacity. These amendments thus incorporate the essence of what the right hon. Member for Leeds, South (Mr. Rees) was seeking and which we discussed in considerable detail in Committee and on which we have now had second thoughts.
§ Mr. Rowlands
One gets vicarious pleasures from the Bill, and the chance of having almost the last word from the Opposition Benches is a particular pleasure.
The Opposition accept the spirit of the amendment. It goes a long way towards answering some of the points that we raised. However, in one way it does not. Neither the clause nor the amendment provides for payment to the corporation for costs incurred in increasing the capacity of its pipeline against its own judgment and needs. When this matter was debated in Committee and in another place, the Government's answer was that the corporation would recover these costs by the charges it makes, either charges for the gas or the tariff arrangements that would arise from any such deal as a result of the increased capacity. What will happen if BGC increases its capacity, but not because of its own needs or wishes, the contractor concerned does not use the facility and the corporation cannot recover its costs through charges?
That is a fundamental point that we repeatedly made in Committee. As a result of a decision by the Government, BGC could do things that were against its judgment or its needs. If the capacity of the pipeline is increased, the extra costs will initially fall on BGC, but if the contractor concerned does not put the gas through that increased pipeline capacity BGC has no redress for its costs. We believe that if the Government direct the BGC, someone other than the corporation must pick up the tab. If the Government direct, and things go wrong, we believe that the Government should pick up the tab. That is the one thing that is missing from the amendment. We accept that the Government have gone a long way to meeting many of our points. We should therefore like some explanation of what will happen if BGC is unable to recover its costs because the private contractor does not put the gas through the pipeline and pay the charges that are necessary.
I notice that two other hon. Members want to get in on the last act of this Bill. The Minister will therefore have time to find an answer to the point that I have raised.
§ Mr. Michael Morris (Northampton, South)
The original Bill was open and flexible. The amendments from the other place attempt to make it more specific. In doing so, they raise certain other questions. The questions that I shall raise should be viewed against a background of BGC's existing pipelaying policy.
As I understand current policy, 75 per cent. of work is done by direct labour and only 25 per cent. by the private sector and open tendering. It is important to take that point on board when considering the various elements of the amendment.
First, what safeguards exist for the private sector companies so that, whatever the basis of charging, they will not be charged direct labour rates? In other words, there could well be inflated construction costs and the private sector company could be told that it can just take it or leave it. Will there be a requirement that the construction of a larger capacity pipe will be put out to competitive tendering?
Secondly, what safeguards are there that the private sector companies will not be charged twice—once for the extra capital costs of the enhanced pipeline and twice through the carriage or transmission of gas?
Thirdly, if a capital payment is made, is it envisaged that the company and its successors in title shall have the automatic right to the use of the pipeline in perpetuity? If the company has not contributed to the capital costs, presumably it is open to BGC to agree to a contract for a specific period of time. If, on the other hand, the private sector company contributes to the capital costs, presumably the contract will ensure that the company and its successor in title will have the right ad infinitum to use the pipeline. What happens if another company wants to use the pipeline in the future? Will the second company pay a higher tariff for the use of transmission than the first company which contributed to the capital costs?
Fourthly, what recompense will there be to the private company that has paid for larger diameter piping and extra equipment for boosting the gas on the transmission side if it transpires that BGC has miscalculated its own demand requirements? It is not inconceivable that a private sector company could estimate that its requirements would need an X diameter pipeline, and BGC could say that its requirements needed another X inches. It could be that BGC's requirements—it would not be the first nationalised industry to have got its estimates wrong—were far less than its original forecast. In that case, a private company would have been forced to provide a pipeline larger than was necessary and the fault would lie with BGC. In that case, will there be some recompense to the private company?
I raise these questions not because I necessarily violently disagree with the Lords amendments. I do not think that they help an awful lot. To my mind, they raise just as many questions as the original flexible approach. I hope that the Minister will answer the points that I have raised. If he cannot do so tonight, perhaps he will write to me in due course. I believe that in practice it would be better if the capital costs were carried by BGC and that the recompense to BGC came through the tariff for the carriage of gas.
§ Mr. Skeet
The Government have put the record straight by making clause 15 similar to the requirement in clause 16.
490 We must again consider the basic situation. This high pressure main is the property of BGC. The clause is not likely to be used very much. It will be possible for someone to say that he wants to use the capacity of the pipeline at some future time to convey his gas from one point on the map to another. I should have thought that the BGC would be better placed if there were an impartial gas transmission company to which both private enterprise and the corporation could apply. The present legislation has ruled that out. The possibility may return.
The hon. Member for Merthyr Tydfil (Mr. Rowlands) raised an important point that has now been aired—whether the person who uses part of the line must pay some of the cost. Such a person may have to pay when the tariff is established but not initially since he has reasonable time to make up his mind. It is one thing participating in a line; it is another at a later date providing for severance or discontinuance. What will happen if a person who has utilised a line for several years decides, because his business has altered course, to stop using that line? There will be additional capacity on a main trunk line that the BGC does not require, but, since it is its property, the corporation must meet the expense of that line. Of course, the corporation may be able to go to the market and find someone else to take over a share. Nevertheless, I see no provision in this clause for severance, although I dare say that the Department has thought about it carefully.
The House should understand that the Bill is a natural sequence in the evolution of the common carrier system in the United Kingdom. It has worked well in the United States of America where it is common practice. We have had relatively little experience of it here. There are a couple of examples. Section 9(3) of the Pipe-lines Act 1962 deals with cross-country pipelines. It is established there that there is a wish to avoid superfluous pipelines. There was some sharing of pipelines on land. Following that, there was an extension of the practice to the Continental Shelf in section 21(5)(b) of the Petroleum Submarine Pipe-lines Act 1975 which sought to avoid unnecessary pipelines in the North Sea by enabling several participants to join together and pool their resources. Such provision has been made in the current legislation. The amendment amply covers that point by providing for those participating to defray part of the costs.
That is similar to clause 16(2)(b), which provides for increased capacity of the pipeline. The participants are entitled to consider their circumstances early when they tell the Minister that they may use the pipeline and receive more details of its direction. They must be given ample opportunity to make up their minds. After they have been given a reasonable time, their opinion becomes irrevocable and they may reasonably be expected to share liability. The Minister would then be quite right to send them a bill of charges. The right of the BGC to charge for gas conveyed, taking into account capital cost in the tariff charged, is perfectly reasonable. That practice is current in the United States and is likely to be assumed here.
I have already pointed out that the right of severance and discontinuance should be provided for. It must always be assumed that if the private sector does not like sharing with the BGC the use of one of the corporation's pipelines it can build its own facilities under the Pipe-lines Act 1962. I support the amendment.
§ Mr. Mellor
The amendment attempts to do what the Government have been striving for in clauses 15, 16 and 17. It attempts to strike a balance between the legitimate interests of the British Gas Corporation, on the one hand, and the Government's desire to encourage private sector suppliers to become involved in the distribution and sale of gas, on the other. I welcome the opportunity to comment on what the hon. Member for Merthyr Tydfil (Mr. Rowlands) said. I also welcome the considerations that will weigh with the private sector being brought to the attention of the House by my hon. Friend for Northampton, South (Mr. Morris). I shall deal with the points of the hon. Member for Merthyr Tydfil first.
The amendment fits into what we spent much time on in Committee—the Government's clear intention that there should be bilateral negotiations between the parties. One of the matters that could be discussed is the terms on which BGC would wish to modify its pipelines. In the event of a failure to agree, it would be a matter for the Secretary of State whether to exercise the additional powers he, if the House agrees, will now be given to require reimbursement under clause 15. The Government accept that in the majority of cases reimbursement is likely to be provided for. That procedure covers the point that the hon. Member for Merthyr Tydfil made.
If the Secretary of State directs, as he will in normal cases, that a fair sum of money should be paid by the applicant, BGC will be under no obligation to put itself to expense to carry out the modification until that direction is complied with. Amendment No. 23 protects the interests of the private sector supplier as he is able to get his clause 17 application to use the capacity before the Secretary of State at the same time as a direction would be in contemplation under clause 15. He need not therefore take any action that is to his financial disadvantage until it is clear that as a consequence of his paying money he will be able to make use of the capacity.
I hope that I have made it clear that we do not foresee any possibility of BGC finding itself in any unreasonable difficulties because of the arrangements. I hope that when the Bill becomes law there will be bilateral negotiations and common sense arrangements and no recourse to the Secretary of State such as we have witnessed so often with regard to the Continental Shelf.
I shall take up the offer of my hon. Friend the Member for Northampton, South to write to him on one or two detailed matters. Much of what he raised would be a matter for contractual negotiations. If the supplier decided that BGC was asking thoroughly unreasonable terms of him, it would be for the Secretary of State to decide whether he wished to make directions. I am sure that no Secretary of State would make directions to pay a sum of money based on an inflated contractual price as the Secretary of State must decide what it is fair and reasonable for a private sector supplier to pay. It would clearly be unreasonable for him to pay an inflated price as a result of a failure to get the cheapest available pipeline construction terms.
Many of the matters will be a question for good sense on the part of both parties. If either party feels that unreasonable requirements are being made, the Secretary of State is given ample powers in the three clauses that must be read together to sort that out by his own decision which then becomes part of the contractual arrangements between them. My hon. Friend raised some interesting detailed points. In the circumstances, perhaps I may write to him and he may then keep the dialogue going.
§ Mr. Rowlands
The hon. Member for Northampton, South (Mr. Morris) raised a matter of some significance. He suggested that it would not necessarily be up to the BGC to decide how the increased capacity pipeline should be built. Is the Minister saying that it could be a part of the Secretary of State's direction to direct that the BGC should construct it or that somebody else should construct it? Or does the pipeline, because it belongs to the BGC, remain the total responsibility of the corporation as to the method of construction, by direct or any other form of labour, to provide the increased capacity?
§ Mr. Mellor
If I did not make this as clear as I had hoped, I am glad to have the opportunity to do so now. I was speaking of the financial arrangements. The direction under clause 15 relates only to the sum of money in payment that the Secretary of State thinks right—if indeed he thinks it right, as it is permissive and not mandatory—to impose on the potential private supplier.
Nothing in the Bill affects the entitlement of the BGC to build its pipelines as it chooses. Clearly, as a public corporation, it is answerable to the community at large and I have no doubt that the corporation would not wish it to be thought that it in any way pursued construction policies which would eventually result in a bad deal for the gas consumer as such inflated costs could only carry through in inflated prices. Nevertheless, nothing in the Bill affects that.
My point was rather different. It is that if that was the reason why the parties could not reach agreement, and if the Secretary of State accepted the contention of the applicant company that it was being asked to pay an unreasonable sum because of the inflated prices, it would be a matter for the Secretary of State to direct that the modification be made but that the sum of money to be paid by the private sector company was not the full amount that BGC thought that it would cost to lay the pipeline in the manner in which it had decided to build it—the latter being a matter which, as the hon. Gentleman rightly said, lies within the BGC's sole discretion.
I hope that that makes the situation clear and shows that, as we have always said, the Secretary of State, if he thinks it right, will have power to make the applicant company pay a sum of money as a condition precedent to the alteration in the pipeline being made.
My hon. Friend the Member for Bedford (Mr. Skeet) raised the question of severance and discontinuation. As in any normal commercial agreement, this would have to be arranged between the parties to the contract. I should be surprised if my right hon. Friend the Secretary of State would need to concern himself with such matters. They would be embraced, as the wide range of commercial arrangements must inevitably contain provisions allowing for an equitable termination of the arrangements if that were the will of the parties.
§ Question put and agreed to.
§ Lords Amendments Nos. 21 to 23 agreed to.