Energy Bill

Part of the debate – in the House of Lords at 8:45 pm on 22nd October 2008.

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Photo of Lord Jenkin of Roding Lord Jenkin of Roding Conservative 8:45 pm, 22nd October 2008

My Lords, Amendment No. 9A is a rather more complex matter than the last two I have discussed, and I hope that the House will bear with me for a moment if I describe a little of the background. We are dealing here with the decommissioning of oil and gas equipment, where the same broad principle applies; that the operators—I use that word in its widest sense—or licence holders are, for instance, to be responsible for the decommissioning and clearing up of an oil rig when it has reached the end of its life. I will not describe this background in great detail, because the noble Lord, Lord Rowlands, went into it at some length in Committee on 24 June, at col. GC 599. The noble Lord, Lord Davies of Oldham, responded in cols. GC 601-02.

The problem is not who should be liable. There is general agreement that the clause should be drawn in such a way that anybody who has had an actual operating interest in the rig should share the cost of decommissioning. The problem has been how to achieve that in a way that meets the Government's objective of protecting the taxpayer from having to pick up the bill or any part of it at the end of the day. As I understand it, it has primarily been a problem of drafting.

When the noble Lord, Lord Davies, replied to the noble Lord, Lord Rowlands, he spelt out the matter using identical language—perfectly reasonably and properly—to that used earlier by Mr Malcolm Wicks, the Minister, when he wrote to John Robertson MP a letter dated 14 May. I have the letter but I shall not weary the House by reading it out. He set out to describe the type of activities undertaken from an installation that will give rise to a potential decommissioning obligation on a person. The amendment seeks to reflect word for word exactly what Mr Wicks wrote to Mr Robertson. As the noble Lord, Lord Davies, will recognise, they were also the words that he used when he replied in Grand Committee.

The purpose is to rule out any future conflict between the Petroleum Act 1998 and what was in the Minister's letter. If such a conflict were to arise—and one can never be sure that one has sewn up everything exactly—and it was a matter of law that came to the courts, the courts would have to apply the legislation and what is actually in the Bill. They are now, under Pepper v Hart, allowed to look at the intention, but if there is no ambiguity in the Bill then whatever the Minister may have said or written is not relevant to the construction. It is something that has given rise to a great deal of uncertainty for companies when they are making decisions about trading of assets and co-operation on the use of the infrastructure.

It is a question of trying to define who the people are to whom a notice can be given under Section 29 of the Petroleum Act 1998 so that they would be liable for decommissioning and maybe abandonment but, anyway, the cost of getting rid of and clearing up the installation. Intended to be excluded are people who have never had any kind of direct interest, financial or otherwise, other than perhaps as a contractor or a subcontractor of one of the operators of the licence and the installation. If somebody has a contract to provide food and sustenance to the crew of the rig, for example, they would not be expected to bear any costs of decommissioning, although it might be said that they derive a financial advantage from being involved with the rig. It is simply a question of how you draw the line between those who should be liable and those who clearly should not.

As the noble Lord, Lord Rowlands, said, these arrangements of ownership and sub-ownership can be immensely complicated as they develop over the years. That is what gives rise to the problem that we address here. Simply to refer, as subsection (7) does, to,

"any financial or other benefit", is unclear. It could be argued that it covered a wide group of licensees who have not been involved in activities relating to the exploitation or storage of hydrocarbons using the installation in question. Therefore, that definition in the Bill needs to be modified by the insertion of the qualifier set out in the Minister's letter to John Robertson, and repeated by the noble Lord, Lord Davies, on 24 June—specifically, that the person who may be served with a notice under Section 29 must be, or at some stage have been,

"using the installation to exploit or explore mineral resources or storage or recovery of gas".

Without that amendment, people who happen to hold an interest in an unrelated part of the licence, or who have received an incidental benefit through the use of the installation—of course, numerous examples could be given for that—may be inadvertently captured within the ambit of Section 29. One could imagine the situation. If you have a number of licensees who are responsible and one of them becomes insolvent for any reason, of course the authorities are going to try and get the money back from whoever they can. It is really very important at this stage that one should be absolutely clear who can and who should not be caught.

Since the debate in Grand Committee, there have been, as I think Ministers recognise, long discussions. It appears that there is complete agreement on the principles; the difficulties lie in finding the right drafting. The department has made it clear that my amendment does not sufficiently protect the taxpayer. As I understand it, the Government intend to bring back their own amendment at Third Reading, having taken advice from parliamentary counsel as well as from the people in the department responsible for the matter. It has been represented to me that I shall not get everything I want. We will have to see. Once again I ask whether the Government's amendment could be tabled in good time so that there can be consultation with the trade association, Oil and Gas UK, so that we can really satisfy ourselves that it will meet its requirements. What it is not prepared to do—and what I think at an earlier stage Ministers were asking—is to rely solely on the ministerial undertaking and letters. Given what I said earlier about how a court would interpret that, that is not acceptable and would not give the certainty necessary for the people who deal in these licences.

I will not dream of pressing the amendment tonight; it is there to give Ministers an opportunity to explain to the House how they now intend to deal with this and to undertake—and I hope there will be a very clear undertaking—to bring back their own amendment at Third Reading. I beg to move.