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Gas Supplies (Wales)

Motion made, and Question proposed, That this House do now adjourn.-- [Mr. Chapman.]

10.54 pm

Mr. Peter Hain (Neath) : Although 84 per cent. of homes of Wales are within 100 yards of a gas supply, 173,000 households still have no access to gas. Those who lose out include part of my home village of Resolven known as the Site, which British Gas is refusing to supply despite the fact that the rest of the village has gas installed, and has had so for a number of years. The Dulais valley villages of Seven Sisters, Onllwyn and Banwen and the villages of Cwmllinfell, Rhifawr and lower Brynamman in the Swansea valley do not have a gas supply. Those villages are in my constituency. There are other surrounding villages in the same predicament.

The question is why. First, it is a consequence of privatisation and the Government's failure to implement a regulatory regime to protect outlying areas, including valley villages. Many of these are former coal-mining areas where the cost and difficulty of obtaining coal because of the rundown of the coal industry is a major problem. It is also inconvenient for elderly citizens to rely on coal in the current circumstances.

I cite the case of Mrs. Sally Pascoe, an 87-year-old widow in the village of Seven Sisters. She finds it very difficult to rely on coal, and would like the opportunity to have gas. She lives in the Dulais valley where gas has recently been extended to halfway up the valley as far as Crynant--a few miles away from the village of Seven Sisters, which is denied gas supply.

There are 1,400 homes without gas supply in the Dulais valley in Seven Sisters, Banwen and Onllwyn. In response to a request from me, British Gas has asked for a sum of £910 from each home in the villages to fund the £1 million cost of supplying and installing the pipeline. Such an amount is impossible for residents of those villages who are, by and large, on extremely low incomes. Among these homes are 400 properties owned by Neath borough council. Recently, the council installed central heating systems at considerable cost. It is impossible for the council to fund £910 for each property under its responsibility. British Gas does not think that customers will take up the opportunity of gas supply at such a high installation charge, which is the only one that it is prepared to make.

In the upper Swansea valley, the villagers of Cwmllinfell are in a similar predicament. Recently they presented me with a petition, which I sent to the Welsh Office and to British Gas. British Gas told me that it would cost some £2 million to lay piping to the residents, and that they would each be charged more than £500. It is impossible for them be bear that cost, given the income and demographic population in the village, which comprises many elderly residents. British Gas also claims that it would need to upgrade the existing network in the surrounding area to cope with the extra volume of supplying villages such as Cwmllinfell, and such upgrading would not be completed for at least two years.

There is an additional problem. A number of the villages were promised natural gas supply and installed liquefied petroleum gasoline systems some seven years ago on the understanding that natural gas would be available in a few years, but privatisation has completed scotched that

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opportunity and the villages have been saddled with LPG, which costs twice as much as natural gas. I cite the case of Mrs. Laverne West and her husband Brian, who have a bill of £1,600. When value added tax is imposed from April, it will go up a further £2.50 per week, and when the full VAT increase comes in it will be an extra £5.50 a week. That is an incredible heating cost to bear for such a couple.

Then there is the case of Mrs. Margaret Thomas, who has chronic asthma and arthritis. She is paying £25 per week in gas charges because of this expensive LPG scheme, which she expected to be replaced by a natural gas scheme until privatisation came along and killed that hope.

Gas is supplied near to those families to the villages of Gwaun-cae-Gurwen and up to the Gurnos roundabout at Ystalyfera. We are not talking about a major pipeline installation project, but about the demand for gas which is supplied only a few miles away. Yet British Gas says that it is far too expensive. It also claims that, under the Gas (Connection Charges) Regulations 1986, it is not allowed to subsidise access for new customers.

That undermines the principle of essential service, which means universal access for every customer who requires it. Again, that is a direct consequence of the privatisation of British Gas, where the public interest has been relegated below the interests of private shareholders and the imperatives of competition which drive the regulatory regime.

One result of that is direct discrimination in, for example, Lampeter where 800 customers were supplied by British Gas on a spur pipeline. British Gas had to invest £1 million in 1992 to upgrade that spur, or at least a section of it. British Gas told me that it would expect to invest a further £1.5 million in 1995 to upgrade and maintain the remaining section of the pipeline to Lampeter. British Gas has also stated that it will never recover the capital investment in commercial terms, and that it is doing it only because it has a statutory obligation to supply existing customers. Yet there are similar amounts needed to supply new customers ; for example, £1 million in the case of Dulais valley or up to £2 million in the case of the upper Swansea valley. The regulatory system is being pursued by the Government and implemented by British Gas and it is directly discriminating against new customers. Old customers, on the other hand, can be effectively subsidised on commercial criteria in the case of Lampeter. That discrimination is completely indefensible and against the public interest.

It is also, in my view, short sighted. Extending supply could make it more attractive for new industry to come into areas of high unemployment and deprivation, such as the upper Swansea valley and the upper Dulais valley. That could increase the wealth of the community and increase the standards of living of local residents. They would be encouraged to consume more, which would open up new markets. That would be a complete antidote to the short-termism which drives British Gas's policy under the regime put in place by the Government.

The regulatory regime results in cherry picking and social dumping. The cherry picking is a result of British Gas being driven by competitive forces, with new competitors encouraged by the regulator yapping at its heels. Those forces have driven British Gas to supply highly profitable customers--large houses, industrial units, city centres and urban concentrations--rather than outlying areas where it is difficult to make a profit. Those areas thus become the victims of social dumping.

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From British Gas's standpoint, the recent changes which followed the Monopoly and Mergers Commission report mean that there is extra competition. An argument which has been put to me and which is hard to dispute is that British Gas could invest in a new pipeline and then find that a competitor comes in and creams off the market and all the customers. While British Gas would have invested all of the money up front, the benefits would be denied to it.

The villages are being penalised and discriminated against because of the regime that the Government have put in place governing British Gas. From December 1992, British Gas has made sure that consumer contribution to pipeline or outfill projects has gone up by 80 per cent. Every new customer has been required to pay much more to have gas brought to them than has been the case in the past.

That brings me to an alternative solution, given that British Gas seems unable to provide one because of the regulatory regime bearing down on it continuously in a way which makes it difficult to meet the demands. What about the possibility of grant aid? I have taken up that matter with the Welsh Office, and I have had correspondence with the Under-Secretary of State and with the Secretary of State. I am informed that such projects for installing pipelines up the valleys are not eligible for urban aid because they are residential rather than industrial projects.

The alternative is to consider the possibility of a European grant. Again, I am informed that such projects would not be eligible because of privatisation and I cannot dispute that fact. Prior to privatisation, British Gas Wales was eligible to apply for European regional development funding for 30 per cent. of key infrastructure improvements. Indeed, in the seven years prior to privatisation British Gas received more than £15 million from European grants to assist with pipeline improvements, but it has not been eligible since. That is a direct and discriminatory consequence of the Government's policy of privatising British Gas. It is ridiculous because other countries have benefited from European money. For instance, Portugal was given a grant of £78 million to develop a natural gas terminal at Setubal and a pipeline northwards. In correspondence with British Gas, the Secretary of State said that such an option would be denied to Wales because of privatisation and also because Wales and the rest of Britain is not, like Portugal, an objective 1 region in European Community terms, although it should be because Wales is the poorest part of mainland Britain and thus should be eligible for such grants.

The Under-Secretary of State for Wales pointed out in a letter to me today- -I am grateful to him for supplying it before this debate--that

"privatised bodies are required to comply with the Solima' criteria"

under European grant terms, which means that domestic customers would be denied such grant aid because it is applicable only to so-called economic and industrial developments in the region. I argue that that is a narrow definition of eligibility. If one upgrades a residential community, industry will be able to invest in those villages, which are industrial as they are former mining villages. Industry would be much more likely to invest if the villages had gas and it had the opportunity to use it.

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The Under-Secretary should give us an assurance that the Government will seek a reform of the European development fund criteria. I hope that he can give me that promise so that villages such as mine are not in future denied grant aid from Europe.

The Welsh Office must put considerable pressure on the European Union to assist outlying areas throughout Wales, where so many tens of thousands of villagers are denied gas, which is the cheapest form of energy. It must also put pressure on the Union to ensure that the regulations are reformed, so that grant aid is provided to assist with such installations and British Gas can have a detailed programme, which provides everyone in Wales, and certainly everyone in the valleys, with the gas that they want.

The European question has another dimension. In a recent letter to Mr. David Morris, a Member of the European Parliament, the Regional Commissioner, Mr. Bruce Millan, said :

"Under the current Community Support Frameworks for the United Kingdom there is no provision for funding gas supply networks. Only on-site infrastructure for industrial and business premises is eligible for funding."

He goes on to say that that could

"be a matter for discussion"

within the European Community and that if the British Government made any proposals they would be considered. He does not prejudge the outcome, but invites the British Government to propose changes in the European grant criteria, which would enable British Gas to benefit. I am making a direct request across the Chamber to the Under-Secretary of State and through him to the Government to lobby the European Commission and meet with Mr. Millan and other Commissioners to change the criteria, so that villagers in my constituency and throughout the United Kingdom can benefit from European grant aid for such infrastructure investment. British Gas recognises that there is a strong case for the provision of natural gas to deprived communities--not least because it is comparatively cheaper than other fuels.

In conclusion, as a local Member of Parliament I have become extremely frustrated at the buck-passing between the Welsh Office, the European Community and British Gas. I have been corresponding on the matter for over a year. I do not quarrel about the energy with which the Welsh Office has responded to my pressure and requests, but I complain about the frustration of a local Member of Parliament who finds that everybody is passing the buck up and down the line. I call on the Government, together with British Gas, to resolve this matter as soon as possible and supply gas up the Dulais and upper Swansea valleys. The sums involved are relatively trivial. Compared with the profits made by British Gas, they are petty cash--a million here and a million there. The Welsh Office should immediately lobby the European Community to change the criteria by which European grant aid is provided. If that is not done, valley villagers and tens of thousands of others throughout Wales and no doubt elsewhere in Britain must conclude that they are the victims of privatisation and Government indifference.

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11.10 pm

The Parliamentary Under-Secretary of State for Wales (Mr. Gwilym Jones) : I congratulate the hon. Member for Neath (Mr. Hain) on securing this important debate, especially at such a civilised hour. It may be helpful if I begin by outlining the changes that have occurred within the European structural fund arena, which I hope will clarify the position with regard to utilities and the hon. Gentleman's specific concerns in respect of domestic users. Current European structural fund support in Wales is implemented through European Commission-approved community support frameworks. These focus on the conversion of regions seriously affected by industrial decline within objective 2 areas, such as industrial south Wales and Clwyd, and the promotion of the development of rural aeas within objective 5b, as in the case of Dyfed, Gwynedd and Powys. Prior to 1989, not since privatisation as the hon. Gentleman suggested, when community support frameworks were first introduced, the European Commission was responsible for approving numerous single projects to aid the economic development of Wales. These included support for various gas projects to aid industry. However, after a review of the structural funds, which was completed in 1988, the European Council approved Commission proposals for co-ordinating and targeting structural funds on areas most in need. The principles of the review were to concentrate on five priority objectives : to encourage partnership ; to introduce consistency, particularly with the member state's economic policies ; to improve administration of the funds ; a switch from a project-based to a programme-based approach ; and, finally, to simplify monitoring. The five priority objectives were agreed for the funds, each of which was allocated a block of resources but with a large proportion of the funds targeted at objective 1 areas, such as Spain, Portugal, Greece and the Republic of Ireland.

Objective 1 designated areas were allocated funds appropriate to promoting the development and structural adjustment of the regions whose development is lagging behind. Their community support frameworks allow for the introduction of natural gas infrastructure. It is important to recognise that both the ethos and the quantum of funds available require different approaches to the problems of different areas, and in particular require a different emphasis in preparing and implementing programmes. In Wales, the community support frameworks approved for objectives 2 and 5b involve promoting the synergy of varying measures to maximise the economic development of the areas concerned with the funds available.

The introduction of more focused structural funds programmes has an important reference for privatised utilities in the United Kingdom. The Commission insisted that applications for investment in infrastructure by privatised bodies should be subject to a strict set of conditions known as the Solima criteria. First, there must be statutory or similar control of the body concerned ; secondly, the aid must result in investment to the benefit of consumers or users of the infrastructure ; thirdly, aid will be pitched at a level reflecting the extent to which a subsidy is necessary to ensure the investment is undertaken ; and, fourthly, retention of infrastructure in public use during its economic life will normally be required.

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These criteria address the Commission's concern that European regional development fund grant should not benefit non-eligible users, and that the grant should take into account the probable return on the investment and thus be pitched at a level that is strictly necessary to allow the project to proceed.

Any applications from privatised bodies entail very careful analysis of project proposals and a clear explanation of how any project proposed by a privatised body could meet the Solima criteria.

The ERDF grant is, if necessary, reduced to ensure that no grant is paid to any proportion of the investment estimated not to be for direct benefit to industry, commerce or tourism, and that no grant is paid for any proportion of the investment which could be financed out of future revenue from charges to the user of the infrastructure. To qualify for ERDF assistance, projects must show a clear link between the project and the industrial and/or economic development of the area concerned and show that it will lead to a genuine improvement of facilities. They must be located within an area covered by an approved community support framework, be acceptable in terms of the relevant CSF, contribute to the objectives and targets of the relevant CSF and be undertaken by a body satisfying the eligibility criteria.

Against that background, I am well aware of the hon. Gentleman's concern about the cost to his constituents of the possible extension of the gas mains system to Seven Sisters in the upper Dulais valley. I have considerable sympathy for his constituents and others he has described this evening. As such, I understand that the hon. Gentleman is well aware before tonight's debate that ERDF resources cannot be devoted to the provision of gas supplies that are either exclusively or primarily for domestic use. That is also the case for support from the strategic development scheme.

Gas supply schemes are eligible for SDS support if they fall as part of local authority sponsored infrastructure projects that will create or safeguard jobs--not if the scheme solely or primarily benefits domestic users.

British Gas is required by law under the Gas (Connection Charges) Regulations 1986 to secure a contribution from potential new customers towards the cost of making natural gas available. The formula takes into account the benefit to British Gas of gas sales which would follow the commissioning of the project, but is also designed to ensure that existing customers do not subsidise new customers.

British Gas maintains that its approach to providing mains extension is consistent throughout the country, and was in existence before privatisation. It is not a consequence of privatisation as the hon. Gentleman suggested.

Mr. Hain : I cited the example of Lampeter where it was not a commercial investment ; it is an existing customer base. Therefore, British Gas is required to provide a service and we would all expect that. Effectively, places like Seven Sisters are being discriminated against. Will the Minister concede that British Gas was eligible for European funding to the tune of £15 million before privatisation?

Mr. Jones : I have already covered the latter point. That was the position until 1989, after privatisation, but the regulatory regime under which British Gas has to operate now is the Gas (Connection Charges) Regulations 1986

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which require it to treat all customers alike throughout the country and to ensure that existing customers must not subsidise new customers. That has been the practice not just since 1986 but was the practice before. The decision to proceed with such a scheme must therefore be a matter for the commercial judgment of British Gas. Negotiations with the European Commission have determined the future shape and content of the structural fund. In Wales there will be two programme areas : objective 2 industrial south Wales and objective 5b rural Wales. Structural fund working groups are developing strategies for their respective areas.

Arising from the strategies are the specific future priorities that the partnership--those who are involved in putting together the objectives and applications--feels should receive support under the structural funds from January 1994 onwards. Those plans will have to be submitted to the Commission by the end of April 1994.

The European Commission will draw from those plans when establishing the community support framework for each eligible area and those frameworks will define the activities eligible for support in each area.

Utilities are mentioned in both strategies, although gas is not mentioned in particular. The plans recognise that improvements in the utilities would contribute to making industrial, commercial and tourism development more attractive. However, the fact that limited funds are available will necessitate rigorous selection procedures, and it is likely that any utility seeking funds for projects will be required to demonstrate clearly the benefits to economic development--notwithstanding the need to satisfy the Solima criteria. Even if such activities are included in the community support frameworks, there is no guarantee that any particular area or project will benefit. Applications for European regional development fund assistance must accord with the priorities for regional economic

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development included in the community support frameworks, and must undergo appraisal of their economic benefits to ensure that they are in keeping with the ERDF resources that would be deployed. Although there is a need to ensure that safeguards are in place to avoid the possible distortion of competition through direct state aid-- and to ensure that benefits accrue to the community rather than to private individuals--private-sector involvement in structural funds is to be welcomed. In response to what the hon. Gentleman said, I stress that the Government are keen for the private sector to be more involved in the structural funds programmes. The introduction of the new programmes will allow a continuation--indeed, an expansion--of the partnership between the public and private sectors for jointly funded projects, which is encouraging.

Mr. Hain : The Minister has not answered one question. Is he prepared, on behalf of the Government, to take up Commissioner Millan's invitation to look afresh at the funding criteria? Will he promise that that will be done as a direct result of tonight's debate?

Mr. Jones : I have tried to describe the way in which the new plans applications are proceeding, which will involve community support frameworks. The partnership must deposit the plans with the Commission by April this year. It would, however, be wrong for me to promise too much to the hon. Gentleman : the utilities will be included, but not specifically gas. I envisage a continuation of the present arrangements. When we can indentify particular economic benefits in industrial, commercial or tourism categories, there may well be opportunities for utility applications. However, I think that the concepts are now well established, and I can foresee no direct application in, say, industrial south Wales for applications serving only domestic users. I am afraid that I cannot offer the hon. Gentleman that consolation.

Question put and agreed to.

Adjourned accordingly at twenty-two minutes past Eleven o'clock.

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