House of Commons Hansard Debates for 14 Jul 1999 (pt 50)

Commonwealth Development Corporation Bill

New Clause 3

Sale of shares or other securities

'. It shall be the duty of the Secretary of State--

(a) in disposing of shares or other securities held by him; or
(b) in directing a person to dispose of shares or other securities held on the Secretary of State's behalf
to ensure that the price obtained for those shares or other securities is in the best commercial interests of the Corporation.'.--[Mrs. Gillan.]

Brought up, and read the First time.

10.23 pm

Mrs. Cheryl Gillan (Chesham and Amersham): I beg to move, That the clause be read a Second time.

At this late hour, it is fitting that we return to consideration of the Bill and I am pleased to see the Secretary of State in her place. I understand that she will reply to the debate on the new clause. During the stages of the Bill, the Opposition have been greatly concerned about the way in which the shares and securities in the new Commonwealth Development Corporation will be disposed of and, in particular, the price that will be achieved. None of the replies given during our proceedings on the Bill so far has reassured me that the best possible price will be obtained for the sale of the Commonwealth Development Corporation.

The new clause reflects those concerns, because we need to ensure that the price obtained is the best possible, and that the CDC is not sold off cheaply at a knock-down price.

Clare Short: Unlike your performance.

Mr. Deputy Speaker (Mr. Michael Lord): Order. Perhaps we might begin as we plan to continue, without sedentary interventions from the Front Benches or even the Back Benches.

Mrs. Gillan: The right hon. Lady intervened from a sedentary position to cast aspersions on the privatisation programme of the previous Conservative Government. In the light of the report that came out today, I hope that she will undertake not to do for the CDC what she did for the Railtrack privatisation. That would make Conservative Members a lot happier.

Clare Short: The hon. Lady should apologise.

Mrs. Gillan: At least we are not talking down the price of the CDC. We are trying to ensure that appropriate safeguards are included in this privatisation process. In any case, methinks the lady doth protest too much. She has been telling us that this is not a privatisation process.

Mr. Douglas Hogg (Sleaford and North Hykeham): Does my hon. Friend agree that, given the Chancellor's disposal of the country's gold reserves, a statutory obligation of this kind is justified?

Mrs. Gillan: My right hon. and learned Friend is right. I shall come to the question of the Chancellor's gold

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sales later, as it will have a direct effect on the price achieved on the CDC privatisation. We must make no mistake: Labour Members, when they vote to support the Bill, will be voting for a privatisation.

First, I shall look at some factors that could affect the price. I shall refer to the CDC's annual report for 1998, which contains some interesting facts and figures. The CDC's investments are listed in the final pages--a rather large population of relatively small investments. The number and variety of those investments mean that they are inherently difficult to manage. Also, realising the value of such a large and diverse portfolio will pose problems.

The management problems need to be examined, as at no stage in our proceedings have we explored them properly. They would also, of course, affect the price. I hope that the Secretary of State will comment on the portfolio, and undertake to give the House an analysis of the business itemised between pages 65 and 73 of the report in terms of cost, estimated current values and the income stream produced. That is an essential element in setting out this privatisation so that potential investors can see what is on offer.

I hope also that the Secretary of State will say what percentage of the portfolio produces an income stream. In how many cases is the income stream column blank? In other words, I hope that she will give an idea of the value of all the businesses, as any interested buyer will have to understand that it will be difficult or impossible to realise their value in practical terms. Unless information is readily available to investors, it may be impossible to establish whether we obtain the best price for privatisation.

10.30 pm

Mr. Leigh: My hon. Friend's remarks on price are directly relevant to our earlier debate on new clause 1. The more someone is required to pay for the CDC, the less willing he or she will be to do the corporation's traditional work in difficult markets and with difficult customers. The Government cannot have it both ways.

Mrs. Gillan: My hon. Friend goes to the heart of the matter. The nature of the CDC will be fundamentally changed by its privatisation.

The Secretary of State must tell us what effect the sale of gold has had on the CDC's three gold-mining investments--the Abosso and Satellite gold fields in Ghana and the East Africa gold mines in Tanzania. Has any of those operations been directly affected by the Chancellor's actions? We have heard alarming stories about redundancies and a crisis in South Africa. [Interruption.] The Secretary of State is laughing; she is plainly amused by the thought of a crisis in South Africa. No doubt, like the Under-Secretary, she will blame the crisis on other countries selling their gold. However, has the status of those three investments been affected? If they can be damaged even by the actions of the UK Government, the risk involved in the CDC will be clear, and the portfolio will be even less interesting to investors.

The Secretary of State must consider what buyers might be looking for. The price obtained for the CDC could be badly affected by the amount of Government management control of which the Under-Secretary boasted during our previous debate. The Under-Secretary must appreciate

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that a full transfer of ownership and management--implying an ability to act commercially--would maximise the value of CDC shares. [Interruption.] The Minister says that I should be referring to the Secretary of State, but it was he who dealt with the previous group of new clauses and amendments, and he who trumpeted the control that he would retain over the CDC.

The golden share and the ability to block CDC actions will also reduce the price. Rather than protecting the CDC, the Government will diminish its value. The Secretary of State must let us know why the vehicle she is using to maintain the CDC's character may work against our obtaining a fair price for it.

The hour is late, and I do not wish to delay the House. The Under-Secretary earlier filled some of the gaps that he had left at the Committee stage. He also sent me a letter--it arrived only yesterday--on some points raised in Committee, particularly concerning the CDC's operating costs. [Interruption.] The Minister laughs and asks what is wrong with that. A considerable time has elapsed since the Committee stage, and the Minister could have made an effort to send the replies a little earlier than the day before the debate. That is how the Department has handled the Bill. The taxation provisions for the CDC were tabled at the eleventh hour. The whole passage of the Bill has been punctuated by the late arrival of information.

To give the Minister his due, the letter did arrive, and I thank him for giving us the information. However, once again there are unanswered questions. I raised with the Minister the issue of the large rise in staff costs and operating charges. The staff costs rose between 1997 and 1998 from £13.2 million to £16.3 million, and theother operating charges rose from £11.6 million to £17.6 million in a 12-month period. I asked for a breakdown of the CDC's operating costs.

Will the Secretary of State explain item five in the Minister's letter, which deals with the business change management costs and costs related to the preparation of the PPP, which stand at £1.8 million for the 1998 accounting period? How much does she expect those costs to be in the 1999 accounting period? Will they be similar, or will they be larger? That is an astronomical cost, and I presume that it will not be repeated. However, there must be some carry over into the 1999 financial year, and I hope that she will be able to tell us what those charges are to date.

There is also an item on the increase in general administration costs, which is a round figure of £1 million. That requires further and better explanation. Even at this late stage on Report, the Department and the Secretary of State should give us a breakdown of that £1 million figure, which is a large increase in general administration costs on a relatively small budget. A financial director of any company would look at that item on the accounts and ask those questions. To reassure potential investors that this set of accounts is not profligate, to say the least, we should know to what that £1 million increase in general administration costs is attributed.

The Minister's letter also refers to training costs. He says:

"Training costs and costs directly related to preparation of the public private partnership are exceptional costs, but are expected to continue over the next few years."