Energy Bill

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Clause 61

Amendment of Nuclear Installations Act 1965
Question proposed, That the clause stand part of the Bill.
Malcolm Wicks: Let me briefly refer to the clause and the earlier debate on companies disappearing or demerging. I want to emphasise that, if at any time, the circumstances of an associated body with obligations under the Bill changed, that would trigger a modification to the funded decommissioning programme and would need the Secretary of State’s approval. I want to emphasise that theme, which I was developing earlier.
We are making good progress, which is a relief particularly for me, as I am cast in the role of speaker, and for hon. Members, who are cast in the role of listeners. I know that some have finished before me.
Clause 61 makes it clear that, even if the operator complies with section 11 of the Nuclear Installations Act 1965, which contains an offence of contravening the restrictions on uses of a nuclear site, they may none the less commit an offence if they fail to comply with clause 43. I remind the Committee that clause 43 will prohibit the use of a nuclear site in the absence of an approved funded decommissioning programme.
Clause 43 sets out the penalty for a person who is guilty of that offence—I do not want to trigger another death-by-hanging from the hon. Member for Wealden. The penalty on summary conviction is a fine not exceeding the statutory maximum, which is currently £5,000 in England, Wales and Northern Ireland, or, on conviction on indictment, to imprisonment for a term not exceeding two years or to a fine, or both.
Criminal sanctions will ensure that the operator of a new nuclear power station complies with the waste and decommissioning framework in the Bill. That will enable the Secretary of State to ensure that operators meet their duty to have an approved funded decommissioning programme in place. It is important to have a criminal sanction, because without a funded decommissioning programme, the power station operator might not make adequate provision for back-end liabilities. That would create the risk of taxpayers having to assist in meeting those liabilities. Operators must take full responsibility for meeting the cost of decommissioning and waste management, and the clauses in this chapter seek to ensure that the operators of any new build do so.
Question put and agreed to.
Clause 61 ordered to stand part of the Bill.

Clause 62

Meaning of “associated”
Question proposed, That the clause stand part of the Bill.
Malcolm Wicks: It seems that I must give a more detailed explanation of this clause, albeit a fairly technical one. I hope that the Committee will bear with me.
The purpose of the clause is to ensure that the Secretary of State has adequate tools at his disposal to ensure that prudent provision is made for waste and decommissioning. To that end, it is appropriate and necessary to define bodies that are associated with the operator, so that the Secretary of State can impose on them certain responsibilities. The clause sets out which bodies come within the scope of the provisions in this chapter. It also minimises the prospect of operators avoiding their obligations under the Bill—for example, through certain company structures.
Before I go any further, it is important to emphasise that the clause does not define which associated bodies are automatically fixed with liability under the programme. That depends on the exercise of the Secretary of State’s powers to approve or modify the programme. However, it does define the scope of the Secretary of State’s powers to impose obligations on associates. The clause provides that one body corporate is associated with another if one of them has a significant interest in the other, or a third company has a significant interest in both of them.
Under the definition in the Bill, company A will have a significant interest in company B if it has either a 20 per cent. interest in company B or if it has the power directly or indirectly to ensure that the affairs of company B are conducted in accordance with its wishes.
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I believe that that is an appropriate threshold for the inclusion of associated companies, given the nature of nuclear waste and decommissioning. Setting the test for significant interest in that way ensures the robustness of the programme. For example, a situation might arise in which the Secretary of State formed the view that the operator might not be able to fulfil its obligations under the programme. In such a case, the clause sets out which associates of the operator could be required to ensure that some or all of the operator’s decommissioning and waste liabilities were provided for. The clause seeks to provide legal certainty to operators of new nuclear power stations in that regard by defining the associates that can be captured in that way.
The clause is also designed to ensure that prudent provision is made for the decommissioning and waste liabilities where there is no single parent. For example, a consortium might come forward with a structure in which three or more bodies each have significant influence over the operator but none holds 50 per cent. or more of the shares. Those so-called parents would all be beyond the Secretary of State’s reach if the threshold were set at 50 per cent.
I know that some concerns have been raised by the industry about the 20 per cent. threshold that we have set, so I want to use this opportunity to explain why we believe that 20 per cent. is right. It has been said that alternative thresholds of 30 or even 50 per cent. should be considered, but I have concerns about both of those figures. In the case of a single corporate body undertaking new nuclear build and owning the operator, the practical difference between a 50, 30 or 20 per cent. threshold is unlikely to be of material significance, given that the operator will be part of that group and the group will wish to exercise control over the operator at all levels.
In contrast, where a joint venture is undertaking the new nuclear build and there are several interests in the operator, the threshold is important. In establishing a consortium, one does not have to be unduly creative to structure the interests of those participating in the programme below either a 50 or 30 per cent. threshold and still ensure that those participants enjoy significant influence over the operator. If the threshold is set at the relatively high level of 50 or even 30 per cent, there is an incentive for those involved to put in place a structure that enables them to minimise the risk of being fixed with liability under the clause.
They might choose to do that even though it might add to the risk of increasing costs and complexity in both the structure and operation of the consortium arrangements. That is because the benefit derived from avoiding the potential risk exposure of obligations under a funded decommissioning programme is likely to outweigh such additional costs and operating complexity. With a 20 per cent. threshold, I would expect the complexity of putting in place and administering each consortium’s arrangements to be increased, thereby reducing the incentive.
I recognise that, at whatever level the threshold is set, there is the possibility that some people might seek to create a structure that avoids the consequences of the powers in the Bill, but I believe that setting the threshold for significant interest at 20 per cent., together with other provisions in the clause, strikes the correct and appropriate balance between the commercial interests of prospective operators and investors and the proper interests of the Government and taxpayers.
I would like to emphasise that our policy is not “nuclear at any cost.” We have discussed the potential effect of the clause with the industry and will continue to do so if needed, but I shall be clear that operators will be expected to meet their full decommissioning costs and full share of waste management costs, and the clause will provide further safeguards behind that important principle. A 20 per cent. threshold will also ensure that such shareholders want operators to take sensible decisions on waste and decommissioning costs in order to minimise the risk to their own shareholders and associates. That will put further pressure on operators properly to fund and implement their programmes.
The 20 per cent. threshold reflects existing legislative precedents, because I can anticipate the question of where the 20 per cent. comes from. For example, paragraph 20 of schedule 4A of the Companies Act 1985 refers to a significant interest over operating and financial policy where one undertaking holds 20 per cent. or more of the voting rights in another undertaking.
The clause also provides for indirect holdings to be taken into account in deciding whether a person with holdings of that nature has obligations under a programme. In this context, indirect holdings arise when one company owns a stake in a different company, which in turn has an interest in an operator of a new nuclear power station. When the holding is indirect, the Secretary of State may impose obligations on the holding company only if it has more than 50 per cent. of the shares in the company that has an interest in the nuclear operator. I believe that to be the right level.
We consider that a 20 per cent. threshold for indirect interest would bring a disproportionate number of bodies within the scope of potential liability under the programme. We have balanced that consideration carefully against the anti-avoidance risk, involving setting the threshold at 50 per cent. Furthermore, where the holding of such a company is less than 50 per cent., but it is exercising a de facto control over the operator, it will still be caught by the provisions relating to the power of a third company to ensure that the affairs of the operator are conducted in accordance with its wishes.
The threshold for control is akin to those in the decommissioning provisions on associates for bodies corporate for offshore renewables and oil and gas decommissioning installations, which apply a 50 per cent. threshold across the board. The clause applies to limited liability partnerships that are associated with the operator, with appropriate amendments, given that limited liability partnerships do not have shares. It is recognised that such organisations might have a role to play in new nuclear or as part of a corporate group involved in the area. Had we not extended the clause to include limited liability partnerships, we could have created a situation in which companies were incentivised to restructure themselves as such partnerships to avoid the consequences of the clauses in this chapter. Our approach is consistent with provisions concerning other decommissioning liabilities in the Bill.
Charles Hendry: Will the Minister explain further why the distinction in this clause is different to that in other parts of the Bill? Why has he gone for an ownership threshold of 20 per cent. in this sector, but a 50 per cent. threshold for the decommissioning of offshore renewables and oil and gas installations? Will the liability of organisations or investors relate to the size of their ownership stake, so that if a company owns more than 20 per cent. of the operator they will be liable for that exact proportion of the decommissioning costs, or will there be some other structure? If so, will he explain how that will work?
In addition, will the structure take account of how long investors or organisations have had ownership of their portion of the company? There is a great difference between the returns that an investor or a company will have if it has been an investor in a company that is operating in nuclear facilities for many years and one that has only recently become an investor. Will their liabilities be equal and based purely on their shareholding, or will other factors be taken into account?
Will the Minister also clarify what will happen if the parent company is owned by a foreign Government and is essentially the sovereign fund of another country? Will the legal duty rest on the parent company or with the Government of that country?
Steve Webb: In his introductory remarks, the Minister addressed some of the concerns that I had on reading the clause. There was a worry about the potential for organising corporate structures to avoid the knock-on liabilities. He seems to be saying that there is a trade-off in such matters. A 20 per cent. threshold implies that if six parents share the ownership of a business, they can avoid the knock-on liabilities. If I understand him correctly, he seems to be saying that six companies would have so little control or power that they would not want to do that. However, perhaps they would if they knew that they could avoid their exposure to liability. I am not quite clear about his reasoning. I understand the point that the lower the threshold is set, the less control the parents or owners have, but I do not understand why there is not still an incentive to structure the ownership in that way. Will the Minister clarify that point?
The hon. Member for Wealden made an important point about the inconsistency with clause 77 on oil and gas, for which the threshold is 50 per cent. There is clearly a different figure in this clause, and it would be interesting to know why it should be different for nuclear compared with oil and gas.
I apologise for what is probably a lack of understanding on my part, but will the Minister explain in lay terms how in this clause the 20 per cent. and 50 per cent. numbers relate to one another? One appears to relate to direct ownership and the other to indirect ownership, but indirect through what mechanism? Is it a holding company, a parent company or something else? Will the Minister clarify what the two different numbers are exactly? More to the point, why is 20 per cent. right for one and 50 per cent. right for the other? He explained what they were, but not necessarily why 50 per cent. was right for the other.
Malcolm Wicks: I hoped that in my speech I had tackled many of the issues raised. Although the hon. Member for Wealden is asking for more, as he did last week, I thought that I had clarified the position. When he reads the report of the Committee’s proceedings, he may have some questions that we can consider in another way. I thought that I had, at some length, done my best. Clearly, whether the number is 20 per cent. or 18 per cent. is a matter of judgment. I explained that we had taken something of a precedent from section 260 of the Companies Act, which refers to a participating interest as having a shareholding of at least 20 per cent. of the undertaking. At the end of the day, these will be arbitrary figures. Let me, however, deal with the issue of the parent company being based in another country.
Although the clauses do not have extraterritorial effect, the Secretary of State would not expect to approve a programme that did not make prudent provision by way of security for the costs of decommissioning, waste management and disposal. That would include a case in which the parent or associates of the operator were based overseas. At the beginning of the process, issues of extraterritoriality have to be uppermost in the minds of the Secretary of State and his advisers.
The hon. Member for Northavon asked whether there was now any incentive to structure around 20 per cent. We believe that the complexity of structuring around a 20 per cent. position would act as a disincentive. Again, I concede that these things are a matter of judgment. I will leave it there, if I may. I seriously think that there might be a way in which we can correspond on this issue if I did not make myself clear, which perhaps I did not.
Steve Webb: I am grateful for that, because the one thing that the Minister clearly did not do in his introductory remarks was say why different approaches were being taken on nuclear as distinct from oil and gas. The thresholds in an almost identical clause—clause 77—for what “associate” means are just different. What is it about oil and gas that is different from nuclear that results in different thresholds being used?
Malcolm Wicks: I think that soon we move on to issues relating to oil and gas decommissioning. Therefore, if I get the comparisons wrong, or rather if I am allowed to get them even more perfect in the future, we may be able to consider the matter in that respect. In terms of nuclear, yes, unless we are very prudent and think of all the issues, the risk to the taxpayer could be significant, but together we are going to get it right in Committee, are we not? The 20 per cent. threshold seemed to us to be right, for the reasons that I hoped I had explained.
The hon. Member for Wealden asked about a situation in which ownership was more than 20 per cent. Certainly we would expect associated companies to set up their own contractual relationships to share liability should any event occur. If we were to give a commitment such as he seeks, that could encourage avoidance. Again, we need to be careful about that, but I am aware that we might need to explore some issues further in correspondence if any doubts remain in the minds of the hon. Gentlemen when the record has been read. I appreciate that my speech was quite complex and technical.
Question put and agreed to.
Clause 62 ordered to stand part of the Bill.
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