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.
6.30
pm
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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