Energy Bill

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Schedule 3

Petroleum licences: amendments to model clauses
Question propo sed, That this schedule be the Third schedule to the Bill.
1.45 pm
Malcolm Wicks: I shall introduce the schedule very briefly. It simply implements the changes to the model clauses that we discussed when I introduced clause 72. I do not intend to speak further, other than to say that the schedule should be read together with clause 72.
Martin Horwood: It is tempting at this stage to whiz through what appear to be humble clauses, or humble schedules in this case, but it is still sometimes important to pay attention to the detail and look for important and perhaps worrying precedents that might be set. Perhaps the Minster can give reassurances on those.
As the Minister said on clause 72, there are essentially four areas relating to the various amendments to regulations that the schedule provides for. The first area relates to the provision of contact details to the Minister, and I have to point out that there is a logical flaw in that provision. A provision in paragraph 14(2) of the schedule states:
“The Licensee must supply the Minister with the name and address of a person to whom notices...are to be given.”
What happens if the licensee fails to comply with that? Well, the Minister will have to serve them a notice, but one wonders to what address he will send it if the contact details have not been supplied. While that is a genuine logical flaw, I suspect that it is not absolutely critical, although it draws attention to another aspect. The explanatory notes state:
“It is the licensee’s responsibility to ensure that the contact details held by the Minister are up to date.”
Rather subtly, that provision in the schedule will transfer to the licensee DBERR’s responsibility for keeping its records up to date and having accurate data. I would have thought that that might be a slightly risky responsibility for a commercial operator.
Anne Main: I am following the hon. Gentleman’s argument with interest, but I would have thought that it was obvious that the address will be supplied by the company that applies for the licence, and I am sure that he would not expect the Department to contact everyone every so often to ask, “Have you moved?” I would have thought that it was quite obvious that they would notify the Department of any major change of address for their business.
Martin Horwood: I am grateful for the hon. Lady’s intervention, and I think that she has touching faith in the efficiency of Departments. As constituency MPs, many of us occasionally come across instances where what she describes is not the case.
Mr. Swire: The hon. Gentleman is perusing an interesting line, because the alternative to the licensee keeping the Department informed of changes is the Department contacting the licensee, perhaps on an hourly or daily basis, on the off-chance that the address might have changed. If he moves house—after what he did last night, he may be tempted to change party—is it incumbent on him to notify the supplier of his telephone, for instance, or is it incumbent on the supplier to check with him regularly in case he has moved?
Martin Horwood: I am grateful to the hon. Gentleman for his entertaining intervention, but I have no intention of moving house, especially now that I have been placed on the Daily Mail roll of honour, which I must admit was not an honour that I had even been seeking and which I hope is never repeated.
The explanatory notes state not only that updates should be sent to the Department, but that it is the licensee’s responsibility to ensure that the contact details that are held are up to date. Will licensees be able to check, for instance, that DBERR’s processing and data protection arrangements are adequate? Does that set any precedent with regard to placing the risk of error and of mistakes being made—they might be crucial if no legal notices are served—entirely on the licensee so that the Department will not accept any responsibility for keeping its own records up to date?
The schedule also deals with the power to issue a notice to plug and abandon a well, about which the hon. Member for Northampton, South has already raised important questions. Such a decision could have major commercial implications for an operator, so that is quite a major power to pass to the Secretary of State. Perhaps it is an important environmental initiative, but it is also a technical and operational matter, which, one imagines, would normally be dealt with by an operator, not a Minister.
The future cost of carbon methodology can change the outcome of a decision such as this. Therefore, if the methodology being used is wrong, or if it does not follow the Stern report and sets the price of carbon too low, that could change the outcome. As we have already discussed, it could mean a well with the potential for future use in carbon capture and storage being plugged and lost for that purpose. That is an important consideration.
The explanatory notes and the Minister himself have discussed the clauses that deal with revocation on change of control. I struggled to find an example of such a paragraph in the schedule. I found the other three things that the Minister referred to, but perhaps it would be useful if he drew our attention to exactly where an example of that is in the schedule.
Again, we have the prospect of the Minister stepping into what is a commercial transaction, so this matter should therefore be dealt with using particular care. As I say, I could find no example in the schedule, but the explanatory notes give an example of something that might rival the example of gobbledegook given by the hon. Member for Wealden. I found it rather difficult to follow.
When talking about trying to include in the responsibilities not just the person to whom the licence is issued, as the Minister said, but people to whom it has been assigned, the notes say:
“The Schedule extends this by providing that where rights have been assigned, there will also now be said to be a change of control whenever a person takes control over an assignee who did not control that assignee when the rights were assigned.”
I read that several times and I need a little more explanation of what it means, so perhaps the Minister can clarify it. We have the power of partial revocation, which he referred to and in respect of which there are a lot of examples in the Bill—schedule 3, proposed new section 38A, for instance.
The explanatory notes contain an interesting statement:
“Obligations and liabilities arising before the partial revocation of an interest in a licence are not affected by the partial revocation.”
That is an optimistic statement but surely, if the licence is shared, the liabilities will be shared in some way. Looking at the text, it seems that any of the persons who together constitute the licensee share in the liability. If the licence is partially revoked for one of two people, that will surely affect the liabilities of the other, and it is difficult to reconcile the statement in the explanatory notes with that.
My worry is not that there is a huge technical problem in the Bill, but that we might inadvertently be introducing loopholes into which lawyers may one day crawl. That could land us with an unexpected public liability that we would have to cope with. I seek the Minister’s reassurance that such loopholes are not being created.
Malcolm Wicks: I will do my best to cope with those points. I had hoped that my opening speech on the clause covered much of that territory, but we will see. If I may say so, the first question was not the hon. Gentleman’s strongest card. It was about how we will know where people live. In this era of concern about civil liberties, I am not going to say that we know where they live and that we have their number—that would not be appropriate.
A licence can involve more than one party, so a number of parties might have to be contacted. There is no issue here. Let us get the record straight: most companies do not abstain from giving us information about their addresses, even if most of the hon. Gentleman’s intimate colleagues abstain in some other respect.
Martin Horwood: This could go on all day.
John Robertson (Glasgow, North-West) (Lab): Longer than that.
Malcolm Wicks: Indeed. The issue, which I thought I had covered well, although perhaps at tedious length, is why the Secretary of State is in a better position than the companies to decide which wells should be plugged and abandoned. It is not quite like that, but let me repeat some of the issues. Plugging and abandoning wells is not optional; licensees are already required to plug and abandon wells at least one month before the end of their licence. The issue is ensuring that licensees can plug and abandon a well when it needs to be done.
As the regulator, the Secretary of State is the person charged with ensuring that the risks to the taxpayer arising from licensees who default on future financial commitments are minimised. Clearly, the regulator can have a different perspective from the commercial players in a particular market. In deciding whether a well needs to be plugged and abandoned, the Secretary of State must weigh up whether the risk to the taxpayer of a licensee being unable to meet the cost of plugging a well is sufficiently great to warrant the plugging of that well immediately, rather than waiting until the last month of the licence, as is currently required by the model clauses.
I will not go on in more detail, because I think that when the hon. Member for Cheltenham reads the record he will see that I had a great deal to say about that matter. We are in the business not of making commercial decisions, but of producing a fit-for-purpose regulatory framework, given how the industry in the North sea has developed in a maturing field, so that we can ensure that companies have the money finally to decommission wells and that the taxpayer can be safeguarded.
I was asked about the partial revocation provisions. I understand that they are in paragraph 1(4) of the schedule, on page 104 of the Bill. I hope that is right, and I hope that it helps the Committee.
Martin Horwood: I beg the Minister’s pardon, but I did not ask about the partial revocation. That is quite clear; there are numerous examples of partial revocation throughout the schedule. I asked about revocation on change of control, of which I did not find a single example in the schedule, although I may be in error about that.
Malcolm Wicks: I am advised that this is about change of control, so we are getting into textual analysis here. The relevant provision reads:
“In clause 38(4) (power of revocation: change of control).
Does the hon. Gentleman have that passage? I want to be singing from the same hymn sheet.
Martin Horwood: I think that I have found the provision, if it is the one numbered (4), but it appears to be in a broader section concerning provision of contact details to the Minister. I am not sure whether that is a drafting issue.
Malcolm Wicks: I know that the purpose of a Committee is line-by-line scrutiny, but there might be another way of resolving this issue. The paragraph that I have mentioned is where the hon. Gentleman will find the relevant power. He asked about extending the power of revocation from the person to whom the licence was originally granted to a person to whom the licence was assigned. Currently, the Minister can revoke a licence where there is a change of control in the licensee who was originally granted the licence. In future, that will also apply for the licensee who had the licence assigned to them. I have a feeling that some of these matters would be better dealt with in writing, but I hope that all that is clearer than it sounded.
What happens to the rights and liabilities of the parties? Where a licence interest is revoked in relation to one person on the licence, the person whose interest has been revoked remains jointly and severally liable for any obligations arising before the partial revocation takes place. After partial revocation, the rights, obligations and liabilities associated with the licence continue to have effect in respect of all the remaining persons.
2 pm
Anne Main: Can the Minister tease that out a little bit more for me? After the revocation of one of the people on the licence, there would still be a liability to pay. What assessment would be done and who would do it, so that the liabilities would be understood at the particular point when the person on the licence was revoked?
Malcolm Wicks: Who?
Anne Main: Yes.
Malcolm Wicks: My Department would obviously play a leading role; we could not simply leave it to the companies involved. If I can clarify that in writing, I will, in case there is more detail that the hon. Lady would like.
Anne Main: I thank the Minister for that offer. I can imagine that it would be something of a legal minefield, with arguments over who is responsible, and for what, at some point in the future. I am concerned that we ensure a degree of clarity about how the liabilities are assessed should someone no longer be part of the operation but still have the financial liability for a future that they do not know about.
Malcolm Wicks: I had rather hoped that when I explained the guts of the regime and the three tiers this morning, I was providing some clarity about where the obligations would fall. They would fall on the first tier—the people currently in the field who have been drilling for and extracting oil or gas—and would move on to the second tier only if insufficient moneys were available. We teased out some of those issues a little further during the debate on the amendment tabled by my hon. Friend the Member for Glasgow, North-West. If I find when I look at the record that I need to bring greater clarity to the hon. Lady, I will do so.
Question put and agreed to.
Schedule 3 agreed to.
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