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.
My questions
on carbon pricing and the future cost of climate change—one of
the technical considerations that would have to be factored into any
cost-benefit
analysis of whether to plug a well or whether to continue making it
accessible—give an example of how technical this could get. It
is perhaps unfair to suggest that the Minister should have that
information at his fingertips, but it underlines how important it is to
get such things
right. 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:
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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