Energy Bill [HL]

Baroness Northover Excerpts

Tuesday 15th March 2011 Lords Chamber

[Baroness Northover]

My Lords, we are very sympathetic to the concern expressed behind the amendment and we have debated both in Committee and on Report the issue of compensation for oil pollution. The main concern in these debates was that arrangements should be in place to ensure that companies could meet any liability arising from oil pollution during their licensed operations.

We explained in these debates that there are indeed appropriate requirements in the licences and that the industry has in response formed a voluntary liability pool, the Offshore Pollution Liability Association—OPOL. OPOL membership requires operators to demonstrate provision to meet clean-up costs and associated damages of up to $250 million on a basis of strict liability in the event of a pollution incident. OPOL also collectively provides a back-up mechanism that in the event of default by any operator, the other members will meet claims for clean-up and associated damages up to the same financial limits. That liability pool is unique to the North Sea, and we believe that it provides a very solid assurance that all pollution liabilities will in practice be met. I particularly stress the significance of the acceptance of strict liability by OPOL members, which means that anyone who has suffered loss as a result of pollution from an oil installation does not have to show that the operator is at fault. He or she merely has to establish that the damage or loss is a result of the pollution. As I have said, it is unique to the North Sea.

Since Report, my noble friend Lord Marland has written to the noble Baroness, Lady Smith, with further details of this arrangement and I thank her for her very positive response to that correspondence. This amendment, however, addresses a slightly different point from the amendments tabled in Committee and on Report. We made the point that the amendments tabled then were unnecessary as appropriate requirements were already in place. The focus of this amendment is rather that the Secretary of State should publish a report on the arrangements in place, the amount of insurance cover provided, and so on. We are wholly sympathetic to the idea that more public information should be available on these matters. As the noble Baroness notes, further work is ongoing under the auspices of OSPRAG, in which government and industry are working together to review the industry’s practices in the light of what has been learnt from the Macondo disaster. One of the OSPRAG working groups is specifically addressing liability and indemnity issues. We are happy to undertake that the Government will make an appropriate statement in the House on the outcome of this work and any changes that may appear necessary or desirable. I hope that that reassures the noble Baroness.

As for future developments, the department is committed to laying an annual statement before the House, and we will, of course, use that to report on any new developments or proposed new measures. In the light of those reassurances, I hope that the noble Baroness will feel able to withdraw her amendment.

[Baroness Smith of Basildon]

I am grateful to the Minister for her response. It covers a number of the points that I was seeking to address, mainly transparency and the responsibility of government in reporting back to Parliament. On the basis of her response, I am happy to withdraw the amendment.

--- Later in debate ---

[Baroness Northover]

My Lords, we are grateful to my noble friend for raising this important issue, which enables us to clarify further and to put the arrangements on the record. We understand that there might be concerns that the tests for insolvency set out in these provisions appear to be rather wide, but they are statutory tests for insolvency as set out in the Insolvency Act 1986. As my noble friend has indicated, it is also a matter of balancing the interests of the companies, consumers and the public interest.

Administration under the Insolvency Act 1986 is a business rescue procedure, with the survival of the company as its primary objective. If entry to administration were available only to a company that could not pay its debts at the date of commencement, the rescue of viable businesses might be jeopardised. For this reason, administration can also be entered when a company is likely to become unable to pay its debts, which was the focus of what my noble friend said.

The clauses on special administration in the Bill follow these principles. When seeking to bring an energy supply company administration to an end, the administrator’s primary objective will be to rescue the company as a going concern. Therefore, these provisions apply the same tests for insolvency as the Insolvency Act. My noble friend argued that the process is different. As he has already picked up, the Secretary of State and Ofgem will no doubt want to discuss with the company’s directors in advance any application for an energy supply company administration order. However, enshrining in the legislation a duty to consult directors could lead to delay. This is significant; the Secretary of State needs flexibility to act quickly if the company’s position poses a threat to the rest of the market. That is extremely important to remember in this case.

The amendment would require the court to apply a stricter test for insolvency when considering applications for energy supply company administration than it does for applications for ordinary administration. It is therefore conceivable that an application by the Secretary of State for an energy supply company administration order could be dismissed, while an application for ordinary administration by a creditor of the company could succeed. This could lead to the very situation that the provisions in the Bill are intended to address.

The fact that a court process is required provides an important safeguard for companies, as the directors of the company have the opportunity to contest the order in court. They will no doubt use the kind of material that my noble friend has just mentioned.

My noble friend mentioned Railtrack. In October 2001, the High Court granted a railway administration order in relation to Railtrack. When granting the administration order, Mr Justice Lightman said:

“This is clearly a case where the making of a railway administration order is not only appropriate, but absolutely essential”.

If my noble friend would like, I can fill him in at another time on the reason for that judgment being made. The company was put into administration to ensure that the railway network continued to operate and was properly maintained and managed, and that it was done in the public interest.

I make it absolutely clear that it is intended that the Secretary of State would apply for an energy supply company administration order only as a last resort and to prevent the risk of financial failure spreading to other companies. It is important to balance duties to the public with the rights of the companies. Energy supply is vital to the public and to the economy. It is therefore very important that this matter is looked at in the context of the public interest. The balance must be right. What we have seen recently in the banking industry, for example, shows how important it is to be very careful in this area.

I hope, therefore, that I have sufficiently reassured my noble friend and that he will now withdraw his amendment.

[Lord Jenkin of Roding]

I am extremely grateful to my noble friend Lady Northover for the care with which she has replied to this amendment. I have no doubt whatever that the industry will wish to study very carefully what she has just said. I have entirely accepted the case, and I think the industry accepts the case, that there is a need for the authorities to intervene. Our problem is that that might happen when the companies’ assets and liabilities appear to be in balance but someone has thought it unlikely that they will be unable to pay their debts in the future. This seems to me and to others to be an uncertain test. It would behove the Government to try to find some alternative form of words that would allay the undoubted feeling of insecurity and unnecessary risk that the companies are running under the process of the Bill.

However, as I made clear last week to my noble friend Lord Marland, it is not my intention to divide the House on this amendment but to make sure that the arguments are on the record and can be referred to in another place if that appears to Members of another place to be appropriate. Having said that, I beg leave to withdraw the amendment.