Nuclear Energy (Financing) Bill

Lord Vaux of Harrowden Excerpts

Committee stage
Tuesday 8th March 2022 Grand Committee

In addition, Amendment 19 specifies a variety of conditions that the Secretary of State may wish to impose on a nuclear company as part of the designation process. These conditions reflect some of the terms agreed with the GMB union and EDF as part of the Hinkley C project, as I mentioned earlier. I commend the amendments to the Committee.

[Lord Vaux of Harrowden (CB)]

My Lords, first I should apologise for not being able to take part in the Second Reading of the Bill. I therefore start by stating that I generally support the Bill, for two reasons: first, because I believe that nuclear power will be essential if we are to meet our net-zero goals; and, secondly, because I believe that it is essential that we become more self-sufficient in our energy needs and, in particular, reduce our reliance on other countries that may not share our values—this has been starkly demonstrated in the past couple of weeks.

The three linked amendments in my name in this group, Amendments 11, 22 and 24, are intended to address that last point. In order to ensure that we are not reliant on potentially hostile parties for our energy needs, we must be able to identify the ultimate beneficial owners or controllers of any companies that own a material part of our key energy providers. I hope that that is not a controversial statement. Indeed, the Government are in the process of putting rules in place for the identification of owners of UK property and I would argue that it is much more important for owners of nuclear-generating assets to be identified.

However, I can find nowhere in the legislation where identification of the ultimate beneficial ownership or control is a requirement. The nearest that I could find are the persons of significant control rules, but they do not always apply; they apply only to UK companies, for example, and in any event are easily avoided. These three amendments therefore try to address that shortcoming. I tried to introduce a clause that required all holders of nuclear generation licences to identify their ultimate beneficial owners, but it was not allowed. It was apparently out of scope of the Bill. I think that the Minister might want to consider that. Therefore, I have had to restrict these amendments simply to the designation process.

Amendment 11 ensures that, before a nuclear company can be designated under the Bill, the Secretary of State should be satisfied that the identity of any party that owns or controls, directly or indirectly, more than 10% of a nuclear company has been verified. Amendment 22 then allows the Secretary of State to revoke that designation if at some future point they are no longer satisfied that those identities have been verified. Amendment 24 adds a further duty on the nuclear company to notify the Secretary of State of the identity of any party that later gains ownership or control of more than 10% of it, again directly or indirectly, and allows the Secretary of State to revoke the designation if the nuclear company fails to make such notification or if the Secretary of State considers the new party not to be a fit or proper person to own or control a nuclear company.

I have deliberately not put in any prohibition of ownership in these amendments. I would not, for example, go as far as the noble Lord, Lord McNicol of West Kilbride, or the noble Lord, Lord Oates, in Amendment 9, which would prohibit the designation of a nuclear company that has any foreign power as a shareholder. As we heard, there are plenty of countries—France, for example—where it would be perfectly acceptable for them to own a stake and there are many others where it would clearly not be acceptable.

We should not be looking at state shareholdings only. There are many non-state parties that I would think would not be fit and proper to own nuclear assets. I think that it is appropriate that we look at each case on its merits and allow the Secretary of State to decide if the ownership is acceptable in the particular circumstances. The critical thing is that we should be able to identify the ultimate ownership and control and take appropriate decisions based on that, including the right to revoke the designation.

I am sure that the Minister will point out his statement at Second Reading that the Government intend to take a special share in all future nuclear new-build projects, but that is only an intention and, as the Minister pointed out, is subject to negotiation; no details of the rights attached to such special share have been provided. I therefore think that some safeguard is required in the legislation. While I would be happy to discuss the details of these amendments—for example, whether 10% is the right level—I hope that the Minister can see the attraction of the principles set out in Amendments 11, 22 and 24. I also hope that, as I said, he will consider the wider point that these rights and duties should apply with respect to all nuclear power generation licences, not just those that wish to be designated.

[Lord Howell of Guildford (Con)]

My Lords, we are getting to the important issue—quite rightly raised by the noble Lord, Lord Vaux—of control, the involvement of foreign companies and, behind them, possibly foreign Governments in this vital part of our energy security. There is one thing that I would like to know before the Minister replies. He will remember, as will most of your Lordships, that my right honourable friend Theresa May, back in 2016 after she became Prime Minister, ordered a review of Hinkley Point C, in particular the involvement of Chinese interests in that vast project, which is now going ahead. Everyone got quite agitated at the time. I remember the Chinese ambassador walking around saying, “Has there been a coup? What’s happened? What’s gone wrong? Was the Chancellor of Exchequer not in Beijing the other day agreeing that this was a new golden area of co-operation between China and the United Kingdom and, in the words of Xi Jinping, that there was going to be ‘unlimited’ partnership in all sorts of investments?” The Chinese, along with EDF and the French, were welcomed with open arms to get the Hinkley Point C project off the ground.

After a while, there was a review, which concluded that Hinkley Point C should go ahead, to the great delight of the Chinese. The whole thing was a very good bargain for them: not only did they get involved in Hinkley Point C, but they had a promise of involvement in Sizewell C and, even better for them, a promise of bringing in Hualong technology and managing their own project at Bradwell-on-Sea. This was a great delight and was going to be the poster boy project for the Chinese, as they moved into massive sales of Chinese technology and development, which would go well beyond a GDA for Bradwell into the possibility of building and managing a nuclear power station right at the middle of our system.

The review that Theresa May authorised was thorough and went into considerable detail into the conditions that there should be on the Chinese going forward. I would like to know from the Minister whether those conditions still prevail or whether they have been modified 10 years later, under further pressures, when the public attitude towards Chinese involvement has changed 180 degrees. We have moved from an age of loving everything Chinese to getting rid of everything Chinese. Has there been a change? It would be helpful if he could describe to what extent we have moved on that and to what extent those review conditions of 2016 still prevail.

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[Lord Howell of Guildford (Con)]

My Lords, I had rather a nice time working with the Liberal Democrats in the Cameron Government, when, in an enlightened way, they were strongly in favour of nuclear power. It appears that they chop and change from time to time, but those were the days.

Before I speak further, my noble friend Lord Trenchard has reminded me that I should have made it absolutely clear that I have an indirect interest to declare, in that I advise Mitsubishi Electric, which is concerned with the power sector and indirectly therefore with nuclear construction. I suppose that I also have a sort of interest in the sense that I was Secretary of State 40 years ago and tried to build nine new reactors, of which only one, Sizewell B, was ever built. I think that I am allowed to reflect to this Committee that things would be much nicer for us if we had got the other eight built as well. They were all low-carbon and would have helped greatly in the present crisis, but that is all history.

On these amendments, it is absolutely true, as the noble Lord, Lord Oates, observed, that the radioactive waste issue requires careful handling and examination, and it must be addressed fully and with all the knowledge that we can bring to bear to establish and meet the many understandable concerns about it.

As for value for money, we will come to that in the next amendment. Of course, there are enormous difficulties in defining what value for what money, but we can debate that in more detail in a moment.

What is not true is to imply that there has been no technical solution to the absolutely safe—nothing is 100% but it is highly safe—burying of high-radioactivity nuclear waste for thousands of years. It is certainly more than 40 years since the late Walter Marshall explained to me that vitrification and burial two or three miles down in a stable geological formation was very nearly foolproof. There was a faint possibility of corrosion of the glass vitrification case around the radioactive material, but otherwise it would be safe for hundreds of thousands of years. He added, rather cynically, that if before then people wanted to dig it up and eat the glass, they may have more problems than radioactive waste. The vitrification option is there; it can be done.

In the great debate going on in America about the Yucca Mountain development as a waste disposal centre, I noticed that the statistics produced—I have the precise figure here—say that all but one in every 10,000 waste packages going into the repository, if it is built, would be secure for more than 150,000 years. So we are talking about the most minute dangers. The danger is there, but it is minute, and has to be weighed against all the other problems—we will come to value in a moment—of abandoning an area of low-carbon electricity which will be reliable, will stop a great deal of the suffering that we have today, and will be not only a stepping-stone to but a crucial adjunct and back-up of the renewable and clean energies that we all want to see dominate when conditions allow.

[Lord Vaux of Harrowden (CB)]

My Lords, my Amendment 42 to Clause 40 is loosely related to decommissioning, which is why it is in this group, but perhaps slightly niche or tangential.

It is important that there is clarity as to who is responsible for decommissioning. As I understand it, Clause 40 is intended to make it easier for nuclear companies to obtain debt finance by removing the risk that a lender might be caught by the definition of being associated and so potentially become liable for the decommissioning costs, which would not be appropriate for a debt provider. That makes perfect sense, and I fully support the clause in principle.

However, it seems to me that as currently drafted there is a risk that the exemption the clause sets out could create a loophole under which a party that should be treated as associated for decommissioning purposes is able to avoid that by doing some creative structuring of their holding using debt. This is often done, for example, by private equity companies, although more commonly for tax purposes, but it would not be hard to reduce a shareholding to just below the threshold of 20% while in fact retaining the ability to take control above 20% because of the rights attached to debt or quasi-debt. If a party has structured their investment to be 19.9%, and is thus not deemed associated and not liable for decommissioning costs, but it then goes over 20% through the exercise of rights arising due to debt holdings, that party should clearly be treated as associated and should not be able to utilise the exemption set out in Clause 40. However, as the clause is written, it would be able to.

It would be highly unusual for a genuinely arm’s-length debt provider such as a bank to own shares in a company as well as providing debt, apart from the share security rights that come with the debt. Amendment 42 would simply restrict the exemption to parties that did not own shares. That should close off the potential loophole while not changing the intended aim of Clause 40 to encourage debt financers to step up. I hope the Minister can accept it.

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[Baroness Bloomfield of Hinton Waldrist (Con)]

What I can say is that the Government will meet all our obligations to communities in decommissioning the site.

[Lord Vaux of Harrowden (CB)]

When the Minister was answering on Amendment 42, I think that she confirmed the existence of the loophole that I had pointed out, so I will just ask her a direct question. If someone whose stake was, say, 30% managed to structure it so that it was 19% and debt, then that debt was subsequently rejigged to bring us back above the 20% threshold, should that person be treated as associated or not?

[Baroness Bloomfield of Hinton Waldrist (Con)]

I am told that Section 67 of the 2008 Act already provides for this, because the totality of the investment would be taken together. If it is over the threshold, it will be caught.

[Lord Vaux of Harrowden (CB)]

But the whole point of Clause 40 is to create an exemption, so that share security rights that arise from debt are not taken into consideration when deciding whether someone is over the 20% or not. That is the whole point of Clause 40 and is precisely the problem that I was alluding to. I am happy to meet the Minister to discuss it, if that is easier.

[Baroness Bloomfield of Hinton Waldrist (Con)]

I am happy to explore this further out of Committee.

Nuclear Energy (Financing) Bill

Lord Vaux of Harrowden Excerpts

Report stage
Thursday 24th March 2022 Lords Chamber

[Lord McNicol of West Kilbride (Lab)]

My Lords, I shall speak also to Amendment 6 in this group.

Amendment 2

“makes clear that a company may not be designated by the Secretary of State if it is owned, wholly or in part, by a foreign power or entity specified in regulations laid by the Secretary of State.”

In Grand Committee, my noble friend Lady Wilcox of Newport very ably, in my Covid absence, introduced two Labour amendments that would have severely restricted foreign involvement in the UK’s civil nuclear industry. During the course of that debate, she suggested that if the Government were sympathetic to the arguments but uneasy with the mechanism, they could come forward with an alternative. In responding, the Minister confirmed this. These adapted amendments following Committee take on board the considerations that we debated and, although weakening the original amendments, retain their essence.

It is with that in mind that I hope the Minister will consider Amendments 2 and 6 favourably. They now provide alternatives—rather than banning foreign involvement completely, they would require the Secretary of State to establish and maintain a list of foreign powers and entities that are barred from involvement in UK nuclear projects. This feels both proportionate and reasonable. As we see it, the list would operate in a similar manner to the financial action task force’s list of high-risk countries for money laundering, which is part of our domestic law via regularly updated SIs.

The amendments do not specify criteria for including states or entities on the list; it could be national security, but the Secretary of State could also choose to bar a company that has a questionable track record in other respects—be it a poor delivery record or safety concerns. It may be that the department wishes to bar the involvement of some individuals or entities currently subject to sanctions but who may not necessarily still be on the sanctions list at the time of a future designation.

The Minister told us in Committee that this was an interesting idea and that the department would study it closely. We are grateful that he made BEIS officials available to us for discussion on this and other topics last week, but that meeting took place just hours before the deadline for tabling government amendments, and final agreement could not be reached. The Minister knows we are supportive of the Bill, but our general support should not diminish the importance of our concerns. The feeling of colleagues in Grand Committee and in private discussions since has been that the protections under the National Security and Investment Act 2021 are not sufficient in this area. We feel that Amendments 2 and 6 offer a sensible way forward, building on a system already used by other departments—Her Majesty’s Treasury, for example—and familiar to financial and other institutions across the country.

Should the amendments be accepted, I am sure the department will be free to address any drafting deficiencies, but we on these Benches believe that this is an important point of principle and will test the opinion of the House if the Minister does not accept Amendment 2. With that, I beg to move.

[Lord Vaux of Harrowden (CB)]

My Lords, I speak to Amendments 4, 7 and 8 in this group in my name, but, before I do that, I will quickly say that I also support Amendments 2 and 6, in the name of the noble Lord, Lord McNicol of West Kilbride. In Committee, I said I was unable to support his amendments because I felt that a blanket ban on foreign state involvement in our nuclear programme went much too far, so I am delighted that he has now found a more flexible formulation, which would enable the Secretary of State to decide who should be barred from the nuclear programme.

The amendments in my name are intended to cover a similar point, but perhaps more widely and slightly more flexibly. Last week, we spent a lot of time discussing the importance of being able to identify the ultimate beneficial owners of property in the UK. It seems to me considerably more important that we should always be certain of the identity of any party that may be able to exercise significant control over a nuclear company, either directly or indirectly, and that we should be able to take action to prevent undesirable parties, should they attempt to obtain significant control of a nuclear company. My amendments simply seek to achieve that.

As I mentioned in Committee, it was ruled out of scope when I tried to introduce an amendment that would have allowed the Secretary of State to revoke the licence of a nuclear company if an undesirable party obtained significant control. My amendments here are restricted to the designation under the Bill, but the comments I am about to make apply every bit as much to the licensing regime, and I ask the Minister to keep that in mind.

I have revised my amendments from Committee so that my three amendments now introduce a regime for designated nuclear companies that is similar to that which applies to persons with significant control of UK companies. They further give the Secretary of State the ability—not the obligation—to revoke the designation of a nuclear company either where the Secretary of State is not satisfied that the identity of a party with significant control has been verified, or if a party later obtains significant control and the Secretary of State is not satisfied that they are a fit and proper party to own or control a company.

I am very grateful to the Minister and his team for their helpful engagement on this point—again, unfortunately, just before the deadline for submitting the amendments. They have pointed me towards the National Security and Investment Act 2021—the NSI Act—as providing the protections that I am seeking and, to an extent, they are right. But there remain important gaps, and I want to raise them and hear what the Minister thinks.

First, the NSI Act comes into play only if there is a notifiable transaction, so it does not apply at the point when a nuclear company is applying to be designated. It seems to me important that we designate companies only where we are satisfied that we know the identity of all parties that might have significant control, so Amendment 4 adds a new condition that the Secretary of State is satisfied that the identity of any party with significant control has been verified.

I am sure the Minister will tell us that the Government will of course carry out this verification as part of their due diligence—he is nodding—before a designation is granted. If the Government intend to carry out this step anyway, why not accept the amendment? Secondly, it is, sadly, not uncommon for due diligence not to be completed as thoroughly as we might like—1 am sure we can all think of examples of that. The amendment would not add any burden to the Government, but it would ensure that this critical verification step must be included in the due diligence, so why not accept it?

There is another reason. If the due diligence failed to identify such a party for some reason, without Amendments 4 and 7 taken together there would be no mechanism in the Bill to remedy the situation after the designation had been granted. The NSI Act would not apply, because no qualifying transaction would have taken place. So we would be stuck with a party that we had not verified, which cannot be right.

The next problem with relying on the NSI Act is that the first remedy under the Act is that, if a notifiable transaction takes place without authorisation, it is void. But that can apply only to UK companies. If, for example, a nuclear company has a 51% shareholder that is a Japanese company, and a Chinese company later takes a stake in that Japanese company, there is no way we can void that transaction, regardless of what the NSI Act says.