State Management
Nicholas Davenport
The final argument which should kill the promotion of the incredible "EIL" (Equity Investment Limited)—alas! I had no space for it last week—is the impossibility of discovering the superman chairman or supermen directors who could pick out the equity shares in which £500 million is to be invested without net loss or waste of national resources. Lord Ryder could not be omnipresent even if he were judged to be omniscient.
The problem of company management in relation to state ownership has burst into the news with the outbreak of, war between Lord Ryder, the chairman of the National Enterprise Board, and Sir Kenneth Keith, chairman of the nationalised Rolls-Royce. The share capital of all nationalised companies is to be handed over to the NEB and it is feared that Lord Ryder will start interfering in their management. Sir Kenneth Keith, who is as tough as an old boot, will not tolerate it at Rolls-Royce. When that company was nationalised it was agreed that the Government would not concern itself with the day-to-day running of the company or diminish the board's responsibility for the conduct of its affairs. It was to operate as though it was the board of a privately owned company. So Sir Kenneth has right on his side. As he said, two men cannot run one company. But Lord Ryder has replied that any company under NEB will be subject to strict surveillance and will have to give him annual plans and targets. As taxpayers we members of the public have the right to point out that while the nationalised Rolls-Royce board under Sir Kenneth Keith and his team has proved itself to be highly efficient Lord Ryder has not yet proved himself except in the special case of a paper company and its pension fund. And a lot of experts criticised his British Leyland report.
After the present spate of nationalisation the management of state-owned companies has become a question of great economic and political importance. It is not just a question of paying enough to get the right man for the job. (Incidentally Lord Ryder gets £31,850 a year and Sir Kenneth Keith nothing as chairman of Rolls-Royce but that is no doubt because he is head of Hill Samuel and embarrassed by salaries.) Apart from expensive chairmen it is fair to say, and I have said it more than once in this column, that this government with its massive and intractable borrowing requirement is no longer able to finance, much less manage, any further nationalisation. With the exception of Mr Tony Benn and perhaps Mr Michael Foot the whole Cabinet would probably agree that nationalisation is not now what socialism is about. But they are all committed to it by their election manifesto and by the fearful sword of Damocles —the Marxist Clause 4—which hangs over their heads. Their only possible line of retreat is over the 51 per cent nationalisation of North Sea oil. A Tory MP puts the cost of it at £3,500 million. This is surely an under-statement. The truth is nearer to £6,000 million which would mean increasing the £12,000 million borrowing requirement by 50 per cent—an absurd and impossible proposition. But the Economist has said that Lord Kearton, the highly-paid chairman of the British National Oil Corporation, has been telling companies and banks that "the government's commitment to taking a 51 per cent stake in the North Sea oil fields is political mumbo jumbo from which they have nothing to fear". Is the Economist leaking another government paper? Or drawing proper conclusions from official publications?
What the Economist says seems to me to make a lot of sense. It is the common belief among the nationalisation "left" of the Labour Party that a 51 per cent stake means a majority holding in the assets of the North Sea. But from the letters written by the Department of Energy to the two oil companies (London Scottish Marine Oil and Scottish Canadian Oil Transport) whose £75 million prospectus was recently published, it emerges that this belief is without foundation. The prospectus states that the two oil companies are to put up all the cash and own all the assets, leaving BNOC merely an option to purchase 51 per cent of the oil output at market prices. This is not a particularly valuable option when there is a glut of oil in the market. "A similar formula", writes the Economist, "is to be applied to other oil companies except those —and the government will be happy if they are few—that look to the state for funds". The Economist is doubtless drawing conclusions from official letters and remarks made to the operating oil companies. The turn in oil came, it says, because the
Treasury was not ready to fork out the capital to buy a 51 per cent stake and because the accounting procedure trundled out by the Department of Energy for leaving companies "financially neither better nor worse off" was "incomprehensible Baloghney except to those who had devised it".
The running of a state oil company is perhaps the most difficult of all management problems for the Government. International oil, of which I had personal experience in my youth, is the toughest and technically the most complicated assignment in the company world. From an oil man's point of view the present board of directors of BNOC is a joke. It consists of the able exCourtaulds boss, Lord Kearton, a distinguished Oxford economist and public servant, Lord Balogh, and Lord Briginshaw whose union was notable for the overmanning of the printing machines which helped to endanger the national press. Recruitment from the tower orders might have produced a more realistic board. If Lord Kearton is wise he will keep the BNOC a holding company until he has learned a lot more about the oil business. To embark on costly operations when there is a world glut of oil—and the price of oil could fall to a level making North Sea oil unprofitable—would be the height of folly. But Lord Kearton pursued a very aggressive policy when he was the boss of Courtaulds and one can only hope that he has cooled down a bit in his old age and will not let oil go to his head.
It says much for the efficiency of the City machine that two independent oil companies were able to raise £75 million in loan stock and equity stock and get this speculative issue underwritten and fully subscribed. The two companies own 30 per cent of licenses in block 3/8 of the Ninian field which contains an estimated 30 per cent of the field's total reserves. Another 20 per cent is held by Ranger Oil, their technical advisers, and the rest by BP. The BNOC is buying out Burmah Oil's interest in Ninian, leaving that company with its interest in the Thistle field which it will operate. Burmah Oil after its catastrophic collapse is negotiating with Lord Kearton under duress and 1 hope his lordship is not taking advantage of that fact.
This cautionary tale of state management and state oil must end with a cautionary note for the stock market. The £75 million oil issue broke the back of the bull market. As I have said,the capital raising in the City last year was a record and the new year has seen a spate of new issues—£75 million for oil, £73 million for Lloyds Bank, £24 million for Ocean Transport, not to mention £135 million raised by the banks for Occidental and the Thomson North Sea oil. The life and pension funds, who are the great subscribers to new issues, have now probably reduced their liquidity to a minimum. We must wait for these new issues to be absorbed before we see the FT index, which fell below 400 this week, resume its advance.
Previous page
