A case against nationalisation
Stephen Probyn
Labour's North Sea policy marks, in the context of the extent of left-wing influence on the policy-making apparatus of the present Government, a very significant milestone indeed. The nudges, nods and winks of Messrs Wilson, Lever and Healey on the subject of Bennery look very ephemeral indeed when put against the Offshore Oil and Gas White Paper:
It is the Government's belief that majority state participation in the existing licences for commercial fields provides the best means for the nation to share fully in the benefits of the North Sea ...
The state that "majority participates" also nationalises.
The case for nationalisation is said to lie in two critical areas of public management: the regulation of the rate of production of the oil appropriate to a general policy of conservation and the levy of a high rate of government revenue from the developments consistent with a reasonable rate of return to the oil companies' investment. In addition proponents of nationalisation seek to substantiate their public case by referring to a large number of countries, mainly pre-industrial, which practise some form of nationalisation in their oil production policy. The exception of the United States from this list is generally considered to substantiate rather then detract from their case.
The case which is presented by the White Paper is in fundamental error precisely because nationalisation or "majority public participation" would destroy any chance of effective public management of offshore oil. Nationalisation does not clarify the issues of the Government's role, but rather muddles them. The basic assertions of the White Paper should be examined in turn.
First: Nationalisation, i.e. "majority participation", is essential if the Government is to safeguard the national interest.
This statement shows Labour's muddle over two very basic political concepts, 'ownership' and 'sovereignty'. Ownership rights, which individuals or companies have over objects, are not the same as the rights of sovereignty which the state exerts on those same objects should they lie within its boundaries. Ownership allows an individual certain exclusive privileges over the 'owned' property; the state's sovereignty allows it to define what these ownership rights are. Take, for example, a car. The owner can use it exclusively to drive wherever he wishes to go. He can run it on whatever grade petrol he chooses and can paint it any colour he likes. However, the state reserves the right to tax the car, to insist on its proper maintenance, to regulate the speeds at which it may be driven, to ensure that it has certain equipment, to forbid the driver to use it while he is drunk and exercises control in many other areas in the expression of its sovereign powers. Similarly in the case of offshore oil, the state has the right to exercise the controls which it deems to be necessary. The ability of the state to enforce its laws which in the case of motor cars is obviously not perfect. Policing the North Sea, however, 'presents no overwhelming administrative :problem. In relation to the value of production 'the number of operators is quite small. The 'power to rescind the licences of offshore oil 'operators who violate licensing terms gives the 'nation the power to exact penalties of astronomical value. The combination of easy access to all information and the power to plinish 'violators of licensing agreements would assure any government agency entrusted with the
policing of the oil of a eminently manageable task indeed.
The failure to -separate government from the industry and indeed the positive coalition of the two, would tend to confuse their respective roles and functions. A state oil company would tend to maximise its revenue under normal conditions. It is almost inevitable that this would lead it to a conflict of interest: could the natural desire to increase production and hence revenue of the BNOC and its privately owned partners conflict with the interests of the nation possibly to conserve energy by restricting the speed of production? The answer can only be 'yes.' The loser will always be the nation.
The second White Paper assumption ia: Majority state participation provides the best means for the nation to share fully in the benefits of North Sea oil without unfairness to the licences since the state contributes its share of the costs including past costs. Nationalisation is not only not the best means of garnering revenue, it is the worst. It is appallingly expensive and ultimately can be detrimental to a sustained development effort. It is now clear to the Government that the nationalisation of North Sea oil is going to be a costly business; no one yet knows how costly. The smallest estimate is in the order of £2,000 million by 1,980. However, this is calculated on the basis of direct investment costs sustained by the oil industry to that date rather than on the commercial value of the oil fields. Under international law it is the commercial value, not simply the costs of development, of the investments in the event of nationalisation, which determine the levels of compensation. This is not the academic point it is taken to be by the sheikdoms of the Persian Gulf who have nationalised the oil consortia at little more than the book value of their hardware. The United Kingdom is a substantial overseas investor, second only to the United States, with massive investments abroad hostage to fortune. In North America British Petroleum alone has assets of £273 million, excluding the commercial value of its half share of the large Alaskan oil field. At the most basic level this is the reason why 'Britain is not in the same position as the numerous countries which have confiscated oil company investments: we are ourselves too vulnerable to retaliation.
In addition, the economic cost of nationalisation must be taken into consideration. However financed, the costs of "majority participation" are immense. These costs are immediate, and thus will be financed by government borrowing. If financed by borrowing it would in all probability cost another £300 million a year in interest charges, a sum equal to one third of UK's annual invisible balance of trade surplus. After the cost of capital employed in the nationalisation the return to the Government would be of the order of 5 per cent over and above the return guaranteed by taxation.
The most effective means of raising revenue is, then, taxation. Taxation ranging from 75 per cent to 80 per cent of profits ensures both substantial revenue to the Exchequer and to the oil companies a fair return. The inevitable bureaucratisation of the oil industry would do nothing but harm. The management style of the oil indu sty is based on the need to take very expensive decisions at low levels of management. Bureaucratic decisions which involve the expenditure of Public or quasi-public funds are naturally Pushed up to the highest responsible official. In an industry in which time is hideously expensive (a rig costs about £30,000 a day to run and maintain) we really cannot afford government participation. The North Sea oil policies of the present Government stand as grim monuments to the theory that socialist propriety is more important than economic or social benefit. Can we afford a government which substitutes obsolete socialist theory for rational constructive thought? Stephen Probyn, a Canadian, is on the staff of the Conservative Research Department. His views are not those of the Spectator.
Previous page
