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Guarantees In Respect Of Alterations Of Ships, Etc

Volume 973: debated on Wednesday 14 November 1979

The text on this page has been created from Hansard archive content, it may contain typographical errors.

Question proposed, That the clause stand part of the Bill.

I tabled an amendment, Mr. Crawshaw, that was not selected, no doubt for good reasons. I wish to put some probing questions to the Minister.

In 1976, during the Committee stage of the Aircraft and Shipbuilding Industries Bill, the then Under-Secretary said in response to an amendment to impose a duty on British Shipbuilders to enter some aspects of the offshore market:
"For all these reasons, it would be inappropriate to impose a duty on the new British Shipbuilders to enter this field. But if the corporation were to identify worthwhile opportunities for building rigs and sub mersibles and for diversions such as this, they would be encouraged and they could extend their activities to this area with the Secretary of State's approval."—[Official Report, Standing Committee D, 20 January 1976; c. 293.]
I do not wish to go over the whole area describing semi-submersibles and submersibles because I am sure that I should be called to order.

It is important to consider the definitions in section 10 of the Industry Act 1972 and to ascertain from the Minister what he means by a "mobile offshore installation". It is a subject of much discussion because of the new techniques and devices engaged in offshore operations. It is important to understand clearly what he means because of the nature of guarantees that may be asked for in relation to the new devices.

9.30 pm

I am not clear whether the section 10 guarantees and the guarantees that stem from the Bill would apply to what is called a tethered buoyant or tension leg structure. The difficulty is that we have not built any of these structures. I press my point by way of an illustration. It is becoming clear that if oil is discovered in deeper waters the fixed structure, be it gravity based or steel jacketed, will not be the means by which such oil discoveries will be exploited. The industry is not entirely clear what devices it would use. One of the devices that is likely to be used is a tension leg platform.

I am keen to obtain clarification because design studies are being undertaken by one of the oil companies that is operating in the North Sea, namely, Conoco. The studies have been the subject of letters between my right hon. Friend the Member for Glasgow, Craigton (Mr. Millan), the Under-Secretary of State for Scotland and the Minister of State, Department of Energy. Unhappily, the Scottish Minister is absent from the Chamber, so I shall confine myself to reading the Minister of State's reply to my right hon. Friend. The hon. Gentle man wrote:
"I, too, am keen that the fabrication contract"—
that is the Conoco tension leg oil production platform—
"should come to the UK in view of its value and the employment that it will provide and also because this will be the first full-scale platform of this type to be ordered. The award of the contract will of course be a matter for Conoco's own commercial judgment, but the Offshore Supplies Office (OSO) of my Department will certainly ensure that UK companies, including Scott Lithgow, have a full and fair opportunity to compete. OSO could not, however, seek to influence Conoco to favour one UK company over another.
The timing of the fabrication contract is uncertain because the development plan for the Hutton field has not yet been received, but we do not expect Conoco to invite bids before May 1980. Scott Lithgow's experience may give them an edge but they will have to be competitive to get the contract."
All that is perfectly fair so far as it goes, but one of the factors to be considered is the mobility of the structure. It is distinctly possible to have the structure built a considerable distance away from the North Sea and towed to site, not for completion, but in a completed state. That is a consideration that the Government must have very much in mind if they are anxious, as I am and as I hope my right hon. and hon. Friends are, to have the structure built in a United Kingdom yard.

Other structures that have been used in the North Sea are not necessarily suitable for building in shipyards. We had to build special facilities by means of huge Government subventions. We had to build special yards to enable the building of concrete, gravity-based structures. They were towed out and placed on the oilfields. There is now a distinct opportunity to build structures of the type that I have described. Indeed, on occasions they could be specifically designed to be built in shipyards. I want to know how the Government propose to assist in terms of the guarantees that could be given. They are not expensive guarantees. By no means are they the type of guarantees that would be offered by the Japanese or other nations in order to be the first to build this type of structure.

I have declared on previous occasions my interest in this matter. My interest in one device goes back over five years. In July 1974, I went to Los Angeles and began discussions with Deep Oil Technology in order that United Kingdom companies, or one company in particular, could become interested in this device and build it in the United Kingdom. That was a five-year planning haul. It would be ridiculous, after this time, when we are reaching the point when one company, Conoco, is anxious that this structure should be built—I would hope, in the United Kingdom—if we found ourselves not fully competitive because companies are not offered the necessary type of financial incentive.

I rest my case on this detailed, almost legalistic point in terms of the interpretation of section 10 of the 1972 Act and of clause 2 of this Bill. I recognise that this can be interpreted as a narrow legal point. I know there are difficulties for the Minister who will be replying. I wish, however, to avoid the situation in which the Minister says that he cannot take action because the matter does not fall within the section of a particular Act.

We welcome the extension of the power of the Secretary of State under section 10 of the Industry Act, provided by clause 2 of the Bill. As a man who professes not to interfere in industry and who almost daily takes more powers to himself, the Minister is again giving himself more power. We welcome the proposal. It is much in accord with the statement made by my right hon. Friend the Member for Chesterfield (Mr. Varley) on 4 April this year, which appears in column 831 of Hansard of that date. It is a limited measure, but it will be welcomed throughout industry. The amount of money involved—about£2 million a year is the Government estimate—is small, relatively speaking. Why cannot some effort be made to enlarge the opportunities that may be available under this provision? There is a desperate need in the ship repairing industry and in shipbuilding for more work. As the nation still with the fourth largest merchant fleet, we must have a good, soundly based ship repair industry in the United Kingdom.

I turn to the case set out by the Confederation of Shipbuilding and Engineering Unions. Two of the points in its programme may be apposite in respect of the provisions under the clause. The enforcement—if it could be agreed to—of segregated ballast tanks in ships and the provision for the installation of inert gas systems where necessary are two proposals that could perhaps provide work under the provisions of the Bill, and may provide opportunities for more work. I shall be grateful if the Minister can deal with this point.

I think that I am right in assuming that this extension of the home credit schtme will make our ship repair industry not only more competitive but more attractive to United Kingdom owners. Therefore, we call upon the Government to do everything that they can to persuade the owners of this large fleet to have their ships repaired in United Kingdom yards. I should add that here I am referring to the yards of both British Shipbuilders and those of the private sector of the industry, where there are real problems as well.

In his remarks on the debate on clause 1 stand part, the Minister did not answer the point raised by my hon. Friend the Member for Dundee, West (Mr. Ross) about apprenticeships. Since that is important in terms of ship repair, I hope that he will now deal with that point. He mentioned our obligations under OECD and EEC treaties when he referred to aid to the industry. In his informative and now widely quoted paper on 17 October this year, Mr. John Parker made some categorical statements about the situation that exists in other EEC member States, as well as in regard to others which ostensibly at least have the same obligations under OECD as we have.

One is bound to ask what the point is of the Government playing the game of cricket when everyone else is apparently playing under Rugby Union rules. We shall get no support for our industry if we are the only people playing the game according to that particular set of rules. While I accept that we cannot go on bidding up indefinitely, the evidence is clear that nowhere are market forces operating, especially in regard to shipbuilding and ship repair. It is all very well to say that we are the only people who are behaving properly, but that will not prevent our industry from being severely undermined by our partners and competitors.

These statements have not been challenged by anyone, so far as I am aware. If they are not correct, I would be pleased if the Minister would say so. If they are accurate and authoritative, we would like to know the Government's view of the situation. Will they pursue this matter wihin the EEC and in OECD, or will we merely accept the situation and see our industry further undermined? The Minister mentioned the Esso orders—a classic example of the kind of situation about which we are talking in terms of the lack of market forces operating in the industry at large.

We are talking about survival. We are talking about the ship repair industry. We welcome the Bill's provisions. We urge the Government, as we did in the previous debate, to show a little more vigour and determination in the discharge of their responsibilities to Briish industry.

A number of interesting points have again been raised in this debate on clause 2. I pay tribute to the hon. Member for Dunfermline (Mr. Douglas) and to his ingenuity in managing to speak on the subject he raised while staying within the rules of order. The Committee recognises that the hon. Gentleman has a long-standing interest in the tethered buoyant platform systems. We all recognise that he has a particular interest in Scott Lithgow and the connection between the two. It is only right and proper that he should ask to what extent this can be regarded as being within the ambit of the Bill.

Without going beyond the rules of order, it is difficult for me to give the hon. Gentleman a definitive answer. I shall try to avoid getting into a legalistic interpretation. However, the reference to "installation" which already appears in section 10(9) of the Industry Act 1972 is the relevant reference that the hon. Gentleman was seeking.

9.45 pm

Section 12(1) of the Industry Act 1972 already defines mobile offshore installations as follows:
"any installation which is intended for underwater exploitation of mineral resources or exploration with a view to such exploitation and can move by water from place to place without major dismantling or modification, whether or not it has its own motive power;"
Tethered buoyant or tension-legged platforms are among a variety of offshore installations, each of which can be considered on its merits for inclusion in the home credit scheme. Part of the problem is, as has been said, that TLPs are in an early stage of development and, therefore, we shall have to await further development to see to what extent advantage can be taken of the provisions of the home credit scheme.

The hon. Member for Whitehaven (Dr. Cunningham) reminded me of a point that I had not had the opportunity to pick up earlier. The points made by the hon. Members for South Shields (Dr. Clark), Dundee, West (Mr. Ross) and Newton (Mr. Evans) about the help that the shipbuilding industry training board might give to apprentices are important, and I undertake to write to them on the matter. It is something that is worthy of further examination.

I turn to the general ambit of clause 2. The home credit scheme, which was first established under the Shipbuilding Industry Act 1967, is aimed at enabling United Kingdom shipyards to compete for orders—

I am grateful to the Minister for acknowledging the point about apprentices. If I give him details, will he give me an assurance that he will, as a matter of urgency, look into the case of the 37 apprentices laid off by Peter Johnston's?

I appreciate that the hon. Member is referring to a specific case, and if he cares to write to me I will look into the matter. He will appreciate, of course, that it may not fall within the orbit of my Department's responsibility. If it does not, I will make sure that it goes into the right hands.

I was explaining the purpose of the home credit scheme. The point of the scheme is to give United Kingdom shipyards the opportunity to compete for orders from United Kingdom owners on equivalent financial terms to those available from overseas yards which can offer advantageous credit arrangements under their countries' export credit guarantee schemes.

That leads to wider opportunities for conversions or alterations by United Kingdom owners which, for example, can involve jumboising or re-engining ships in the interests of greater fuel economy. The hon. Member for Whitehaven mentioned segregated ballast tanks. That is also an area where I would want to look at the precise way in which the market might develop. What perhaps was in the hon. Member's mind was that the Government support the February 1978 International Maritime Consultative Organisation conference on tanker safety and pollution prevention. We shall ratify the 1978 protocol to the international convention for the prevention of pollution from ships in line with the recommended target date. This means that the protocol will progressively require most oil tankers to be fitted with segregated ballast tanks. This, perhaps, is an area where we might well see some useful work, and I hope that the scheme will be of assistance.

I have referred to the jumboising or re-engining of ships and I also want to pick up a point made by the hon. Member for Newton. The Government fully recognise that here we are speaking of business not just for the shipbuilding industry, the engine industry, or the ship repairing industry but for the whole of the engineering industry that supports the shipbuilding industry. So I recognise the importance of this scheme in that wider context. Therefore, in looking at re-engining we are, in the wider sense, looking for opportunities where greater fuel economy can offer worthwhile opportunities for shipbuilding, ship repair yards and other ancillary industries.

Such conversions or alterations have not hitherto been eligible for cover under the home credit scheme, although guaranteed credits have been available to foreign customers through the Export Credits Guarantee Department.

Ships and mobile offshore installations will both be eligible. For ships, the minimum size will be 5,000 gross registered tonnes, although we shall be able to go down to 1,000 gross registered tonnes to match evidence of competition from outside the EEC. The conversion must entail the radical alteration of the hull, the cargo plan or the propulsion system. Similar eligibility rules will apply to mobile offshore installations.

The normal terms of the cover offered will be a guaranteed loan of up to 80 per cent. of the contract price of the conversion, excluding any expenditure on the acquisition of the ship or structure to be converted, at an interest rate of 7½ per cent. for up to five years from delivery. These terms are in accordance with our EEC and OECD obligations, and therefore they fall squarely within the matters to which reference was made earlier tonight. As we judge them, they are within the present practice of our main competitors. In very exceptional circumstances—this is an important point—such as very large orders of particular importance to the industry, we may be able to extend the credit period to a maximum of eight and a half years from delivery.

The cost of interest rate support depends on the volume of business, and we are back to the difficulty of the market projections. It will also depend on the prevailing market rates of interest. It cannot, therefore, in overall cost terms, be estimated with immediate accuracy. It is not, however, on present estimates of the market for conversions and current interest rates, expected to average more than £2 million per annum. This cost reflects the shorter term of credit proposed—five years—compared with that available for construction of ships—eight and a half years.

As for the present home credit scheme for new ships and structures, the Ship Mortgage Finance Company Ltd. will act as the Department's agent. Applications will be made to the company and it will advise the Department on the granting of guarantees and on the security which should be obtained, arrange for the necessary legal documentation to be prepared and monitor the performance of the owner's obligations to the Department during the guarantee period.

I thought it right to give the details, so as to put on the record the way in which the scheme will operate. We recognise that no commitments can be entered into by the Department before the enactment of the Bill. To ensure that the benefits of the scheme are available at the earliest opportunity, provisional offers may be made, subject to Royal Assent, if this is considered necessary to secure important orders which might otherwise be lost.

What we have before us tonight is, therefore, a useful addition to the way in which British Shipbuilders will have opportunities to look rather more widely than at present. It is yet another piece of evidence of the Government's earnest in these matters. I recommend the clause.

Question put and agreed to.

Clause 2 ordered to stand part of the Bill.

Clause 3 ordered to stand part of the Bill.

Bill reported, without amendment.

Motion made, and Question proposed, That the Bill be now read the Third time.

9.53 pm

I do not want to detain the House for very long. We had quite a remarkable debate on clause 1, which was very much an action replay of the Second Reading debate. The Government have no complaints about that.

I remind the House that we have taken the Committee stage on the Floor of the House because of the urgency that we attach to the Bill and because we think that there will be benefits from its obtaining Royal Assent as soon as possible.

I think that I described the Bill on Second Reading as small but important. In itself, as we expected, it has proved to be uncontroversial. However, it has given occasion for considerable criticism—I think it was unjustified—from those who think that the Government are not doing enough to protect the industry. Therefore, I should like to make it clear again that the Government wish to see a viable and competitive shipbuilding industry in the United Kingdom.

Together with the other shipbuilding nations, we recognise that in the present state of the market such an objective cannot be achieved without a substantial measure of Government support. The Bill gives effect to part of the policy that I announced in July in response to British Shipbuilders' corporate plan and is an indication of our determination.

British Shipbuilders, in drawing up and presenting that plan, advised us that an industry of the size obtaining at that time could not be sustained, and the previous Administration admitted that contraction was inevitable.

I hope that this will be my only contentious remark, but it is totally unrealistic and financially imprudent to call for the unlimited provision of public funds. The hon. Member for Whitehaven (Dr. Cunningham) said that there should be no upper limit for the intervention fund, which implies that he is prepared to find 100 per cent. of the cost of any ship.

The Minister was being his usual careful self until making that point. I said that I believed that British Shipbuilders had expressed the view that there should be no upper limit. I did not say that it was my view.

I am pleased that the hon. Gentleman is not inciting others to hold that view. I was misled into believing that he was giving support to the view put forward by British Shipbuilders. Even if he did not specifically suggest that, the weight of his arguments as official Opposition spokesman and those of other hon. Gentlemen have been once again to spend more and more money.

The hon. Gentleman also accused us of lack of vigour. When the corporate plan was put before the Labour Government in the late autumn of 1978, they refused to face the issue. They displayed no vigour. They refused to accept or reject British Shipbuilders' advice and finally, just before the election, said that they would proceed on a step-by-step basis.

I repeat that when we came to office the intervention fund had lapsed, which made it difficult for British Shipbuilders to obtain orders. Even the provision that the previous Government made for intervention fund assistance before it lapsed was much under-utilised. The annual provision of £85 million was much vaunted, but in practice only £12½ million was spent. The unions have been more realistic than the Labour Party in accepting a contraction in British Shipbuilders' preferred strategy.

As hon. Members pointed out, there are signs that the market is picking up, but straws in the wind are not firm orders, and as yet there are no solid grounds for optimism. With worldwide over-capacity, we remain of the view that British Shipbuilders will find it difficult to reach its target. Orders remain the key, and in order to compete British Shipbuilders will need to make determined and continuing efforts through improved productivity, design and marketing. We all want to see jobs preserved, and the only way to do that on a sure and long-term basis is for the industry to be competitive.

The Government have taken decisive action to support British Shipbuilders in its strategy. Substantial sums of public money have been made available and we have negotiated an intervention fund until the end of the EEC fourth directive and its management is largely in our hands. We have set financial targets for British Shipbuilders and ended the period of uncertainty for the industry about the support that it can expect from the Government. The industry knows the terms on which it must meet the challenge of a tough and competitive environment.

I believe that there is an almost unprecedented spirit of co-operation within the industry at present. There is mutual understanding of the roles and responsibilities of Government, management and unions. This gives real grounds for optimism.

It being Ten o'clock the debate stood adjourned.


That, at this day's sitting, the Shipbuilding Bill may be proceeded with, though opposed until any hour.—[Mr. Waddington.]

Question again proposed, That the Bill be now read the Third time.

There is general recognition that survival can come only through hard decisions taken and acted upon, and that the future ultimately rests in the hands of those whose future it is—namely, the management and workers of British Shipbuilders. For them the challenge is tough. It is bound to be, given the excess of world capacity in shipbuilding. But it is a challenge they will do their best to meet. As for the Government, we pledge that within the framework of the support we have announced, we will do all we can to help. Therefore, I ask the House to give the Bill its Third Reading.

10.12 pm

I wish to intervene briefly in response to one or two comments made by the Minister of State. I welcome his total commitment to the maintenance of the British shipbuilding industry. I am sure that this will be welcomed by hon. Members on both sides of the House and all sections of the industry. I hope that he will understand why we raised these issues in the first place. It appears that what the Government are saying now in relation to the shipbuilding industry is somewhat at variance with what they said during the election campaign. I welcome their conversion and their desire to maintain the industry.

The Minister was a little unfair to my hon. Friend the Member for Whitehaven (Dr. Cunningham), who referred to lack of vigour. My hon. Friend asked the Government to show increased vigour in their dealings with the EEC. There are many serious problems about world shipping and therefore it is essential that the Government should be vigorous in relation to scrap-and-build and the many other problems that face the industry.

One problem is that of unfair competition from Eastern European countries and other countries in the Western world which are diminishing British fleets. In doing this they are diminishing the work that is available in British yards.

The Minister referred to the necessity to ensure that the industry is competitive. We all accept that. But it is not just a question of the British worker working harder and making the industry more competitive. There is the question of the worldwide practices adopted by countries on both sides of the Iron Curtain which are detrimental to the British industry. We urge the Government to examine these practices with vigour and to ensure that the British worker is placed on a fair competitive basis with workers of other countries. At present, no matter how hard the British worker works, he cannot compete with such practices.

Every country in the world regards the building of ships and the provision of a merchant fleet almost as a matter of national conscience and concern. I ask the Minister to take on board that, when he talks about the growing spirit of co-operation between unions and management, which we on the Labour Benches greatly welcome, it is also a question of there being a third party involved in the deliberations and negotiations—his Government. It is essential that they be the third party at the table in all the talks to ensure that Britain retains a viable industry.

The Bill provides modest assistance to the industry. I made the point in Committee that we needed to know whether the Government's commitment to the industry was for two years or even longer. I do not believe, and I suspect that the Government do not believe, that worldwide trade will recover from the doldrums over a two-year period. I hope that the commitment that the Government have shown tonight in the Bill will be for longer than two years.

With that, I welcome this modest Bill.

Question put and agreed to.

Bill read the Third time and passed.