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Pipeline and Storage System Sale Update

Volume 594: debated on Friday 20 March 2015

I am pleased to announce the successful sale of the Government Pipeline and Storage System (GPSS) to Compania Logistica de Hidrocarburos (CLH) of Spain for £82 million, following a competitive sale process.

This means that I am close to completing the three major elements of the asset management programme that the Ministry of Defence (MOD) launched following the 2010 strategic defence and security review. I have previously announced the successful sale of the Defence Support Group land business to Babcock for £140 million, along with a 10-year contract to buy back services. The contract will save the Army around £500 million over that period—a saving of over a third. Last month I announced that Solent Gateway had been selected as preferred bidder for the concession to manage, and exploit the commercial potential of, the Marchwood Sea Mounting Centre—again generating significant savings to Defence. The sale of the GPSS leads to a further substantial receipt of £82 million. It also allows the Government to transfer their commercial fuel transportation business to the private sector, while still preserving the GPSS’s military capability and ensuring national resilience is not compromised.

As part of the transaction, an enduring contract has been agreed between the Secretary of State for Defence and CLH, which will protect the provision of GPSS—supplied aviation fuel to UK military bases, including those supporting US visiting forces; over the first 10 years of the contract the MOD share will cost some £237 million.

CLH will bring unique experience to the operation of GPSS as it operates and maintains a network of oil pipelines (over 4,000 km) and storage systems serving major airports across Spain. In addition it provides fuel transportation services (including storage and pipeline facilities) to military customers in Spain.

Of the staff employed by the Oil and Pipelines Agency, the Government body which manages the GPSS, just under 80 are in scope of the sale and will become CLH employees on completion of the sale, expected to occur on 30 April 2015. They will transfer under Transfer of Undertakings (Protection of Employment) (TUPE) regulations which will protect their terms and conditions of service. The GPSS sale does not include the six UK oil fuel depots owned by the MOD, which will continue to be operated and maintained by the residual Oil and Pipelines Agency.

In summary, this sale will generate a significant sale receipt while placing the GPSS network on a sustainable long-term footing, ensuring that the capability to supply aviation fuel to UK military bases and civil airports is retained.