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Mr. Whittingdale: The energy supply of those countries is a matter for them, but it raises questions that the hon. Gentleman is right to point up. I shall come on to those matters shortly.

The UK's domestic supplies of gas are running down. It is likely that by 2006 we will be importing up to 15 per cent. of our gas, and that by 2010 gas import requirements will exceed the existing pipeline capacity. As I said earlier, I was slightly surprised that the PIU report seems to be relatively unconcerned about that. Its conclusions are based on a belief that we will continue to be able to obtain plentiful supplies of relatively cheap gas. That is by no means as certain as the PIU seems to think, and I share some of the concerns that have been expressed about that in the debate.

It is becoming clear that we will have to look steadily further afield for supplies, and that we will become more dependent on gas from Russia, north Africa and the middle east. Quite apart from the problems of transmission and cost, that raises serious questions with regard to the security of supply. We have seen in the past the dangers of being too heavily reliant on one source of energy.

The hon. Member for Twickenham (Dr. Cable) seemed to suggest that the disruption to our energy supplies that we suffered in the past has always come about from actions taken in this country, but we have only to look at the consequences of the oil price shocks on our domestic economy to see what can happen when we become heavily dependent upon an energy source that comes from a particular part of the world which is not always stable.

Dr. Ladyman: I largely agree with the points that the hon. Gentleman is making, but I ask him this question: when 80 per cent. of the supply of gas to the west is controlled by Russia and that country is effectively in control of its own cartel, do we expect the price of gas to this country to go up or down?

Mr. Whittingdale: I agree with the hon. Gentleman. We could become extremely vulnerable. Almost all the major gas producers of the future upon which we may be forced to rely are countries whose political stability

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cannot be guaranteed. To become so dependent on a single fuel produced from such an uncertain source lays us open to considerable risk.

The risk does not arise just in those countries on whose reserves we will become dependent. The Select Committee pointed out that there are bottlenecks in the transmission system, particularly at the two main points of entry into the UK, at St. Fergus and Bacton, and relying so heavily on those two terminals could make us vulnerable in the event of an accident or a terrorist attack. I know that that is a matter that the Government have addressed in their response to the Select Committee report, which I have only just seen, as it came out this morning. It is a matter that we must consider.

Dr. Brian Iddon (Bolton, South-East): Does the hon. Gentleman agree that it is not just the external security of gas supplies—the gas transmission networks and the interconnector—but internal security that should concern us? If we have nowhere to store large quantities of gas, should there be political disturbances on the continent, we are up the creek.

Mr. Whittingdale: The hon. Gentleman is entirely right. I was about to make that point. As the Select Committee pointed out, we have relatively little strategic storage capacity for gas. That, too, is a matter that we should address as a matter of relative urgency.

Bob Spink: To complete the picture, will my hon. Friend comment on the fact that the UK would be at the very end of the supply chain?

Mr. Whittingdale: That is certainly the case. It will require the transmission of gas over considerable distances to reach this country, and it will have to be transmitted across several other countries. At present, there are severe problems in achieving that. One of the ways in which we need to address that problem is by achieving greater liberalisation of European energy markets. Limited capacity in European gas pipelines is bound to have an effect on the cost of transmission. The market should deal with that problem, but that will happen only if true liberalisation of European energy markets takes place.

Although the UK has one of the most liberalised and competitive energy markets in the world, our neighbours, particularly Germany and France, still have largely state-owned and highly protected energy companies that are responsible for both transmission and supply. They are reluctant to allow others access to their transmission networks. There is no clear pricing mechanism for doing so, particularly where their network is to be used simply as part of a longer transmission route.

It is vital that we make faster progress in this area. Although the Barcelona summit resulted in some movement in the right direction, I understand the concern expressed by the Select Committee that we should not assume that full liberalisation will take place for some time. In those circumstances, it must be sensible to seek to exploit to the maximum our indigenous sources of supply.

My hon. Friend the Member for Galloway and Upper Nithsdale (Mr. Duncan) has already made well the point that that objective has not been assisted by the Chancellor's Budget. The decision to increase by a third

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the rate of corporation tax on oil and gas companies is bound to have an impact on future investment in the North sea. A survey conducted by the United Kingdom Offshore Operators Association has shown that half its exploration committee members will be reducing their exploration or reviewing their positions as a result of the tax increase. I have some sympathy with the Minister, because we understand that the DTI was not even consulted by the Treasury before the measure was introduced.

Mr. Jack: Did my hon. Friend not think it rather unusual that the only Minister who saw fit to come to the Front Bench to support the Minister of State was a Treasury Minister? He was almost acting as a minder, so that the Minister did not give away any important source of revenue.

Mr. Whittingdale: We have rapidly become used to the fact that almost the entirety of the DTI's policies currently appear to be determined by the Treasury. Indeed, perhaps it would be even more appropriate for a Treasury Minister to respond to the debate. The tax issue is very serious for the oil and gas companies and will have an impact on the future fuel mix. It may well lead to our becoming dependent on imported gas earlier than we would otherwise have needed.

Before I leave the question of European energy markets, it is worth noting one other glaring difference between the open, competitive regime in this country and the highly protected marketplace that applies in much of the rest of Europe. Two days ago, it was announced that LE Group—the London electricity group—was acquiring Seeboard, the supply and distribution business serving the south-east. It is not until one reaches the notes to editors at the very end of the accompanying press release that one finds the statement that, for the past three years, LE Group has been a wholly owned subsidiary of Electricité de France. Of the 14 regional electricity supply companies privatised in 1990—

Mr. Andrew Stunell (Hazel Grove): Is the hon. Gentleman aware that every penny of profit made from burning the electricity that is currently being used in the Chamber goes to the Minister of Finance in Paris as a result of France's ownership of EDF?

Mr. Whittingdale: I am entirely aware of that. I am afraid that every penny that is paid for electricity throughout large parts of the country leaves these shores, as most electricity supply companies are in overseas ownership. Of the original supply companies that were privatised, only the Scottish companies are still in UK ownership.

Mr. Michael Clapham (Barnsley, West and Penistone): The hon. Gentleman will recall the privatisation of electricity supply after 1990. When the plans were considered, the people who were at the helm at that time believed that we could create county-type electricity companies that would remain in the UK. However, those people did not take the view that privatising electricity supply even in small companies would result in their becoming very lucrative in the general global market and, therefore, suitable prey for American and French companies. Does he therefore believe that it was a mistake to privatise in such a way?

Mr. Whittingdale: No, I do not, because I think that electricity privatisation has delivered tremendous benefits

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to consumers. I am not complaining about the fact that overseas companies have acquired some other companies in this country. I have no problem with that at all; at least, I would not have a problem if a similar regime applied elsewhere. I object to the fact that, if other European countries were subjected to bids made by companies in this country for some of their supply companies, it is unthinkable that the French or Germans would adopt the same relaxed attitude. They have highly protected markets, so I hope that the Government will continue to push for greater liberalisation of energy markets to take place as quickly as possible not only to enable easier cross-border trading, but to create the level playing field that is needed. At the moment, the playing field is tilted 45 deg against us.


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