Examination of Witnesses (Questions 20
TUESDAY 31 OCTOBER 2000
20. Would it be fair to say then that if the
Chancellor did not take any action that would be your worst case
(Mr Brinded) I think there are a lot of issues that
might have an impact on that, to be frank. I think it is really
up to the protesters and those who put up the blockades to make
their own decisions. I think we found what happened obviously
a very difficult situation. It was a very difficult situation
for the country and it was a regrettable situation that we all
21. Can you give us an example of what you would
like to see the Chancellor actually do that could help that situation?
(Mr Polkey) I think, as I said when I spoke earlier,
the Chancellor has got a very complex decision to go through.
There are a lot of competing considerations obviously that he
has to take. In the area of road fuel tax, I do think there are
some policy alternatives he could consider to try and get a bit
better targeting of what he is trying to achieve. I think road
tolls, congestion charges, vehicle excise duty, all provide potentially
a more attractive way of raising the revenue which I recognise
governments have got to do but without some of the adverse effects
which go with a very broad and high fuel tax. One of the issues
with a broad and high fuel tax is it does impact on some people
a lot worse than others. It tends to impact the less well off.
There is a concern about the rural folk and the poorer people
in the rural areas which a blunt taxation has an impact on. I
think there are some options that I would like to see the Chancellor
Mr Cunningham: This would be road tolls and
that sort of thing.
22. On that issue, there is another way we could
do it. One has the impression that the oil companies have gone
through rather a rough period in the recent past with North Sea
crude at 34 dollars a barrelis itor thereabouts
at the moment.
(Mr Jones) Yes.
23. What price having a go at increasing PRTpetrol
revenue taxin order to fund the cuts in duty that the Chancellor
might want to introduce? How would you as downstream men view
that? Do you say you are not downstream men, you are like Colossus
(Mr Brinded) I will take it in the sense that my main
job is in the upstream.
24. I knew there would be somebody.
(Mr Brinded) I think you have to look at that in the
context of the UK's upstream competitiveness with other parts
of the globe. Between 1990 and 1999 we doubled our investment
in the UK, doubled our capital employed and invested another £7
billion in the UK. In 1998 that looked a pretty bad call to have
25. This is the UK CS?
(Mr Brinded) In the UK sector we have invested £7
billion in Shell over that ten year period. By 1998 with the oil
price at 10 dollars a barrel it looked a pretty bad call to have
made. This is a very cyclical industry. When oil prices were ten
dollars a barrel just 21 months ago we were obviously highly concerned.
I think the point is you need to look at the upstream industry
in the long run and look at how it compares with other sectors
globally. At the moment it is doing well but it is a very mature
province. We have lost 100,000 jobs in the upstream industry in
the UK over the past three years. We have something like just
over a quarter of a million jobs left in the UK upstream sector.
In the last few months we have seen some really encouraging signs
of increased investment next year. Investment plans for the industry
as a whole are up by a billion pounds next year, up by a third.
Those are the green shoots of recovery, as we have been calling
them in the industry, and they are still fragile and need to be
nurtured and that is our main concern.
26. Would it be fair to say on that, the rather
more mature fields that we have got in the North Sea probably
would not suffer too badly but further exploration in the more
difficult areas offshoreand we have only got the rather
more difficult fields to exploitwould be inhibited if PRT
changes were to be made?
(Mr Brinded) I think it would potentially hit both
fronts. Our average discovery size is now about 20 million barrels.
To put that into perspective, it is less than 100th of the big
fields we found 20 years ago. We are dealing with a very, very
different industry. Indeed, the exploration for small and new
fields would be impacted but on many of the mature fields we are
already paying 70 per cent. Our marginal rates of tax, on about
a quarter of our production we pay a 70 per cent marginal rate
of tax which obviously has an impact.
27. Is that a consensual view?
(Mr Mumford) Yes.
(Mr Polkey) Yes.
28. It is true to say that, for example, the
chemical part of your operations has been doing rather well out
of the fact that the feed stock has been fairly cheap in recent
years. If the price per barrel goes up then it becomes more expensive
to use that. It does seem that in some areas you win when you
are losing and in others you win when you are winning and overall
you do not do too badly.
(Mr Polkey) To me the important piece of this is each
sector of businessand you are right we do have an upstream
sector, a chemicals sector, a downstream sectoris run as
a separate business. I think it is important that we are able
to compete in each of those separate businesses in its own right.
In each of those sectors there are players there who only operate
in that sector. If you look at the upstream side there are people
who only explore and produce crude oil, they do not have anything
after that. On the chemical side there are people who are clearly
only on the chemical side. If you get down to the retail end there
are competitors in the market like the supermarkets who retail
petroleum, they do not have any of the other parts. From our perspective
it is very important we have a level playing field and that each
of those businesses competes in its own right off a flat base.
You are right, there is an element of portfolio in terms of being
integrated and there are good bits and bad bits but we are trying
to drive to have all of those bits operating profitably. As you
would if you had a share portfolio you want to try and upgrade
the other worst performing ones to better performing ones but
cross-subsidising between the two is very dangerous and is not
particularly in the interests of the consumer in the long run.
29. In some of the other areas of energy that
we look at from time to time there is a presumption that is developing
against vertical integration in some areas. There are arguments
being advanced where you might have what you call "unbundling".
It seems that people are prepared to concentrate on one and do
rather well out of it, people who do all three in your industry
have good years and bad years. There is always the anxiety that
there could be cross-subsidy because the Chinese walls are not
that well established in the sense that they are not really regulated
by anyone other than the tax man and the accountant, one of whom
you pay and the other one gets rather a lot from you anyway and
may not be too fussy provided he gets a reasonable share of what
you are operating on.
(Mr Polkey) I would argue that there are some very
transparent transfer mechanisms between the different sectors.
On the upstream side there is a very transparent international
crude oil price and as we move on to the marketing side there
is a very transparent international Rotterdam market for Europe
in terms of where you can go and buy a ship of petrol or a ship
of diesel. Those are the bases that the various sectors of industry
work off. I think it is very transparent.
(Mr Jones) Clearly in our company we have been moving
towards an unbundling operation more and more. It is because we
do have these international references. There are references at
the retail sector, there are references upstream at the refining
sector and all the way back to the crude oil sector.
30. On 29 September all the oil companies signed
a Memorandum of Understanding. Are you confident that you will
be able to maintain continuity of supply if the protesters put
their blockades back up again?
(Mr Brinded) I think we would be foolish to be over
confident. We learned a lot from last time. It took everybody
by surprise. It was very unexpected. Us, the police, central government,
local government, the distribution companies, we all learned a
lot. I think over the last six weeks we have been putting in intensive
preparations to try and make sure we are much more prepared. I
would say that if blockades start again within maybe six to 12
hours we would probably be at a situation that took six days last
time. We have worked intensively on improved co-ordination and
crisis management arrangements, particularly on working with police
locally and centrally to discuss what sort of security arrangements
will be necessary and how they will be implemented. We have talked
about the building of stock levels so we will be much better prepared
both in advance and to respond to the problem. I think it would
be wrong to imply also that if we have significant levels of blockades
at all terminals and high levels of intimidation, even with the
best efforts of the police to ensure the safety of drivers carrying
out 38 tonnes of explosive fuel, we will have business as usual.
There will be a restriction on the amount of supplies that can
be got to the customer and it will have an impact on national
life just as it was beginning to have last time. We expect to
do considerably better in terms of maintaining continuity of supply
but it will not be business as usual.
31. Any other comments on that?
(Mr Codd) I think the exact level of supply that we
are able to maintain in a crisis clearly depends upon the exact
nature of what is happening on the ground. You can postulate what
we may or may not be able to do if exactly the same situation
occurs as occurred last time but one thing you can be reasonably
certain of is it will be different.
32. Can I ask you about something I find incredibly
curious about last time. Vehicles were not going out of terminals,
drivers were saying that they were intimidated and yet no action
was taken about that. I find that incredibly curious because I
find it very surprising a business would be prevented from operating
because of intimidation.
(Mr Codd) When you say no action, by our companies?
33. Well, this was my perception of it, maybe
you can describe what your perception of it was?
(Mr Brinded) I would certainly like to. Right from
the beginning for a start we had 24 hour crisis management teams
on from the beginning. The issue that was paramount in our minds
was that of safety, drivers' safety, safety of the public and
safety of the protesters. In the first 24 hours or so we were
also very much concerned about the escalation. Right from the
beginning we were talking about what level of police protection
would be required to be able to ensure the safety of our drivers.
We are an industry where safety is absolutely paramount both in
the upstream and the downstream. It is a sector where any individual
can stop any job at any time for safety reasons. We have been
driving that safety culture for decades but particularly in the
last ten years it has become absolutely dominant in our industry.
It is very hard for people outside of the industry to understand
the way in which that culture penetrates every part of the business
we undertake. Right from the beginning when the drivers were concerned
about their safety we stopped, listened and discussed what measures
we could take to be assured of their safety. Then we discussed
with the police locally what it would take to put in place the
measures which would be required. We discussed it also with the
Home Secretary right from the beginning, from the Monday of the
event, as to the level of policing which would be required. By
the time that was put in place there was no problem at all in
terms of drivers' driving.
34. I want to clarify this. The issue as far
as you were concerned, the one of safety, was of such consideration
that it was necessary to stop for a number of days your normal
(Mr Brinded) Absolutely. Wherever we felt we could
continue operations safely we did so. We were looking for essentially
sufficient police to clear the blockades and also, where necessary,
police vehicles to escort the tankers to the site and to assist
during the unloading. This was not fabricated. As you know there
was a log of 180 incidents that we have now gathered across the
industry. I just highlight that over ten of those involved objects
thrown at tankers, three of them involved broken windscreens of
tankers, 20 of those incidents involved tankers having to take
evasive action or make emergency stops or being driven to the
side of the road whilst trying to make their deliveries. It was
in the light of those types of incidents that we were very cautious
in terms of the level of protection that we required to be comfortable
that we could ensure the safety of the drivers.
35. You are saying quite clearly these were
not peaceful protests?
(Mr Brinded) No, they were not. For the most part
they probably were but there were enough occasions of intimidation
right from the outset. Intimidation was very much a question of
what people were hearing and seeing on the television and hearing
from the colleagues at other sites as well as what they saw outside
the terminal at that point. There is no doubt that the blockades
and crowds were able to gather quickly and did gather quickly.
It was essentially a situation where it would have been irresponsible
to take risks with a 38 tonne tanker of fuel.
(Mr Codd) Some of the intimidation events did not
occur at the gate, they occurred en route to the delivery and
at delivery. Whom do you attach responsibility to for those events?
They were individuals and not affiliated to any organisation.
It is very difficult to say. Again it goes back to a criticism
levelled against us "Why did we not take legal action".
With this amorphous and ever changing body of individuals it was
very difficult, very difficult, to take effective legal action
by way of injunction.
36. You have got a problem because you do not
really have much storage capacity either at terminals or at service
stations. That is presumably historically due to the duty collection
point. I think only the motorway service areas are required to
carry safety levels for service stations. Is there a case for
arguing that if you are going to maintain in the national interest
some strategic reserve level at the service stations and terminals
the duty collection point ought to be changed, at least for that
fuel you are holding in reserve?
(Mr Mumford) I think it is fair to say that in the
last crisis the level of stock in terminals was not actually an
issue. We had plenty of stock in the terminals, the issue was
being able to move the stock out of the gate. Also I would like
to point out that although there may be the perception that all
terminals shut down, in fact all terminals did not shut down.
There were many terminals which kept running all the way through
the dispute and successfully ran trucks through blockades. There
were also a large number of instances where tanker fleets from
one terminal which was blockaded went to other terminals to fill
up. Actually a lot more was going on than may have appeared. The
reason we were able to do that was because we had very good stocks
in those terminals. In fact, we had many terminals running at
200/300 per cent of normal capacity.
37. But not at service stations? This is the
problem, apart from MSAs?
(Mr Mumford) At the service station you have a slightly
different issue because there you are talking about underground
tanks usually in an urban environment and there are all sorts
of planning and safety issues. Would you want to hold a lot more
fuel in that kind of location?
38. Did you close down the refineries when this
was happening? Obviously you would have a build up of your supplies
from the refinery?
(Mr Mumford) This was a very serious issue for us.
We came very close. (Mr Jones) We did cut back some of
39. Can I just ask some specific questions.
We have had a report from the Transport & General Workers'
Union. For example, you said, Mr Mumford, that you got a lot of
stuff through, that you did quite a good job. You did not do much
good in Cardiff according to the T&G. "Drivers who were
contracted to BP were advised by their employer on Monday 10 September
to take two or three days off and made no effort either with or
without police assistance to make deliveries." That is a
specific question. It is about Cardiff but it does not quite settle
easily alongside what you have said about your sterling efforts
to deliver petrol regardless of the circumstance. Was Cardiff
an exception to the rule then?
(Mr Mumford) Cardiff is not one of our terminals.