Examination of Witnesses (Questions 80-84)|
TUESDAY 13 NOVEMBER 2001
80. I can see how attractive it is to say, "Here
are all these things we would like the government to do fiscally
and otherwise" and not necessarily to distinguish between
them. However, by its very nature, when government has to consider
this and we as a Committee have to think about it, we have to
think about priorities and it is helpful to us if you give us
some indication of priorities. Where is the hierarchy? What comes
(Mr Kirwan) As the company faced with the decisions
to invest, if the economic gap is not closed, our shareholders
could not support us investing. The other factors are all disincentives
to private capital being invested but if the economic long term
potential is adequate investors will potentially be persuaded
to go ahead. It is a combination but the economics are a sine
qua non. That has to be put right.
81. That is slightly in contrast with what Mr
Ham was saying about the timeliness of investment. You are saying
that the number one priority is to close that gap, perhaps not
by the whole of the one penny per kilowatt hour.
(Mr Kirwan) If the other factors are not addressed,
it has to be a bigger economic prize to make these other risks
acceptable. Effectively, all these do is increase risk and increased
risk requires increased reward. Otherwise, investors will trade
them off together. The more the government can help to reduce
those risks, the less that reward has to be.
82. Mr Ham is saying there are degrees of uncertainty
associated with planning etc?
(Mr Ham) That is correct.
83. The more they continue, the greater are
the risks that have to be met by competitive advantage and the
more government would have to give you some kind of competitive
(Mr Ham) Correct.
84. Why do you talk about market based measures
as being your only preference, so far as reducing that competitiveness
gap? Why not an obligation?
(Mr Ham) The market firstly has been proven to be
very powerful in getting changes in behaviour and in obtaining
much better performance from each of the sectors, particularly
for nuclear because nuclear power in the market situation that
has existed for the last ten years has increased its own performance
enormously in terms of productivity. There is a general acceptance
now in Britain that market related solutions do seem to have the
edge on command and control types of approach. I do not think
the industry is trying to talk about command and control as a
way of going to sort out issues such as security of supply and
so on, but a balanced measure of intervention by government it
seems to us is essential. There is always, as any businessman
or anybody in any major decision making area knows, a risk/reward
trade off. At the moment, the risks in terms of uncertainty of
future policy and planning mean that the rewards would have to
be very large to make potential investors think about future investment.
If you can deal with both of those, the reward side can be lower
and that is a more economically efficient way of dealing with
things. We in the industry would say that we only now really are
considering measures which might help the market signalling system
to give the kinds of results that are desirable from a national
point of view.
Chairman: Thank you very much gentlemen. Your
answers have provoked further questions so we have taken rather
longer than anticipated but if there are any other points we would
like to take up with you we will communicate with you in the usual