Scotland ‘faces bill of £30bn’ after North Sea oil runs out

TAXPAYERS in an independent Scotland would have to pay the £30 billion cost of decommissioning North Sea rigs, the country’s leading oil economist warned earlier today.

Professor Alex Kemp, of Aberdeen University, told a Westminster committee looking into the impact of independence on the UK’s energy market that the cost of the clean-up operation would take place primarily in Scottish waters, particularly around Shetland.

“The bulk of that is in what would be Scottish waters because the most expensive platforms are in the East of Shetland basin and they most certainly will be in Scottish waters,” he said.

“There’s no doubt about it, this will be an extra cost.

“If there was separation, the costs would be tax deductable against income from tax revenues coming from Scottish waters.”

His comments, to the energy select committee, were rejected by Scottish energy minister Fergus Ewing, who insisted that the rest of the UK had a “moral obligation” to contribute towards decommissioning costs.

Mr Ewing argued that Scottish tax- payers should not be asked to fund the operation, even if Scots vote in favour of independence in the forthcoming referendum.

He argued that other parts of the UK had received substantial revenues from the oil industry and should shoulder some of the responsibility for clearing up the rigs and other debris when supplies run out in the North Sea, which is estimated to take place by 2040.

“Plainly, given that the UK has received £170bn from oil by rigs that have to be decommissioned, then the UK received the revenue in respect of those rigs,” Mr Ewing said.

“It would seem to us reasonable to suggest that having received all the revenue, the costs of the accrued revenue, which was accrued entirely in the UK, should in principle be the UK’s responsibility.”

He added: “In principle, given that the UK has received substantial revenue from these rigs, it seems correct that the UK has a moral and certainly a legal obligation to be responsible for decommissioning.”

Mr Ewing’s remarks were met with disbelief from other members of the committee.

Its Conservative chairman, Tim Yeo, told The Scotsman that Mr Ewing was “living in cloud cuckoo land”. He said: “There is no way that an independent Scotland could come back in 28 years to the rest of the UK and ask for the clean-up costs to be paid.”

John Robertson, Labour MP for Glasgow North West, said it was “incredible” that the Scottish Parliament wanted all the revenues from oil reserves while making sure the UK government “pays for any clean-up in 28 years’ time”.

He said: “I find that absolutely incredible. Scotland has benefited as much from oil as any area within the United Kingdom.”

The cost of decommissioning oil rigs in the North Sea will be the subject of debate between Westminster and the Scottish Government at Holyrood if the SNP wins the referendum scheduled for 2014.

Prof Kemp told the committee that uncertainty over the result of the referendum was making it difficult for oil companies to secure future investment in the industry.

MPs also questioned Mr Ewing about SNP plans for a £1bn-a-year oil fund, which First Minister Alex Salmond said would be available to Scotland after independence.

Mr Ewing repeated Mr Salmond’s claim that this would happen “when the economic circumstances allow”.

He added that the £1bn figure was not a definite amount, but an illustration of what might be possible.

“It is not unreasonable, given what Norway does now,” he told the committee.

However, Mr Yeo pointed out that Scotland had never enjoyed a surplus of £1bn, even if all the oil funds were included in the country’s budget.

He said: “I find it an astonishing claim that the SNP believe they could put this money aside each year.”

Earlier, Professor Jo Armstrong had told the committee that in order to have an oil fund the Scottish Government would need to make “£1bn of cuts or extreme efficiency savings.”

Prof Kemp added: “The current numbers suggest that if you put £1bn of North Sea funds into a separate oil fund, then you will have to cut £1bn of spending somewhere else.”

Opponents of the SNP tonight used Prof Kemp’s claims about uncertainty in the oil industry over the referendum to reiterate calls for the vote to take place before 2014.

Labour’s shadow energy minister, Tom Greatrex, said: “This intervention from Prof Kemp – an acknowledged academic expert in the field – adds significant weight to the growing calls for an early referendum.

“This is not the first time that the SNP has been warned about the uncertainty the referendum is causing Scotland’s energy industry.

“What the SNP also refuses to acknowledge is that oil and gas is a volatile and declining commodity, and that a separate Scotland would be less insulated from shifts in global commodity prices.”

There were also calls from the industry for more clarity on the 50 per cent tax relief linked with the decommissioning costs which have been promised by the UK government to oil companies.

An Oil & Gas UK spokesman said: “Certainty on the availability of tax relief for decommissioning costs is and will be crucial in maximising investment in and production of Britain’s offshore oil and gas resources, regardless of constitutional developments.

“As the UK and Scotland’s largest industrial investor, this industry expects both governments to understand and abide by this principle.”

All the witnesses, including Mr Ewing, argued that even if Scotland separated from the rest of the UK, there should still be a single energy market, for the benefits of cost-savings and efficiency.

Mr Ewing told the committee: “There are many examples of a single energy market working across borders and I don’t see why it should not be the case here.”

But Mr Robertson asked: “If he thinks that a single energy market is a good idea, why does he think that breaking up the UK in other respects is a good idea?”

He went on to suggest that Mr Salmond be asked to appear before the committee to answer further questions on the energy sector.

A spokesman for Mr Robertson said Mr Ewing’s evidence had left more questions than answers.

The committee’s inquiry is meant to be a short one, with one more formal hearing to come next week.

Mr Yeo tonight claimed that Mr Salmond would resist appearing before the committee.

He said: “He will be getting similar requests from other committees.

“But he and his ministers appear to be avoiding giving detailed answers to the questions which will affect Scots and the rest of the UK.”

Mr Yeo added: “I understood that energy was one of the SNP’s more developed policy areas, but after today’s evidence I doubt that.”

• Read the full details of the Commons inquiry into Scotland’s energy sector