Brent Spar Affair: Minister applies `moral lever'

THE EXTRA COST

The Government yesterday attempted to force Shell to pick up the entire extra bill for decommissioning Brent Spar on land, which would save the taxpayer at least pounds 15m in tax relief.

But Tim Eggar, Energy minister, admitted that he had no power to withhold the tax relief and said he was asking the company for a voluntary decision because the extra cost was the result of Shell's own actions. He described this as a "moral lever".

Mr Eggar said "I wrote to Shell today to say that in the circumstances I would expect Shell to state voluntarily that they are not going to seek to offset these costs against petroleum revenue tax."

He added "I will be surprised and disappointed if Shell does not say that in all the circumstances they will not seek to make this tax deductible."

Mr Eggar said the system under which the cost of abandoning North Sea installations was allowable against petroleum revenue tax (PRT) was "perfectly reasonable and eminently defensible" and companies had always known this was the way their expenditure would be treated.

The Treasury said PRT relief could amount to about half the cost of disposal and with additional corporation tax relief the total relief could be 55 per cent.

The UK Offshore Operators Association said that in practice the amount varied between 20 and 70 per cent depending on the company's circumstances.

Mr Eggar denied that he would use the Department of Trade and Industry's power to approve or refuse applications for onshore disposal as a threat to make Shell voluntarily give up the tax relief. But he said if Shell took a tough line on claims for tax relief the government would "consider its options".

Oil industry sources claimed that the Government's anger with Shell was partly motivated by fears of a huge extra bill for tax relief if the cost of rig decommissioning escalated across the oil industry.

But Mr Eggar said the environmental and safety arguments overshadowed cost issues in the case of the original Brent Spar decision to dispose at sea, and for the future he did not believe the cost of tax relief was an issue for the Government.

He said there were 220 rigs in the North Sea of which 130-140 would automatically be disposed of on land under international conventions. The others would be looked at case by case, and he would be "quite surprised" if deep-sea disposal was the best environmental option for more than five or ten. "The potential cost to the Government is really quite limited," he said.