Government urged to copy other oil nations with rules and tax breaks to benefit home manufacturers
Up to 10,000 engineering jobs could have been created if the government had supported British companies bidding to win contracts to build North Sea oil rigs for energy giants, it has been claimed.
The contracts went to South Korea, with the result that the industry has shed tens of thousands of jobs, something that has major implications for the UK’s ability to build the next generation of carbon-friendly energy infrastructure, such as windfarms.
The claims comes from OGN, a British oil rig-maker, in a letter to MPs. The row has echoes of the furore that greeted the news in 2011 that Derby-based train manufacturer Bombardier had lost out to German manufacturer Siemens in the battle to win the £1.4bn Thameslink trains contract.
In the letter, seen by the Observer, OGN warns that British manufacturers will go out of business if ministers do not require North Sea oil operators to buy components from them. Dennis Clark, OGN’s chairman, claims that in the past two years only 7% of new platforms ordered for the North Sea were made in Britain.
“Over the past two years, fabrication contracts for North Sea development worth in excess of £10 billion have been placed overseas,” Clark writes. “It is estimated that more than 10,000 jobs would have been created in this country had those contracts been placed in the UK.”
The privately owned company, one of only four oil rig manufacturers left in Britain, employs about 4,000 workers, down from a peak workforce of 30,000. It is furious that the Treasury granted Norwegian oil giant Statoil tax concessions to develop the Mariner and Bressay fields in the North Sea but did nothing to compel it to use British expertise.
Clark complains that Norway, like many other countries, requires oil companies to use local suppliers for its offshore oil and gas projects. But the government claims European Union rules forbid it from taking such action.
Sajid Javid, economic secretary to the Treasury, recently signalled the government’s commitment to the offshore oil and gas industry. “The North Sea is a vital national asset, with oil and gas production supporting a third of a million jobs,” Javid said. “That is why this government has announced a range of tax measures expected to generate billions of new investment and create jobs.”
But Clark complained that there was no policy requiring tax benefits to be reinvested in the UK. “The UK is the only oil and gas province without a positive policy favouring local content,” Clark said in the letter. “Norway has operated such a policy with great success for 30 years and it has filled its own fabrication capacity.”
He said he had taken the matter up with several ministers including the chancellor, George Osborne, and the business secretary, Vince Cable.
“Everyone is interested but nobody will take decisive action,” Clark said. “The government says that it cannot intervene. We do not believe this to be the case and we appear to have the only government that adopts this stance.”
A number of MPs in the north east have tabled questions in the Commons to ask what the government is doing to protect the UK’s oil rig constructors. The Labour MP, Nick Brown, said he was seeking clarification from the government as to why other countries could ensure contracts went to their companies. “It is reasonable for us to expect the North Sea to support a strong domestic industry,” Brown said. “I’m in favour of free trade, but what is sauce for the goose should be sauce for the gander.”
According to analysis by OGN, a total of 209,000 tonnes of fabrication structures have been awarded outside the UK in the past two years. This equates to a loss to the UK economy of 12,100 direct man years of blue-collar jobs.
It said the jobs were transferable to the offshore renewable energy sector and warned that the UK’s wind and tidal projects would end up creating employment abroad unless the government changed its stance.