THERE are several ways of looking at the (up to) £250 million deal brokered by the UK and Scottish governments.
Any money injected into the future economic welfare of the north east of Scotland is welcome. The devil, of course, lies in the detail. There is every likelihood that most of it will be on capital spend on buildings and facilities and more importantly, although the need is urgent, the injection of cash is being spread over five to 10 years! Do the governments fail to realise more than 65,000 jobs have already been lost?
This investment should enable innovative research and development activity that can contribute to further exploitation of the North Sea’s oil reserves. Its success will depend on additional investment from the regional authorities, the universities and private investment. An anticipated additional £1.2 billion contribution is expected from these sources. It is far from clear if these funds will be forthcoming given the financial situation facing the region.
Is this a big deal? Will it save the North Sea oil industry for future generations? Or will it merely speed up the charge towards decommissioning?
£250 million would be a great win on the lottery for a private individual. In terms of the deals struck by oil companies it is small change as demonstrated by Shell’s takeover of BG costing £34bn. In addition as evidence of the sums involved, in 2014 the oil industry spent £14.8bn in the North Sea on exploration and development of new reserves of oil.
Given that the UK Chancellor of the Exchequer has collected over £300bn in direct taxation from the North Sea industry, is a reinvestment of £125 million from George Osborne that noteworthy? It will not save the industry. And it will not maximise economic recovery. Most of the actions that have been taken are short-termist in nature. The accepted mantra of the Department of Energy and Climate Change (DECC) appears to be that if an oil company finds oil it should get it out as quickly as possible regardless of oil price.
The North Sea oil industry in addition to raising £300bn in direct taxation has also collected at least that amount again from its employees on behalf of the Exchequer. Any discussion of maximising economic recovery must take place in the context of the national economy and not be merely focused on maximising shareholder wealth. For example, if 1,000 jobs were outsourced from Aberdeen to a country where the annual salary of the new employees was £1,000 per annum instead of £1,000 per week, then whoop de woo, the shareholders may be happy but the impact on the economy of Aberdeenshire would be devastating.
Should oil companies have the freedom to make such decisions? Another way of looking at it is that the company will then fail to collect tax on 1,000 employees who would have been earning £52,000 per annum. The whole country gets upset at the tax avoidance activities of companies such as Google. How should outsourcing of jobs be viewed in the current climate where governments are throwing cash at the industry?
A long-term approach is therefore now required, with a joint venture agreement between governments and industry drawn up from scratch to cover the next 20 years – with much more investment from all sides.
The National View: Aberdeen needs proper help to ensure oil and gas industry has a tomorrow
Experts warning £270m fund for Aberdeen will not save the oil sector
Gordon MacIntyre-Kemp: The oil sums don’t add up in Cameron's measly rescue package
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