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Energy Bill update

The Government pipe-line and Storage System – opportunities and challenges for private investors

Overview of Government Pipe-line and Storage System

The government pipe-line and storage system (the GPSS) has its origins in measures which were taken by the Government during World War II to provide a secure oil distribution network for the United Kingdom.  The GPSS has been expanded and restructured during the intervening decades and it is a little known fact that today the GPSS includes some 2,500km of cross country pipe-lines and associated storage depots, pumping stations and other facilities.  It distributes some 40% of the aviation fuel which is used in the UK.  It is also strategically significant in that it is used to supply major commercial airports such as Heathrow and Gatwick, as well as bases of the Royal Air Force and the United States Air Force throughout Great Britain.

Opportunities and challenges for investors

The Energy Bill (at Clauses 93 to 104) contains measures which are designed to enable the Government to make more efficient use of the assets which constitute the GPSS, including by way of transferring these assets to the private sector.  These measures will be of particular interest to utilities or other investors who may wish to acquire interests in cross country pipe-lines and related infrastructure and earn revenues from the provision of oil transportation and storage services to Government Departments and commercial entities who source fuel through the GPSS.

Clauses 93 to 104 have stemmed from a review of the GPSS conducted by the Government which has concluded that there is no longer an overriding imperative for the GPSS to be owned by the Government.  In addition to the upfront benefit which would flow from the capital receipt which the Government would receive on the sale of assets in the GPSS to the private sector, a move to private sector ownership would enable increased investment in the GPSS by the private sector in order to enhance its security and resilience. 

It seems inevitable that, as part of any negotiations for the sale of assets in the GPSS to a private sector buyer, the Secretary of State would want to agree robust long-term arrangements with the buyer in order to meet the ongoing demand of the Ministry of Defence for fuel sourced through the GPSS.  

One challenge is likely to be that much of the GPSS is located on private sector land and was built under a confection of agreements entered into over many decades with the private sector and / or pursuant to provisions embodied in enabling legislation, some of which dates back to the pre-war era.  The rights to access that land (and indeed to operate and maintain the GPSS) are personal to the Secretary of State with the result that, in the absence of legislative measures along the lines proposed in Clauses 93 to 104, the Government would be unable to package assets in the GPSS in a way which would enable them to be sold to the private sector. 

Although the measures in Clauses 93 to 104 are inevitably detailed, the broad construct is that they confer a package of defined rights on the Secretary of State with respect to the GPSS, including rights (a) to maintain and use the GPSS for any purpose for which it is suitable, inspect / survey the GPSS or the land on which it is situated and remove, replace or renew the GPSS (b) to enter land on which the GPSS is situated and (c) to sell or lease (or transfer any rights relating to) the GPSS or any part of it.

Summary

It remains to be seen how quickly the Government will move to invite private sector involvement in the GPSS.  The level of private sector interest is likely to be dependent on the robustness of the contractual arrangements for transportation and storage on offer from the Government, as these arrangements will be a key part of the investment case. 

Return to our Energy Bill update.