The Scottish Government’s bid to set up an oil fund has come too late in the life of the North Sea, an industry expert said last night.
Andrew Reid, Aberdeen-based managing director of energy consultant Douglas-Westwood, also said the middle of a recession was not an ideal time to start a fund when the UK Government needed every penny it could get its hands on.
The Scottish Government will this week step up its calls for an oil fund to create a “lasting legacy” of oil wealth. The demand will be made by Finance Secretary John Swinney as he visits Aberdeen. He will use the occasion – the opening of an Aberdeen University centre for research into energy economics – to publish a discussion paper on an oil fund.
The SNP has long argued an oil fund would invest a proportion of Scotland’s oil and gas revenues to provide a permanent source of wealth and revenue for future generations.
Mr Swinney said: “Adjusted for inflation, some £230billion of tax revenue has come directly from Scottish territorial waters over the past 30 years.
“Including a geographical share of North Sea revenues, Scotland has been in current budget surplus for three years.
“The Treasury’s own projections show the North Sea will remain a major source of tax revenue for years to come.
“The UK Government has wasted the resources but there are hundreds of billions worth of reserves and we may only be at the halfway point in terms of revenues.”
Douglas-Westwood’s Mr Reid told the P&J: “It’s a bit too late in the day to set up a fund. The majority of wealth from the North Sea has been exploited.
“OK, there is a lot still to go for in the North Sea in the future, but the tax levels will have to go down to take into account increasing costs and to try and slow declining production. Also, it will be pretty hard to set up a fund just now in this time of recession.”
Mr Reid said that, in principle, it was the right thing to do to set up an oil fund, such as has happened in Norway and Alaska, to benefit future generations.
The rationale for an oil fund was questioned in a report by the Scotland Office last month.
Published to coincide with the annual estimates of government revenue and spending in Scotland, the report said oil funds worked on the basis of paying in all revenues but only taking out the interest.
“Oil revenues can be used only once. You can’t spend them to offset an expenditure black hole and invest them in an oil fund at the same time,” it said.
A Labour spokesman said: “An oil fund works on the basis of investing money after all public spending is paid.
“But even on the most generous assessment, there have only been nine years in the last 27 when Scotland’s finances were in surplus, and none since 1988.
“North Sea oil production has been steadily decreasing for the last five years. The reality is that oil is a commodity finite in supply and volatile in price.”
A spokeswoman for industry body Oil and Gas UK yesterday declined to comment, saying it was a political situation.
She said it would be concerned if the UK oil and gas industry was regulated by two different regimes, one for oil fields north of the border and one for fields south of the border.
“That would cause unnecessary complications and costs to the industry in tax and other areas such as environmental,” said the spokeswoman.
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