26th April 2018
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New push to gain better share of Sullom Voe profits for community

, by , in Public Affairs

By NEIL RIDDELL

FRESH efforts are to be made to try and secure a better share of profits from Sullom Voe Oil Terminal for the community, with the new general manager of Shetland Charitable Trust to open negotiations in the hope of receiving higher rent from the oil industry.

Ann Black, who is due to start work with the trust in January, will be asked to initiate discussions with SIC chief executive Morgan Good­lad and terminal operators BP with a view to reporting back within six months.

The move was put in motion after trustees learned at a meeting on Monday that, as the landlord for the site, the charitable trust had earned only £1.6 million in rent from the industry in the last financial year.

Trustees were unanimous in their agreement that the way the rent is calculated should be re-examined because the amount seemed, in the words of councillor-trustee Jonathan Wills, to be “relatively little”.

Trust chairman Bill Manson spoke for many around the table when he said it would be better if payments were calculated using the value rather than the quantity of the throughput of oil at the terminal.

It is a matter which has irked councillors for a number of years since the last major renegotiation with the oil industry under then SIC chief executive Malcolm Green in the mid-1990s, when the going rate for crude oil was hovering around $10 a barrel and the council made multi-million pound sacrifices to keep the industry happy.

Dr Wills, who has previously published a book about Shetland’s relationship with the oil industry, said the deal had been negotiated at a time when oil companies were threatening to leave and “the council was silly enough to believe that – we’ve got rather a poor deal”.

He said that far from embarking on an anti-oil industry crusade, he simply believes – particularly with the recent arrival of Abu Dhabi com­pany Taqa Bratani as the terminal’s major stakeholder and west of Shet­land oil and gas discoveries likely to herald a brighter future – that the time could be right to get a fairer deal.

“Now we’ve got a major new investor, they may well want to sit down and discuss the rent,” said Dr Wills. “You pay not just for use of property but to reflect the fact that this is a very stable part of the world for them to operate in.

“[We have] high standards, they don’t give us environmental hassle, we don’t give them hassle. It’s reason­able that the payments should reflect that relationship. I’m hopeful, and with a new general manager [of the trust] and with blue water opening up between the council and the trust, it’s a good time to look at it.”

Despite the recent tumble in oil prices from an all-time high of $147 a barrel in July this year, they remain – at $43 a barrel this week – substantially higher than when the previous deal was negotiated in 1995. Analysts expect the price to rise much further again in the medium term as global production falls, meaning any price-linked deal stands to be a much more beneficial arrangement for the Shetland community.

The terminal site was sold to the trust by the council for £23 million in 1997 in order that a larger share of the oil revenues could be kept within the isles, meaning the SIC then became tenant and the oil industry its sub-tenant. Up until then, central government had re­duced the annual revenue grant given to the SIC commensurate to the amount of rent the council was taking from the oil industry.

The existing lease agreement was struck at a time of very low oil prices, based on halving the £7.6 million rent charged to the industry and the ending of £3 million a year annual disturbance payments (which provided the original funding for the trust’s coffers) by 2000 at a time when the industry was lobbying hard for the terminal to be made more economically viable.

The move was made in an attempt to safeguard the future of the terminal after BP and its partners threatened to quit Shetland and load oil offshore instead, leading some to fear the closure of Sullom Voe at the turn of the century. But with the terminal’s future now apparently secure for another two decades there is a growing sense that the SIC was spooked into making excessive concessions to the oil industry.

At that time, convener Lewis Smith told this newspaper the deal was “a good offer for Shetland, for the people of Shetland and for the economy of Shetland, and an offer we feel confident will encourage the oil industry to stay at Sullom Voe”.

Similar calls for Shetland to be granted a greater share of the huge profits made at the terminal have been made in recent years, including by councillor John Nicolson back in 2003, but Mr Goodlad said this week that the council’s hands are tied to an extent and that any such move would have to be part of a wider renegotiation.

He said: “There was unfortunately no mechanism put in place at this time to review these agreements should the situation change – which it did – particularly on oil values, therefore there is not much scope to enter into a renegotiation of this in isolation of other aspects of our agreements.

“The major discussion currently underway with the industry is to try and reach an agreement on port charges – which remains the largest part of the council’s income from Sullom – as volumes decline.

“No agreement has been reached on this as yet, resulting in us making annual charges based on volume throughputs – i.e. less volume equates to higher charges being levied to maintain our income. In addressing these issues there may be an opportunity to discuss the earlier agreements on leases as part of a longer term settlement which would see the terminal through to the end of its working life.”

Some councillors have recently expressed concern that the target for income flowing into the council’s reserves from the harbour at Sullom Voe is £4 million, when income is only projected to be £2.1 million this year and at a time of declining throughput at the terminal. Head of finance Graham Johnston has admitted that the target will be “challenging”.

The drop in income was partly down to the Schiehallion platform being out of production for some time earlier this summer, and Mr Goodlad said the plan was to continue the strategy of raising charges next year to compensate for a predicted reduction in the volume of traffic at the harbour.

He added: “This strategy, of course, will only remain in place along with driving down of costs as much as achievable until an agreement is reached with the oil industry for the long term.”

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