My Lords, I thank all noble Lords for their contributions to the debates. As all the amendments in this group, tabled by the noble Lords, Lord McNicol, Lord Vaux, Lord Oates and Lord Stunell, are linked, I will address them together.
I start with those tabled by the noble Lord, Lord McNicol. As the noble Lord has described, the amendments seek to create an obligation for the Secretary of State to bring forward a list of foreign powers and entities that should not be allowed to invest in nuclear projects, and to use this as the basis for a new designation criteria under the Bill. I appreciate the sentiment behind the amendment but, as the noble Lord will understand, I cannot agree to it for a number of reasons. The amendment is too broad; it does not specify the range of companies that it could cover or the reasons that a foreign power or entity could be included on a list, and the excluded activities are extremely wide—all participation in all projects. This is an extremely broad-brush approach which could severely affect our ability to bring in finance and to deliver new nuclear projects. We would expect the amendment to have a chilling effect on investment, ultimately leading to a higher cost for consumers.
In addition, I am concerned about the further impacts of the amendment. In the noble Lord’s explanation of the amendment, he mentions that the list should act
“in a similar way to the Financial Action Task Force’s list of high-risk countries.”
However, the main focus of that list is to encourage enhanced due diligence in respect of these countries, rather than to provide an outright ban as this amendment seeks to do.
There is also an inconsistency between the amendment to Clause 2 and the proposed new insertion after Clause 3. While Clause 2 is targeted at preventing listed entities from having full or partial ownership of a nuclear company under the RAB model, the proposed new clause discusses barring entities’ involvement in the whole civil nuclear sector. If this wider approach were taken, it could limit our options for international co-operation on this sensitive issue, including obtaining technical advice.
By highlighting these problems, I do not suggest that I disagree with the sentiments behind the amendments. Indeed, as the noble Lord will know from the numerous discussions that I have had with him, the Government know that the protection of our national security must be the top priority. The Government already have strong oversight of foreign ownership in nuclear projects as a result of the NSI Act 2021, as the noble Lord, Lord Vaux, reminded us, which includes the ability to call in for assessment any qualifying acquisition if the Secretary of State reasonably suspects that it may give rise to national security concerns.
Importantly, certain acquisitions of entities operating in the civil nuclear sector require mandatory notification and clearance before the acquisition can be completed. This is set out in Schedule 4 to the notifiable acquisition regulations made under the Act, which specifically include entities which hold, or are in the process of
applying for, a nuclear site licence or development consent under the Planning Act 2008 in relation to a nuclear reactor.
To provide an illustrative example, this means that if a new entity wanted to acquire over 25% of the shares in a nuclear project company, this would have to be notified to the Secretary of State and could not be completed until, or if, the Secretary of State agreed it. Indeed, the Secretary of State could require that the transaction was not progressed, assuming the relevant tests in the Act were satisfied. If the acquisition was completed without first being approved by the Secretary of State, or in breach of an order from the Secretary of State, it would be void and not legally effective.
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Beyond the NSI Act, the Secretary of State can also apply conditions as deemed appropriate to the designation of a nuclear company—conditions which if not met may lead to the company having its designation revoked. We are committing today that, as a condition of a nuclear company being designated under the legislation, the Government will have a right to take a special share in the company being designated and any of its group companies that the Government consider appropriate. We would expect a Secretary of State to make this a condition of designation wherever this is felt to be relevant and necessary.
While the exact rights to be included in such an arrangement would be developed in parallel to negotiations with a prospective RAB company, a special share could provide a variety of rights that would allow the Government to safeguard the UK’s national security and related objectives. For example, this could include—complementary to the NSI Act but tailored to the unique nature of nuclear—the ability for the Secretary of State to scrutinise investment above a specified threshold and to take any appropriate action in the light of this.
I turn now to Amendments 4, 7 and 8 laid by the noble Lord, Lord Vaux. These amendments also seek to add an additional designation criteria with the effect that the Secretary of State must be satisfied that the identity of any person with a specified degree of control over the nuclear company is verified. They also seek to ensure that any changes in ownership are notified to the Secretary of State.
I welcome the noble Lord’s attention on this subject. We met earlier in the week to discuss this and I believe that, since then, officials have provided the noble Lord with further information. The points he makes both in his amendment and his speech are good ones. However, we believe that the most appropriate place for many of these issues to be resolved is through the commercial processes and negotiations around a proposed nuclear project. For example, if considered appropriate, there would be opportunities to include conditions to a designation as the Secretary of State feels appropriate, at both the designation and licence modification stages of the process. The right to take a special share, which I earlier stated would be a condition of designation, could also potentially be used to address all the issues that the noble Lord has raised.
I repeat the assurances I gave the noble Lord during our meeting. At the point of designation, which is only one step in a process towards a project benefitting from the RAB model, we would expect to have very good visibility of those who have control over the nuclear company. As part of the due diligence around a project the Government will seek to identify those with control of the relevant project company.
When making modifications to a designated nuclear company’s generation licence to implement the RAB model, we would also expect our commercial engagement and due diligence to include scrutiny of prospective shareholders in the nuclear company. For example, we may expect to include conditions in the nuclear company’s modified licence which would require the company to declare details of its shareholders. This would aim to provide the Government with sufficient transparency on who has ownership of a RAB project company.
As I have already set out, the right to a special share could also be used to provide the Government with rights to scrutinise ownership of the company, even after the point of designation, if any new information came to light.
Amendment 8 seeks to deal with changes in control. Again, I reassure the noble Lord that the NSI Act already provides the Secretary of State with powers largely equivalent to those that the amendment would provide. The amendment even uses a 25% threshold, which reflects one of the thresholds in Section 8 of the NSI Act. Let me make it clear to the noble Lord that, like all previous Governments, we deliberately have not defined what national security is within the Act. It is up to the Secretary of State or whichever other Minister he designates to determine the precise nature of national security.
The NSI Act has been designed to account for the full range of potential ownership structures and includes provisions covering interests which are held indirectly through a chain of other entities. The Act also allows the Secretary of State to call in acquisitions of control, even when mandatory notification requirements are not triggered, provided that the relevant conditions in the legislation have been satisfied.
I understand that the noble Lord wants to ensure that the Secretary of State has the power to revoke a nuclear company’s designation in this context. The Bill includes the power to revoke when the designation criteria are no longer met. A designation may also automatically lapse if conditions attached to it are not complied with. Given the powers we have to stop transactions under the NSI Act, we do not require an additional power for the Secretary of State to revoke a designation in relation to acquisitions of ownership in the nuclear company.
Finally, Amendment 9, laid by the noble Lords, Lord Oates and Lord Stunell, is an altered version of an amendment previously laid on Report. I see that the amendment now focuses more on the exclusion of commercially sensitive information. I again stress that this amendment is unnecessary. As currently drafted, Clause 13 is drawn narrowly so as to allow for the legitimate exclusion of commercially sensitive information. It is the same wording as deployed in similar provisions in the NSI Act, which has functioned well since its
introduction. I therefore do not believe that the amendment addresses any genuine issues. Indeed, as I made clear in Committee, the addition of “seriously”, given that this term has no clear definition in this context, would potentially add significant uncertainty. This ambiguity about whether their legitimate commercial interests would be respected would seriously damage investors’ confidence and make it less likely that they would become involved in projects.
I also note that the Government have already obligated themselves through the legislation to publish the reasons for the designation of a nuclear company in the relevant designation notice, as well as any material that is required to be published under Part 1 of the Bill. A large part of the amendment is therefore duplicative of existing requirements under the Bill.
With the information I have been able to provide and the necessary reassurances I have given that the Government already have in place the necessary powers and mechanisms to deal with those concerns, I hope the noble Lords will feel able not to press their amendments.