The Privatization of UK Oil Assets 1977-87
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The Privatization of UK Oil Assets 1977-87: Rational Policy-Making, International Changes and Domestic Constraints Stephanie M. Hoopes PhD Dissertation Department of Government Department of International Relations London School of Economics June 1994 UMI Number: U062840 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI U062840 Published by ProQuest LLC 2014. Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 T 1 4 £ S £ 5 F Abstract Why did British politicians initiate, and why did civil servants facilitate, the complete disposal of the government’s oil assets, a vital national resource? Public choice theory has traditionally found it difficult to explain the retreat of the state, not because the theory is flawed, but because insufficient attention has been given to the parameters that actors face at both the domestic and international level. Four sets of parameters are particularly relevant to this case: international, industry, bureaucratic and political, which I review in sequence. First, though international factors are rarely incorporated into domestic policy making analyses, they do have an impact. Realists’ issue-specific models can be adapted to these analyses and help explain why Britain was forced to bow to international financial pressures and to work within the international oil structure. A balance of payments crisis in 1976 forced Britain’s first asset sale while the development of a free market for oil (not dominated by a monopoly or cartel) made further sales more feasible, but not inevitable. Second, state-owned companies were often obstacles to privatization. A closer examination of the companies’ structures explains the differing reactions of the managers of British National Oil Company (BNOC), British Gas Corporation (BGC) and British Petroleum (BP) and their abilities to achieve their preferences. The management of BP favoured privatization while the managers of BNOC and BGC opposed the sales of their oil assets. Though they could not prevent the fulfilment of the government’s plans, they were able to cause delays and affect the form which privatization took. Third, contrary to budget-maximizing models, the British civil servants did not impede privatization. As members of a generalist bureaucracy, they were more concerned with their immediate work tasks and future career prospects across the civil service as a whole, than the long term future of the division or department where they were immediately located. In addition, because the Department of Energy was a relatively weak agency, individual level and career-maximizing strategies predominated rather than collective action strategies. Finally, because political demands for privatization were weak, other supply- side factors dominated politicians’ decision to select privatization. These included party political pressures to cut public spending by means of asset sales and personal political advantage, which encouraged policy entrepreneurs to bear the initial costs of a potentially hazardous innovation. Ackno wled gements Finding an accessible project that probes the line between government and industry is no easy task. I would like to thank Timothy McKeown from the University of North Carolina for his ideas and his prompting, which helped me get off to a good start. The most valuable and also the most interesting aspect of this case study was the information that came from my interviews. I would like to thank the current and former executives from BP, BNOC and BGC, the civil servants from the Department of Energy and HM Treasury and the Conservative and Labour politicians who took the time to meet with me. I am very appreciative of their thoughtful comments and helpful suggestions. The London School of Economics provided the many resources necessary to complete this dissertation, and there are several individuals in particular who I would like to recognize. My advisors were especially important. I owe a lot to Dr. Michael Hodges for his support for my project from the very beginning and his good advice throughout. I am most grateful to Professor Patrick Dunleavy. I would like to thank him for his energy and ideas which not only made this a much better thesis in the end, but also made it an intellectually enjoyable process. I would like also to thank those in the IPE workshop and the Government Institutions seminar, Alan Beattie and Cheryl Schonhardt-Bailey. Beyond LSE, Nuffield College of Oxford University and the Oxford Institute for Energy Studies were also very generous in affording me the use of thier libraries. I would also like to thank my friends who helped in their own way to make this possible. I would particularly like to recognize Tracy Rogers for excellent proof reading and continued interest in this project; Lucille Knapp for background information about the oil industry and for her helpful proofreading; Steve Rogers for answering my endless questions about the oil industry; and Anna Grassini and Malory Greene for their exceptional support and editing abilities. Finally, I would like to thank my family, Irene and Francis Halpin, Robert and Hilary Barnes Hoopes, and my parents Judy and Robert Hoopes who were there for me throughout. Most of all, I am grateful to my husband Charles Halpin without whose assistance and support I would never have completed this dissertation. Table of Contents A bstract.................................................................................................................................... i Acknowledgements...............................................................................................................ii Table of Contents............................................................................................................ 1 Abbreviations..................................................................................................................... 3 List of Figures and Tables............................................................................................. 4 Chapter One: Introduction............................................................................................. 7 1.1. State Power and Natural R esources...................................................... 7 1.2. Paradox of Explaining State Retrenchment ....................................... 11 1.3. Structure of the T h esis.............................................................................. 18 Chapter Two: The Build Up of the British Government’s Involvement in y O il.............................................................................................................................. 29 2.1. The Beginnings of Anglo-Persian and the Majors . , . , . , . 30 2.2. Decline in Britain’s Control of Oil, the Rise in Domestic D em an d.......................................................................................................37 2.3. Britain’s Vulnerability and Subsequent Search for Oil Independence..............................................................................................42 2.4. Direct Ownership in the North S e a ...................................................... 57 Chapter Three: The Sequencing of the Oil Asset Sales in Britain ......................................................................................................................69 ^ 3.1. British Petroleum - The First S a le......................................................... 71 3.2. The Britoil Saga - 1982-1988 ............................................................... 75 3.3. The Sale of British Gas’ Oil A ssets...................................................... 84 3.4. The Government’s Final BP Sale ......................................................... 94 Chapter Four: Constraints and Opportunities Presented by the International S y s te m....................................................................................................................101 4.1. International Financial Pressure on Britain............................................. 106 4.2. Britain’s Changing International Oil P o sitio n....................................... 115 4.3. The Influence of International Organizations ....................................... 124 1 Chapter Five: Structure, Motivations and the Managers of the State-Owned Oil Companies .....................................................................................................140 5.1. British Petroleum Under Threat...............................................................145 5.2. The British National Oil Company and the National Interest........................................................................................................160 5.3. British Gas Corporation: Defending Its Em pire.................................... 170 Chapter Six: Public Choice and the Government Bureaucracy .............................. 184 6.1. Civil Servants as Career M axim izers...................................................... 191 6.2. The Department of Energy: A Weak Department?..............................205