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Offshore Charging Review Group

Minutes of the Joint Meeting held on 31 October 2007

Present:

Ian Whewell, HSE, Chair

HSE members

Mike Lacaille
Mark Reyland
Shaun Welsh
James Munro
Bill Miller
Kelvin McFadyen, Secretary

Industry members

Robert Paterson, Oil & Gas UK
Bob Kyle, Oil & Gas UK
Edmund Brookes, BROA
Phil Ley, OCA
Alan Macleod, IADC

Introduction

1. The Chairman welcomed everyone to the meeting. Edmund Brookes was attending for Paul Holman, Phil Ley for Bill Murray and Alan Macleod had replaced Dominic Cattini as the IADC representative.  Apologies had been received from Jane Bugler, IMCA.

Minutes of the meeting held on 1 November 2006

2. The minutes had been circulated, agreed and published on the website.

Matters arising

3. The only matter arising concerned the question of industry input to the review of HSE activities which was mentioned at the last meeting. The Chairman said that this was a fundamental review of HSE’s business at a high level.  The review was not at operational level and therefore detailed stakeholder input would not have taken forward matters relevant to this group.

2006/07 outturn

4. Mr Reyland said that the analysis was in the previously agreed format. It showed that the rate to break even should have been £156 compared to the £147 charged. There was no retrospective charging but this outturn influenced the increase to £155 for the current year. Mr MacLeod said that there was a surplus of some £641k in 2005/06 and asked the position for 2006/07. The 2006/07 accounts showed a deficit of £479k which offset a lot of the previous surplus. Mr Reyland said that there was no retrospective charging and that the current MTA analysis may need to change from 2009 to reflect additional cost categories and would welcome any views on how it could be presented to be passed to the Secretary.

Action: Members to provide any views on presentation and content of the MTA

Proposed rate for 2008/09

5. Mr Lacaille explained that it was HSE policy and Treasury guidance that all the costs of permissioning work should be recovered. A review had concluded that this was not being done.  In particular the proposed scheme increases reflected the costs of activities described as ‘common good’ which were not being recovered. This was work that was essential to support the permissioning function and covered:

6. Mr Lacaille emphasised that this was dedicated work associated with the regulation of the offshore industry and there was no cross subsidy between the various permissioning regimes or other HSE work.  He emphasised that the aim was to recover costs not make a profit. The guidance on the internet would be revised and these revisions shared with industry. HSE was not required to formally consult on his but would like industry views. A paper will be going to the Health and Safety Commission (HSC) meeting on 11 December and will report industry reaction to the proposals. Following the HSC meeting HSE will make a submission to Ministers early in the New Year, with revised rates coming into effect in April 2008.

7. Given the importance of the changes to charging to be discussed it was proposed to name commenters rather than just as ‘industry’, and HSE sought members’ agreement to this. This was given. Mr Lacaille added that the minutes of the meeting would accompany a paper going to the HSC. In order to meet the timescale for that paper it was aimed to get the minutes to members by 9 November and members were asked to provide with comments on the minutes back within a week together with any further issues members wished to draw to the HSC’s attention. 

8. Mr Brookes suggested a summary of discussion rather than verbatim the minutes as they would probably be too long to be read.

9. Comments had already been received from IMCA and the Chairman indicated these related to three issues.  More certainty on future costs and invoices, the need for industry input to research planning and the size of the increase, especially the proportion attributable to guidance.  The Chairman said that the first two issues would be covered by agenda items.  In relation to the proportion of the rate increase attributable to guidance he indicated that whilst it was agreed that industry would be encouraged to take the lead on producing guidance there was none the less considerable resource put into information both for industry and inspectors and this accounted for the size of the increase.  The Chairman said that HSE has also a lot of input to trade association guidance not previously accounted for.

10. Mr Brookes said that the e-mail he had sent in was in the nature of advance tabled questions relating to certainty of costs and pointing out that other agencies, e.g. MCA do not charge for guidance.  The chair indicated that in identifying these additional areas of work for which costs should be recovered HSE was following treasury guidelines which required it to recover costs.

11. Mr Kyle asked if HSE was seeking to recover all costs. Mr Reyland replied that it was only the costs relevant to chargeable activities for the industry. These already include overhead items such as accommodation and IT costs, but more should have been included in the rate in accordance with the Treasury’s Managing Public Finance guidance. The Chairman said that it should be looked at from the view of what would HSE not have to spend if the industry were not there.

12. Mr Paterson said that the original intention of charging when reviewed in 1997 was to cover the extra costs of permissioning regimes. The focus was charging for the major hazard work (including assessment of the safety case) that was overlaid onto the regulatory regime for conventional health and safety.  The HSC permissioning Policy statement draws a clear distinction between the two elements present in regulating health and safety in permissioning regimes

This is a split that has to date existed quite satisfactorily in the COMAH regime. With hindsight it is clear that the offshore industry had allowed the offshore charging regime to go too far in terms of accepting charges for regulating conventional health and safety.  The current discussions should be seen as an opportunity to limit future charging of the offshore industry to only those aspects of regulatory oversight that concerned the permissioning process (safety case assessment) and checking regulatory compliance with the legislation relevant to major hazard work

Mr Lacaille said that HSE was not extending the scope of charging offshore but simply ensuring that all its relevant costs are included in the rate.

13. Mr Paterson expressed the view, notwithstanding the previous points, that many of the activities for which additional charges were now proposed were too remote from the scope of Reg. 15 of the Fees Regulations which indicates that a fee is payable [if an HSE activity] relates to enforcement or any relevant statutory provision against … an operator in relation to the installation to which the current safety case relates. The enforcement and the installation were linked directly. Whereas research, or preparation of guidance, (undoubtedly important supporting activities) did not have the necessary direct link to enable them to be drawn into the scope of the charging regime. Guidance, like research, may support enforcement, but are not part of, and indeed too remote from, “enforcement in relation to an installation”. Mr Lacaille said that HSE would ensure what was proposed was legal, adding that the scope onshore was being extended to bring it in line with offshore.

14. The Chairman said that if industry is managing the major hazard risks well it should follow that conventional H&S risks will also be well managed. Mr Kyle said that a good proportion of the cost will be conventional H&S – for example one of OSD’s two major work activities for the last 4 years - Key Programme 2 “Safety in Deck and Drilling operations”, was entirely focussed on conventional health and safety, including, the management of lifting operations; training & competence; planning, selection & control of equipment; tubular handling; communication etc.. Mr Brookes added that the boundaries could be very fuzzy and need to be absolutely clear.

15. Mr MacLeod said that some duty holders may not have the staff or depth to do all the work. For the extra cost they could employ their own staff to do the validation work. The extra costs do not seem to be providing added value. Industry already invests heavily in safety and now HSE wants to charge more.

16. The Chairman responded that HSE has been doing this work associated with offshore without recovering all its costs. Conventional H&S cannot be ignored and is difficult to separate out because it is an integral part of the management systems in place for the control of risks offshore.  Mr Kyle said it may be difficult but not impossible. The Chairman said that there were two different issues here. One is whether conventional H&S should be chargeable, the other the cost of support activities.

17. Mr Kyle said that some of the support activity would be major hazard, some conventional. The current proposed increase in charging rate was very significant for an industry that believes it is already paying too much. He asked if this would affect the process of H&S management by HSE and stop extra inspectors going to meetings and not contributing. He added if enforcement of RSPs includes the preparation of guidance, then that is too remote from the enforcement function. Mr Lacaille said that HSE’s legal advice was that it was allowed.

18. Mr Kyle said that enforcement was not the total function of HSE. The Chairman said that enforcement is the ultimate activity to ensure compliance. Everything that HSE does contributes to the framework in which HSE operates.

19. Mr Kyle asked whether in calculating the costs HSE had looked historically or based them on a work plan. Mr Reyland said that the start point in calculating a forward rate was to look back at data for the last full year. Assumptions were then made about future variations (including inflation, staffing, work plans etc). Detailed work plans for 08/09 have not been agreed at this stage.

20. Mr Brookes said that chargeable hours were down but corporate and capital costs were up and wondered if costs were under control. Mr Reyland replied that costs were under control, it is the relative overhead that is going up whilst chargeable hours have reduced. The outturn percentage figures may present a truer picture of stability.

21. Mr Macleod said that it was a big increase with a lot going into support services. If the increase were for front line staff pay it might be more justifiable.  Mr Kyle said that it was important that HSE had a competent and well resourced, and appropriately rewarded offshore inspectorate. He accepted HSE had to compete with the offshore industry, but that HSE needed to pay more.  Industry did not mind paying more to ensure there were sufficient good quality inspectors; however the charging rate increase last year was predicated on the need to pay inspectors a more competitive salary. And nothing had happened. The proposed payroll increase in the proposal fell woefully short of any attempt to realistically address this issue.

22. Mr Kyle said that basing the costs of “common good work” on history is flawed as this is a mature industry and a lot standards, guidance and research has already been done. The Chairman responded that HSE had work plans and were not moving into extra guidance. If less guidance is needed it frees inspectors up for front line work. Mr Brookes asked whether this was extra inspectors for the sake of it. The Chairman admitted that HSE cannot do all the front line work it might want to. Inspectors are being increasingly moved from support to the front line, but HSE still cannot always do all it wants. Mr Kyle said that the industry fully supports HSE and if this is what it needs to do the job that should be stated. He added that there were some areas of overlapping guidance, and that a guidance plan was needed. The Chairman agreed saying it should be dealt with through the Offshore Industry Advisory Committee.

23. Dr Welsh gave a detailed explanation of HSE’s major hazard research strategy and confirmed that arrangements were in place for more industry involvement in future research and science planning

24. Mr Paterson queried the difference between the research and science spend. Mr Reyland explained that it was the difference between the cost of managing and evaluating research and the actual spend on commissioning research. Dr Welsh added that the term science, which was introduced some years ago, covers both ‘research – e.g. ground breaking innovative scientific investigation and support work e.g. manipulating existing data, intelligence and knowledge to resolve new technical problems.

25. Industry have not been involved in the science plan this year but will be next in order to get a common understanding of what is necessary. There will also be internal focus groups to look at HSE’s business needs. Starting in May 2008 for the 2009 onwards science plans industry will be involved. This early start is necessary to meet the Fees Regs. timescale. What HSE spends will have to demonstrate a direct business benefit.

26. Mr Macleod said there needs to be more harmonisation and sharing between regulators around the North Sea. There is a mixed bag of compliances that affect the operators of mobiles moving between sectors. Some science spend towards this would be beneficial to industry.

27. Mr Kyle said that the areas of science spend sound fine and fully supported the philosophy. However, there had been a lot done in the past that was not seen as relevant.

28. The Chairman said that any research proposals have to be described accurately and be relevant otherwise it would not be approved. None of the research spend here covers occupational safety or human factors as these are part of a separate budget.

29. Mr Kyle said there was a science and technology working group including industry, HSE and Department of Energy set up some two years ago led by Rae McIntosh, who has now retired. The Chairman said that this now fell within Steve Walker’s remit and he would ask him to get this moving again.

Action: Chair to contact Steve Walker to progress working group.

30. The Chairman asked if everything had been covered on this item. Mr Brookes said that what members needed to do now was go away and think about what has been discussed. The Chairman said that was fine. What was needed was for members to agree the minutes and come back with any further concerns in the same timescale.

Alternate charging methods

31. The Chairman said that HSE has been working on the development of a fee system related to the work done, not a blanket charge that could be viewed as a tax. The matching of cost recovery to the effort HSE expends is called referability. James Munro has been working to develop such a scheme. This has received tacit agreement from HSE’s solicitors of its referability for fixed installations, but more work needs to be done on mobile installations, and for very small production installations. He asked Mr Munro to give a brief overview of the work so far.

32. Mr Munro reiterated that it was not a fully developed yet and there remained a number of issues to be bottomed out. This system is based on a two year historic average of the intervention hours. This average is rolled forward year on year. It is a banded system with a fixed fee in each band and the rolling average allows installations to move between bands depending upon their performance. Referability is achieved through the charge for each band being set at the minimum hours of each band plus 12%. Solicitors have said that referability should be within 15% of actual time.  The industry had asked for arrangements for dealing with installations involved in major incidents or interventions.  To facilitate this the maximum hours in the top band had been proposed as 700. Any installation in the top band exceeding 700 hours of intervention time would have those extra hours charged at an hourly rate on top of the band rate.  However during subsequent discussion Mr Kyle felt that with the proposed new scheme such arrangements may not be necessary.

33. There are risks with this scheme in that referability needed to be demonstrated, but there are also advantages in that it should give industry the predictability of charges it wants. Further work needs to be done to analyse the scheme, test it, talk to industry and deal with any internal changes required for invoicing. Industry asked if the scheme could be tested by running in parallel with the hourly charge next year. The Secretary said it could be possible to run it retrospectively against the current year.

34. Mr Kyle said that the scheme looked desirable and would discuss it at their members meeting in two weeks. He asked what the resource priority was for this and when it could go live. The Chairman said that if it proved to be viable the 2009/10 financial year would be the earliest it could be introduced. If there were particular difficulties with mobile installations it may be possible to introduce the scheme in two parts.

Any other business

35. Mr Reyland said that it was necessary revisit the independent members of the disputes procedure appeals panel. He wrote to members two years ago and got no volunteers. He will be writing to members again.

Action: Mr Reyland to write to members seeking nominations for an independent member of disputes panel.

36. The Chairman informed members that this was the Secretary’s last meeting as the responsibility for cost recovery work was being transferred to Bootle in the new financial year. He thanked the Secretary for his work over the years.

Date of next meeting

37. The next meeting was set for Wednesday 29 October 2008.


Updated 2008-12-05