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The sale of the government pipeline and storage system (GPSS)

The UK's Energy Act contains measures which are designed to enable the government to make more efficient use of the government pipeline and storage system  The GPSS has its origins in measures which were taken by the government during World War II to provide a secure oil distribution network for the United Kingdom.

This guide was last updated in August 2014

The GPSS has been expanded and restructured during the intervening decades and today the GPSS includes 2,500km of cross country pipelines and associated storage depots, pumping stations and other facilities. It distributes 40% of the aviation fuel which is used in the UK. It is also strategically significant in that it is used to supply major commercial airports such as Heathrow and Gatwick, as well as bases of the Royal Air Force and the United States Air Force throughout Great Britain.

Opportunities and challenges for investors

The Energy Act allows for the sale of the GPSS and the UK government announced in July 2014 that it would proceed with a sale. These measures will be of particular interest to utilities or other investors who may wish to acquire interests in cross country pipelines and related infrastructure and earn revenues from the provision of oil transportation and storage services to government departments and commercial entities which source fuel through the GPSS.

A government review had concluded that there is no longer an overriding imperative for the GPSS to be owned by the government. In addition to benefit of the capital receipt which the government would receive on the sale of assets in the GPSS to the private sector, a move to private sector ownership would enable increased investment in the GPSS by the private sector in order to enhance its security and resilience.

It seems inevitable that, as part of any negotiations for the sale of assets in the GPSS to a private sector buyer, the Secretary of State would want to agree robust long term arrangements with the buyer in order to meet the ongoing demand of the Ministry of Defence for fuel sourced through the GPSS.

One challenge is likely to be that much of the GPSS is located on private sector land and was built under a confection of agreements entered into over many decades with the private sector or pursuant to provisions embodied in enabling legislation, some of which date back to the pre-war era. The rights to access that land and to operate and maintain the GPSS are personal to the Secretary of State with the result that, in the absence of legislative measures along the lines of those in the Energy Act, the government would be unable to package the assets in the GPSS in a way which would enable them to be sold to the private sector.

Although the measures in the Act are inevitably detailed, the broad construct is that they confer a package of defined rights on the Secretary of State with respect to the GPSS, including rights to:

  • maintain and use the GPSS for any purpose for which it is suitable; inspect and survey the GPSS or the land on which it is situated, and remove, replace or renew the GPSS
  • to enter land on which the GPSS is situated, and
  • to sell or lease or transfer any rights relating to the GPSS or any part of it.

Summary

The level of private sector interest in the GPSS and the value which the private sector will attribute to it in any bidding process will depend on a combination of factors, including:

  • the structure and robustness of the contractual arrangements which govern the provision of transportation and storage services to the government and other users of the GPSS
  • the private sector's assessment of the level of investment which will need to be made on the maintenance and renewal of the GPSS in order to enable continued service provision to the contracted standard, and
  • the private sector's assessment of the scope which exists for additional revenues to be raised from sources other than the existing users through alternative commercial uses.

Recent Energy Experience