May 2000

US to review BNFL's Hanford contract after price rises

Financial Times, April 27 2000
By Matthew Jones

[Posted 02/05/2000]

British Nuclear Fuels on Thursday ran into fresh problems when Bill Richardson, the US energy secretary, said he would review the company's largest contract in the US, following unacceptable price increases.

BNFL submitted a $15.2bn proposal to clean up nuclear waste at the Hanford nuclear reservation in Washington on Monday after saying 18 months ago it was confident it could complete the contract for $6.9bn.

The rise was the second over the two-year design period for the project - in February company officials said the cost would be $8bn.

Mr Richardson said the proposal to turn 54 million gallons of radioactive liquids, sludges and salts into glass had become "unfundable" and he would now consider seeking another contractor.

"This is the latest development in a disturbing trend of unacceptable and unexplained budget escalation," he said. "As a result, DOE (the Department of Energy) is now evaluating possible alternative approaches."

BNFL has been beset by problems since it admitted in September to falsifying quality checks on batches of mixed oxide fuel manufactured at its Sellafield plant in West Cumbria.

Since then major international Mox fuel and reprocessing customers, including Germany and Japan, have put contracts on hold and Irish and Nordic ministers have stepped up pressure on the British government to close Sellafield down.

The US market is particularly important to BNFL because one of its key commercial targets, set by the government to test the viability of a partial privatisation of the company, is to increase its US profits by 15 per cent.

The company has already admitted missing most of its other key targets, based on environmental and safety targets, and ministers have been forced to delay the sell-off until after the next election.

Under the contract BNFL would be responsible for attracting private investment to pay for the project up-front and would then be reimbursed by the US government as the waste was vitrified.

A BNFL official said he accepted the cost had become too high and that the company would work with the DoE to find an acceptable "middle ground".

"The financing arrangements are clearly critical to the overall cost of the project. The high cost of capital we would have to bear accounts for around half of the total cost," he said.

The official said other reasons for the price increase were changes in the specification, which had more than doubled the footprint area of the clean-up plant, and unexpected complications with the process.

The waste at Hanford is stored in 177 tanks and is the bi-product of nuclear bomb manufacturing since the second world war.

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