Nuclear Fuels faces bankruptcy
SundayTelegraph [London], 28 May 2000
By Mary Fagan, Deputy City Editor
* See also City Comment below
BRITISH Nuclear Fuels, the state-owned atomic energy company which
the Government plans to privatise, is facing bankruptcy after the discovery
of a £9 billion black hole in its accounts.
A confidential internal report has exposed unexpected costs which bring
the total long-term liabilities in BNFL accounts to up to £36 billion
- which threatens the company with financial ruin and will be seen as
the last nail in the coffin of privatisation plans and could lead to
customers unilaterally revoking their contracts.
The disclosure will be a huge embarrassment to the Government, which
was criticised last week by the cross-party Trade and Industry Select
Committee for being ill-informed about BNFL and told to "get a better
grip" on the company's affairs.
The new liabilities are thought to relate to the costs of cleaning
up the company's Sellafield site in Cumbria, where nuclear fuel is reprocessed
and are between £7 billion and £9 billion, according to the report.
Although a share of the liabilities will be passed to BNFL customers
and the rest can be spread over many decades, the immediate impact is
to leave the company technically bankrupt. It means BNFL is £1.5 billion
worse off than it thought - given that it had shareholders' funds of
£600 million, the company now has a deficit of about £900 million.
The problem was uncovered during a review conducted by the BNFL's
Liabilities Management Unit. Industry insiders say the unit, staffed
largely by executives from Magnox, the nuclear generator which was merged
with BNFL last year, took a more rigorous approach to how easily and
efficiently decommissioning and clean-up at the Sellafield site can
be carried out.
The report will also fuel the debate over whether the site should
be closed. BNFL was involved in controversy last year when it admitted
falsifying quality checks on mixed oxide nuclear fuel sent to Japan.
Since then the company has faced a barrage of criticism with calls from
Denmark and Ireland to close down Sellafield and attempts by some of
its major customers to renege on their contracts.
Sellafield discharges eight million litres of nuclear waste into the
Irish Sea every day, according to scientists, making it the most radioactively
contaminated sea in the world. It also releases 40 different types of
radioactive substances into the sea and the air.
This waste spreads along the Irish Sea towards the north coast of
Scotland and on to Denmark, Norway and Sweden as far as the Arctic.
Plutonium lodges in coastal mud and is carried inland by sea spray.
Other forms of radiation enter the food chain through fish, lobster
and seaweed. Ireland and Denmark will be joined by Iceland and Norway
in calling for an immediate halt to reprocessing at a meeting from June
26-30 of OSPAR, the commission set up to protect the marine environment
in the north-east Atlantic region.
Stephen Byers, the Trade and Industry Secretary, will be anxious to
save BNFL from closure because it employs thousands of staff in marginal
seats in the North West. Industry insiders expect ministers to attempt
to bale out BNFL by issuing a "letter of comfort" - a reassurance that
it will not be allowed to go bust or that, should it do so, the Government
will shoulder the liabilities. But a letter of comfort would be seen
as state aid and could be blocked by the European Commission. Moreover,
the situation will generate debate among the company's critics over
whether BNFL should be legally trading at all.
BNFL's supporters will argue that the figure is overstated as some
of the liabilities on its sites will be shared with customers, including
the Government. The company will also say that the figure of up to £36
billion is an "undiscounted" number - that is, a paper liability which
need not be paid for many decades. A fairer figure, they argue, is closer
to £10.5 billion - the amount the company needs to invest now to ensure
that its share of the costs will be covered as they arise.
BNFL declined last night to comment on any figures. A spokesman said:
"At the end of 1998 a substantial project was begun to examine in detail
BNFL's future liabilities. It is the most complete review since BNFL's
integration with Magnox Electric.
"The review is still in progress and the fully audited numbers, when
they are available, will be approved by the BNFL board before being
made public as part of our reporting for 1999/2000 annual results. Until
then it would be premature for BNFL to give further details of the review
BNFL is struggling to recover from criticism by the Nuclear Installations
Inspectorate in February, which accused the firm of systematic management
failures and a "lack of a safety culture". Last month it announced sweeping
management changes, including the departure of senior directors.
atomic black hole
Deputy City Editor's comment by Mary Fagan
THERE is a big black hole in the accounts of British
Nuclear Fuels. The state-owned atomic company, which is technically
bankrupt, has unearthed huge new liabilities at its Sellafield reprocessing
site in Cumbria and, as sure as night follows day, this latest in a
spectacular run of problems will be used by BNFL's critics and rivals
to say that Sellafield should finally be shut down.
All this comes within months of a devastating revelation
that bored BNFL staff at Sellafield had falsified data in quality checks
on mixed oxide fuel destined for a customer in Japan. That, unsurprisingly,
caused international outrage and had other customers, notably one in
Germany, threatening to cancel contracts with BNFL.
It also led to an official report which accused the company of systematic
management failure and of lacking a safety culture. Since then, there
have been management changes and strong words of comfort from Hugh Collum,
the chairman, and Norman Askew, the new chief executive, who have promised
a fresh start for BNFL.
Now this. It would appear that a new unit set up to assess BNFL's
liabilities related to decommissioning plant and cleaning up nuclear
sites has come up with an internal report showing that BNFL's liabilities
are £7bn to £9bn higher than the £27bn stated in the most recent accounts.
What joy for the anti-nuclear lobby and BNFL's rivals, who grab any
opportunity to say that Sellafield should go. And what horror for the
Government, which has said it will privatise BNFL and has to date remained
adamant that it will do so at some point, even after the fiascos of
But this financial black hole is not the end for BNFL. The headline
figure for liabilities on BNFL sites include some which are the responsibility
of its customers. Its own liabilities shrink to about £10.5bn in today's
money. This is the important figure. Taking into account the fact that
the company has substantial assets to balance against the liabilities,
the actual deficit in the accounts is more like £900m.
BNFL is hugely cash generative and the worst outcome here would be
for it to stop trading, whether or not the company is deemed technically
insolvent - and that in itself will be a matter for debate. The real
issue here is not one of finances per se.
Whether or not they succeed in the privatisation stakes, BNFL management
- and Government ministers - need to prove that someone has their hand
on the tiller and that someone knows what is going on inside this company.
So far the evidence is that they do not.