June 2002

Sellafield 'a nuclear black hole'

The Guardian, June 14, 2002
By Paul Brown, environment correspondent

[Posted 20/06/2002]

Report attacks BNFL accounting standards.

Ministers fear there is a growing black hole in the accounts of British Nuclear Fuels, the state-owned company which Patricia Hewitt, the trade and industry secretary, last year conceded was bankrupt.

A 145-page report analysing the BNFL accounts, and drawing attention to practices which allegedly obscure what has happened to hundreds of millions of pounds of taxpayers' money, is sitting on ministers' desks. It is causing concern in Whitehall, which once planned the company's part-privatisation.

The report, written by a leading consultant economist for an Irish MEP, raises embarrassing questions about the lack of control ministers have exercised over BNFL; the role of the auditor, Ernst & Young, in not drawing attention to potential problems; and how cash which should have been invested for a future clean-up is apparently being used to prop up BNFL's annual accounts.

The accountants and BNFL deny any wrongdoing, and the company specifically denies spending money earmarked for decommissioning nuclear plants on other projects.

Last November Ms Hewitt, in a surprise statement, announced the setting up of a liabilities management authority (LMA), to take on the nation's nuclear legacy. She conceded that she had been forced into it by BNFL's "net asset deficit" - a euphemism for bankruptcy.

Promise set back

How the government intended to deal with this difficulty was going to be outlined in a white paper this spring, a promise which has been set back months, as the scale of the problem and its implications for the taxpayer have begun to sink in.

The LMA is now to have its duties spelt out "before the summer recess", being set up when the legislative timetable allows, it is now said. A true assessment of the scale of the financial problems at BNFL is likely to be the first task of the LMA, something the government is accused in the independent report of trying very hard to avoid.

Ms Hewitt implied last November that there was no rush to relieve BNFL of its assets and its liabilities. She said this was because, although its liabilities were huge, BNFL still had assets which it could use to continue to fund its activities - possibly for another 10 years. But the report shows that the money could run out in less than half that time.

The problem is that the scale of the liabilities is far greater than has ever been publicly acknowledged. Clearing up the nuclear legacy has always been technically difficult; cost estimates for BNFL's liabilities are currently given as £38.5bn, almost certainly a serious underestimate, the report says. The cost on an annual basis is beginning to look like a serious drain on the exchequer of at least £1.5bn a year, probably for 30 years or more.

The report says some of the money that should be in the bank to offset these liabilities has been used to make BNFL look as though it is making money. The money put aside for liabilities has been shrinking in BNFL's accounts as the costs of a future clean-up have begun to escalate.

Mike Sadnicki, formerly of the science and policy research unit at Sussex University, was part of a team which has spent years studying the nuclear industry. This report for Nuala Ahern, the Irish Green party MEP, who believes that the reprocessing plant at Sellafield in west Cumbria is a danger to her constituents in Leinster, in the east of Ireland, took months of analysis.

Although the biggest of Ms Ahern's concerns is an accident or terrorist attack on the nuclear waste tanks at Sellafield, she says the way the company is run makes the situation worse.

"I am horrified that the UK department responsible, as 100% owners of BNFL, do not exercise proper oversight into its activities and the accounts of the company. They have used money destined to pay for liabilities as a subsidy to prop up loss-making accounts.

"I am asking our own department of finance and prime minister to take this up with their opposite numbers in the UK. We have tried with the DTI and got nowhere." The recently re-elected Irish taoiseach, Fianna Fail's Bertie Ahern, is expected to raise the report with Tony Blair when the two meet for talks.

The report says that BNFL accounts have looked far better in the past than justified by its performance because of large advanced payments from Japan and Germany for reprocessing spent fuel at the Thorp works.

In 1995 and 1996 BNFL also received abnormally large payments from the then Nuclear Electric and Scottish Nuclear, now merged as British Energy. These, totalling £1.4bn, were unrelated to services being given at the time.

In 1998, when the government put BNFL in charge of the old Magnox nuclear stations, the clean-up "dowry" provided by electricity customers who paid a surcharge on bills in the 1990s, was transferred to the company.

Most of these extras, which made the company look extremely healthy, appear to have been spent on improving facilities at Sellafield at a total cost of nearly £2bn. These include spending £473m on the plant to make MOX fuel.

Another £320m has been spent on a plant to turn high level waste into glass blocks, to supplement two previous lines which never worked to their design capacity. None of these "assets", it is asserted, will make money for the company.

Acquiring the nuclear operations of Westinghouse in America and ABB in Europe required £1.2bn for "goodwill". BNFL was forced to take on liabilities of £833m from Westinghouse to complete the purchase.

At the same time as BNFL's liabilities continue to rise its potential for making money out of the Sellafield site falls. There have been no new orders for reprocessing of spent fuel for years and the existing plant is not working to capacity.

The company runs a nuclear liabilities investment portfolio, which at March 31 last year was valued at more than £4bn. In its accounts BNFL reports selling £141m of assets from the fund, making an additional £25m profit on the assets themselves and using £204m as investment income. Mr Sadnicki's interpretation is that the liabilities fund is being used to prop up an otherwise unprofitable company. The company says the money has been spent properly on cleaning up.

Paper guarantee

The company relies on an undertaking given by the secretary of state to fund the clean-up of liabilities of some of the old Magnox stations, given when BNFL took over the operations. This is given in the accounts as a £4.531bn asset, a wrong description according to the report. It is not cash, merely a paper guarantee that the government will pay for part of the clean-up when the time comes.

The report concludes that the reprocessing plants at Sellafield are large loss makers, and money put aside for liabilities had been used to cover this up. The accounts should clearly show what is happening.

"It would be absurd to saddle the LMA with the continuation of BNFL's commitment to further reprocessing, if such commitment can be shown to be losing the taxpayer money on a daily basis," it says.

Continuing to reprocess is also hindering plans to render the older Sellafield wastes into a safe form and meet international obligations to reduce discharges, the report concludes.

Ernst & Young said it had fulfilled its legal obligations by referring to the inherent uncertainty of decommissioning costs in its report on the accounts.

The DTI said it was satisfied that funds had been properly spent and the accounts correctly audited.

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