'a nuclear black hole'
The Guardian, June 14, 2002
By Paul Brown, environment correspondent
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
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
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
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
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
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.
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 DTI said it was satisfied that funds had been
properly spent and the accounts correctly audited.