May 2003
Meltdown for BNFL as nuke sale is dropped
Followed by
Decommission impossible? Why Britain's nuclear clean-up could clean out BNFLThe Independent, 18 May 2003
By Jason Nissé and Clayton HirstOriginal address:
http://news.independent.co.uk/business/news/story.jsp?story=407265
and
http://news.independent.co.uk/business/news_analysis/story.jsp?story=407112[Posted 21/05/2003]
Meltdown for BNFL as nuke sale is droppedThe Government will next month drop plans to privatise BNFL, strip it of its most famous asset, Sellafield, and signal it is running down the controversial nuclear group.
The bad news for BNFL will be included in the draft Bill to create the Nuclear Decommissioning Authority, the £48bn body that will clear up the radioactive legacy left by 50 years of nuclear power and weapons development.
The Bill, which is expected to be presented to Parliament by Trade and Industry Secretary Patricia Hewitt on 10 June, will come with a statement setting out the terms of reference for the NDA and how it will work with safety regulators.
Ms Hewitt is also expected to indicate that plans for a part- privatisation of BNFL are being shelved. This will come as a surprise at BNFL, where managers had hoped to revive the privatisation plans. The group is currently attempting to hire a new chief executive to replace Norman Askew, who retires later this year.
When it came to power in 1997, Labour hoped to privatise BNFL and brought in former SmithKline Beecham finance director Hugh Collum to guide the selloff. But a scandal three years ago, when BNFL was found to be falsifying safety documents, blew that off course. Though BNFL has now sorted out the problems, the near-collapse of British Energy last year has scared investors off the nuclear sector.
The final blow is that the bill to create the NDA could lead to BNFL having no substantial business interests in the UK by 2010.
In the Bill, the whole of the Sellafield site, including the controversial MOX fuel plant and the nuclear waste storage facilities, as well as BNFL's six ageing Magnox reactors and the £4bn fund it has built up to pay for decommissioning the reactors, will be passed to the NDA.
Sellafield and the Magnox reactors will continue to be run by BNFL in management and operation (M&O) contracts after the NDA takes them over, which is expected to be in 2005. However, some of these deals will only be six months long, and BNFL fears its main Sellafield contract may be as short as five years.
Other groups have already shown interest in the M&O deals. The most feared bidder is Bechtel, the US group that has been hired to advise on setting up the NDA.
Bechtel will initially have a two-year contract with the NDA and will then be prevented from bidding for any M&O deals for another two years. However, this may leave it free to bid to take over at Sellafield when BNFL's first contract runs out.
BNFL also owns a business in the US, Westinghouse, which it bought for its expertise in building nuclear reactors. But in the wake of British Energy's near-collapse, the Government decided to put a moratorium on the building of any new reactors, undermining BNFL's reason for owning Westinghouse.
On Friday, British Energy and BNFL agreed a reduced deal for the supply and reprocessing of fuel used in British Energy's reactors. The high price of these contracts was cited as one of the reasons for British Energy's financial problems last year, which led to a bailout by the Government.
British Energy also took the unusual step on Friday of warning that its shares, which were trading at 5.96p having been as high at 7.5p last Monday, were overvalued.
Decommission impossible? Why Britain's nuclear clean-up could clean out BNFLSellafield's owner is not finished just yet, write Jason Nissé and Clayton Hirst, but it may not have a warm glow for much longer
Say it quietly for fear of causing too much excitement, but BNFL – as everyone from the green movement to Cumbrian residents to the Irish government knows and hates it – could soon be no longer. This is the startling fact that will emerge next month when Trade and Industry Secretary Patricia Hewitt publishes the draft Bill to authorise the £48bn clean-up of Britain's nuclear legacy.
The state-owned BNFL owns Sellafield, where nuclear fuel is made and nuclear waste is reprocessed and stored. The site consists of six ageing, loss-making Magnox nuclear reactors, all of which are due to be closed by 2010. BNFL also owns a US-based nuclear energy business called Westinghouse.
When Ms Hewitt stands up in Parliament, she will announce that she wants to create a body called the Nuclear Decommissioning Authority (NDA) – to which BNFL will hand over not only Sellafield and the Magnox reactors but a £4bn fund it has built up to try to cover the massive costs of clearing up its sites. The Bill will be debated this autumn, should get Royal Assent next spring, and by early 2005 all that will be left of BNFL will be its management expertise and Westinghouse, which surely will ultimately be sold off.
Goodbye BNFL, then? Well, not quite, not yet – life isn't that simple. But Hugh Collum, the old Etonian chairman who was supposed to lead its privatisation, should watch out: other factors could still conspire to bring BNFL to an end.
The NDA is one of the bravest things this Government has done. Britain's nuclear legacy encompasses not only Sellafield and the reactors owned by BNFL and British Energy, which the Government had to save from bankruptcy earlier this year, but weapons establishments like Aldermaston and the nuclear submarines programme. For decades, politicians have been afraid to tackle the problem of cleaning up this mess, mainly because of the cost.
That is why, when the Department of Trade and Industry proposed a clean-up programme, even its sternest critics praised it. "We need to do something urgently to sort out the nuclear waste mess," says Peter Roache of Greenpeace. "If they achieve this, we will all be happy."
But the devil is always in the detail. And the detail in the NDA plan is pretty devilish.
When Sellafield, Aldermaston et al go to the NDA, they will still be managed by the organisations that run them now: BNFL and the UK Atomic Energy Agency (UKAEA). But the management of the sites will be under commercial contracts, and the question is how long these contracts will run and how they will be structured.
The DTI has hired Bechtel, the Californian engineering group with close links to the US government, to advise it on setting up the NDA. This might seem sensible, given that Bechtel has massive experience of nuclear clean-ups, having built the Yukka Mountain depository in Nevada and helped sort out the massive Oak Ridge nuclear site in Tennessee, among other projects. However, the appointment is also highly controversial because there is no doubt that Bechtel ultimately wants to oust BNFL from some of the management and operation (M&O) contracts, maybe even at Sellafield.
The DTI is aware of this and is expected to say that Bechtel will be banned from bidding for any M&O work, or even subcontracting contracts, for two years after its NDA deal ends. "It's a case of 'send a thief to catch a thief'," said one nuclear industry insider. "Everyone knows Bechtel's game, but they serve to keep BNFL on its toes."
What worries BNFL is that Bechtel's initial deal with the NDA is going to last for only two years. So four years into the life of the NDA it will be free to bid for these M&O contracts, no doubt armed with all sorts of insider knowledge gleaned from its time as adviser to the NDA. And to make matters worse, these M&O deals will be coming up for tender just as Bechtel is free to bid for them.
Although the DTI is making dark hints about limiting M&O contracts to six months, no one thinks this is realistic on big sites like Sellafield. BNFL is pressing for contracts of five to 10 years to be awarded.
It is likely to get those five-year deals, but check out the timing. Bechtel advises the NDA for two years, suffers two years of purdah and then is perfectly placed to replace BNFL a year later.
And Bechtel is not the only predator stalking BNFL's business. Last week a seminar was held on the subject of nuclear clean-up contracts. Among the companies attending were Amec, Balfour Beatty, Taylor Woodrow, Robert McAlpine and Kellogg Brown & Root – the last of these being a subsidiary of Halliburton, the controversial contractor formerly run by US vice-president Dick Cheney.
A lot depends on the structure of the M&O contracts. In the US these have proved highly controversial. Attempts to have fixed-price or PFI-style deals have been criticised by the US version of the National Audit Office, the General Accounting Office. The GAO has argued that the value of the contracts runs into billions and very few contractors have the financial strength to take on the "risk transfer" needed to make such large public-private deals work. Also, it is in the very nature of nuclear clean-ups that the extent of the nasties lurking only becomes apparent when you are well into the job, so you don't know how much the clean-up will cost when you start.
In the US they are now writing health and safety clauses into the new contracts. These are rather unpleasantly known as "kill contracts" because they set out financial penalties for everything from a radioactive spill to an accident that kills someone. If BNFL had been running Sellafield on such a contract in 1999, when it was discovered falsifying safety documents, the penalties would probably have been so harsh that the company would have been bankrupted.
The NDA, though, has a problem knowing how much to pay BNFL and the UKAEA on the initial contracts. One well- placed source says the DTI has asked the two incumbents to "set the base case" for the deals. In other words, they can decide how much they should be paid. In the short term, it seems, BNFL should be able to make good money.
However, the long term looks bleak. The Government has decided not to build any new nuclear reactors for now – and as building reactors was the reason why BNFL bought Westinghouse, this leaves this business without much of a future. By 2010, when the first M&O deals come up for renewal, BNFL could find itself losing out.
After the British Energy fiasco, the Government realised that any chance of even part-privatising BNFL was ebbing away. It seems that Britain's most notorious nuclear group, like its reactors, is being decommissioned.
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