Examination of Witnesses (Questions 60-79)|
TUESDAY 9 JULY 2002
60. Being someone who is interested in numbers,
do you have any idea why it is that the public sector liabilities
clean-up have increased, apparently, by £6 billion over the
last six months to £48 billion? That is an annualised rate
of growth of 30 per cent, which is quite a lot. The key point
is, do you know why?
(Dr Parr) Pete has something to say on that, and then
I will add something.
(Mr Roche) What I understand is that the LMU, the
section in the DTI that is setting up the LMA, asked Bechtel to
have another look at the figures, and the figures they had previously
received from BNFL. That is the reason why they came up with a
higher figure. They basically re-analysed BNFL's guesstimate and
they have decided it is higherit is as simple as that.
It is, I agree, a shocking rise in less than six months.
61. Does the Sadnicki report, which relates
to BNFL accounts, address this issue at all?
(Mr Roche) What Sadnicki is worried about is using
money in funds for decommissioning and investing it in new plant
on the Sellafield site.
62. I appreciate that. Might he throw light
on this substantial increase?
(Mr Roche) Unfortunately the report was written before,
and he has been rather ill since.
63. That answers the question.
(Dr Parr) Just a general comment on that. I think
it is difficult to tell without full evidence and information
about it, but I think as we look further at the liabilities which
are actually around, and the international obligations under the
OSPAR convention begin to bite, it is no more than an instinct,
but our instinct would be that those figures are likely to rise
rather than stay static or come down. There will undoubtedly be
some learning by doing this as contractors start the clean-up.
Quite where the final figure will end up it is difficult to say.
A further pointDr Kumar said the Royal Society figure of
£85 billionour understanding of that is it also includes
the Ministry of Defence liabilities which of course, with nuclear
submarines, are fairly considerable, and that is the difference
between £42- £48 billion and the £85 billion.
64. Can we just try to explore your opinion
regarding the Liabilities Management Authority. Do you think we
have the technical management skills to deal with the remit that
it has regarding clean-up, clean-up objectives and all the other
aspects being set up? Because there is concern that BNFL may not
have sufficient skills.
(Dr Parr) I think there is at least one example that
indicates it is not just a question of skills but a question of
culture. I will refer to Pete in a moment about that. I think
our general point might be that there may well be technical skills
around. It is difficult to say yea or nay as to whether there
are enough and adequate ones. Clearly there needs to some change
in management skills and change in management culture in order
to deliver on the sort of clean-up requirement that the LMA would
(Mr Roche) I would encourage the Committee to look
particularly at the RWMAC/NuSAC Report that came out a couple
of weeks ago to see the sort of problems on the Sellafield site,
if you have not already. That would indicate to me it is a deficiency
in management skills. I have no reason to believe technical skills
are not available in the industry at the moment. For example,
the RWMAC/NuSAC Report points to several occasions where the Nuclear
Installations Inspectorate have been forced to use legal instruments
recently because they have been worried that waste management
on the Sellafield site has not been progressing as far as they
would like. One particular example of that is building B30, which
is an open air storage pondimagine a swimming pool. There
has been concern locally that seagulls landing on these open-air
storage ponds are carrying radioactivity off the site and that
the levels are quite high for the workforce, and the NII have
had to use a legal instrument to get more progress from BNFL there,
but there does not seem to be any reason why that progress should
not be made were the management in place and was the money available.
65. How happy are you with this particular authority
being set up? Do you welcome this, the size itself? I think the
Forum was saying 200 people was the right size to work, but do
you have any opinion on that?
(Dr Parr) I do not think we particularly have an opinion
about that. As I said at the beginning, it is our concerns about
the overall policy context in which it is working with continuing
waste generation and with reprocessing as part of the LMA now
and any contract with BNFL. That is the issue we have with them
rather than the level of detail we are talking about.
66. Perhaps you might want to comment on the
customer/contractor model that I asked about earlier and whether
you think that was the right model which the Government has adopted
for dealing with this particular task?
(Dr Parr) I think one of our concerns in relation
to this was the relationship around the reprocessing facilities
because it would appear that the LMA would then become financially
interested in continued reprocessing and that is a little worrying
to us, so the elements of the relationship between BNFL, LMA and
the functions they would perform is something of concern to us.
I am not sure that is quite getting to the heart of your question
(Mr Roche) I am assuming that you are referring to
the LMA model which is on page 27 of the White Paper. I think
this requires quite a lot more thought than we have been able
to give it so far, but on first sight it looks a bit like a dog's
breakfast with the old BNFL and the new BNFL and then different
contractors. One alternative model that I would like to go away
and think more about would have been, for example, just to cancel
BNFL's plc status and bring that inhouse, if you like, as a non-departmental
government agency and just leave it at that. Then you would have
the non-departmental government agency, BNFL, running everything
else, but there would be much more government control than there
has been over a plc, so I would like to sit down and compare the
two models and see which comes out best as far as environmental
performance is concerned.
67. I think we can see the point. Part of the
argument was that in the past BNFL and a number of other institutions
like it were technology driven and there was not sufficient management
expertise in them and that that can only be brought in if there
is a more competitive edge in those areas where it would be appropriate.
What would you say to that rather conventional argument which
I think is the one you have seen as a contradiction to your own?
(Dr Parr) About bringing in different kinds of expertise?
68. Yes. You have said that one of the problems
at the moment is the quality of management.
(Dr Parr) Yes.
69. Regardless of the fact that you may have
a new chairman, a new chief exec, there is an awful lot of the
old style, scientific Civil Service personnel there, excellent
researchers, excellent people in there, but not always managers
who have been trained to manage.
(Dr Parr) Yes, it is straying somewhat off what you
might call our core mission here, on the level of expertise within
those territories, but perhaps a point I would like to make on
that is that there is a statement somewhere in the White Paper
to the effect that UKAEA will not be bidding as a contractor in
and of itself because it would be inappropriate for a public body
to be doing that. Now, it does go on to say that it could set
up public/private partnerships in order to bid, but in turn that
would mean, it seems to us, a certain level of skills within that,
within UKAEA, which may or may not be there yet. Before that you
have a quasi-monopoly with the BNFL in terms of bidding for the
contracts supplied by the LMA, so there is a very clear need for
certain kinds of management and negotiation skill in UKAEA which
is difficult to say whether is there or not at present.
70. You said you were going to leave with us
the report by Mr Sadnicki, but there is a particular issue which
you mentioned which arises from that which was that you seemed
to be suggesting that BNFL had deliberately sought to make inadequate
provision for its liabilities in order, in effect, to give a subsidy
to its operations. Is that the tenor of what you were suggesting?
(Mr Roche) My understanding of what Mike Sadnicki
is suggesting is that money from the investment fund, the nuclear
liabilities investment fund, has been invested presumably in good
faith in the expectation that it would make a reasonable profit,
but in building facilities on, for example, the Sellafield site,
and one of the buildings that he has in mind is the Sellafield
MOX plant, of course now that the Sellafield MOX plant is up and
running, the amount of money that has been spent, the capital,
on building that building has had to be more or less written off,
so it will not have been able to put a profit back into the nuclear
liabilities investment fund. He also mentions a building called
"Dry-pack" which cost £400 million to build which
was intended to package nuclear waste, but at the moment Dry-pack
is, in BNFL's words, "taking a breather", so we do not
know whether that is going to
71. One of the practical issues which arises
from that is do you think, in consequence of that, that the estimate
of the value of the nuclear liabilities investment portfolio is
accurately stated in the White Paper?
(Mr Roche) I have no way of knowing how they have
come up with a figure of £4 billion at all and it would be
interesting to have a bit of transparency cast on that figure
because if the figure includes, for example, £473 million
assets in the Sellafield MOX plant which means we are going to
have less than £4 billion.
72. As far as the funding of liabilities is
concerned, the White Paper offers the two mechanisms for segregated
funds and segregated accounts. Can you tell us what your view
is of these respective mechanisms?
(Dr Parr) I do not think we have come to a conclusion
about whether either one is preferable or not, I am afraid. I
think the general point that, in the words of the Chairman, "the
dead hand of the Treasury sits over both" means that the
funding of the liabilities programme is always going to be subject
to the whims and, no doubt, urgent and responsible needs, of the
Government of the day, so I do not think either of those is actually
going to sort of insulate the liabilities clean-up programme from
that kind of issue. We obviously want to see the political will
and need to clean up these sites as well as possible, but the
real threat to that programme, it seems to me, comes from that
kind of issue and I do not think either of those mechanisms actually
addresses it. Frankly, it is pretty difficult to see one that
would because there is no question that there is going to be a
very substantial public taxpayer input to the clean-up of these
liabilities, so I cannot offer any comfort there, but Pete might
(Mr Roche) I think there is an important principle
involved here and it was interesting that the White Paper did
not use the word "sustainability" anywhere, as far as
I could tell. Future generations should not be expected to pay
for the mess that we have created and some of these liabilities
will carry on for hundreds of years, so if we have started off
with £4 billion, then that £4 billion should somehow
be paying for the liabilities in the distant future so that the
generation after this one is not expected to pay where our generation
has benefited, if you see what I mean. A funding arrangement that
allows for that sort of system, in other words, not expecting
future generations to pay for our mess ought to be feasible.
73. Again, I am not sure what alternative mechanism
you have been suggesting to achieve that, other than, in effect,
requiring Government in one year to pay a sum sufficient to meet
the net present costs/net present value of future stream of expenditure,
which presumably is several billions of pounds in excess of what
is in the NLIP?
(Mr Roche) I was thinking that the £4 billion
could, for example, be put in the bank and untouched to build
up interest and then someone, cleverer than I am, to work out
the year when we could start spending it. In the meantime, decommissioning
and clean-up that we wanted to carry out now should be funded
on an annual funding basis by the Treasury.
74. I am slightly baffled because obviously
we have had 50 years' of contamination. Suddenly to expect all
this money to be there for future generations is a bit like saying,
"We've had the Industrial Revolution, we'd better pay for
the cost of cleaning up that as well". I think it is a very
simplistic argument you are putting across. I think there has
to be a little more realism than you are putting. At the end of
the day, yes, we ought to put money aside now but, unfortunately,
the way it has always been future generations will always pay
for the mistakes of their forefathers before them. Would you not
agree that you cannot suddenly say, "People at this present
time must pay for the last 50 years, and they must pay for the
(Mr Roche) The way the British Energy segregated fund
is worked out the electricity consumers buying the electricity
are paying something towards the decommissioning costs and, hopefully,
the waste management costs as well. Although Sadnicki has things
to say about not sufficient money being put away for waste management
costs. Just because we have not necessarily done things correctly
in the past, does not mean to say we should not start now. I think
sustainable development, in terms of treating future generations
correctly and not expecting them, if we possibly can, to clean
up our messes, is an important principle that should be embodied
in the setting up of the liabilities.
75. I do not disagree with that, but I have
said that the sheer cost cannot be loaded onto the present generationI
think it will have to be spread. I think your Utopian life is
wonderful but I think realism has also got to come into it.
(Mr Roche) I was just making a suggestion as to a
(Dr Parr) I think it is not going to be coming up
in one year, obviously.
76. That is the way it is coming across.
(Dr Parr) No, obviously it would have to be spread
over a couple of decades.
Mr Hoyle: Absolutely.
77. I would like to get your views on regulation
and the likely relationship between the LMA and other regulators,
and how you see that developing, given the fact that the primary
interaction envisaged is still between regulators and the site
operators; how you see that whole regulatory bit developing?
(Dr Parr) I think my first take is that we are still
trying to work that out. However, I can offer some commentsone
of which is that, looking at the White Paper, I do not see any
objectives for the LMA. There was something about the role, but
the actual objectives of the LMA were not spelt out and defined.
It may be helpful in working out relationships between the different
bodies to actually have those in black and white.
(Mr Roche) It has been a concern of ours for a while
that, whilst the Environment Agency has various statutory responsibilities
to consult the public, the Nuclear Installations Inspectorate
does not. That came up in the Nuclear Waste Management Consultation.
There was an idea put forward that responsibility for the waste
stores above ground could be moved to the environment agencies,
both the EA and SEPA. One of the advantages of that would be that
any proposals on waste stores would be then subject to public
consultation; whereas at the moment it is not. I do not know whether
the Nuclear Reform Bill will be an opportunity to actually address
that issue, so that in future the Nuclear Installations Inspectorate
would have much more transparency itself. At the moment, going
back to the LMA, it is difficult to see much of a change regarding
the relationship between the LMA, for example, and the regulators,
and the current relationship between BNFL and the regulators.
Sir Robert Smith
78. You were pointing out there is another nuclear
liability sitting in the MoD. Is there any reason, whilst obviously
they have been incurred for different purposes, why they should
not be managed as one whole liability?
(Dr Parr) I do not think so.
(Mr Roche) I thought the DTI were going to explain
that in the White Paper, and I was surprised that they did not.
They told me they were not going to put the MoD's waste into the
pot, as it were; but I am sure they also said to me they were
going to explain why they did not want to have it. I think it
is a question to put to the DTI.
Chairman: We can explore that with them this
79. Just quickly on the reports and the White
Paper, I think Nirex themselves feel that independence ought to
take place. Do you agree with that stance? What benefits do you
think can accrue from that?
(Mr Roche) I think there have been several examples
reported to me of Nirex. Nirex give certificates of comfort, as
you know, to the nuclear industry for packaging. At the moment
their main objective seems to be the packaging of waste to go
down a deep hole, which you probably know we would disapprove
of. It seems to be a good principle that waste should be packaged
properlywhether it is stored above ground or whether it
goes down a deep hole. One of the problems I think Nirex has with
the nuclear industry at the moment is that the industry does not
like to characterise waste because it is expensive; they prefer
to just shovel a heterogeneous mass of waste into a package; but
Nirex wants the waste sorted out into different types so they
know what we have in 100 years' time. At the moment it is very
easy for the industry to say, "We can't do anything about
this particular problem because Nirex haven't told us what packages
to put it into". Whereas the truth of the matter is that
the industry does not want to spend money to characterise that
waste. In other words, what I am saying is, because Nirex is owned
by the industry at the moment, it is too easy for the industry
to blame Nirex for the problems they are actually causing themselves.
That would, hopefully, be stopped by an independent organisation.
We also see it as being extremely important that we have an organisation
that is responsible for the long-term. If it was all left to,
say, the Nuclear Installations Inspectorate there would be a danger
that the focus would become very short-term, and we would not
be looking at the type of packages we need to last 100 or 200
years. It would all be based on what we need here and now, done
quickly to protect the workforce on the site.