Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 60-79)



Mr Berry

  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 higher—it 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 point—Dr Kumar said the Royal Society figure of £85 billion—our 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.

Dr Kumar

  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 require.
  (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 pond—imagine 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 though.
  (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.

Mr Lansley

  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 have something.
  (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.

Mr Hoyle

  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 next 50"?
  (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 generation—I 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 possible model.
  (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.

Richard Burden

  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 comments—one 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 afternoon.

Mr Hoyle

  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 properly—whether 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.

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