Examination of Witnesses (Questions 100-119)|
TUESDAY 9 JULY 2002
100. You obviously have seen the controversy
about the hike in the estimated costs of dealing with the liabilities,
about six billion. Now the figures have been thrown around as
well about the total cost and the White Paper does go into some
detail about saying that a better definition of the problem will
almost certainly mean that liabilities estimates will rise, that
regulatory and policy requirements may also mean that will rise.
What is your view of the estimated costs of liabilities?
(Mr Tunnicliffe) From the point of view of our evidence
Stephen has our record.
(Mr White) As the White Paper shows, the liabilities
under UKAEA's direct control are currently estimated at £7.4
billion. It has been at £7.4 billion for the last five years
so, as far as we are concerned, there has been a consistency in
our current estimate of the liabilities which we control.
101. Do you have a view about the global sums
that have been quoted?
(Mr White) We cannot speak for the situation at BNFL
sites. In our case these estimates are underpinned by a rigorous
estimating process which builds up from an understanding of all
of the individual liabilities for which we are responsible. There
is a degree of uncertainty in the estimates as a result of the
fact that the records that we have inherited are not everything
that we might want. There are uncertainties associated with the
future in relation to depositories, de-licensing criteria and
the like, so I will not pretend that there is not some uncertainty
in them, but we are confident that we can give a good account
of their make-up and that they have been consistent and stable
over the last five years.
102. And before that?
(Mr White) Before that, when UKAEA first took responsibility
for liabilities management in the way that we do now, which was
the beginning of the nineties, the estimate was higher than that.
We had a reduction in our estimate from 1994 through to 1998 and
thereafter it has remained steady.
Sir Robert Smith
103. In cash terms?
(Mr White) That is in undiscounted cash terms at current
104. Can we explore the role of the Liabilities
Management Authority? What is your own assessment of the size
of the Authority that is being proposed, about 200 people? Do
you think it will have the necessary technical and management
skills because there is some concern about the level of skills
that is necessary?
(Mr Tunnicliffe) We can only answer that question
when the interface between the site licensee and the Authority
has been confirmed. That will be very much about how the contract
develops and what its shape and its checks and balances are. In
our first run-over in our mind I think it is fair to say that
we think it is about the right order of magnitude.
105. What about the managerial skills and technical
skills? Do you think that those skills still exist out there to
meet what is expected for it to deliver the clean-up objectives
it has in managing particular sites?
(Mr Tunnicliffe) I see no reason why it should not
be able to recruit those sorts of skills.
106. It is interesting that if you have not
got the skills you think you can recruit them. What confidence
have you got that there are the skills out there and that you
will be able to recruit them?
(Dr McKeown) In terms of the UKAEA, and we can only
speak for the UKAEA of course, we have gone through a period over
the last three or four years when we have increased the staff
we directly employ by some 250 people. We are now addressing one
of the issues that the Chairman set out earlier. Yes, you can
recruit people out there and when they do not have skills then
you have to make arrangements for training them. For instance,
the UKAEA together with other nuclear licensees sponsor a course
in nuclear physics at Birmingham University, so we are training
people to have the skills which we need. When you come to the
Liabilities Management Authority, if you are able to get a lot
of the skillsand they are not all specific; some are, but
the general accounting ones you should be able to get out in the
market in generalafter that you are going to have to recruit
either in the UK or overseas and at the end of the day you may
well have to train them too.
107. Can I explore the customer/contractor model
that has been suggested in the White Paper? First of all, do you
think it is the appropriate model given some of the difficulties
that have been encountered in other areas?
(Mr Tunnicliffe) Do you mean the customer contract
model between the LMA and the site licensees?
108. Yes, page 27.
(Mr Tunnicliffe) It is not easy to see, is it?
109. It is the LMA model.
(Mr Tunnicliffe) The most difficult task in front
of the LMA, which I am sure it will succeed in, is getting that
contract right between the LMA and the site licensees. In many
ways it is analogous of our relationship now with the DTI which
is not in a formal contract, and they will have to turn it into
a formal contract. My view and experience are that with the right
levels of energy, forms will emerge which will give the right
assurance. I do think that in this development clearly there will
be considerable public interest in whether the insurance mechanisms
can be built into the model to make sure that there is value for
money, safety and continuity in the key features that the LMA
is charged to develop. Certainly they are going very widely in
looking at people's models to see if they work. I think one can
have every confidence that, given their professional approach,
they will come to a sensible balance.
(Mr White) This model is not completely novel in the
nuclear context. There are examples of this sort of contractual
relationship in the US and we also have the AWE example in the
UK, so there are a lot of analogies that could be used to give
confidence that they can make this sort of thing work.
110. How successful are they in America?
(Mr White) I think the US DofE view is that they are
very successful but you need to talk to the US DofE. I think the
view in the States is that you can make it work. It is not straightforward,
as the Chairman said. I think this is going to be a challenge
for the LMA but I think it can be done.
111. Can I ask a very general question, getting
back to the costs? The £42 billion before the six billion
that we talked about earlieryou say you element of that
was seven billion.
(Mr White) £7.4 billion.
112. So presumably the rest falls on BNFL.
(Mr White) Yes.
113. The six billion since that, which brings
it up to the new figure of £48 billion, what proportion of
that is down to you? Bearing in mind the split, is this whole
exercise not just a means to get BNFL if you like into a position
where it is getting rid of all its financial problems?
(Mr White) I will try the first part of the question.
On the first part of the question, the answer is that none of
the increase, apart from the £100 million, is down to us.
Our new accounts which are due out later this month will show
114. So out of six billion £100 million
is down to you?
(Mr White) Yes.
(Mr Tunnicliffe) On the matter of what is the purpose
of the LMA, obviously I came into this job on 1 April and I was
very interested in what it was all about and read the stuff and
so on. Subsequent to that I had a lot of conversations with civil
servants and a couple with ministers. I was left extremely strongly
with the view that the LMA is to clean up the nuclear liability.
That is its core objective. Everything else is subordinate to
that core objective. If you read through the report you will notice
that it is sequential. It is about set up the LMA, get a plan
and then look at BNFL and then look at UKAEA. I think the Government
is very serious about this. This is why I was happy to come into
this industry. It wants to shoulder the liabilities. As I said
earlier, it is putting this in statute. Remember that until now
we have been relying on assurances and White Papers, but now it
is putting it in statute that the liabilities belong to the Government
and the Government will find the funds to tackle it. I think that
is their motivation. I cannot know it but everything I have seen
leads me to that view.
115. But one of the problems in the past has
been the secrecy involved in this. Do you think the LMA is going
to have the teeth to get to the core issues to be able to do its
(Mr Tunnicliffe) Absolutely.
116. Can you expand on why you think it has
got sufficient teeth?
(Mr Tunnicliffe) It is just listening to people, looking
at the White Paper, looking at the fact that they will have the
budget. There are no teeth stronger than having the budget. They
will have the budget, they will have the responsibility, they
will have the public accountability and they will have the level
of independence. They start off with the Minister, the White Paper
and everybody saying that the key tenet will be transparency.
It will be an open and transparent authority. I believe them.
I see no reason sensibly, given all our experience, particularly
in the nuclear world in other places, of the damaging impact of
secrecy in the modern age. There is every incentive to set off
in this transparent way that they have promised to.
117. Could you define for me in your own terms
what the words "developing and implementing an overall strategy
for discharging the nuclear legacy" mean? What do you think
that means because that is the only real objective? All the rest
of it is means. This is an end.
(Mr Tunnicliffe) Absolutely.
118. If you were to explain in your own words
what "discharging the nuclear legacy" was, how would
you put it?
(Mr Tunnicliffe) If I were starting from scratch I
would say that as a result of the nuclear energy programme and
other nuclear research in the United Kingdom over the last 50
years we have sites and facilities which are redundant or are
becoming redundant and they have so affected where they are that
that ground cannot readily be returned to normal use. That is
the liability. It is the summation of all those sites. The liability
is actually a physical thing; it is not a money thing. I see discharging
the liability is Government's commitment to accept that returning
those sites to general use over many years, up to perhaps 100
years, even more in one or two cases, the Government's commitment
to return those sites to general use by getting them de-licensed
is essentially what is meant by "discharging the nuclear
liability". The money is a way of describing it. Because
BNFL is a limited company, it appears in the accounts, the liability
is a series of physical things and discharging it is returning
it to normal use.
119. Do you think from your own point of view
that you get off your back some of the problems that you have
had and that it enables you to clear your books in some ways as
(Mr Tunnicliffe) I do not think the impact of this
in our books is in the least bit relevant. What is valuable about
this document is forward commitment, forward funding, and a challenge
for us to prove that we can be supplier of choice.
3 See supplementary evidence showing the trend
in UKAEA's liabilities estimate from 1995 to 2002: Appendix 5. Back
See supplementary evidence: Appendix 5. Back