Select Committee on Trade and Industry Minutes of Evidence


Examination of Witnesses (Questions 220-239)

MS ANNE LAMBERT AND MR DENNIS WALKER

TUESDAY 9 JULY 2002

  220. Let us work on discounted figures for the time being.
  (Ms Lambert) Undiscounted is easier.

  221. Let me explain why I want to do discounted, because as in previous exchanges there is the risk of saying, well there is a £48 billion liability and a £4 billion portfolio and that is absurd.
  (Ms Lambert) I can explain that.

  222. Yes, but I want to focus on the discounted liability because then we can compare funds with liabilities which is really pointless to try and do on a non-discounted basis. What would be the comparable figure of the transfer of discounted liabilities from BNFL to LMA? If it was £9.8 billion effectively in note 26 to BNFL's accounts before, what would that figure be now? Is it £1.9 billion higher than that?
  (Ms Lambert) Yes. The £1.9 billion is the discounted figure for BNFL. I am going to have to say that we have worked all our figures on an undiscounted basis and I am very happy to provide the Committee with a note—

  223. Except the statement was on discounted?
  (Ms Lambert) Yes, but the £47.9 is undiscounted.

  224. I do not want to do undiscounted.
  (Ms Lambert) I may not be able to answer all the figures on a discounted basis; I may have to pass the Committee a note.

  225. But my question is still, if BNFL disclosed in its accounts last March a figure of £9.8 billion as its discounted cash obligation in respect of existing liabilities which at that time was off-set to 88 per cent by its nuclear liabilities investment portfolio and the Secretary of State's undertaking, I just want to see what those figures are now. Presumably the discounted cash liability has risen by about £1.9 billion. The Secretary of State's undertaking as expressed in the White Paper has risen to £4.8 billion, and the nuclear liabilities investment portfolio is effectively unchanged since it is referred to in the White Paper as £4 billion. Am I right?
  (Ms Lambert) My figures say it shows as £4.2 billion.

  226. The nuclear liabilities investment portfolio?
  (Ms Lambert) Yes.

  227. So it is higher than in the White Paper?
  (Ms Lambert) Yes.

  228. So effectively that is about £9 billion of funding in relation to about £11.6 to 7 billion of liabilities?
  (Ms Lambert) I am going to have to say we have not been looking at the figures on a discounted basis. We have been looking at the overall picture because it is not right to just look at BNFL's alone when you look at the overall figure, because what we are going to be looking at is BNFL's and UKAEA's and also there are some at Sellafield funded by UKAEA and MoD, and I can assure the Committee that there is absolutely no short term funding difficulty. On an undiscounted basis, when we have this £48 billion and we look at how that is going to be funded, you have got the government's undertaking in 1986 to take on all of UKAEA's liabilities and that gives us an undiscounted figure of £8.9: you have the Magnox—I have the figures now on an undiscounted. I can offer to give them on a discounted.

  229. Can I explain why I want to do that? There are two reasons. First, I do not want to simply say, "Well, let's move to the LMA picture", because we heard from UKAEA earlier that effectively they have a stable position in relation to their anticipated flow of Exchequer funding by way of grant in order to meet that so that is reasonably stable. What has been unstable and is intended to become stable in the future is BNFL's liabilities, and the stable part of that has been the Secretary of State's undertaking in relation to Magnox. What has been unstable has been all the rest so that is really what I am trying to get to. Essentially the point I am driving at is that a substantially larger liability is being transferred out of BNFL's balance sheet than the assets that go with them. Inevitably that must be true because, as the Secretary of State said last November, BNFL has arrived at the position of liabilities in excess of assets of about £1.7 billion, but the point I am driving at is that the liabilities transferred may be £2.7, or something like that, billion more than the assets that are transferred out of the balance sheet, so in effect BNFL is to an extent being subsidised as a result of this process, but only to the extent of a billion or so?
  (Ms Lambert) You are quite right that BNFL has a net asset deficit. It does, however, have considerable cash and can operate and can fund the clean-up that it has.

  230. That is all true but you are answering a slightly different point. My point is not is BNFL in a situation to meet its future liabilities. It clearly will, and its accounts last year had £2 billion investments or short term deposits not relating to the investment portfolio, the NLIP. My question is should there not be an additional transfer? Since all the risks and principal uncertainties relating to BNFL's present situation are going to be transferred, should there not be some additional transfer of assets above and beyond the NLIP and the undertaking?
  (Ms Lambert) I think there is, and the LMA will take the commercial assets of Thorp and SMP, and any surplus arising from those will go into providing funding for clean-up. It will also take over what is in the commercial contracts to provide for the share of decommissioning of those facilities, so there is going to be a contribution from both commercial operations and commercial contracts coming into the funding of the liabilities.

  231. I understand those assets to be transferred. I was coming back, and we have not seen the accounts yet, to the £2 billion investment and short-term deposits. Clearly BNFL has to have a cash flow requirement but that was never principally the problem. BNFL has on the face of it no cash flow problem. That was why, when the Secretary of State disclosed the problem relating to liabilities last November, that did not mean there was an insolvency problem but, if there is £2 billion of investments and short term deposits and about a billion or so more of liability being transferred, should there not be such a transfer into the fund?
  (Ms Lambert) I think you were right that when doing the details of the transfer arrangement, which I am sure is going to be an intensive part of the work, we need to strike a balance between ensuring that new BNFL, which as a company which will be owned by the taxpayer, has enough cash to operate successfully and therefore add value to the taxpayer and ensuring that we have as much cash as possible to fund the liabilities and therefore also give value to the taxpayer.

  232. So when we come to report that is something not yet finally resolved?
  (Ms Lambert) The transfer agreement is going to be something very difficult; it will require a lot of negotiation and eventually will have to be approved; but the details of that are not yet finalised.

  233. Other witnesses have not been able to offer any specific view but do you have any idea about the value of surpluses for most commercial assets in due course to the fund?
  (Ms Lambert) No. I am advised that there will be substantial cash payments under the existing Thorp contracts but the details are from BNFL, and I think you are seeing them after me.

  234. On funding arrangements, can I take the view that insofar as the two mechanisms, the segregated fund or segregated account, are concerned, when the White Paper says that a segregated account would not reduce flexibility in the government's management of wider public finances, does that imply that by having a segregated account you would re-introduce some of the problems that have been expressed elsewhere in the White Paper about experience to date of the UKAEA—that is the minimum necessary fund rather than funding designed to meet long term confidence and long term investment projects?
  (Ms Lambert) I do not think necessarily. The point to make is that both of these options are quite radical departures from the normal way of government accounting and spending review, and they are both designed to give greater flexibility to the LMA so it can match the spending to the long term nature of the liabilities; also to provide certainty to the market and the contractors that the money is going to be there. But as the White Paper says, it is a statutory segregated account which sits within the consolidated fund, probably sits easier with government accounting, but this is a genuine consultation and we are looking forward to views.

  235. Last November the Secretary of State said that she did not believe there were any state aid problems but discussions would take place within the European Commission. Have they taken place?
  (Ms Lambert) In the well known European words, we have put in "non papers" to the European Commission and I intend to go and talk to them over the autumn. We wanted to get the White Paper out to give more clarity about what we are going to propose and then talk to them.

Chairman

  236. This has been helpful. Could you give us the figures in both discounted and undiscounted format, and we need them before next Wednesday?
  (Ms Lambert) We will.

  237. Secondly, what I got from the exchange to me suggested, and I may be wrong, that there is a generous assessment of liability that is being removed and an equally generous assessment of monies that have been retained by BNFL, and that could in old parlance be suggested to be part of a pre privatisation, fattening-up process. Would that be an over-simplification?
  (Ms Lambert) I think it would. I am not in the business of being terribly generous. What we are trying to do is make sure that the taxpayer gets a fair deal out of this both in terms of the value that it will have—

  238. I am sorry but that is not what I am asking you. Are you removing liabilities and conveniently ignoring a pot of money to the tune of about £2 billion which may well make BNFL that much more attractive when we have PPPs?
  (Ms Lambert) I have no intention of ignoring a pot of money of £2 billion.

  239. At the moment there is £2 billion there that we will be watching.
  (Ms Lambert) And I expect you to because I will be watching it too, because I think it is absolutely right that we have as much cash as possible to fund the liabilities.


 
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