Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 260-279)




  260. Good evening, Mr Askew. Could you introduce yourself and your colleagues, please?
  (Mr Askew) On my left is David Bonser, a director of the company. David is in charge of our internal LMA group; we call it ALFA but we are already starting to run the business as if the LMA was in being and David has set that up as a separate organisation. Ted Williams (on my right), since I came into the company two years and three months ago, has been working on the strategy of direction of BNFL; intimately involved in discussions around LMA; and how you should restructure not only this business but also the industry.

  261. On the nuclear legacy which your organisation has contributed to, are you happy with the arrangements that have been sketched out, if I can put it that way, in the White Paper, and do you think it will go some way to redressing what is still a lack of public confidence in a number of the aspects of how the legacy has been handled.
  (Mr Askew) The answer to that is generally yes. Just over two years ago, when we first started looking at this issue when I came into the business, there were two things I said: one was there are a lot of good things inside BNFL, it was a very good company but there were things that needed fixing and things that needed to be done. However, the government needed to change the way it interfaced not just with BNFL but also with UKAEA, in my view. The government was our customer, our regulator and our owner, and we had to get some sense into that and the fact that we had at that time some £30 billion plus of liabilities on our plc balance sheet, whether we went into the private sector or remained in the public sector, and that is unstable for any plc. You do not see that anywhere else. Something had to be done with that relationship because we could do lots of things to make BNFL better, which I believe the people in the business have done in the last two and a bit years, but unless we addressed that relationship it would be for nothing. So from that point of view we saw it as two things: one doing things within BNFL but also working with government in addressing an issue that I think has been there for a long time and needed sorting out.

Dr Kumar

  262. Mr Askew, could you comment on the £6 billion increase of the clean-up since the Secretary of State first made her announcement in November? Why do you think this is? Can you give an explanation?
  (Mr Askew) One of the things facing us has been that we have to discharge these historic liabilities, most of which were in place before BNFL was set up and were created pre BNFL. What we have to be told in cleaning up those liabilities is what is the safe and passive form you are going to put that waste into, and nobody has been able to tell BNFL, ever since the Nirex repository initiative failed, in clear terms what is the safe and passive form you can put that in for 10,000 years, 20,000 years—the very long term storage. BNFL has not been told that; nobody could declare what that was, so part of what I was looking at was that we have waste and we have to find out what it is, but somebody has to tell us what is the safe and passive form for long-term storage, and quite honestly we cannot wait for that. There have been two big policy decisions I think in the last two years: one has been the LMA and one has been the new board of BNFL taking this view on historic waste. Basically what we have to do is sit down with the regulators, which we are now doing. We have taken that initiative with the regulator, saying, "We have to put this waste in a safe and passive form which is able to be stored but is retrievable that is good for 100, 200 years—that sort of timescale". It will probably be good for a lot longer than that but we are working together with the regulators, the EA and the NII to do just that. The reason is we have to take the waste which is at Sellafield and get it into this safe and passive form because that will reduce the hazard. Now the waste at Sellafield at the moment is safe; we are actively managing it but we cannot keep doing that for the next 10, 20, 30 years. The board of BNFL have not seen any sense that we are going to get any direction in terms of what is the long term storage within that period and, therefore, we have had to take this initiative. Taking that initiative has not ripped up the prayer book but it has changed fundamentally the way we do it so we can get on with it today and not be sitting in limbo. In taking that step, some of the processes, some of the facilities, some of the ways we are doing it are no longer relevant and, therefore, as a result of that policy statement, which I believe is vital in terms of dealing with that waste, you have the discounted number you have been talking about before I came in, the £1.9 billion write-off. That is where that has come from. There has been a reassessment of that waste policy driven by the fact that nobody could tell us, and we as a board were not prepared to sit there with this situation any longer. The EA and NII have responded very well and are working with us to redefine how we deal with that waste, doing it ourselves and not waiting for a third party.

  263. How confident are you this figure is accurate or could be higher, or could go off as days go by?
  (Mr Askew) You have asked me the most difficult question of all. One thing that is uncertain is what future regulation is going to be. New regulations change the way you have to do things and costs will go up, so in terms of escalating this there is always going to be an unknown about what is the future regulatory process you are going to be subjected to and the future conditions. At the point you do it that is the number you have, but there are things outside your control that could make that number change, and could make it go down. Regulation could change to make it go down but the history of the last twenty years has been that regulation, most of the time for good reason, has increased it.


  264. For the record, when do you anticipate publishing your accounts?
  (Mr Askew) This is somewhat embarrassing because it will be on Monday. As you know, this Committee meeting has been called at very short notice and had we known four or five weeks in advance we probably would have done that at a different date. I am sorry about it.

  Chairman: We are not happy with the government and the way they behave, but I wanted that because it will be accommodated within our report. So the points you are making we take on board but we are not going to ask you what the figures are like.

Mr Burden

  265. I am not going to ask you about the figures for the same reason but you have been very assertive as to the likely reasons for changes in numbers. Would you have expected other commentators on the scene, whether it be government or bodies that are meant to know their way around the forum, to say, "Well, generally if there are differences in figures this is the kind of reason for it", and say the same kind of thing as you?
  (Mr Askew) I just cannot speak for other people. I can just say what has brought us to what is, for the first time I think, a very positive way forward on these issues, both externally with the LMA and internally with the board of the company, leading to a fundamental change in policy.

  266. I am just a little intrigued, I guess. You are being very definite and assertive about the reasons, although the figures have been left out, and it just seemed to be an interesting difference from that?
  (Mr Askew) I suppose in some ways we are closer to it as we are living with it, and in fact we have corporate governance responsibility for dealing with it so we have a real corporate governance issue, never mind a moral issue, to get this sorted. So I am just telling you, in fact, what got us to £1.9 billion which is what I was asked about.

Dr Kumar

  267. Moving on quickly to the role of the Liabilities Management Authority? Can you say a few words about your own feeling about the setting-up of this body, and do you think sufficient technical management skills are there to make up part of who is to be employed by this organisation, given that the DTI is suggesting 200 staff for this organisation? Also, could you comment on the model itself on page 27?
  (Mr Askew) I am very comfortable with the model. We all are. We would have had some differences in it I guess but they are not worth talking about because, generally, they are not fundamentally different. The model that has come out from government steps us forward in doing what I said. It is the first time in getting joined-up management of this issue, and it has raised the priority in the government which has to be a good thing and I think government stepping in and taking that responsibility is to be applauded, so we welcome that. You touch on the question of resources: that is a huge issue for the nuclear industry because as you know generally the industry has been in stagnation or decline over several years. We have been very fortunate; we still attract something over 100 graduates a year into our organisation, but the key nuclear issue, whether in the USA or in Europe, is skilled, trained resource and there is no doubt having a new agency will put further pressure on that. We have already seconded, and whether they will stay there full time has yet to be determined, three or four of our really good people into the LMU on the basis that unless you have good people in the LMU you will not get good outcomes, so we have given up three or four very good members of our team to go in there and help with that. I do believe it is something to be watched and I think it is a real danger in terms of getting the skill base, because that skill base is spread very thinly across the nuclear industry in this country.

  268. That is interesting. Everybody else we have spoken to so far has been confident about people with certain skills and you are being cautious, saying you have slight concerns. It is the first time we have heard this.
  (Mr Askew) I think I am right. I really do. We do a lot with universities. We have four initiatives with universities so we do not do it all in-house ourselves. We are developing links with universities and setting up departments which are funded from elsewhere, so we are building up a capability of maybe twenty or thirty people over the next five years in four universities in the United Kingdom, dealing with deep storage, vitrification, etc, on key issues in terms of this waste issue going forward, so we are not trying to do it all ourselves. Not all good people want to come and work for us—some prefer to work in the university and we have to tap into that resource.


  269. It has been suggested to us that you have financial problems and that you are very enthusiastic about this White Paper because you are going to get a lot of your liabilities cleared away; that new BNFL is going to be a lot easier to run; and that generally it is taking away all the uncomfortable bits and putting it under the umbrella of the LMA so you guys can get on with the easier stuff. Would that be an over-simplification?
  (Mr Askew) I think it would. I would applaud it becoming easier to run after the last two years, I have to tell you that, so that will be welcome but the fact is we are transferring the liabilities and the assets and the funding that we have over to the LMA. We are then going to have to compete for the work, so this is not a free ride for BNFL going forward which some people in our organisation are very concerned about because it is a change and is different to what we have been used to. I am confident about what BNFL can do in winning and retaining contracts, but we will not have these contracts; we will not run any of these sites; we will not decommission any of these power stations by right. We will have to win that from the LMA, so it is not going to be a free ride with us saying, "Thank goodness everything is over", because we then have to win the contract. Taking the liabilities off the balance sheet, the balance sheet of this company was unstable with those liabilities on and, in my view, always had been. It was only a matter of time over years that this would have manifested itself in certain ways. The good news is we have to try and think of solutions to the problems before the problems hit us.

  270. In response to a question from myself we had evidence that suggested that, prior to 1970, liabilities were created which you inherited, although they may in fact have been a cuckoo in the nest in some respects. Have you tried to assess what proportion of your liabilities could be accounted for by this cuckoo, if I can put it that way?
  (Mr Askew) I have not got a number in my head. I do not know whether David or Ted have. Basically it is the early programmes on the site and the early development of Magnox and then subsequently, in 1998, all of the liabilities from Magnox came in, so those were pre BNFL.

  271. You have scaled down the Magnox operation and you have announced the decommissioning. It has been put to us that perhaps you would create less waste if you stopped some of the stations even earlier. Is that a consideration? Is that a problem?
  (Mr Askew) Yes. It is something we have considered. We have something like I think just over 7,000 tons of Magnox fuel now that has to be reprocessed. I think we add to it by about 3,000 tons—300 a year—to the end of the programme. When we announced two years ago the closure programme for Magnox, which I think was well overdue being announced, I have to say, and was I think welcomed by people within Magnox who can now plan their lives closing these stations. The logistics with manufacturing fuel through to running generating stations to taking that fuel and reprocessing it—and the only way of dealing with fuel is to reprocess it; we do not have any other method of dealing with it—are very complex indeed, so we now have got on with that.

  272. Are you confident that by 2012 you will be able to clear all of this backlog? It has been suggested to us that the rate at which it has currently been processed, the rate at which it has been dealt with, will mean you will never get near. There are ten years to go but are you confident that you can ratchet up the speed at which this material is being treated, and it can be done in a way that is consistent with safety?
  (Mr Askew) It will be consistent with safety otherwise we will not do it.

  273. On time as well?
  (Mr Askew) The fact of the matter is that is a real consideration. I think the answer to the situation is, if you were running way beyond 2012, you would have to stop some of the stations earlier. On the question of time you have to consider what is the value of running those stations to the end of their lives to closing them now, and basically you lose money in both situations. You will lose money if you close them down—and you saw the results last year, I think it was a two hundred and something billion loss partly due to the low electricity price—and you lose money if you run them to the end of their lives but a lot less money, and it is a question of how much cash you want to put out in terms of the balance. We are always making that judgment and part of the reason for revisiting Chapelcross and Calder was very much on where prices have now gone. With those two stations the best decision was to close them down rather than the run them. It would cost more to continue to run them than to close them.

  274. Lastly, when you take a decision to close these stations, to what extent are ministers involved? Do you have to get their permission because it has been put to us this afternoon that one of the most compelling arguments in closing all of the Magnox fleet is that we may become rather colder in the winter than anticipated with the absence of this generating capacity?
  (Mr Askew) The two stations just closed were very small.

  275. But the other ones?
  (Mr Askew) On the other ones it still makes sense to run them to the end of their lives we have declared, so we are not revisiting that. We have just had a look at the whole thing and come to a view on the stations but clearly ministers are involved. We would not announce a closure without letting ministers know and saying, "This is what we intend to do". The way we are running BNFL basically is to say, "This is a commercial operation but safety is at the heart of it, along with environmental concerns and so on but there is a commercial concern; we run it as managers in a commercial way but we are wholly owned by the taxpayer and the British government and therefore any big decisions we make are commercial decisions" and we say this while we are making these decisions so they can take a view of them.

Mr Lansley

  276. I will not, as the Chairman said, try to get into the question of accounts—that will have to wait till next week clearly and we can correspond in relation to that—and I am not asking for any figures relating to your forthcoming accounts, but can I just ask, because I am not clear, what the process is by which, historically, decisions have been made about the level of the nuclear liabilities investment portfolio? One of the logical approaches would be to say, leaving aside the Secretary of State's undertaking, that the portfolio should be geared to a level of funding of one hundred per cent of the cash liabilities which last year was 88 per cent, and the portfolio itself did not appreciably change as compared with the previous year, so there was no obvious effort: indeed, it probably declined slightly. What is the process?
  (Mr Askew) One of the reasons is whether a company has cash outflow/cash inflow, and last year we had a cash outflow which came through to it. Basically it is a bit like a pension fund in a way, in that—

  277. I am not sure I am happy with the analogy!
  (Mr Askew) You may be unhappy but it is the best one I have for you—you are going to pay out 50 years from now or 80 years or 100 years—some of the liabilities live a lot longer than people in pension funds. But what you are trying to do is have the money when you are coming to discharge those liabilities so that at a date in the future you have the cash. We have been running at about 88 per cent; that is where we were which we felt was a sensible level in terms of looking at a further 100 years when you have a chance to accrue more cash and put money away and have the money to build the fund. That is quite a good position. I heard you ask the question of earlier witnesses and I think if you just did the maths then if the numbers do not change in terms of the fund—and they will not change very much—and if you were to ask me the question I do not think it will change very much when you see the numbers but of course the liability has gone up, so that percentage has gone down somewhere below 80 per cent, and you will see that when the numbers are published.

  278. Moving away from the accounts, I have asked on a number of occasions if anybody can tell us more about what the contribution to the fund in future might be from the commercial assets, and probably you know those better than anybody else. What is your view of that potential contribution? Is there likely to be any surplus from continued operation of those assets?
  (Mr Askew) Undoubtedly yes. I have absolutely no doubt about that whatsoever. The level of it will depend on the performance of those assets, quite clearly. So whoever has the site licence for Sellafield, which will include running the commercial assets as well as the decommissioning, one of their key tasks will be to get performance out of those assets, to get those assets running well, at good cost, cost effectively, in order to generate the profit that is there in future revenues that are going to come, but that could be quite significant.

  279. Is there some way in the short time available to us of determining maybe when your accounts emerge, because they are not transparent in relation to your particular operation, in the way that you could isolate any particular contribution that could come from those assets?
  (Mr Askew) I think it is a competitive danger because people know how many tons we have to go and if we then declare the value of that and how much money we think we are going to make from it our competitors have every bit of information they need to know about us. We have no problem giving it to the Committee or putting a note to you on a confidential basis that was not made public just to give you an order of things, because the answer will be variable depending on how the assets operate.

  Chairman: That would be helpful.

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