Examination of Witnesses (Questions 120-139)|
TUESDAY 9 JULY 2002
120. You helpfully clarified that the £7.4
billion of additional future cash clean-up costs attributable
to your responsibilities is a cash figure at current prices. Have
you had an opportunity to discount those and to express them in
net present value terms?
(Mr White) That is how we have to express them in
the accounts and we are required by the Treasury to do the discounting
at six per cent, so at six per cent the £7.4 billion comes
out at just over three billion, £3.03 billion.
121. Is that the same discount factor as BNFL
have applied to their accounts?
(Mr White) I do not believe it is. There is a different
approach between ourselves and BNFL. That may be one of the advantages
of the LMA for us that we get some coherence in the way in which
we treat these liabilities in the Government's books.
122. And the six per cent that you have to apply
as compared to the 2.5 per cent that BNFL apply creates a smaller
(Mr White) For us, yes.
(Dr McKeown) The six per cent is not specific to liabilities.
We understand that this is the figure that the Government applies
to all such calculations.
123. Unless they do not in the case of BNFL?
(Dr McKeown) Quite.
124. As far as that is concerned you currently
have a grant in aid in relation to your costs.
(Mr White) We have a grant.
125. That is £276 million for the current
financial year. How adequate in your view is that level of grant
in relation to the clean-up costs? Is that low grant, if it can
be continued in real terms, adequate for the purpose?
(Mr White) Yes.
(Dr McKeown) Each year we produce a corporate plan.
We give the Department our estimates up to three years in advance.
It is a rolling number which comes through so they know what our
estimates are going to be in three years' time and they call on
us to specify so there will be no surprises when it comes round
to the budget.
126. But the White Paper expresses the view
that hitherto in that context of the three year settlement that
experience to date with yourselves has therefore been that settlements
have tended to be the minimum necessary to address safety and
environmental needs and that limited funding has been available
for other projects. If I read that correctly the implication is
that greater flexibility and greater confidence for contractors
could have been available if there had been greater certainty
and this is one of the reasons why a segregated fund or account
(Dr McKeown) We are pleased that there will be a sound
funding account. All I can say from the UKAEA's point of view
is that we have produced comprehensive programmes for de-commissioning
and we will make those available to the Government and we have
not had any indication that meeting the programmes we produce
will not be funded.
(Mr Tunnicliffe) When you work in the public sector
you inevitably work on the assumption that your funding may not
flow and therefore you tend to monitor your programmes in that
way. The longer funding may result in longer contracts, more confidence
in the industry, more research and development and so on, so we
do think longer funding will have a benign effect on the supplier
base and the long term costs of the programmes.
127. Given that your grant and your costs are
going to be incorporated within the LMA function, do you have
a view about the respective merits of a segregated fund or a segregated
(Mr Tunnicliffe) We have not debated it at any length.
It will be something that the board will touch upon but we cannot
see that we are likely to have a strong view either way. What
we are very pleased about, and I cannot find the words right at
the end of the chapter that make this commitment, is this commitment
to long term funding by which both methods involve an almost unprecedented
commitment to a long term programme. We think that is almost the
kernel of the White Paper so we are pretty indifferent to which.
We are very pleased that they are going to do something exceptional
to guarantee the medium and long term funding.
128. I will not draw you too far but it has
been implied to us that the expression on the part of the White
Paper that a statutory segregated account offers the Government
greater flexibility in the management of its wider public finances
and therefore operates within the normal principles of the supply
process which by implication reduces the certainty and confidence
that would be available through the route of a segregated fund.
You have not reached that view yourselves yet?
(Mr Tunnicliffe) Firstly, we have not reached that
view ourselves. In many ways the Government, being a sovereign
body, in the final analysis do what they wish. They have this
extremely public statutory commitment to medium and long term
funding and either way would have to do something fairly dramatic
to move away from that commitment. That is the thing that keeps
a government to the task that it has put in, that it would be
very public to move away from this commitment.
129. Given that you appear on the face of it,
as I understand what you are saying, to have an established mechanism
yourselves with a very stable estimate of your clean-up costs
and an adequate provision of public sector financing for that,
you will now be put into a context in which there is a much less
certain set of liabilities that will have to be met. Does that
give you any cause for concern about the relationship between
your exercise of current functions and the risks and uncertainties
that are going to be introduced within the LMA?
(Mr Tunnicliffe) You are saying that because other
liabilities are being brought in within the LMA
130. It could have an implication on how they
choose their priorities.
(Mr Tunnicliffe) John was able to answer the question
about current funding with certainty because our recent experience
is that when we had, with the clear needs at Dounreay, for instance,
to accelerate some of the programme, the Government was willing
to fund that acceleration. We believe that the commitment contained
in the White Paper and contained in the Government's behaviour
so far is good news and being brought together in the LMA means
certainty for the whole industry, not just for ourselves. We do
not see ourselves as less certain. We see the whole industry as
(Dr McKeown) Just to reinforce that, we have published
a plan for decommissioning of Dounreay which extends to 50 or
60 years and coming out of that comes funding, so perhaps the
Government, with the benefit of these long term plans, can plan
better, but we certainly have no grounds for believing that the
preparations will be other than sound.
Sir Robert Smith
131. But in a way the point of the question
was that at the moment you have a direct link to the Government
with the money and with your plans and it is from your experience
working. You are moving into untried territory where there will
be an intermediary, where the Government will pass on the money
with a global sum but the intermediary will then set their priorities.
Other priorities could be pulling quite hard and you might find
yourselves worse off.
(Mr Tunnicliffe) I think in a sense you are the professionals
because you have to take a view on that generality. What will
the impact of the intermediary be? We think that the intermediary
will produce a bigger voice, a bigger statement, on behalf of
the total clean-up programme, and that that in itself will have
an intrinsic benefit. We also think that the wider benefits of
the LMA will add to our programme. In general we welcome it. Clearly
you can offer a scenario where there are some risks but there
are also scenarios where we are at risk because we are modestly
sized at the moment.
132. One of the benefits will be that you will
get more work out?
(Mr Tunnicliffe) I think we will continue to have
the right amount of money but with longer term programmes which
will develop the supplier base and hence deliver more efficiency.
133. What do you think will be the main regulatory
challenges to LMA as it seeks to develop a long term strategy
for the clean-up?
(Dr McKeown) If you talk about the plans which we
have, we have already produced schedules which have a logical
pattern to them, making sure that plants are de-commissioned in
terms of the potential risk that they bear and also going through
making sure that there is logic, that we do one step before another.
I think that the logic we have in these plans is pretty robust.
We are looking forward 20 to 50 years. That should give the Government
confidence to know what is coming round the corner. I cannot speak
for other licensees but I am sure that they will be producing
similar plans, so their needs can be met.
(Mr Tunnicliffe) That approach plays to the regulator's
concern. The regulator wants long term plans and wants commitment
to them. The White Paper urges the regulator to work with the
LMA to agree the shape of the long term plans. We think this is
good news for the industry and for the public.
134. But the White Paper is rather light on
talking about the LMA's specific role and how it is going to balance
this programme management with overseeing of licensees.
(Mr Tunnicliffe) I think the White Paper is very wise
not to be too heavy on an area of complexity it has charged the
LMA to look into.
135. And your confidence there is based on what
(Mr Tunnicliffe) Certainly there is regulation and
that regulation is effective in protecting the public. Certainly
that regulation recognises that co-operation between regulators
and with ourselves as site licensees is good news and so that
regulation likes long term plans. You then put that alongside
the LMA's objective, which is to get efficient long term plans
to discharge the liability, so there certainly is some motive
there to believe that understandings and agreements will be effectively
(Mr White) Putting it the other way, what we do not
want are site licensees having a difference of view between the
funders on the one hand and the regulators on the other about
what the programme should be and what the rate of clean-up should
be, and if the LMA can catalyse some agreement between all three
parties as to what the rate of clean-up should be it would be
a good thing.
136. I want to move on to Nirex. Nirex themselves
have said that they believe they ought to become independent.
Do you support that recommendation?
(Dr McKeown) I think that Nirex is providing an extremely
useful service to the nuclear companies in terms of giving specifications
for packaging and that is something which is absolutely essential
now. If we do not have self-contained packaging then there could
be a lot of expenditure on containing waste and putting it into
packets. In terms of the future, I think the DEFRA consultation
on Nirex is going on and we think it is more appropriate that
that is concluded before we express a view as to whether it should
be separate or not.
137. That is strange, is it not, because everybody
seems to have come out and said, "Here we are"? Is it
because you have got this part ownership that you feel you cannot
remove yourselves from it or is it because you have such influence
that you do not wish to see Nirex become independent?
(Dr McKeown) Sorry. I have said that in terms of control
138. Yourself, BNFL and everybody else has an
input into Nirex. By becoming independent they will be free from
all interference. Do you not support that?
(Dr McKeown) I think "interference" is perhaps
a strong a word.
139. How do you want me to describe it?
(Dr McKeown) What the customers are looking for is
service from Nirex which will ultimately enable waste to be disposed
of safely and cost effectively. What I am saying is that if, as
a result of DEFRA's consideration and the wide consultation which
that will bring in, the view is that Nirex should be independent,
then I would have no difficulty accepting it.
(Mr Tunnicliffe) We would be entirely comfortable
with that providing it is the product of consultation.