Examination of Witness (Questions 149-159)|
TUESDAY 9 JULY 2002
149. Good afternoon, Mr MacKerron. I am very
pleased to welcome you back here. You have been involved with
this Committee in a number of guises over the years as adviser
and witness and we are very happy that you have been able to join
us at short notice. You perhaps as much as anyone have been tracking
these issues for a number of years; and after the Secretary of
State's announcement in November the only surprise was that the
White Paper took so long to come out. I wondered what you felt
about the White Paper and whether or not you think that it is
going to hit the targets that it is setting.
(Mr MacKerron) I very much welcome the
broad thrust of arguments within the White Paper. There is a commitment
both to a greater openness and transparency which will help everybody
inside and outside the industry and, to echo what some of the
people from the UKAEA have just been saying, it does seem to me
that there is a commitment now to concerted action for clean-up
of liabilities such as we have not seen before. In particular
the establishment of what I would call a proper funding system
in either of the two variants that are proposed is a radical step
and a real move forward. Also important is the clear attempt to
as it were come clean over the financial and physical scale of
the total problem. For some years there have been under-estimates
for various good institutional reasons. I think now there is a
real incentive to get the full extent of the liability out into
the open so that it can be managed in a more effective way without
hopefully too many more shocks about increases in the total size
of the bill. That would be my general reaction to it.
150. Your general welcome for it I imagine implies
that you think that it will generate the necessary public confidence
in the Government's ability to deal with the problem. Is that
a conclusion that you would draw from it?
(Mr MacKerron) I think it is too early to draw that
conclusion. I think you are absolutely right, that it needs to
gain that level of public confidence. It will have to start out
and do that from now on. It has the opportunity to do it. I think
it needs to engage more than it has been able to in its shadow
form currently as the Liabilities Management Unit with a much
wider range of stakeholder opinion than it has yet or has been
characteristic in the past. The overall framework and the clear
political commitment to doing something more systematic will help
it gain that level of trust but it is a long process and not always
151. Can we stick with the issue of the cost
of clean-up? The Government estimate for this clean-up stands
at £48 billion and has gone up by six billion since November
when the Secretary of State first made the announcement. First
of all, do you believe the figuresbecause I notice that
you made a comment in the New Scientist that competitive
nuclear power is still at best an untested proposition, so it
seems that you may be a bit of a sceptic when it comes to figures
that the Government may be churning out; or maybe I am reading
too much into your statements. I wonder if you can say first of
all do you believe the figures and what do you think of the cost
of the clean-up?
(Mr MacKerron) Let us take one element of that first.
The quote I have in New Scientist actually refers to the
cost of the construction of new reactors which is broadly a separate
issue from the one we are dealing with today, so my comments there
are not necessarily relevant to this. I do not think it is easy
to say that anyone believes a number, whether it is £48 billion
or any other, because you know the Government has itself said
in the White Paper that the expectation is that that number will
go up somewhat further. I have been working on this for some years.
There was some work I did a while ago on this which you are very
welcome to have if that is of some use, which actually tries to
explain why I think the numbers will continue to go up for a while.
The problem in the past has been that in some ways it is almost
a replay of what happened when the Government failed to privatise
nuclear power generation in 1990. We have not had a historical
situation where institutions have had a strong interest in doing
a full reckoning of the total physical scale of the problem and
its cost. It is only when there is an institutional interest in
doing that that one tends to get close to as it were the right
number and conclude that there is not a single right number; there
is going to be a range because of uncertainty. I am not surprised
that the number has risen again by six billion. It rose by seven
billion the year before. Obviously one hopes that it does not
go up much further but it is likely that it will.
152. What do you think the figure will be? Can
I draw you out on that?
(Mr MacKerron) It is very difficult to be precise.
I am not trying to evade the question at all. I made a prediction
some five years ago with another author that there might be at
least another £22 billion worth of liabilities to come and
my back of the envelope calculation is that we have got £18
billion worth of them already so it was probably optimistic saying
only a £22 billion escalation at that time. A lot depends
upon the future of regulatory standards and practice as they continue
to escalate so any given task is likely to become dearer. A real
problem for the industry is the full physical characterisation
of the liability problem. Until that is fully done it is very
hard to attach cost numbers to it. I would hope that there was
not very much more to come but I am not in a position of knowing
enough from inside the industry to be sure. I have more confidence
that there is a commitment to get to the bottom of the problem,
to get to the highest number that we can now reasonably find cause
for and that I very much welcome.
153. Can I follow up a particular point made
about the previous year's change? I am wrestling with the last
set of BNFL's accounts which, in terms of the provision they made
at the end of March 2000 as compared to the end of March 2001,
changed on a discounted basis from £15.8 billion to £16.1
billion, so as at 31 March 2001 things were not changing rapidly
but we know from the Secretary of State's statement last November
that things began to change quite rapidly thereafter and have
changed quite clearly by a significant amount since then. I am
slightly surprised that you should have said that the rate of
change of apparent liabilities was occurring prior to March 2001.
(Mr MacKerron) The difficulty always is that one deals
either in undiscounted terms, which is the scale of the physical
problem, or for financial and accounting purposes in discounted
terms. That very small increase in discounted terms to which you
rightly refer did reflect an upward change of seven billion in
undiscounted terms and that was not mainly a consequence of change
in discounting practice. It is mostly a consequence of the fact
that there was an assumption that some work that was expected
earlier, so it would have been done in the relatively near future,
was going to be postponed into the more distant future, thus making
the discounted total roughly as before but still the importance
is to look at the undiscounted number because it gives you a notion
of the scale of the problem. I do not think it is a matter of
dispute that there was a seven billion increase in the period
up to March 2001 in those terms. I am sorry; I am getting rather
technical in numbers. I am very happy to supply a brief note to
try and unravel some of that.
154. Can I confess that I would find it helpful
because unless they re-base the 2001 accounts when I do not have
the 2000 accounts in front of me, the comparison on an undiscounted
basis is still £34.2 billion rising to £34.8 billion,
so in the 2001 accounts, unless they have been re-written to be
comparable and therefore not comparable to previous years' accounts,
something has gone on.
(Mr MacKerron) If I could briefly clear up a little
bit of that, I may just have dropped a year out. It must perhaps
be the previous year that there was the seven billion increase
because there was an increase from £27 billion to £34
billion. It may well be one year earlier.
155. So it will be 1999 to 2000?
(Mr MacKerron) It is very likely.
156. Just talking about the different costs
which my colleague raised, we heard from Friends of the Earth
this morning that they thought the setting up of the LMA could
be an administrative gambit to take away the burden of debt. That
is not your view of it presumably?
(Mr MacKerron) The total liability has always been
in the public sector, that part of it which the White Paper discusses,
and will always remain in the public sector. There is no realistic
possibility that BNFL can earn income such as to defray £40
billion worth of liabilities. In realistic appreciation of that
the Government has sought to find some long term and stable way
of meeting those liabilities, hopefully more efficiently, and
combining them in this one body, the LMA, with those liabilities
about which you have just heard from the UKAEA. I regard that
as a positive move. There are very large liabilities. There is
not any other way other than having the public sector to deal
with them and this particular mechanism I think has the promise
of dealing with those more effectively than we had in the past.
157. You think the costs will inevitably rise?
(Mr MacKerron) In the White Paper itself it suggests
that the costs will inevitably rise to some extent. That has been
our experience over several years. I have no reason to suppose
that that process will stop now. We just hope it will stop reasonably
soon once the liabilities are fully characterised.
158. In your definition of the liabilities of
BNFL, BNFL was established in 1970. The inherited liabilities,
should they be a burden on its commercial activities now? There
seem to be those who would argue that everything that has happened
is BNFL's fault, they slap it on them in the hope that that will
make it bankrupt and it will go out of business. I am maybe over-simplifying
it but I think I am putting it reasonably fairly. Where would
you realistically start if you were going to have a base line
for your view of the BNFL liabilities?
(Mr MacKerron) It is very difficult to answer that
precisely. I agree entirely that there is a difference between
what we might call legacy accounting and operational accounting.
They have not been adequately separated in the past. There is
not any logic at all in saddling any current given organisation
with financial responsibility for liabilities that stretch back
a long way and where there is no realistic chance of generating
the surpluses to meet those liabilities. There is no point in
pretending that it could. The reason why I find it difficult is
that BNFL was required to take over Magnox Electric in 1998. Magnox
Electric itself had very large liabilities which historically
had nothing at all to do with BNFL and although BNFL was given
some cash and some promises from the Secretary of State to help
it that did not quite meet the full bill. It is a complicated
story and there is simply no point in trying to lay on one public
sector organisation with limited income earning opportunities
full financial responsibility for a very long history. It is not
going to work.
Sir Robert Smith
159. Earlier I was talking about trying to get
a grip on what is the liability and there was something that came
up this morning. Is there an obvious reason why the Ministry of
Defence nuclear liability is treated separately from the civil
(Mr MacKerron) I am not really the best person to
answer that. I know it historically has always been true. As to
the decision that has been taken to maintain that, you would have
to ask other people.