Examination of Witnesses (Questions 200-219)|
TUESDAY 9 JULY 2002
200. Some would say that some contracting arrangements,
whilst theoretically clarifying risk and transferring some risk
on to the contractor, do not always achieve that in reality and
in this case, if it does not achieve that in reality, the costs
could spiral higher. Why do you think in this case that relationship
will work better?
(Ms Lambert) I think we are very aware of some of
the problems that there have been in the past and are very clear
about learning the lessons. Perhaps you are referring to the Dounreay
example but lessons were learnt and I think the audit showed that
contractorisation itself was not at fault. What it was clear was
needed was clear lines of accountability, and I think that is
one of the strengths of the model of the LMA. The LMA itself is
not going to manage sites; it is going to be the strategic controller
and funder, enter into contracts, and it has the possibility also
of changing the management of the sites to bring in the best available
201. Can we explore the LMA aspect in the White
Paper? The Department mentions that it is going to need 200 people
with annual operating costs of £25 to £30 million a
year. How confident are you that you are going to find the people
with the appropriate skills, technical and management, out there?
(Ms Lambert) You can never be confident until you
have tried but I am very encouraged by the significant interest
there is in the LMA particularly from the industry and the total
commitment from all stakeholders to make the LMA a success, and
it is for us in the coming months to make sure that the LMA is
seen as a body that is going to be professional, authoritative
and something well worth working for. By setting it up as an NDPB
it is not going to be tied to Civil Service rates of pay, though
of course no doubt the Treasury will want to ensure that it delivers
value for money.
202. What is the timescale of setting this up
for the total body as such?
(Ms Lambert) That depends on getting legislation.
203. Assuming that?
(Ms Lambert) Assuming we get legislation I would hope
we could set up the LMA, because we are going to do as much preparatory
work as possibleand my team may get cross with me for saying
thiswithin six months of Second Reading but there are difficult
things to do, and then it would become operational and take over
funding probably about six months after that.
204. Can I move you on to the LMA model on page
27? How confident are you this model is going to work? I was looking
at it and there is no reference to subcontractors, and I wonder
if you could say something about why this model is going to work.
You mention primary contractors but not necessarily subcontractors,
or are subcontractors part of it?
(Ms Lambert) I hesitate to correct you, Dr Kumar,
but there is a section in chapter 3 on subcontracting, but I am
more familiar with the White Paper having read it many times.
What we envisage is trying to bring in competition at not just
site management level but at subcontracting level because that
is a way to build supply chains and to bring in best available
skills, but I should pay tribute to quite a lot of work which
has already been done by BNFL and UKAEA to develop local supply
chains through subcontracting and, of course, UKAEA does only
operate through subcontracting. So I am agreeing with you: this
is an important area and one we expect the LMA to build on.
205. Could you explain to me what you mean by
discharging the nuclear legacy? That is the only element of mission
statement about the whole White Paper. Everything else is "means";
this is the only "end". Could you maybe try and explain
it differently so we have a confidence that we all know what we
are talking about?
(Ms Lambert) Yes, Chairman, I think I agree with you
it is a bit opaque. What we are really meaning is what we call
in plain English "clean-up" and it comprises decommissioning
of the old facilities: most of them are now decommissioned but
we still have some Magnox operational stations which will end
in 2010, but it means dismantling the facilities, the buildings,
the works, dealing with the wastes that they generate, particularly
spent fuel management, and it means restoring the sites to greenfield,
206. In the spirit of joined-up government,
what about the bits that the MoD has polluted and abandoned and
what-have-you? Would it not be sensible to bring some of them
in, because the secrets and, indeed, the kind of world that we
were seeking to defend is now thankfully behind us?
(Ms Lambert) I understand that the reason we are not
focusing on MoD sites at the moment or MoD clean-up is that those
sites, and I think the Defence Procurement Agency, already are
subject to clean-up arrangements often using contractors, but
most important it reflects the operational nature of the sites
and it is more sensible for those reasons to keep within MoD's
207. I am at a loss to understand how the operational
element comes into it at this stage. I can understand that there
may well be places like AWE Aldermaston which have contractor
arrangements which have been quite successful and which you regard
as the model. Is there any cross fertilisation of ideas here?
Is there much exchange of experience?
(Ms Lambert) A lot. I came this morning from a conference
organised by BNIF and AWE people were there and were locked in
conversation with my Liabilities Management Unit, so yes we very
much intend to learn from their experience on how a contractor's
model can work, not just on AWE's but elsewhere around the world.
While the LMA is not going to be responsible for MoD for operational
reasons, we are certainly going to plug into their expertise.
208. We could hope that one thing you will not
learn from them is about transparency, because their view of transparency
is close to everyone else's view of opacity, as far as I can see.
(Ms Lambert) I am not going to cast aspersions but
I can assure you that we are determined to be as open and transparent
as we possibly can.
209. It has been suggested that some of these
changes from BNFL and UKAEA are really clearing off clutter from
the balance sheets and making them more attractive to potential
investors. Would that be an over-simplification?
(Ms Lambert) Yes, and I think it is not the correct
driver. The government has made very clear in its White Paper
that the fundamental premise of what we are doing is to ensure
safe, secure, cost-effective clean-up in ways that protect the
environment. That is the driver and that is what is governing
us setting up the LME.
210. Can you tell us what the new BNFL will
be about, what you envisage as its functions, so we can get it
on the record?
(Ms Lambert) What the White Paper sets out is the
restructuring of BNFL and the liabilities and the assets that
go with them such as the NLIP. That will come to the LMA as will
Magnox because that is part of the legacy and Thorp and SMP because
Sellafield is an integrated site and we will have to operate it
for both operational and regulatory reasons as an integrated site.
That will leave essentially the front end, which is the fuel manufacturing
business which is Westinghouse which includes the Springfield
site here in the United Kingdom which makes Magnox fuel and fuel
for the AGRs, plus BNFL Environmental Services, plus what we call
the Government Services Group which provides management services
and contracting services to governments.
211. BNFL has ownership of Magnox, as I understand
it, and that function running the remaining stations is going
to be subcontracted to British Energy, I think that is the case,
is it not, or discussions are taking place?
(Ms Lambert) There was an announcement to the Stock
Exchange two months ago of those discussions and I cannot comment
further on that.
212. That is fine, but let us assume that when
they are closed down you will have sites which are linked to the
grid and, therefore, will have a value as potential generating
sites regardless of what form the generation takes. Would you
envisage that these sites under what you have said, continuing
the integrity of them and what-have-you, could be used for other
generating purposes, whether it be nuclear or CCGT or what-have-you?
(Ms Lambert) Yes, I think we could. There are now
eleven Magnox stations or sites and ownership of those will pass
to the LMA. For the sites that are operational the LMA will let
contracts to manage the stations, and for those sites which are
non operational the LMA will have contracts with the site licensee
to do clean-up and to decommission and de-fuela process
that will probably last 100 years, but I do not see that that
will get in the way of using those sites if appropriate for any
213. Could BNFL under the plans envisaged have
a role in that future generation process?
(Ms Lambert) There is nothing in the White Paper which
rules that out or rules that in. This White Paper is about managing
the legacy, not about new sites. There is nothing to prevent it
in the White Paper.
214. But it also refers to the new BNFL and
I think it is only fair to say that, if you take certain things
away for a limited period, is it for ever or just for a limited
(Ms Lambert) On New BNFL it is open to the private
sector to put in applications for new build. It would, of course,
if the government is still the shareholder, be subject to the
215. But it is neither ruled out nor ruled in?
(Ms Lambert) That is right.
216. Could I start, just so I am sure, with
something from Roger Berry's question? Am I right in interpreting
what you said, that between 28 November when the Secretary of
State made her statement and the publication of the White Paper
there has been no disclosed increase in the liabilities approved
to BNFL between these dates?
(Ms Lambert) You are correct. The Secretary of State
announced in her statement that BNFL had done this revision. We
have not yet had BNFL's next set of accounts for 2001-02
217. We are aware of that.
(Ms Lambert)But the Secretary of State announced
that BNFL had done a revision.
218. That is what I understood to be the case
but I wanted to be sure because I want to work on the financing
on the basis of the liabilities as expressed in the Secretary
of State's statement. So as far as you are concerned that is still
effectively current? Obviously there will be some accounting changes
disclosed in BNFL's accounts when they are published?
(Ms Lambert) And we state in the White Paper that
BNFL's current liabilities are £40.5 billion which goes into
the £47.9 figure, as at 31 March 2002.
219. But how do the liabilities of £40.5
billion relate to the previously disclosed accounts position of
BNFL of future discounted cash expenditure in respect of exercising
liabilities of just under £10 billion? £9.8 billion?
Are those comparable figures because obviously the increase of
£1.9 billion referred to in November is a smaller figure
than the difference between those two figures.
(Ms Lambert) I think the comparable figure to the
£40.5 which is the current undiscounted figure for BNFL's
liabilities in the 2000-01 figures is £34.8.