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Mr. Lang: Does the hon. Gentleman not let the union do it for him?
Mr. Purchase: I do not at all let the union do it for me.
Justin Urquhart-Stewart of Barclays said:
Finally, decommissioning is a muddle. It was never properly explained or dealt with in the House or in Select Committee. It is estimated that decommissioning costs will amount to some £4 billion, according to the utility's estimates. However, the discounted cost, due to compounding, will be only £700 million. That is what the industry says. The Minister said something similar this evening.
Barclays de Zoete Wedd estimates that decommissioning costs will amount to 11 per cent. of nuclear liabilities. The discount is so large because the period in which funds can be compounded is very long--175 years. Put simply, that means that generations as yet unborn will pick up the price tag for the folly of the Government's privatisation plans for the nuclear industry. It is a special industry for which Government, and Government alone, should bear responsibility. There is no way the Government--in the immortal words of the late John Smith, the "Not me guv, Government"--will properly accept their responsibilities.
The typical lifetime of a modern nuclear power station is 40 years, with perhaps one or two extensions. That is followed by 135 years of decommissioning. That second period starts with three years to remove highly radioactive fuel elements, after which the plant must be left to cool for 130 years.
Mr. John Battle (Leeds, West):
My hon. Friend the Member for Wolverhampton, North-East (Mr. Purchase), in an excellent speech, referred to the reaction of some of the City brokers to this sale. I shall begin by quoting a comment that appeared in the Lex column of the Financial Times. It started wonderfully:
We still have not received a proper response from the Government on the Floor of the House to the Trade and Industry Select Committee's report on nuclear privatisation. The Government seem determined to push on with it regardless of the costs and, to some extent, in contempt of consideration in the House. Why?On 8 November 1989, the Government were totally opposed to any sale of the nuclear industry. The nuclear industry was withdrawn from the proposed privatisation of the electricity industry.
The then Minister declared in the House that retaining the nuclear industry in the public sector was
Let us recall the history. On 9 November 1989, the then Secretary of State for Energy, now Lord Wakeham, was adamant. He spoke about the unprecedented guarantees that were being sought by the City if privatisation was even mooted. He said:
So what did the Government have to do? They realised that they had to make nuclear power stations sellable, and did so by fudging the relationship between the liabilities and the assets and pushing as much as they could on to the public sector.
Ever since 4 March this year, when the marketing programme was launched, we have seen nothing but more and more underwriting, as each week has moved towards the final sell-off. New sweeteners have been revealed week by week to make the industry more acceptable to any prospective buyer. It has been the sweetener deal of the century.
Let us not forget that the Government are not privatising all the nuclear industry. That rather kills off the arguments of Conservative Members who have spoken in eulogistic terms about privatisation in principle. This is the Government who decided to privatise a bit of the nuclear industry. They are privatising the seven modern advanced gas-cooled reactors and the new pressurised water reactor, Sizewell B, which was opened only a few weeks ago. They are leaving the nine aging Magnox stations and BNFL behind, leaving all their liabilities in the public sector.
In other words, the Government are flogging off the current cash-generating end of the business, leaving behind in the public sector a large part of the liabilities for reprocessing spent fuel, decommissioning and shutting down nuclear plants, and the management, treatment and disposal of radioactive waste. All those irradiated liabilities are being left behind effectively in the public sector, yet we have repeatedly been told that yes, liabilities will follow assets.
Our opposition to the privatisation of the nuclear industry has been focused around the financing of the deal.
Mr. Miller:
I wanted to put this point to the President of the Board of Trade, but he would not give way. Does my hon. Friend agree that the problem might be even worse than he has described because, in recent years, the Magnox stations have been run at an extremely high output level, thus bringing forward embrittlement problems, benefiting the Exchequer to the disadvantage of the new company? Does he think that the short-term attitude adopted by the company emphasises the way that it has appallingly abused a great asset of the country?
Mr. Battle:
My hon. Friend pinpoints in detail the short-termism that is going on. He is absolutely right.
I add as a rider that all that we have seen from the Government and in the prospectus is based on a rosy, most optimistic possible assessment. My hon. Friend the Member for Clackmannan (Mr. O'Neill) said that the assumption of the load of the new industry sector was originally set at 82 per cent. for the seven AGRs and Sizewell B. Never in history has that figure been reached. I gather that the Government have dropped the figure to 75 per cent. now, but the best year's performance was74 per cent., as my hon. Friend said.
Those are incredibly rosy assessments of what will happen to the privatised bit, but they are based, as my hon. Friend said, on what has been happening to what is
left behind as a short-term deal to prime the industry for sell-off. In other words, the Government's nuclear sums are skewed in favour of a massively subsidised sweetener deal. That is the reality. Eight power stations are being sold off for less than the price of building one and taxpayers will be left with billions of pounds of nuclear liabilities well into the next century.
Let us look at some nuclear arithmetic. City estimates now say that the sale will raise £1.7 billion. The Government's original estimate was £2.6 billion, yet Sizewell B, the power station that has just been opened, cost £2.964 billion to build in March 1995 prices.
That power station was built from the proceeds of the nuclear levy that was stuck on to everyone's electricity bill, ostensibly to pay for the waste disposal of the liabilities. In other words, electricity consumers paid to build Sizewell B directly, although Parliament was never told about that. The French were, in the deal with the interconnector, but not Parliament.
Then what is revealed to us? On 13 June this year, not in this place but in the House of Lords, the Government conceded that the historic cost of the power station is£9.3 billion. Yes, we do know the difference between market cost and historic cost, but the historic cost does not magically disappear. Even the asset value of British Energy was written down by £1 billion from £6 billion to £5 billion between the publication of last year's accounts and the launch of the prospectus. That £1 billion disappeared from somewhere in the accounts.
In a written reply in May this year, the Minister told his colleague, the hon. Member for Colchester, South and Maldon (Mr. Whittingdale):
In that written answer to which I just referred--one of those planted replies that gives us information if we look out for it on a wet Friday afternoon--the Minister said that taxpayers' liabilities would be capped at£3.8 billion--a maximum, not an estimated actual spend. It is reasonable to argue that any gap between the sale proceeds and the amount paid for by taxpayers in this way is a cost to taxpayers--of decommissioning Magnox stations--without the benefits of the revenue stream from the power stations that are being sold off.
I predict that, before many years are out, if the sale proceeds on the terms proposed by the Government, the Public Accounts Committee will find itself exposing a scandal of Pergau dam proportions, as the financial fixing that has gone into preparing British Energy for the market is revealed. My hon. Friend the Member for Barnsley,
West and Penistone (Mr. Clapham), a member of the Select Committee with great expertise in those matters, used a wonderful parliamentary expression: the best that we can say about the figures, he said, is that the Government are being economical with the truth. My hon. Friend the Member for Wolverhampton, North-East spoke of accountancy manoeuvring. Both expressions accurately reflect what is going on.
Let us consider the liabilities for a moment, not forgetting that the Government are selling off only the more modern half of the industry. The Government promised that a shortfall in the decommissioning of the older Magnox stations would be met by the sale proceeds, not least because the older Magnox stations will lose the income from the newer nuclear generators. As the sale proceeds will be insufficient to cover the decommissioning costs, Ministers have loaded the£3.8 billion back on the taxpayer.
Certainly, the Government have set up a segregated sinking fund to deal with British Energy's liabilities; but while BE puts in £16 million a year, the public sector companies remaining behind will contribute £228 million after privatisation. In other words, British Energy's clean-up costs come in the form of a dowry--the Secretary of State's word. I understand that a dowry is a gift for setting up a new relationship. In this case, the Government will extract it from the balance sheets of the publicly owned nuclear companies.
I want to ask the Minister again for an answer to a question that we have regularly posed. Is he any clearer yet about the financial relationship between BNFL and the Magnox industry? The Government propose a merger, but neither knows what liabilities it will have to pick up. As Mark Baker of Magnox put it in his evidence to the Select Committee, he is still not fully aware of the eventual shape of his balance sheet.
This is a short-term, short-sighted financial fix--aptly advertised as a final burst of energy at the end of the Government's programme. Perhaps it is their last gasp before they disappear completely. The claims that we have heard tonight about cheaper electricity prices are pretty rich coming from the Conservative party, which slapped VAT on electricity bills. If they removed it, there would be much greater savings than there will be under this scheme.
The long-term future of British Energy remains the great unknown. Will the newly privatised entity continue to sell its electricity through the pool to the grid on privileged terms, or will it be asked to compete on an equal footing with other private generators? This week's Utility Week states:
"This is only for certain people because there are obvious risks. The business isn't even profitable yet."
That bears out what I was saying about paying the dividend from cash flow, which is fully committed before a dividend has been paid. He added:
"Please Sids, don't enter this one."
Eric Hathorn of Henderson Crosthwaite expects stags to make a quick profit when trading starts in the middle of next month. That is because everyone is looking at the short term. No one wants to hold the stock for long; people know that the liabilities will catch up with them. It is good for the stags. Mr. Hathorn will not be classifying the stock as high-quality earnings. He says:
"You cannot feel sure that you will get a steady growth in profits. And if anything goes wrong, you have a scare of BSE proportions."
If that is what the broking world says, other people should be careful.
"Go to a closing down sale, and you expect to pick up something cheap. Certainly, the final offering of the British government's great privatisation bazaar--British Energy, the nuclear generator--looks a classic bargain in the making. Inevitably, many investors will fall back on yield-based valuations which underrate the company's potential to gear up and churn out cash. Furthermore, daunted by British Energy's vulnerable revenues and heavy long-term liabilities, they may even demand a higher yield than even Railtrack fetched."
It is a disgrace that the House has not had the opportunity to debate this privatisation properly in Government time, as it did the privatisation of Railtrack. It is estimated that this privatisation will, in the short term, perhaps raise as much cash as that privatisation. We last debated nuclear privatisation in Opposition time on26 March. Since then, our detailed questions on the financial deal and the details have never been properly answered. Indeed, as we have seen since the draft prospectus has been published, those questions are even more pertinent now than when we posed them on26 March.
"the best way of ensuring a long-term future for nuclear power in this country."--[Official Report, 8 November 1989; Vol. 159, c.1174.]
Those were the words of the Minister at the Dispatch Box. Now the Government, in a desperate dash for cash, are day by day sacrificing any long-term interests on the altar of the short-term cash fix, in a final bid to buy back what many of us now regard as their irretrievably lost popularity.
"I am not willing to underwrite the private sector in this way."--[Official Report, 9 November 1989; Vol. 159, c. 1171.]
Nuclear power stations were originally kept out of electricity privatisation precisely because, if the liabilities were to follow the assets, those power stations would be
totally unattractive to the market. The power stations would have been unsellable and the Government knew that.
"there has been a permanent diminution in the value of certain nuclear fixed assets of about £1.2 billion"
since 31 March 1995. Furthermore, he said:
"the fixed assets will stand in the balance sheet of British Energy at approximately £5 billion."--[Official Report, 10 May 1996;Vol. 277, c. 295.]
That was the first time the Government admitted that they had marked down the price by £1 billion at public expense. The liabilities associated with the Magnox stations were valued at £8.5 billion by the Government at the time of the nuclear review, and they were to be met from the £2.6 billion built up from the value of the assets. Now we find that the AGR and PWR sale proceeds will be much less than £2.6 billion, so the shortfall is bound to fall on the general taxpayer.
"British Energy faces the prospect of defaulting on a £500 million loan taken out with five banks as part of its leap into the private sector because of changes to rules . . . This could dent the profitability of the privatised company. Indeed BE's pathfinder prospectus said any Grid Code change having a 'material adverse effect' could be grounds for defaulting on the loan."
I would be interested to hear the Minister's comments on that. What about the dash for gas? It is suggested that British Energy will move away from nuclear energy and move into gas. Everyone is moving into gas, so its prospects as a competitor are being diminished.
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