Examination of Witnesses (Questions 97-118)
MONDAY 26 NOVEMBER 2001
ROBERT ARMOUR,
JOHN LUKE
AND TONY
FREE
Chairman
97. Gentlemen, welcome to the Committee. I am
conscious that we are likely to have a vote at half-past six;
if we can finish by then we will do, if we clearly have many more
questions we will come back. But I just wanted to flag up that
we may well, I may make for that deadline, if possible, knowing
how difficult it is, when people are given 15 minutes between
the end of the dinner and the beginning of the speeches, you always
know, in 35 minutes, you will still be hoping the blighters get
back from the loo; but there we are. Mr Robert Armour, you are
Director of Corporate Affairs and the Company Secretary. Mr John
Luke is the Head of Fuel Cycle and Liabilities, and Mr Tony Free
is the Liabilities Manager.
(Mr Armour) And, for completeness, Chairman, I would
say that, Mr Luke, we have a minority shareholding in Nirex and
he is a Director on the Nirex Board.
Chairman: It is all very incestuous here this
afternoon.
Diana Organ: The same people around the table.
Chairman: It is a good job you do not breed,
is it not?
Diana Organ: Maybe they do.
Chairman
98. Why have we taken so long to get to the
stage where we are talking about how we should talk about having
a successful policy like nuclear waste?
(Mr Armour) That is a very good question. I think
we take the view that this debate has been around for 25 years,
and it is an important debate which perhaps merits greater attention,
or greater expedition, than has been shown in the past. The good
thing is that we are now back on the road and engaged in that
debate and going forward, and hopefully learning from the issues
and the failures of the past.
Mr Breed
99. Can we look at what we might say are the
failures of radioactive waste policy, if you feel they have been,
but what are the reasons that you think that past failures have
failed to make effective decisions on the way in which we manage
those; have there been any lessons that we have learned, in dealing
with it, if so, what are we doing about putting that into place?
And perhaps you can give us, as a commencement of our review here,
your thoughts on the way in which perhaps we should be looking
at the incestuous way that you operate, perhaps you could give
us some idea of how you look at those conflicts of interest, which
have become very apparent to us this afternoon, of how you deal
with the way in which you wear the various hats which you sometimes
occupy around different tables?
(Mr Armour) It is inevitably a small industry, and
the limited number of companies involved in it are clearly focused
on tackling the same issues, and that is why we all occasionally
appear together, in that sense. Clearly, following the RTF repository
inquiry, and the decision by Mr Gummer, the industry has looked
at what it did wrong, at how it approached matters and how it
needs to address them differently in the future; it has also looked
very extensively at what has happened abroad and how other people
have tackled this same issue, because we are by no means alone
in our process. And, peculiarly, as British Energy, we operate
now in the US and in Canada, as well as the UK, so we are looking
at the same issues being debated there as are being debated in
the UK, and people earnestly trying to find solutions to the same
issue of radioactive waste. Tony Free, who has been extensively
involved in the stakeholder dialogue process of the industry,
I think I will ask him to comment. Last time round, the industry,
as you heard from Nirex, had focused on a solution and wanted
to get that solution through and did not take enough time to engage
in the public debate. We have seen exactly the same in Canada,
where the House of Commons report there notes that, while the
industry made the technical case for the deep repository in Canada,
it did not sufficiently engage the public to achieve public consensus
to the solution. I think the UK has the same issue.
100. But is not that part of the problem; if
you are a very small industry and you are the same people sitting
round different tables, you do not get the dynamics of the debate
going, to ensure that you do what we would think would be pretty
obvious and essential things, like including the public in such
consultation exercises?
(Mr Free) And I think that is why we very much welcome
the Government's consultation process, the DEFRA consultation
process, here, because it is an opportunity to do exactly as you
have just described; and we heard a lot from Chris Murray, earlier
on this afternoon, about the sorts of lessons that we have learned
from the Nirex process. But I think there is a key thing that
has really come out of that, for us, and that is, the old approach
of decide, announce, defend, which characterises, if you like,
most of the decision-making that we do within this country, has
not worked for this particular exercise, and there is no way that
I think it is going to work for this. So what we are in the process
of doing now is very much a fresh approach to that; the old approach
has not worked.
Chairman
101. Consult, consult, er...
(Mr Free) It could end up in there, and British Energy
does have some concerns about the way in which the consultation
process is structured. One of the things we have said in our evidence
to you is that we think there could be a lot more focus on that
consultation process, that we need to get very quickly into looking
at the options that are there and evaluating those options, rather
than going on for years and years just asking people what they
think.
Mr Breed
102. How can British Energy ensure that is going
to take place?
(Mr Free) We can make our point to forums like this,
we will be making that point very strongly to DEFRA.
103. Are there any urgent operational decisions
which need to be taken in advance of deciding that long-term policy,
as far as British Energy is concerned? If this consultation goes
on for some period of time, what are you actually doing at this
moment in time, in terms of the operational side?
(Mr Armour) I think the primary ones relate to the
ones you have heard from BNFL and Nirex, in terms of, until you
know how you are going to dispose of radioactive waste, it is
difficult to know how to package it and therefore how to prepare
it, at this point in time, you can go through multiple processes
in order to re-treat it, if you do not know what you are going
to do in the longer run. In terms of running the power stations,
which is our primary role, the current arrangements of both storage
and reprocessing do not require us to take any immediate and urgent
decisions in relation to this; we think it is more important that
we get the process right but get this process moving.
104. But you sit on both parts of this, do you
not, with Nirex as well, with a shareholding in Nirex, with people
on the Board, and such; this is part of the problem, is it not,
we have got people producing it, we have got people who are charged
with the responsibility of it, but they are, in a way, in the
same field, and, again, there is prevarication in the length of
time this actually can be juggled between the two of you? How
do we break that cycle?
(Mr Armour) We are one of the stakeholders in this
process, we are accepting the principle that `the polluter pays',
we are going to be one of the custodians and funders of this process,
and therefore we have an interest in making sure both that something
is done about it but also that it is done in an appropriate and
effective manner. And, therefore, I think, legitimately, we have
a role in this process in both trying to take it forward and ensuring
it fits our needs. But it is the question of how do you involve
all the other stakeholders in the process, and that is probably
what has not been done in the past, it has been too industry-centred
and not wide enough.
105. I suggest you are going to get very similar
answers from all the different parts of the whole industry, you
see, and I think this sort of overall agreement is helpful in
one sense but it is actually stifling in another, and it is how
we get this whole process moving at a speed which is actually
going to deal with the backlog and ensure that we come to the
right decisions and that the public agree. And, from what I have
heard this afternoon, I find that extremely difficult to see how
that is going to be done in any sensible time-frame?
(Mr Armour) I think our worry is that it will not
be done in a sensible time-frame. The reality is, the House of
Lords evaluated the options fairly extensively several years ago;
there have been various processes looking at the evaluation of
this, over the last 20 years. I think we share the view that the
House of Lords expressed today, in their announcement that it
is time to move on; not so much that you do not go through the
process of consulting on the process, but you can, in parallel,
recognise that an awful lot of the options are already on the
table, an awful lot of the work has been done, and this could
be moved through at a faster pace, if there was a will to do it.
Mr Borrow
106. This afternoon, we have had quite a few
little chats around the issue of local communities accepting or
not accepting radioactive waste in their areas and how the consultation
takes place. I would be interested in hearing your views on how
the consultation should take place, whether the whole list of
potential sites, once they have been determined, before they are
whittled down, should be made available to the public right from
day one, whether or not local communities should have a veto on
accepting radioactive waste, and whether or not local communities
should receive some benefits in cash or kind for agreeing to accept
radioactive waste within their communities?
(Mr Armour) I will come to Tony in just a second on
this. I think you have two stages in the process, and one is,
as we heard earlier, you need to identify the national issue,
ownership nationally of the problem, and say, `we've got to find
a national solution.' You have then a second issue of how do you
move that on to a local arena, and how do you compensate, create
benefits for the local community that balance the issue that they
are going to be the chosen site.
(Mr Free) And I think, quite frankly, that the first
stage of that is probably the easiest stage, and that is deciding,
in principle, what it is that we want to do as a final solution
for radioactive waste, what should be national policy. I think
probably the most difficult part of it is actually taking that
through to its implementation and where are we going to do that,
because, as we heard earlier on this afternoon, people are much
more likely to become involved in the issue when it means something
very much to them in their local area. And, I think, between that
first stage of actually deciding what it is that we are going
to do and the second stage of actually sort of implementing a
solution, there is an additional wide range of consultation that
we need to do in order to see what is the best process for actually
implementing that, to transfer that national issue, if you like,
to local ownership. And there are some very important issues that
we need to debate in that, and key amongst those, I think, is
this issue of local community benefit, it is something, if you
like, in this country, we have fought shy of, in the past, it
is something that other countries have as a matter of course;
but it is certainly something, I think, that we need to review
and to see whether or not there needs to be a benefit to that
local community. The other issue that you mentioned, about whether
a local community should have a veto or not, that would be quite
a radical departure for UK planning policy, because, of course,
a local planning authority can take the decision on the part of
the local community, but there is always, within the UK planning
law, of course, an override, effectively, in terms of national
policy issues. So it would be a very difficult one, I think, for
us to call. Certainly, in Finland, they have that local veto;
whether that applies across to the UK political situation, frankly,
I do not know.
107. So, in your view, if you were to go down,
if you like, the Finnish route, we would actually be setting up
a separate set of planning policies, in relation to radioactive
waste, from the planning approach for every other type of development?
(Mr Free) It would be a very different planning approach,
yes.
Chairman: If you had only one site in view,
in any case, it would be a bit of a blighter, would it not, then?
Mr Lepper
108. Should the stockpiles of uranium and plutonium
be declared waste, or not?
(Mr Armour) Our view is, not.
109. Why not?
(Mr Armour) Because, potentially, you have a usable
fuel resource. The uranium that has been reprocessed is usable,
the plutonium is usable in MOX and we have just seen the go-ahead
for the MOX plant at Sellafield, so there are potential uses for
this energy source going forward. What we have said in our evidence
is, however, that we, as a company, have not used these in the
past because of the current availability of cheap uranium on the
open market, fresh uranium, and, as a result, we are not desperate
to add to that stockpile; but that does not mean that we do not
take the view that the stockpile we have is a potentially usable
resource.
110. So which takes precedence there; is it
present-day economics, so far as British Energy is concerned?
(Mr Armour) We operate in a competitive electricity
market where the cost of the fuel cycle determines the cost of
our process and therefore whether we make a profit or not; and,
clearly, at this point in time, it is cheaper for us, by a very
substantial margin, to source our uranium from the world market,
fresh uranium.
(Mr Luke) Just to illustrate that. The current price
for uranium in the market is about $9 a pound, that is pound unitary
weight, that is the way it is expressed. Our estimate is that
the price would have to go up to something like $60 a pound for
MOX recycled to be economic, in the short term. So what we are
saying is that the material is potentially a valuable hedge, if
prices were to go up, and, obviously, all the money has been spent
on the existing stockpiles to produce separated plutonium; but,
in the short term, there is no economic case for recycling it.
In terms of the uranium, the economics are pretty well marginal;
it is likely that the uranium would be recycled over a relatively
near-term period.
111. What are the implications of that for this
whole issue that we are considering, dealing with radioactive
waste?
(Mr Luke) One of the implications, as we said in our
evidence, is that there is no point in adding unnecessarily to
a stockpile of separated plutonium if there is no economic case
for reusing it. The stuff that is there is a hedge and it is there
at the moment, and it is for this reason, we think, that our contracts,
which currently provide for ongoing reprocessing, should, at an
appropriate time, cease, and be converted into storage contracts.
Mr Drew
112. I am sorry to have missed the first bit
of your evidence; if we can talk about the skills situation. I
have always argued that the one thing that is absolutely crucial
to this industry is the basic integrity of the workforce. If the
industry itself cannot get its act together, in terms of where
it is with reprocessing, or storage, and so on, how do you intend
to attract younger people into this industry; because unless you
get younger people in this industry, and we need younger people
in this industry, all these other ideas are pretty unimportant
because there will not be the people there to research, develop
and, obviously, energise the sorts of things that all the sessions
have been about?
(Mr Armour) It is an issue we take very seriously.
We are currently recruiting 50 graduates a year, we have no difficulty
in getting good quality graduates into this industry, partly because
we need to train through a feedstock for running our operations
going into the future. I have to say, looking at the wider spectrum,
there is a general problem in UK industry of engineers, particularly
in heavy engineering, where the numbers going through the universities
are very low indeed, and that will, in the longer term, result
in a problem for wider parts of UK industry, not just the electricity
sector, if it is not addressed. But the industry is engaged on
this one, there is, indeed, a committee set up by DTI involving
all the industry, looking at how do we encourage greater throughput
of graduates with special disciplines in the nuclear sector to
give us that feedstock for the future.
Mr Jack
113. Does the lack of a solution to the whole
question of the disposal of the various nuclear wastes we have
discussed prevent you, as a company, making a decision about future
new-build of nuclear power stations?
(Mr Armour) I think, again, going to the House of
Lords statement today, we have probably got it about right, in
saying, `look, it is not, in our view, a show-stopper, it should
not stop us thinking about the issues for the future.' Because,
particularly in the context of the energy review, which we have
been giving evidence to in the last few weeks, there are major
issues facing the UK, radioactive waste is one of them, but security
of energy supply is another, how we meet our environmental commitments
is yet another. And we believe the nuclear industry going forward
has a major role to play as the only large-scale source of generation
that does not contribute to greenhouse gas and global warming;
but, against that, it seems to us it will be very much better
and it will make the whole issue of public acceptance and public
consensus much more likely to be satisfactorily addressed. And
if we have a clear process going forward, that does not mean we
have built a repository before we build the next nuclear station,
it means we have mapped out the road-map for the way we are going
to deal with radioactive waste, we have a clear view of the process
ahead, we have milestones mapped out that say `this is how you
are going to deal with it, that is how they have done it overseas.'
I think that would do an awful lot for public confidence and lead
us to focus on what I think is the much more pressing imperative
to the UK of the environment. And we are, to some extent, unable
to focus on that one because we have not got a clear way forward
on this.
114. But, in money terms, we heard reference
earlier to, what was it, the equivalent of a dollar a kilowatt,
whatever it was, an hour, I think it was, payment, which exists
in the United States and other locations, which cover some of
the issues we are discussing; if that issue could be resolved,
do you believe that the new designs of nuclear reactor would represent
a commercially viable proposition for you, in your campaign to
replace your existing nuclear capacity with new nuclear capacity?
(Mr Armour) I think the answer is yes, and I do not
know if, Mr Chairman, you have received a copy of our submission
to the Energy Review, but it sets out clearly this—
Chairman
115. No, we have not, but if you would like
to make sure we get copies we would appreciate that?
(Mr Armour) I will make sure you get these. But, basically,
it says, if we had the US approach, which was recently costed
by the Department of Energy, to check but it was, broadly speaking,
still fair, although it has been running for 20 years, if we had
the `pay as you go' process that they have over there, whereby
they pay a sum to a government or to a liabilities management
agency, or whatever, for dealing with waste as you go through
the life of a station, this gives a degree of certainty to the
operator, as it pre-funds the arrangements. And we believe if
that applied in the UK we would have a very much better system,
and indeed our stations would be profitable in the UK compared
with where they are at present.
Mr Breed
116. I think we have got to the crux of where
this conflict of interest is. Are you saying that, in fact, you
do not really want to do any reprocessing because it actually
costs you an enormous amount of money, you would prefer not to
do that, because you are held by contracts to do that by BNFL,
and yet you both sit round the same table with Nirex to keep that
going? How are we getting these conflicts of interest, in economic,
commercial terms, sorted, because you clearly do not want to carry
on paying for something you do not need?
(Mr Armour) That is indeed the case, and I think you
have now identified that the industry is not entirely incestuous
in its process there. The answer is, we have been discussing with
BNFL how to address this issue for some time and will continue
to do so.
Mr Jack
117. Can I just take you back, we have got about
a minute before a bell goes and we all disappear. Liabilities
Management Agency; what does it mean? Have you not got in your
balance-sheet money already accumulated to meet your liabilities
for your AGR obligations, in terms of waste reprocessing?
(Mr Armour) We have provision for all our liabilities
going forward. We provide for the decommissioning of our stations,
we provide for our contractual commitments. So the answer to that
is yes.
118. Is the Liabilities Management Agency a
good or a bad thing?
(Mr Armour) We have not yet, I am afraid, seen the
proposals. I believe there is an announcement coming. But in the
face of a common approach to managing the liabilities for the
UK, we think that is, broadly speaking, likely to be a positive
thing.
Chairman: Gentlemen, thank you very much indeed.
We have finished by the bell, as a matter of fact. Indeed, we
cannot really compete against it. Thank you very much. We may
wish to come back to you, obviously, in the course of this inquiry,
but we have had a gallop across the course at quite a good canter
today, and we thank all of you.
Diana Organ: And we will see you all at Sellafield.
Chairman: Thank you very much.
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