Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 1-19)




  1. Good morning, Mr Ham. Perhaps you could introduce your colleagues.

  (Mr Ham) Firstly, my name is Adrian Ham and I am Director-General of the British Nuclear Industry Forum which represents more than 60 companies in the UK industry in Britain. On my right I have Dr John Mills who comes from Babtie Group; he is the Director of Engineering there and is a nuclear specialist; on my left I have Les Ingham who comes from NNC; he is Technical Director of NNC and has very many years of experience in the industry. NNC is a very major consultancy and contractor inside the industry.

  2. We appreciate you being able to come at what is really quite short notice, but I think you understand that the White Paper's timetable for responses is such that, as is so often the case with our civil servants, they are not really very accommodating in terms of summer holidays, parliamentary recesses and the like. So, we are having to put everything into the same day and we are very grateful to you for coming along. Having said all that, I suppose the defence of the civil servants, if we chose to actually engage in a justification for things like timetables, would be that this is not altogether unknown and there was the parliamentary announcement last year but, as with all these matters, there has been a delay between the announcement and the publication of the White Paper. What was your reaction to the White Paper? Do you think it goes the necessary distance to deal with the question of the nuclear legacy if we can take that as a start?
  (Mr Ham) If I could give a very brief summary of our overall reactions to the White Paper, the industry as a whole welcomes the White Paper. We welcome it for a number of reasons because it represents the adoption by Government of the need for a long-term strategy and the creation of a body which is capable of actually creating that strategy. It represents a movement towards a unified and integrated approach to the historic liabilities of the industry. It represents the creation of very clear accountability and clear responsibility for dealing with the historic liabilities and it also offers, as far as we can see, much greater clarity about the funding for coping with the liabilities and that degree of commitment is wholly welcome from the industry's point of view about long-term funding for coping with those liabilities. So, we see the potential of much better long-term planning of the work that needs to be done, more co-ordination potentially with also the regulatory bodies as well, the opening of markets for the decommissioning work inside the industry which I think is welcome, the possibility of transparency of plans for coping with the nuclear liability legacy and the creation of funding both specifically for R&D expenditure, so there would be innovation, we would hope, properly funded over the long term for such R&D as will help, dealing in the future with those, the legacy. I do not know whether my colleagues will like to add anything to that.
  (Dr Mills) I would like to add that we see potential benefits arising from the LMA in that it will facilitate industry's planning of resources and technology and we believe will lay the foundations for British companies to be internationally competitive in clean-up markets.
  (Mr Ham) Chairman, you commented on speed and I think that the industry as a whole would look forward to seeing a quick movement towards legislation. So, we welcome the White Paper as it stands as a whole and we would like to see this innovative proposal converted into legislation at the earliest possibility rather than at some point much later on.

  3. I can understand your desire to have speedy legislation and to get your snouts in the trough so to speak, but whose responsibility is the nuclear legacy? In order to go to speedy privatisation or part-privatisation, is it just a matter of clearing some inconvenient financial obstacles out of the way so that a slimmed down set of liabilities become that much more attractive with potential partners? Would the public be entitled to have confidence in this shifting of the deckchairs exercise when there has been all the cynicism in the past about accounting techniques in the nuclear industry? Is this not another shift of the double-entry book-keeping?
  (Mr Ham) I think the industry sees it as much more fundamental than that. We know that one of the triggers for, if you like, this innovation in Government policy may well have been an accounting issue but I believe that the industry has wanted to see a greater long-term commitment to dealing with the liability itself long before that. So, we do not see it as just smoke and mirrors, we see it as a very important innovation. We see the creation of a focused body to cope with these liabilities as fundamental. Whatever happens over privatisation of part of BNFL in the future seems to me a secondary issue and something which obviously you will talk to BNFL about later. They are of course members of BNIF but, from the industry's point of view, we see the need for this focus on dealing with liabilities as absolutely primary and requiring adequate funding. The liabilities concerned by the White Paper have always been the Government's responsibility. That has never been different. So whether it was held via another company which was created/owned by Government or not, it was always the same issue. Liability has always been responsibility which existed in the substantial part before the creation of BNFL, so they have been there a very long time and our view is that certainly the time is right to get on and deal with them in an effective way.

Mr Berry

  4. The liabilities have indeed been there a very long time and the other characteristic of them is that the estimate seemed to rise quite quickly. As you know, in the Government's statement in November, the clean-up costs were estimated to be £42 billion and they are now £48 billion. An increase of £6 billion over six months is quite a lot. Do you have any idea why the current figure is £6 billion higher than the Government announced in November last year?
  (Mr Ham) I would like to make a comment about what has happened, say, over a decade. At the time of the Government's nuclear review published in 1995, they quoted Audit Committee figures for three years previously in 1993, I think you will find, and the broad estimate at that stage for total liabilities of Nuclear Electric, Scottish Nuclear and UKAEA at that time and at those prices was £40 billion. If you upgrade that for inflation, you are up to about the best part of something like £50 billion in today's prices. So, incidentally, those costs were also highlighted, but there could be variation for some of those costs, plus or minus 50 per cent for sections of those costs, not all of them but sections. So, I would say that we are not looking at an extraordinary escalation looked at over a decade. I am not sure about the £6 billion. I do not know whether either of my colleagues would like to comment on that.
  (Mr Ingham) I cannot but I think that the fact of bringing it together into a single authority will, in the end, produce a greater certainty on cost which perhaps it has not been possible to achieve so far.

  5. Obviously you are exactly right in that, if it has not been clear so far as to what the cost might be, there is a great deal of uncertainty. In any area of public sector or private sector activity, to find that the liabilities had increased from £42 billion to £48 in six months would raise a few eyebrows, yet you do not seem to find it at all surprising.
  (Mr Ham) As I say, we have been simply comparing ... I am not sure if there is a definitional problem here because, as I say, if you look back to early Government reports—

  6. I am not aware of a definitional problem, I am aware of what the Secretary of State said in the House on 28 November last year and I am aware of the current figure and it is just an extraordinary increase and I just wondered if the industry had any idea why this extra £6 billion of liabilities could emerge.
  (Mr Ham) I am sorry, I cannot answer that specific question and clearly you will be questioning the DTI later, but I would say that looked at over a decade or so, the change has not been very marked, it has not been extraordinary.

  Mr Berry: I will not press this but my question was not over a decade, it was over six months where £6 billion has been added to the cost of clean-up. However, as you say, we can pursue that with other witnesses.

  Chairman: It could almost be that if you start with a baseline of £43 million as you did—

  Mr Berry: It is £43 billion. If it were millions I would not be so worried, but it is billions that we are talking about.


  7. It is £43 billion and if we were to take maybe only 40 per cent of that would be perhaps a figure of variable of 58 per cent one way or the other, you could be as high as nearly £70 billion or you could be lower. Even with all the effort you put in, would you agree that, at the moment, there is a degree of imprecision?
  (Mr Ham) There is a degree of imprecision, you are absolutely right, and getting on with the job and I would say that planning to get on with the job in an organised way would be the best way to remove the imprecision that has existed in some of those. I believe that getting on with the job and adequately funding the job is all part of successfully getting a clearer idea of the totality of these issues.

  Mr Berry: The whole purpose of the Government's proposal is to establish a new way of dealing with the liabilities from the civil nuclear programme; it was not about playing the numbers right. There are cheaper ways of getting the numbers right than creating a whole set of new institutional arrangements, but perhaps that is a comment and not a question.

  Chairman: We will perhaps take that up with witnesses this afternoon because they might be in a better position. We understand what your position is.

Linda Perham

  8. Just to pursue this for a moment and I understand the problems you have in answering this. The Secretary of State on 28 November actually said that the liabilities she proposes to transfer represent only part of the total liabilities of the industry and it was in answer to a question from my colleague, David Chaytor, who mentioned a figure of £85 billion. So that obviously is even more worrying. The White Paper states that a better definition of the problem will almost certainly mean liabilities estimates will rise and there is also talk about regulation and policy requirements. Do you see that it is inevitable that the liabilities costs will rise?
  (Mr Ham) If I can come to that in a second and just make one point, and that is of course that the liabilities that are being talked about here relate to the public sector liabilities, the historic liabilities, and there is a chunk of liabilities for which, as you know, there is a segregated fund which is inside the private sector. So, when Government talk about the entire issue of nuclear liabilities, that must include the private sector liabilities as well. I would just like to make that point clear. Over the inevitability of costs rising, I would like to defer to my two technical colleagues here, if I may.
  (Dr Mills) We perhaps appear very sanguine about increases and rises of this order, but we are used within contracting to having to deal with uncertainties and the contracting process is about allocation of risk. I believe that the management of contracting is about the reduction of uncertainties and we see within the proposals within the White Paper a framework and strategies which we believe will reduce the uncertainties associated with these figures. I do not believe that these figures will inevitably rise. I believe they will fluctuate but, as we work through the process, there is every possibility that the total figures will reduce.
  (Mr Ingham) I concur with my colleague. Our experience shows that there are uncertainties. It is a question of understanding that those projects which have been completed have sometimes been at lower cost than estimated and sometimes been at higher, but we believe that this process will in the end lead to greater certainty and lower risk.

Dr Kumar

  9. Dr Mills, you just said that you do not see that these figures will rise but my colleague Linda Perham mentioned £85 billion. A respectable scientific body like the Royal Society has suggested this figure. What credence do you give to that? I know you are going to respond to us but an international, well respected body like the Royal Society says that the problem is far worse than previously thought and they go on to say that it is so great that it may cost £85 billion to dispose of the waste. You cannot dismiss that and say that it will not rise.
  (Dr Mills) No. It is very difficult to dismiss figures which are given in that context. We can look at examples that we have already within the industry, perhaps not in this country but overseas, in relation to projects which have been estimated at the sort of numbers we are talking about and which, through changes in the management structure, have been delivered at orders of magnitude less—the example I am quoting is Rocky Flats—and in timescales, significantly less than first estimated. We are at the beginning of the process and this spread of estimates we do not find to be unusual.

  10. Are you saying that a body like the Royal Society are wildly out in their estimation? Are you just dismissing them? Is that what you are saying?
  (Dr Mills) No, I am not dismissing them, I am saying that this is a recognition of the uncertainty which exists within the definition of what we have to do at the moment.
  (Mr Ham) Can I make one other point which is that one issue inside the nuclear industry that occurs also in the context of, say, constructing new plant and so on is that there is a massive concern and naturally enough engagement with regulation and that is regulation from at least three different regulatory bodies and what is very difficult for the industry to forecast is likely changes in the future of the nature of that regulation which can have very fundamental effects on the costs.

  11. Have you looked at the report which actually estimated £85 billion?
  (Dr Mills) No, I have not looked at the detail of their estimate.
  (Mr Ham) I have heard of the figure but I have not looked at the detail.

  12. I think as you are going to give deliberation to Mr Berry's earlier point, maybe you will want to look at this £85 billion.
  (Mr Ham) We will do that.

Sir Robert Smith

  13. You mentioned the public sector liability with its uncertainty and there is also the private sector which has its own liabilities. Do you have the same range of uncertainties for the private sector liability that appear to apply to the public?
  (Mr Ham) There is one issue there that is different and that is that some of the back end of the cycle issues for the private sector are already part of long-term contracts. So, there can be more certainty in that area where there are contracts that already exist for coping with it. Obviously we would rather that British Energy answered itself on the specifics but certainly I would imagine that, if you are talking to BNFL later, they will also be able to make comments on that. I believe that relates to the contractual nature of some of those liabilities.

Mr Hoyle

  14. The worry is that I do not think anybody is convinced and that, at the end of the day, these are just guesstimates and I think we all ought to face up to that. You cannot give the cost figures; it is up, it is down, it may be, it may not. The problem is that we do not really have a handle on this, so where on earth are we going to get the real figures from?
  (Mr Ham) I think I will just come back, if I may, to the comments I made. The industry is keen for progress to be made in dealing with the job and adequate funding of a body which takes a strategic view and takes a single point of responsibility for these which we would say is probably the best way of starting to get a firm handle on some of the numbers and scale of the jobs and prioritise the jobs in an efficient way from the general public interest point of view.

  15. That is a different argument to actually knowing what the cost is going to be. I totally agree that you have to get a grip of the handle but the reality is that these are all guesstimates and we do not know the cost and we will not know until we start.
  (Mr Ham) Exactly.

Richard Burden

  16. Regarding the change in the figures, given the fact that you said that the uncertainty has already been there, when the Secretary of State went on the record very publically just six months ago and stated the specific figure, why did you not, knowing there was uncertainty around that, say so?
  (Mr Ham) I do not think it is up to us as an industry in general to chip in and make comments on statements made by ministers who are accountable to the House and of course to the Government. A number of statements are made on this issue by all kinds of parties all the time and I think that the Minister has to be accountable for any statements. We are just conscious about the way in which the general views of the centre of a range of uncertainty has moved over, say, 10 years' time and of course we are really here to talk mainly about the White Paper itself and approach the coping with liabilities rather than, as has been made clear already, specific points which could be anybody's best guess of where the final costs would lie. I must say that we did not really see it as our role as a trade association to make some comment about one figure given by the Minister at a particular time.

  17. In future when there are new arrangements set up to, if I quote Dr Mills correctly, manage uncertainties and allocate risk, if you felt that decisions were being made which either allocated risk on an inaccurate basis or managed uncertainties in a way that was not going to manage them, would you see it as your role to flag that up?
  (Mr Ham) We do represent, in interface with Government, at a number of different levels the views of the industry over coping with issues such as liabilities. So, we have working groups where there is an opportunity to interface with officials inside DTI at different levels a lot of the time. A range of the industry's concerns has been made clear to officials over a period of well over a year in a number of these areas. So, yes, we do make our views clear, frequently in an informal way. May I just ask my colleagues if they have any points to add to that.
  (Dr Mills) My comment would be that part of the process we see laid down in the White Paper is about increasing visibility and accountability and responsibility within the whole process and we would look forward to that delivering an environment in which figures like this can be related, discussed and understood and that, I am sure, will help towards the clarity of the funding as we move forward.

  18. In terms of you saying that the purpose of this is about managing uncertainty and allocating risk, what would you see under the new arrangements as the proportion of risk and the impact of risk that is allocated to the New BNFL?
  (Dr Mills) I do not believe I can answer that.
  (Mr Ham) You are going to be questioning BNFL itself later on and, as we see it in the White Paper, some of the boundary lines about responsibility of the New BNFL are yet to be drawn. So, I do not think it is appropriate for us to comment on that particular question at this point. Clearly, if there is going to be a new approach to the way work is done at sites, then people cannot expect to firstly get rid of all risk associated with undertaking contracts and so on, but that would be normal in any field of contracting.

  19. Does the Forum have any view on where the balance of risk should be allocated and what the responsibilities ought to be in the future?
  (Mr Ham) I think the nature of risks and so on is a huge issue right across the piece. The responsibility for strategic planning, the coping with the overall risk and overall expenditure of effort on dealing with the liabilities is going to be with the LMA. So, that is a fundamental point at which there is a concentration of responsibility for strategy and responsibility for handling public funds properly. So, the LMA is going to be the central point at which responsibility rests for making sure that it is all executed in a proper way to the public good as a whole and of course they will wish to make sure that any people carrying out work at sites carry their own due responsibilities of, if you like, risk reward for any given piece of work and that is normal within a contracting situation.

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