Examination of Witnesses (Questions 1-19)|
TUESDAY 9 JULY 2002
1. Good morning, Mr Ham. Perhaps you could introduce
(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
(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.
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
(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.
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
(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.
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 lessthe example I am quoting is Rocky Flatsand
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
(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
(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.
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.
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
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
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.