Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 120-139)



Mr Lansley

  120. You helpfully clarified that the £7.4 billion of additional future cash clean-up costs attributable to your responsibilities is a cash figure at current prices. Have you had an opportunity to discount those and to express them in net present value terms?
  (Mr White) That is how we have to express them in the accounts and we are required by the Treasury to do the discounting at six per cent, so at six per cent the £7.4 billion comes out at just over three billion, £3.03 billion.

  121. Is that the same discount factor as BNFL have applied to their accounts?
  (Mr White) I do not believe it is. There is a different approach between ourselves and BNFL. That may be one of the advantages of the LMA for us that we get some coherence in the way in which we treat these liabilities in the Government's books.

  122. And the six per cent that you have to apply as compared to the 2.5 per cent that BNFL apply creates a smaller number?
  (Mr White) For us, yes.
  (Dr McKeown) The six per cent is not specific to liabilities. We understand that this is the figure that the Government applies to all such calculations.


  123. Unless they do not in the case of BNFL?
  (Dr McKeown) Quite.

Mr Lansley

  124. As far as that is concerned you currently have a grant in aid in relation to your costs.
  (Mr White) We have a grant.

  125. That is £276 million for the current financial year. How adequate in your view is that level of grant in relation to the clean-up costs? Is that low grant, if it can be continued in real terms, adequate for the purpose?
  (Mr White) Yes.
  (Dr McKeown) Each year we produce a corporate plan. We give the Department our estimates up to three years in advance. It is a rolling number which comes through so they know what our estimates are going to be in three years' time and they call on us to specify so there will be no surprises when it comes round to the budget.

  126. But the White Paper expresses the view that hitherto in that context of the three year settlement that experience to date with yourselves has therefore been that settlements have tended to be the minimum necessary to address safety and environmental needs and that limited funding has been available for other projects. If I read that correctly the implication is that greater flexibility and greater confidence for contractors could have been available if there had been greater certainty and this is one of the reasons why a segregated fund or account is contemplated.
  (Dr McKeown) We are pleased that there will be a sound funding account. All I can say from the UKAEA's point of view is that we have produced comprehensive programmes for de-commissioning and we will make those available to the Government and we have not had any indication that meeting the programmes we produce will not be funded.
  (Mr Tunnicliffe) When you work in the public sector you inevitably work on the assumption that your funding may not flow and therefore you tend to monitor your programmes in that way. The longer funding may result in longer contracts, more confidence in the industry, more research and development and so on, so we do think longer funding will have a benign effect on the supplier base and the long term costs of the programmes.

  127. Given that your grant and your costs are going to be incorporated within the LMA function, do you have a view about the respective merits of a segregated fund or a segregated account?
  (Mr Tunnicliffe) We have not debated it at any length. It will be something that the board will touch upon but we cannot see that we are likely to have a strong view either way. What we are very pleased about, and I cannot find the words right at the end of the chapter that make this commitment, is this commitment to long term funding by which both methods involve an almost unprecedented commitment to a long term programme. We think that is almost the kernel of the White Paper so we are pretty indifferent to which. We are very pleased that they are going to do something exceptional to guarantee the medium and long term funding.

  128. I will not draw you too far but it has been implied to us that the expression on the part of the White Paper that a statutory segregated account offers the Government greater flexibility in the management of its wider public finances and therefore operates within the normal principles of the supply process which by implication reduces the certainty and confidence that would be available through the route of a segregated fund. You have not reached that view yourselves yet?
  (Mr Tunnicliffe) Firstly, we have not reached that view ourselves. In many ways the Government, being a sovereign body, in the final analysis do what they wish. They have this extremely public statutory commitment to medium and long term funding and either way would have to do something fairly dramatic to move away from that commitment. That is the thing that keeps a government to the task that it has put in, that it would be very public to move away from this commitment.

  129. Given that you appear on the face of it, as I understand what you are saying, to have an established mechanism yourselves with a very stable estimate of your clean-up costs and an adequate provision of public sector financing for that, you will now be put into a context in which there is a much less certain set of liabilities that will have to be met. Does that give you any cause for concern about the relationship between your exercise of current functions and the risks and uncertainties that are going to be introduced within the LMA?
  (Mr Tunnicliffe) You are saying that because other liabilities are being brought in within the LMA—

  130. It could have an implication on how they choose their priorities.
  (Mr Tunnicliffe) John was able to answer the question about current funding with certainty because our recent experience is that when we had, with the clear needs at Dounreay, for instance, to accelerate some of the programme, the Government was willing to fund that acceleration. We believe that the commitment contained in the White Paper and contained in the Government's behaviour so far is good news and being brought together in the LMA means certainty for the whole industry, not just for ourselves. We do not see ourselves as less certain. We see the whole industry as more certain.
  (Dr McKeown) Just to reinforce that, we have published a plan for decommissioning of Dounreay which extends to 50 or 60 years and coming out of that comes funding, so perhaps the Government, with the benefit of these long term plans, can plan better, but we certainly have no grounds for believing that the preparations will be other than sound.

Sir Robert Smith

  131. But in a way the point of the question was that at the moment you have a direct link to the Government with the money and with your plans and it is from your experience working. You are moving into untried territory where there will be an intermediary, where the Government will pass on the money with a global sum but the intermediary will then set their priorities. Other priorities could be pulling quite hard and you might find yourselves worse off.
  (Mr Tunnicliffe) I think in a sense you are the professionals because you have to take a view on that generality. What will the impact of the intermediary be? We think that the intermediary will produce a bigger voice, a bigger statement, on behalf of the total clean-up programme, and that that in itself will have an intrinsic benefit. We also think that the wider benefits of the LMA will add to our programme. In general we welcome it. Clearly you can offer a scenario where there are some risks but there are also scenarios where we are at risk because we are modestly sized at the moment.

  132. One of the benefits will be that you will get more work out?
  (Mr Tunnicliffe) I think we will continue to have the right amount of money but with longer term programmes which will develop the supplier base and hence deliver more efficiency.

Mr Djanogly

  133. What do you think will be the main regulatory challenges to LMA as it seeks to develop a long term strategy for the clean-up?
  (Dr McKeown) If you talk about the plans which we have, we have already produced schedules which have a logical pattern to them, making sure that plants are de-commissioned in terms of the potential risk that they bear and also going through making sure that there is logic, that we do one step before another. I think that the logic we have in these plans is pretty robust. We are looking forward 20 to 50 years. That should give the Government confidence to know what is coming round the corner. I cannot speak for other licensees but I am sure that they will be producing similar plans, so their needs can be met.
  (Mr Tunnicliffe) That approach plays to the regulator's concern. The regulator wants long term plans and wants commitment to them. The White Paper urges the regulator to work with the LMA to agree the shape of the long term plans. We think this is good news for the industry and for the public.

  134. But the White Paper is rather light on talking about the LMA's specific role and how it is going to balance this programme management with overseeing of licensees.
  (Mr Tunnicliffe) I think the White Paper is very wise not to be too heavy on an area of complexity it has charged the LMA to look into.

  135. And your confidence there is based on what already exists?
  (Mr Tunnicliffe) Certainly there is regulation and that regulation is effective in protecting the public. Certainly that regulation recognises that co-operation between regulators and with ourselves as site licensees is good news and so that regulation likes long term plans. You then put that alongside the LMA's objective, which is to get efficient long term plans to discharge the liability, so there certainly is some motive there to believe that understandings and agreements will be effectively developed.
  (Mr White) Putting it the other way, what we do not want are site licensees having a difference of view between the funders on the one hand and the regulators on the other about what the programme should be and what the rate of clean-up should be, and if the LMA can catalyse some agreement between all three parties as to what the rate of clean-up should be it would be a good thing.

Mr Hoyle

  136. I want to move on to Nirex. Nirex themselves have said that they believe they ought to become independent. Do you support that recommendation?
  (Dr McKeown) I think that Nirex is providing an extremely useful service to the nuclear companies in terms of giving specifications for packaging and that is something which is absolutely essential now. If we do not have self-contained packaging then there could be a lot of expenditure on containing waste and putting it into packets. In terms of the future, I think the DEFRA consultation on Nirex is going on and we think it is more appropriate that that is concluded before we express a view as to whether it should be separate or not.

  137. That is strange, is it not, because everybody seems to have come out and said, "Here we are"? Is it because you have got this part ownership that you feel you cannot remove yourselves from it or is it because you have such influence that you do not wish to see Nirex become independent?
  (Dr McKeown) Sorry. I have said that in terms of control we—

  138. Yourself, BNFL and everybody else has an input into Nirex. By becoming independent they will be free from all interference. Do you not support that?
  (Dr McKeown) I think "interference" is perhaps a strong a word.

  139. How do you want me to describe it?
  (Dr McKeown) What the customers are looking for is service from Nirex which will ultimately enable waste to be disposed of safely and cost effectively. What I am saying is that if, as a result of DEFRA's consideration and the wide consultation which that will bring in, the view is that Nirex should be independent, then I would have no difficulty accepting it.
  (Mr Tunnicliffe) We would be entirely comfortable with that providing it is the product of consultation.

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