Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 200-219)



  200. Some would say that some contracting arrangements, whilst theoretically clarifying risk and transferring some risk on to the contractor, do not always achieve that in reality and in this case, if it does not achieve that in reality, the costs could spiral higher. Why do you think in this case that relationship will work better?
  (Ms Lambert) I think we are very aware of some of the problems that there have been in the past and are very clear about learning the lessons. Perhaps you are referring to the Dounreay example but lessons were learnt and I think the audit showed that contractorisation itself was not at fault. What it was clear was needed was clear lines of accountability, and I think that is one of the strengths of the model of the LMA. The LMA itself is not going to manage sites; it is going to be the strategic controller and funder, enter into contracts, and it has the possibility also of changing the management of the sites to bring in the best available skills.

Dr Kumar

  201. Can we explore the LMA aspect in the White Paper? The Department mentions that it is going to need 200 people with annual operating costs of £25 to £30 million a year. How confident are you that you are going to find the people with the appropriate skills, technical and management, out there?
  (Ms Lambert) You can never be confident until you have tried but I am very encouraged by the significant interest there is in the LMA particularly from the industry and the total commitment from all stakeholders to make the LMA a success, and it is for us in the coming months to make sure that the LMA is seen as a body that is going to be professional, authoritative and something well worth working for. By setting it up as an NDPB it is not going to be tied to Civil Service rates of pay, though of course no doubt the Treasury will want to ensure that it delivers value for money.

  202. What is the timescale of setting this up for the total body as such?
  (Ms Lambert) That depends on getting legislation.

  203. Assuming that?
  (Ms Lambert) Assuming we get legislation I would hope we could set up the LMA, because we are going to do as much preparatory work as possible—and my team may get cross with me for saying this—within six months of Second Reading but there are difficult things to do, and then it would become operational and take over funding probably about six months after that.

  204. Can I move you on to the LMA model on page 27? How confident are you this model is going to work? I was looking at it and there is no reference to subcontractors, and I wonder if you could say something about why this model is going to work. You mention primary contractors but not necessarily subcontractors, or are subcontractors part of it?
  (Ms Lambert) I hesitate to correct you, Dr Kumar, but there is a section in chapter 3 on subcontracting, but I am more familiar with the White Paper having read it many times. What we envisage is trying to bring in competition at not just site management level but at subcontracting level because that is a way to build supply chains and to bring in best available skills, but I should pay tribute to quite a lot of work which has already been done by BNFL and UKAEA to develop local supply chains through subcontracting and, of course, UKAEA does only operate through subcontracting. So I am agreeing with you: this is an important area and one we expect the LMA to build on.


  205. Could you explain to me what you mean by discharging the nuclear legacy? That is the only element of mission statement about the whole White Paper. Everything else is "means"; this is the only "end". Could you maybe try and explain it differently so we have a confidence that we all know what we are talking about?
  (Ms Lambert) Yes, Chairman, I think I agree with you it is a bit opaque. What we are really meaning is what we call in plain English "clean-up" and it comprises decommissioning of the old facilities: most of them are now decommissioned but we still have some Magnox operational stations which will end in 2010, but it means dismantling the facilities, the buildings, the works, dealing with the wastes that they generate, particularly spent fuel management, and it means restoring the sites to greenfield, brownfield—whatever.

  206. In the spirit of joined-up government, what about the bits that the MoD has polluted and abandoned and what-have-you? Would it not be sensible to bring some of them in, because the secrets and, indeed, the kind of world that we were seeking to defend is now thankfully behind us?
  (Ms Lambert) I understand that the reason we are not focusing on MoD sites at the moment or MoD clean-up is that those sites, and I think the Defence Procurement Agency, already are subject to clean-up arrangements often using contractors, but most important it reflects the operational nature of the sites and it is more sensible for those reasons to keep within MoD's responsibilities.

  207. I am at a loss to understand how the operational element comes into it at this stage. I can understand that there may well be places like AWE Aldermaston which have contractor arrangements which have been quite successful and which you regard as the model. Is there any cross fertilisation of ideas here? Is there much exchange of experience?
  (Ms Lambert) A lot. I came this morning from a conference organised by BNIF and AWE people were there and were locked in conversation with my Liabilities Management Unit, so yes we very much intend to learn from their experience on how a contractor's model can work, not just on AWE's but elsewhere around the world. While the LMA is not going to be responsible for MoD for operational reasons, we are certainly going to plug into their expertise.

  208. We could hope that one thing you will not learn from them is about transparency, because their view of transparency is close to everyone else's view of opacity, as far as I can see.
  (Ms Lambert) I am not going to cast aspersions but I can assure you that we are determined to be as open and transparent as we possibly can.

  209. It has been suggested that some of these changes from BNFL and UKAEA are really clearing off clutter from the balance sheets and making them more attractive to potential investors. Would that be an over-simplification?
  (Ms Lambert) Yes, and I think it is not the correct driver. The government has made very clear in its White Paper that the fundamental premise of what we are doing is to ensure safe, secure, cost-effective clean-up in ways that protect the environment. That is the driver and that is what is governing us setting up the LME.

  210. Can you tell us what the new BNFL will be about, what you envisage as its functions, so we can get it on the record?
  (Ms Lambert) What the White Paper sets out is the restructuring of BNFL and the liabilities and the assets that go with them such as the NLIP. That will come to the LMA as will Magnox because that is part of the legacy and Thorp and SMP because Sellafield is an integrated site and we will have to operate it for both operational and regulatory reasons as an integrated site. That will leave essentially the front end, which is the fuel manufacturing business which is Westinghouse which includes the Springfield site here in the United Kingdom which makes Magnox fuel and fuel for the AGRs, plus BNFL Environmental Services, plus what we call the Government Services Group which provides management services and contracting services to governments.

  211. BNFL has ownership of Magnox, as I understand it, and that function running the remaining stations is going to be subcontracted to British Energy, I think that is the case, is it not, or discussions are taking place?
  (Ms Lambert) There was an announcement to the Stock Exchange two months ago of those discussions and I cannot comment further on that.

  212. That is fine, but let us assume that when they are closed down you will have sites which are linked to the grid and, therefore, will have a value as potential generating sites regardless of what form the generation takes. Would you envisage that these sites under what you have said, continuing the integrity of them and what-have-you, could be used for other generating purposes, whether it be nuclear or CCGT or what-have-you?
  (Ms Lambert) Yes, I think we could. There are now eleven Magnox stations or sites and ownership of those will pass to the LMA. For the sites that are operational the LMA will let contracts to manage the stations, and for those sites which are non operational the LMA will have contracts with the site licensee to do clean-up and to decommission and de-fuel—a process that will probably last 100 years, but I do not see that that will get in the way of using those sites if appropriate for any future generation.

  213. Could BNFL under the plans envisaged have a role in that future generation process?
  (Ms Lambert) There is nothing in the White Paper which rules that out or rules that in. This White Paper is about managing the legacy, not about new sites. There is nothing to prevent it in the White Paper.

  214. But it also refers to the new BNFL and I think it is only fair to say that, if you take certain things away for a limited period, is it for ever or just for a limited period?
  (Ms Lambert) On New BNFL it is open to the private sector to put in applications for new build. It would, of course, if the government is still the shareholder, be subject to the shareholder approval.

  215. But it is neither ruled out nor ruled in?
  (Ms Lambert) That is right.

Mr Lansley

  216. Could I start, just so I am sure, with something from Roger Berry's question? Am I right in interpreting what you said, that between 28 November when the Secretary of State made her statement and the publication of the White Paper there has been no disclosed increase in the liabilities approved to BNFL between these dates?
  (Ms Lambert) You are correct. The Secretary of State announced in her statement that BNFL had done this revision. We have not yet had BNFL's next set of accounts for 2001-02—

  217. We are aware of that.
  (Ms Lambert)—But the Secretary of State announced that BNFL had done a revision.

  218. That is what I understood to be the case but I wanted to be sure because I want to work on the financing on the basis of the liabilities as expressed in the Secretary of State's statement. So as far as you are concerned that is still effectively current? Obviously there will be some accounting changes disclosed in BNFL's accounts when they are published?
  (Ms Lambert) And we state in the White Paper that BNFL's current liabilities are £40.5 billion which goes into the £47.9 figure, as at 31 March 2002.

  219. But how do the liabilities of £40.5 billion relate to the previously disclosed accounts position of BNFL of future discounted cash expenditure in respect of exercising liabilities of just under £10 billion? £9.8 billion? Are those comparable figures because obviously the increase of £1.9 billion referred to in November is a smaller figure than the difference between those two figures.
  (Ms Lambert) I think the comparable figure to the £40.5 which is the current undiscounted figure for BNFL's liabilities in the 2000-01 figures is £34.8.

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