Examination of Witnesses (Questions 220-239)|
TUESDAY 9 JULY 2002
220. Let us work on discounted figures for the
(Ms Lambert) Undiscounted is easier.
221. Let me explain why I want to do discounted,
because as in previous exchanges there is the risk of saying,
well there is a £48 billion liability and a £4 billion
portfolio and that is absurd.
(Ms Lambert) I can explain that.
222. Yes, but I want to focus on the discounted
liability because then we can compare funds with liabilities which
is really pointless to try and do on a non-discounted basis. What
would be the comparable figure of the transfer of discounted liabilities
from BNFL to LMA? If it was £9.8 billion effectively in note
26 to BNFL's accounts before, what would that figure be now? Is
it £1.9 billion higher than that?
(Ms Lambert) Yes. The £1.9 billion is the discounted
figure for BNFL. I am going to have to say that we have worked
all our figures on an undiscounted basis and I am very happy to
provide the Committee with a note
223. Except the statement was on discounted?
(Ms Lambert) Yes, but the £47.9 is undiscounted.
224. I do not want to do undiscounted.
(Ms Lambert) I may not be able to answer all the figures
on a discounted basis; I may have to pass the Committee a note.
225. But my question is still, if BNFL disclosed
in its accounts last March a figure of £9.8 billion as its
discounted cash obligation in respect of existing liabilities
which at that time was off-set to 88 per cent by its nuclear liabilities
investment portfolio and the Secretary of State's undertaking,
I just want to see what those figures are now. Presumably the
discounted cash liability has risen by about £1.9 billion.
The Secretary of State's undertaking as expressed in the White
Paper has risen to £4.8 billion, and the nuclear liabilities
investment portfolio is effectively unchanged since it is referred
to in the White Paper as £4 billion. Am I right?
(Ms Lambert) My figures say it shows as £4.2
226. The nuclear liabilities investment portfolio?
(Ms Lambert) Yes.
227. So it is higher than in the White Paper?
(Ms Lambert) Yes.
228. So effectively that is about £9 billion
of funding in relation to about £11.6 to 7 billion of liabilities?
(Ms Lambert) I am going to have to say we have not
been looking at the figures on a discounted basis. We have been
looking at the overall picture because it is not right to just
look at BNFL's alone when you look at the overall figure, because
what we are going to be looking at is BNFL's and UKAEA's and also
there are some at Sellafield funded by UKAEA and MoD, and I can
assure the Committee that there is absolutely no short term funding
difficulty. On an undiscounted basis, when we have this £48
billion and we look at how that is going to be funded, you have
got the government's undertaking in 1986 to take on all of UKAEA's
liabilities and that gives us an undiscounted figure of £8.9:
you have the MagnoxI have the figures now on an undiscounted.
I can offer to give them on a discounted.
229. Can I explain why I want to do that? There
are two reasons. First, I do not want to simply say, "Well,
let's move to the LMA picture", because we heard from UKAEA
earlier that effectively they have a stable position in relation
to their anticipated flow of Exchequer funding by way of grant
in order to meet that so that is reasonably stable. What has been
unstable and is intended to become stable in the future is BNFL's
liabilities, and the stable part of that has been the Secretary
of State's undertaking in relation to Magnox. What has been unstable
has been all the rest so that is really what I am trying to get
to. Essentially the point I am driving at is that a substantially
larger liability is being transferred out of BNFL's balance sheet
than the assets that go with them. Inevitably that must be true
because, as the Secretary of State said last November, BNFL has
arrived at the position of liabilities in excess of assets of
about £1.7 billion, but the point I am driving at is that
the liabilities transferred may be £2.7, or something like
that, billion more than the assets that are transferred out of
the balance sheet, so in effect BNFL is to an extent being subsidised
as a result of this process, but only to the extent of a billion
(Ms Lambert) You are quite right that BNFL has a net
asset deficit. It does, however, have considerable cash and can
operate and can fund the clean-up that it has.
230. That is all true but you are answering
a slightly different point. My point is not is BNFL in a situation
to meet its future liabilities. It clearly will, and its accounts
last year had £2 billion investments or short term deposits
not relating to the investment portfolio, the NLIP. My question
is should there not be an additional transfer? Since all the risks
and principal uncertainties relating to BNFL's present situation
are going to be transferred, should there not be some additional
transfer of assets above and beyond the NLIP and the undertaking?
(Ms Lambert) I think there is, and the LMA will take
the commercial assets of Thorp and SMP, and any surplus arising
from those will go into providing funding for clean-up. It will
also take over what is in the commercial contracts to provide
for the share of decommissioning of those facilities, so there
is going to be a contribution from both commercial operations
and commercial contracts coming into the funding of the liabilities.
231. I understand those assets to be transferred.
I was coming back, and we have not seen the accounts yet, to the
£2 billion investment and short-term deposits. Clearly BNFL
has to have a cash flow requirement but that was never principally
the problem. BNFL has on the face of it no cash flow problem.
That was why, when the Secretary of State disclosed the problem
relating to liabilities last November, that did not mean there
was an insolvency problem but, if there is £2 billion of
investments and short term deposits and about a billion or so
more of liability being transferred, should there not be such
a transfer into the fund?
(Ms Lambert) I think you were right that when doing
the details of the transfer arrangement, which I am sure is going
to be an intensive part of the work, we need to strike a balance
between ensuring that new BNFL, which as a company which will
be owned by the taxpayer, has enough cash to operate successfully
and therefore add value to the taxpayer and ensuring that we have
as much cash as possible to fund the liabilities and therefore
also give value to the taxpayer.
232. So when we come to report that is something
not yet finally resolved?
(Ms Lambert) The transfer agreement is going to be
something very difficult; it will require a lot of negotiation
and eventually will have to be approved; but the details of that
are not yet finalised.
233. Other witnesses have not been able to offer
any specific view but do you have any idea about the value of
surpluses for most commercial assets in due course to the fund?
(Ms Lambert) No. I am advised that there will be substantial
cash payments under the existing Thorp contracts but the details
are from BNFL, and I think you are seeing them after me.
234. On funding arrangements, can I take the
view that insofar as the two mechanisms, the segregated fund or
segregated account, are concerned, when the White Paper says that
a segregated account would not reduce flexibility in the government's
management of wider public finances, does that imply that by having
a segregated account you would re-introduce some of the problems
that have been expressed elsewhere in the White Paper about experience
to date of the UKAEAthat is the minimum necessary fund
rather than funding designed to meet long term confidence and
long term investment projects?
(Ms Lambert) I do not think necessarily. The point
to make is that both of these options are quite radical departures
from the normal way of government accounting and spending review,
and they are both designed to give greater flexibility to the
LMA so it can match the spending to the long term nature of the
liabilities; also to provide certainty to the market and the contractors
that the money is going to be there. But as the White Paper says,
it is a statutory segregated account which sits within the consolidated
fund, probably sits easier with government accounting, but this
is a genuine consultation and we are looking forward to views.
235. Last November the Secretary of State said
that she did not believe there were any state aid problems but
discussions would take place within the European Commission. Have
they taken place?
(Ms Lambert) In the well known European words, we
have put in "non papers" to the European Commission
and I intend to go and talk to them over the autumn. We wanted
to get the White Paper out to give more clarity about what we
are going to propose and then talk to them.
236. This has been helpful. Could you give us
the figures in both discounted and undiscounted format, and we
need them before next Wednesday?
(Ms Lambert) We will.
237. Secondly, what I got from the exchange
to me suggested, and I may be wrong, that there is a generous
assessment of liability that is being removed and an equally generous
assessment of monies that have been retained by BNFL, and that
could in old parlance be suggested to be part of a pre privatisation,
fattening-up process. Would that be an over-simplification?
(Ms Lambert) I think it would. I am not in the business
of being terribly generous. What we are trying to do is make sure
that the taxpayer gets a fair deal out of this both in terms of
the value that it will have
238. I am sorry but that is not what I am asking
you. Are you removing liabilities and conveniently ignoring a
pot of money to the tune of about £2 billion which may well
make BNFL that much more attractive when we have PPPs?
(Ms Lambert) I have no intention of ignoring a pot
of money of £2 billion.
239. At the moment there is £2 billion
there that we will be watching.
(Ms Lambert) And I expect you to because I will be
watching it too, because I think it is absolutely right that we
have as much cash as possible to fund the liabilities.