Examination of Witnesses (Questions 260-279)|
TUESDAY 9 JULY 2002
260. Good evening, Mr Askew. Could you introduce
yourself and your colleagues, please?
(Mr Askew) On my left is David Bonser, a director
of the company. David is in charge of our internal LMA group;
we call it ALFA but we are already starting to run the business
as if the LMA was in being and David has set that up as a separate
organisation. Ted Williams (on my right), since I came into the
company two years and three months ago, has been working on the
strategy of direction of BNFL; intimately involved in discussions
around LMA; and how you should restructure not only this business
but also the industry.
261. On the nuclear legacy which your organisation
has contributed to, are you happy with the arrangements that have
been sketched out, if I can put it that way, in the White Paper,
and do you think it will go some way to redressing what is still
a lack of public confidence in a number of the aspects of how
the legacy has been handled.
(Mr Askew) The answer to that is generally yes. Just
over two years ago, when we first started looking at this issue
when I came into the business, there were two things I said: one
was there are a lot of good things inside BNFL, it was a very
good company but there were things that needed fixing and things
that needed to be done. However, the government needed to change
the way it interfaced not just with BNFL but also with UKAEA,
in my view. The government was our customer, our regulator and
our owner, and we had to get some sense into that and the fact
that we had at that time some £30 billion plus of liabilities
on our plc balance sheet, whether we went into the private sector
or remained in the public sector, and that is unstable for any
plc. You do not see that anywhere else. Something had to be done
with that relationship because we could do lots of things to make
BNFL better, which I believe the people in the business have done
in the last two and a bit years, but unless we addressed that
relationship it would be for nothing. So from that point of view
we saw it as two things: one doing things within BNFL but also
working with government in addressing an issue that I think has
been there for a long time and needed sorting out.
262. Mr Askew, could you comment on the £6
billion increase of the clean-up since the Secretary of State
first made her announcement in November? Why do you think this
is? Can you give an explanation?
(Mr Askew) One of the things facing us has been that
we have to discharge these historic liabilities, most of which
were in place before BNFL was set up and were created pre BNFL.
What we have to be told in cleaning up those liabilities is what
is the safe and passive form you are going to put that waste into,
and nobody has been able to tell BNFL, ever since the Nirex repository
initiative failed, in clear terms what is the safe and passive
form you can put that in for 10,000 years, 20,000 yearsthe
very long term storage. BNFL has not been told that; nobody could
declare what that was, so part of what I was looking at was that
we have waste and we have to find out what it is, but somebody
has to tell us what is the safe and passive form for long-term
storage, and quite honestly we cannot wait for that. There have
been two big policy decisions I think in the last two years: one
has been the LMA and one has been the new board of BNFL taking
this view on historic waste. Basically what we have to do is sit
down with the regulators, which we are now doing. We have taken
that initiative with the regulator, saying, "We have to put
this waste in a safe and passive form which is able to be stored
but is retrievable that is good for 100, 200 yearsthat
sort of timescale". It will probably be good for a lot longer
than that but we are working together with the regulators, the
EA and the NII to do just that. The reason is we have to take
the waste which is at Sellafield and get it into this safe and
passive form because that will reduce the hazard. Now the waste
at Sellafield at the moment is safe; we are actively managing
it but we cannot keep doing that for the next 10, 20, 30 years.
The board of BNFL have not seen any sense that we are going to
get any direction in terms of what is the long term storage within
that period and, therefore, we have had to take this initiative.
Taking that initiative has not ripped up the prayer book but it
has changed fundamentally the way we do it so we can get on with
it today and not be sitting in limbo. In taking that step, some
of the processes, some of the facilities, some of the ways we
are doing it are no longer relevant and, therefore, as a result
of that policy statement, which I believe is vital in terms of
dealing with that waste, you have the discounted number you have
been talking about before I came in, the £1.9 billion write-off.
That is where that has come from. There has been a reassessment
of that waste policy driven by the fact that nobody could tell
us, and we as a board were not prepared to sit there with this
situation any longer. The EA and NII have responded very well
and are working with us to redefine how we deal with that waste,
doing it ourselves and not waiting for a third party.
263. How confident are you this figure is accurate
or could be higher, or could go off as days go by?
(Mr Askew) You have asked me the most difficult question
of all. One thing that is uncertain is what future regulation
is going to be. New regulations change the way you have to do
things and costs will go up, so in terms of escalating this there
is always going to be an unknown about what is the future regulatory
process you are going to be subjected to and the future conditions.
At the point you do it that is the number you have, but there
are things outside your control that could make that number change,
and could make it go down. Regulation could change to make it
go down but the history of the last twenty years has been that
regulation, most of the time for good reason, has increased it.
264. For the record, when do you anticipate
publishing your accounts?
(Mr Askew) This is somewhat embarrassing because it
will be on Monday. As you know, this Committee meeting has been
called at very short notice and had we known four or five weeks
in advance we probably would have done that at a different date.
I am sorry about it.
Chairman: We are not happy with the government
and the way they behave, but I wanted that because it will be
accommodated within our report. So the points you are making we
take on board but we are not going to ask you what the figures
265. I am not going to ask you about the figures
for the same reason but you have been very assertive as to the
likely reasons for changes in numbers. Would you have expected
other commentators on the scene, whether it be government or bodies
that are meant to know their way around the forum, to say, "Well,
generally if there are differences in figures this is the kind
of reason for it", and say the same kind of thing as you?
(Mr Askew) I just cannot speak for other people. I
can just say what has brought us to what is, for the first time
I think, a very positive way forward on these issues, both externally
with the LMA and internally with the board of the company, leading
to a fundamental change in policy.
266. I am just a little intrigued, I guess.
You are being very definite and assertive about the reasons, although
the figures have been left out, and it just seemed to be an interesting
difference from that?
(Mr Askew) I suppose in some ways we are closer to
it as we are living with it, and in fact we have corporate governance
responsibility for dealing with it so we have a real corporate
governance issue, never mind a moral issue, to get this sorted.
So I am just telling you, in fact, what got us to £1.9 billion
which is what I was asked about.
267. Moving on quickly to the role of the Liabilities
Management Authority? Can you say a few words about your own feeling
about the setting-up of this body, and do you think sufficient
technical management skills are there to make up part of who is
to be employed by this organisation, given that the DTI is suggesting
200 staff for this organisation? Also, could you comment on the
model itself on page 27?
(Mr Askew) I am very comfortable with the model. We
all are. We would have had some differences in it I guess but
they are not worth talking about because, generally, they are
not fundamentally different. The model that has come out from
government steps us forward in doing what I said. It is the first
time in getting joined-up management of this issue, and it has
raised the priority in the government which has to be a good thing
and I think government stepping in and taking that responsibility
is to be applauded, so we welcome that. You touch on the question
of resources: that is a huge issue for the nuclear industry because
as you know generally the industry has been in stagnation or decline
over several years. We have been very fortunate; we still attract
something over 100 graduates a year into our organisation, but
the key nuclear issue, whether in the USA or in Europe, is skilled,
trained resource and there is no doubt having a new agency will
put further pressure on that. We have already seconded, and whether
they will stay there full time has yet to be determined, three
or four of our really good people into the LMU on the basis that
unless you have good people in the LMU you will not get good outcomes,
so we have given up three or four very good members of our team
to go in there and help with that. I do believe it is something
to be watched and I think it is a real danger in terms of getting
the skill base, because that skill base is spread very thinly
across the nuclear industry in this country.
268. That is interesting. Everybody else we
have spoken to so far has been confident about people with certain
skills and you are being cautious, saying you have slight concerns.
It is the first time we have heard this.
(Mr Askew) I think I am right. I really do. We do
a lot with universities. We have four initiatives with universities
so we do not do it all in-house ourselves. We are developing links
with universities and setting up departments which are funded
from elsewhere, so we are building up a capability of maybe twenty
or thirty people over the next five years in four universities
in the United Kingdom, dealing with deep storage, vitrification,
etc, on key issues in terms of this waste issue going forward,
so we are not trying to do it all ourselves. Not all good people
want to come and work for ussome prefer to work in the
university and we have to tap into that resource.
269. It has been suggested to us that you have
financial problems and that you are very enthusiastic about this
White Paper because you are going to get a lot of your liabilities
cleared away; that new BNFL is going to be a lot easier to run;
and that generally it is taking away all the uncomfortable bits
and putting it under the umbrella of the LMA so you guys can get
on with the easier stuff. Would that be an over-simplification?
(Mr Askew) I think it would. I would applaud it becoming
easier to run after the last two years, I have to tell you that,
so that will be welcome but the fact is we are transferring the
liabilities and the assets and the funding that we have over to
the LMA. We are then going to have to compete for the work, so
this is not a free ride for BNFL going forward which some people
in our organisation are very concerned about because it is a change
and is different to what we have been used to. I am confident
about what BNFL can do in winning and retaining contracts, but
we will not have these contracts; we will not run any of these
sites; we will not decommission any of these power stations by
right. We will have to win that from the LMA, so it is not going
to be a free ride with us saying, "Thank goodness everything
is over", because we then have to win the contract. Taking
the liabilities off the balance sheet, the balance sheet of this
company was unstable with those liabilities on and, in my view,
always had been. It was only a matter of time over years that
this would have manifested itself in certain ways. The good news
is we have to try and think of solutions to the problems before
the problems hit us.
270. In response to a question from myself we
had evidence that suggested that, prior to 1970, liabilities were
created which you inherited, although they may in fact have been
a cuckoo in the nest in some respects. Have you tried to assess
what proportion of your liabilities could be accounted for by
this cuckoo, if I can put it that way?
(Mr Askew) I have not got a number in my head. I do
not know whether David or Ted have. Basically it is the early
programmes on the site and the early development of Magnox and
then subsequently, in 1998, all of the liabilities from Magnox
came in, so those were pre BNFL.
271. You have scaled down the Magnox operation
and you have announced the decommissioning. It has been put to
us that perhaps you would create less waste if you stopped some
of the stations even earlier. Is that a consideration? Is that
(Mr Askew) Yes. It is something we have considered.
We have something like I think just over 7,000 tons of Magnox
fuel now that has to be reprocessed. I think we add to it by about
3,000 tons300 a yearto the end of the programme.
When we announced two years ago the closure programme for Magnox,
which I think was well overdue being announced, I have to say,
and was I think welcomed by people within Magnox who can now plan
their lives closing these stations. The logistics with manufacturing
fuel through to running generating stations to taking that fuel
and reprocessing itand the only way of dealing with fuel
is to reprocess it; we do not have any other method of dealing
with itare very complex indeed, so we now have got on with
272. Are you confident that by 2012 you will
be able to clear all of this backlog? It has been suggested to
us that the rate at which it has currently been processed, the
rate at which it has been dealt with, will mean you will never
get near. There are ten years to go but are you confident that
you can ratchet up the speed at which this material is being treated,
and it can be done in a way that is consistent with safety?
(Mr Askew) It will be consistent with safety otherwise
we will not do it.
273. On time as well?
(Mr Askew) The fact of the matter is that is a real
consideration. I think the answer to the situation is, if you
were running way beyond 2012, you would have to stop some of the
stations earlier. On the question of time you have to consider
what is the value of running those stations to the end of their
lives to closing them now, and basically you lose money in both
situations. You will lose money if you close them downand
you saw the results last year, I think it was a two hundred and
something billion loss partly due to the low electricity priceand
you lose money if you run them to the end of their lives but a
lot less money, and it is a question of how much cash you want
to put out in terms of the balance. We are always making that
judgment and part of the reason for revisiting Chapelcross and
Calder was very much on where prices have now gone. With those
two stations the best decision was to close them down rather than
the run them. It would cost more to continue to run them than
to close them.
274. Lastly, when you take a decision to close
these stations, to what extent are ministers involved? Do you
have to get their permission because it has been put to us this
afternoon that one of the most compelling arguments in closing
all of the Magnox fleet is that we may become rather colder in
the winter than anticipated with the absence of this generating
(Mr Askew) The two stations just closed were very
275. But the other ones?
(Mr Askew) On the other ones it still makes sense
to run them to the end of their lives we have declared, so we
are not revisiting that. We have just had a look at the whole
thing and come to a view on the stations but clearly ministers
are involved. We would not announce a closure without letting
ministers know and saying, "This is what we intend to do".
The way we are running BNFL basically is to say, "This is
a commercial operation but safety is at the heart of it, along
with environmental concerns and so on but there is a commercial
concern; we run it as managers in a commercial way but we are
wholly owned by the taxpayer and the British government and therefore
any big decisions we make are commercial decisions" and we
say this while we are making these decisions so they can take
a view of them.
276. I will not, as the Chairman said, try to
get into the question of accountsthat will have to wait
till next week clearly and we can correspond in relation to thatand
I am not asking for any figures relating to your forthcoming accounts,
but can I just ask, because I am not clear, what the process is
by which, historically, decisions have been made about the level
of the nuclear liabilities investment portfolio? One of the logical
approaches would be to say, leaving aside the Secretary of State's
undertaking, that the portfolio should be geared to a level of
funding of one hundred per cent of the cash liabilities which
last year was 88 per cent, and the portfolio itself did not appreciably
change as compared with the previous year, so there was no obvious
effort: indeed, it probably declined slightly. What is the process?
(Mr Askew) One of the reasons is whether a company
has cash outflow/cash inflow, and last year we had a cash outflow
which came through to it. Basically it is a bit like a pension
fund in a way, in that
277. I am not sure I am happy with the analogy!
(Mr Askew) You may be unhappy but it is the best one
I have for youyou are going to pay out 50 years from now
or 80 years or 100 yearssome of the liabilities live a
lot longer than people in pension funds. But what you are trying
to do is have the money when you are coming to discharge those
liabilities so that at a date in the future you have the cash.
We have been running at about 88 per cent; that is where we were
which we felt was a sensible level in terms of looking at a further
100 years when you have a chance to accrue more cash and put money
away and have the money to build the fund. That is quite a good
position. I heard you ask the question of earlier witnesses and
I think if you just did the maths then if the numbers do not change
in terms of the fundand they will not change very muchand
if you were to ask me the question I do not think it will change
very much when you see the numbers but of course the liability
has gone up, so that percentage has gone down somewhere below
80 per cent, and you will see that when the numbers are published.
278. Moving away from the accounts, I have asked
on a number of occasions if anybody can tell us more about what
the contribution to the fund in future might be from the commercial
assets, and probably you know those better than anybody else.
What is your view of that potential contribution? Is there likely
to be any surplus from continued operation of those assets?
(Mr Askew) Undoubtedly yes. I have absolutely no doubt
about that whatsoever. The level of it will depend on the performance
of those assets, quite clearly. So whoever has the site licence
for Sellafield, which will include running the commercial assets
as well as the decommissioning, one of their key tasks will be
to get performance out of those assets, to get those assets running
well, at good cost, cost effectively, in order to generate the
profit that is there in future revenues that are going to come,
but that could be quite significant.
279. Is there some way in the short time available
to us of determining maybe when your accounts emerge, because
they are not transparent in relation to your particular operation,
in the way that you could isolate any particular contribution
that could come from those assets?
(Mr Askew) I think it is a competitive danger because
people know how many tons we have to go and if we then declare
the value of that and how much money we think we are going to
make from it our competitors have every bit of information they
need to know about us. We have no problem giving it to the Committee
or putting a note to you on a confidential basis that was not
made public just to give you an order of things, because the answer
will be variable depending on how the assets operate.
Chairman: That would be helpful.