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27 Jan 2003 : Column 606—continued
Anne Picking (East Lothian): No.
Dr. Cable: It has had a prolonged period of disruption and interruption of production, as the hon. Lady knows. Stations can also be shut down permanently and decommissioned. That process is beginning in the UK with Windscale, Dounreay and so on. Safety can be guaranteed in that environment. Provided that any contraction is orderly and managed, there is no reason why there should be a safety problem.
Mr. Lansley : The hon. Gentleman appears to suggest that he has moved on to making the safety case from making the financial case. The two are in fact indissolubly linked. Does he accept that if we moved toward closure of a plant, we would bring forward substantial decommissioning costs for which no contribution has been made during the life of the plant? One reason why British Energy's average cost of production went up was that Torness was shut. Even temporarily shutting down a plant results in a dramatic rise in the industry's overall costs.
Dr. Cable: The hon. Gentleman is logically right, but the sums involved in the argument are often not true. The Government, and, I suspect, the hon. Gentleman, use the magic figure of £5 billion for the decommissioning costs that would be brought forward. When one actually looks into decommissioning costs—
I am sure that the hon. Gentleman knows this because he is very knowledgeable about the industry—only a small part of the costs, in the order of £600 million, must be incurred in the near future to stabilise the core of the reactor. The remaining present value of the decommissioning process is £300 million. The cost that would have to be brought forward is therefore less than £1 billion, not the £5 billion suggested by the Government and hinted at by the hon. Member for South Thanet (Dr. Ladyman) in his intervention. The hon. Member for South Cambridgeshire (Mr. Lansley) is right to say that there is a link between safety and costs, but the figures often put before us as the estimated cost to the taxpayer of a reduction in, or phasing out of, production are wildly exaggerated.Safety is the first issue; the second is security of supply. The Minister is right to say that no one wants an environment in which substantial numbers of people risk being disconnected from the electricity supply. That is common ground, and we do not argue that people should be put at that risk. The Government's problem is not with us—I am no expert at calculating spare capacity—but with their own regulator, who consistently points out that there is a very large margin of spare capacity. According to the statement that he sent us a couple of days ago, it is 22 per cent. at the very least. That is considerably in excess of the capacity of British Energy, even on a crude aggregate basis.
The regulator also pointed out that a large amount of capacity has been agreed commercially—consensus has been reached—but cannot be brought forward because of low prices in the industry. There is a basic paradox at the heart of the Government's argument. If there were less capacity in the nuclear industry—if some of it were withdrawn—the price would rise. That would enable nuclear power to operate more profitably; it would also enable other investment to come into the industry. The regulator has never suggested—indeed, he has gone out of his way to suggest the opposite—that security of supply would be threatened as a result of British Energy's going into administration or of capacity being withdrawn.
The third issue has to do with competitors. It is partly a legal issue, and it would be neither useful nor appropriate for us to comment on the legal ruling that will come from the Greenpeace case or on judgments from the European Commission. There is, however, a serious problem in that the Government are favouring one company over others through the Bill and through bailing out that company. It is important to have some sense of the damage being done to British Energy's competitors.
One small part of the market is combined heat and power, which has lost about 75 per cent. of capacity. Powergen has had to write down about 90 per cent. of its investment in the industry. CHP is receiving no compensation or help from the Government—nor are renewable energy and other producers. The Government will have to explain to the European Commission why British Energy is being helped while other operators are not. Moreover, it is not just being helped temporarily, but being given permanent, ongoing help. As I understand the European competition rules, the Government will have great difficulty in getting that through.
Mr. O'Neill: The hon. Gentleman chooses to forget that renewable energy is receiving a lot of financial
support. Like combined heat and power, it has been exempted from the climate change levy. CHP is also a dual fuel, so that if gas rises in price, as it has done, people stop using it and go for coal or other forms of generation. All that results from the working of the market, which the hon. Gentleman vaunts, and has precious little to do with the Government's policy of favouring or not favouring British Energy. The Government have favoured other forms of energy in other ways.
Dr. Cable: The hon. Gentleman's specific points are right, but he knows that renewables and combined heat and power have been disproportionately hit at a time when we are talking about helping a particular sector to continue to operate as before.
Let me turn to the core of the Bill; the argument about financing on which there is some common ground. A lot of the problems have arisen from the way in which the privatised company operated. It is said that the privatised company was just unlucky because of the new electricity trading arrangements and the way in which the auction system works. However, as I recall, British Energy never objected to NETA. I was involved in the Utilities Bill 2000 and the associated legislation. A variety of lobbies petitioned us about the problems that NETA might cause. British Energy never said a word and was entirely optimistic that it could compete in the market.
In the meantime, the company made some severe commercial misjudgments. Quite apart from passing up the opportunity for diversification that the other power companies took, it bought a power station for £50 million that is now worth £6 million. There was a succession of such judgments, including a special dividend of £48 million when the company was losing money. The whole ethos of the company is summarised by the manner in which Mr. Jeffrey is leaving it. The company is virtually bankrupt, but he is being paid off with £300,000 compensation, plus a £150,000 a year pension. He now says that that is not enough. Almost single-handedly, that gentleman is making the case for the Company Directors' Performance and Compensation Bill that the hon. Member for Tunbridge Wells (Mr. Norman) will be proposing on Friday. It also speaks volumes about the way in which British Energy has been run. There is some common ground on that.
I accept also that, since September when the crisis emerged, the Government have accepted that there must be burden-sharing. The private investors will take a big hit, even as a result of the Bill. As I understand it, the creditors will lose roughly two thirds of their assets. There is a hard-headed question—if the Government are acting on behalf of the taxpayer—as to why any wealth should be left in the company.
I welcome the acceptance that we are now debating—in a way that we could not three months ago—the pros and cons of administration. I raised it when the crisis broke and was accused by one or two Labour Members of being wildly irresponsible: "How could the hon. Gentleman possibly talk about administration? It is sheer lunacy." It is now in the Bill and accepted as a practical and, I would say, probable option.
Simply arguing about administration versus solvent restructuring is only the tip of the iceberg. There are a lot of subsidiary issues that, somehow or other—in a day's
debate in Committee and in the House of Lords—need to be addressed. If the company went into administration, there would be a variety of options. The administrator could keep running British Energy for a long time, provided that it covers its basic costs. The company could be nationalised—one of the options that has been raised. It could be sold, though that seems improbable. It could be taken into a public interest company, with a view to an orderly and gradual closure. Those are all enormously important options that we have not even begun to consider. If we are to consider the Bill properly, we must look at all of them.On financing, I accept that there is some common ground, although there are some fundamental differences. I hope that, through an examination of the accounts or in other ways, we shall get some answers to these problems—about the relative costs of keeping British Energy in solvent restructuring or putting it into administration, or the partial closure of plants. First, what is the cost of the Government's proposals? There is the Government assistance per se: the £650 million loan, the ceiling of which was increased, under EU proposals, to about £1.15 billion. The Bill mentions £2.5 billion, of which only £350 million has been drawn so far. Potentially a very large sum of money that has not been disbursed will be disbursed if the Bill is passed, in the form of aid to the company.
In addition, we have the new contracts of BNFL—a public sector company—amounting to an additional £150 million to £200 million a year. We have the back-end liabilities commitment of £150 million to £250 million a year. We are talking about a total taxpayer commitment of about £4.8 billion over the next 10 years; it could be £6 billion. It would be useful to know, at the very least, the order of magnitude about which we are talking. Very large sums are being committed under the Bill.
If the option of administration were to be chosen, the taxpayer would lose the private company's contribution to decommissioning. Although it is technically complex, we should reflect on that subject. It is agreed that the private company will pay 65 per cent. of net cash flow, after interest payments, into the decommissioning fund. On the assumptions that are being made in the plan, £100 million a year would go from the private company into decommissioning. That is why the Government want to retain the company as a private operation.
However, the assumptions that lie behind that are wildly optimistic. It is assumed, for example, that the company can make a £1.50 margin per megawatt-hour on its operations, while operating at much higher levels of efficiency than before. It is assumed that the plants will be able to operate at maximum efficiency, without the kind of disruption that we have had in at least two reactors recently. It is assumed that there will be income from the American subsidiaries, which are being sold off. The assumptions are wildly optimistic and have no basis in reality. If the money is not forthcoming, there is no reason to continue to expose the taxpayer to the continued liabilities through the subsidy.
The more radical option that we should look at is not just administration, but the possibility that at least some, if not all, of the reactors should be taken out of production before the end of their natural lives. There
are various time horizons for that, but let us at least look at the options. The Government have always argued that that would be financially disastrous because of the £5 billion of liabilities. I hope that, in my answer to the hon. Member for South Cambridgeshire, I answered that point. But the figures that would confront the Government, were they to go for premature closure, are far lower than have been bandied about in the past. Given that there is doubt about them, let us at least have an open, honest and independent inspection by the National Audit Office, or somebody else, to validate the figures.
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