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27 Jan 2003 : Column 645—continued
Mr. Watson: Yes, really. British Energy was floated for £1.5 billion.
Mr. David Watts (St. Helens, North): Does my hon. Friend agree that if the previous Conservative Government had been local councillors they would have been surcharged? Many of the Tories who now sit on the Opposition Benches would have been paying the taxpayer compensation for a long time.
Mr. Watson: Indeed. I have some figures for Opposition Members. British Energy was floated for £1.5 billion—a sale package consisting of seven advanced gas-cooled reactors and Sizewell B, which itself cost £3 billion to construct. The market capitalisation of BE is now below £100 million, making it one of the biggest write-offs in Tory privatisation history. At the time, concerns were brushed aside.
Mr. Blunt: The hon. Gentleman cannot have it both ways. Either the shareholders have taken an enormous bath and should never have bought the thing in the first place, so encouraging shareholders to buy the company was a thoroughly good deal for taxpayers, or the company is subject to the vagaries of the market. He cannot say that simply because the company is now worth only £100 million privatisation was a disaster for the taxpayer—plainly it was not.
Mr. Watson: I agree with the hon. Gentleman. It is perhaps unique that the Conservatives managed to hit
the taxpayer hard when they privatised the company and then undermined the shareholders by nearly bankrupting the institutions that invested in it.At the time, concerns were expressed to the then Conservative Government in powerful contributions from my hon. Friend the Member for Cunninghame, North, now the Minister for Energy and Construction, and my right hon. Friend the Member for Derby, South, now the Secretary of State for Environment, Food and Rural Affairs. During those debates, one of the most prominent cheerleaders for privatisation was the hon. Member for Castle Point (Bob Spink)—although he has been noticeably quieter on the subject of late. He made the perceptive prediction that
- "the key benefit is that privatisation would impart to the nuclear industry the ability to make decisions to benefit the industry".—[Official Report, 26 March 1996; Vol. 274, c. 859.]
Much has been made of the impact of NETA on the company and there has been some discussion as to whether that was a major factor in BE's problems. Many Members have pointed out that BE did not complain about NETA; in fact, the company welcomed NETA and said that the new arrangements were good, yet it failed to adapt to the new market conditions.
The company failed to take a natural hedge in the market to offset the sharp fall in prices. When everyone else was moving into retail distribution, BE was moving out of the retail electricity sector—just as others in the industry began to understand the benefits of vertical integration. Furthermore, the Eggborough plant, purchased for more than £600 million, is now reckoned to be worth only about £75 million or £100 million.
Those are all problems of senior management in British Energy, but the continued payment of handsome dividends, even as the storm clouds gathered and the company was dusting down its begging bowl, was a scandal. Last year, just months before the company turned up cap in hand at the DTI's door, it handed almost £50 million back to shareholders. The £500 million special dividend payment that it made in 1999 was an act of breathtaking complacency, and the excuse was that the money was not needed, as there were no immediate acquisitions to be made. That money would have been better used preparing for the company's many rainy days.
Mr. Hendrick: Will my hon. Friend give way?
Mr. Watson: I had better take the intervention from the shadow Minister first.
Mr. Blunt: I am grateful to the hon. Gentleman, but he suggests that he will go into the Lobby tonight to support a Bill that will enable the Government to come to an arrangement whereby the taxpayer will help out the existing company's shareholders and bondholders. That is a rather surprising argument.
Mr. Watson: No, I will go into the Lobby to allow the Government to take on board any eventuality that the
company faces. I apologise for the fact that we need to have this debate. As I tried to suggest earlier, even Mrs. Thatcher perhaps noted that this was a privatisation too far, but, as the hon. Gentleman has said, he was not a Member at the time, so he took no responsibility for the previous Government's decisions—a "not me, guv" attitude. So the Government are taking measures to deal with any liability.However, as has been mentioned, the liabilities that we need to take on board are those of radioactive waste. The nuclear equation must not be forgotten as we discuss the industry's restructuring and, more widely, the United Kingdom's future energy mix, which we are not allowed to talk about now. So I will not talk about the energy White Paper, but perhaps the Government can learn a lesson from this privatisation about the other sectors of the industry that are considering restructuring—principally, Nirex.
I have pressed the Minister before on the fact that perhaps Nirex should be an independent foundation, divorced from ownership of British Energy and BNFL. I know that he will not tell us tonight about his future plans for Nirex, but I hope that he can rule out the ugly rumour, which is going around the nuclear industry, that Nirex will be privatised. The lesson of this debate is that, if we go down that route, we will find ourselves in a greater mess in years to come.
This is a good, pragmatic and flexible Bill. It is a Bill that we do not want to use if we can get away with it, but I hope that hon. Members will support it in the Lobby tonight.
Mr. Mark Hendrick (Preston): Whatever is said about British Energy, there can be no doubt that it is an extremely important industry. As many hon. Members have said, it provides about 22 per cent. of the United Kingdom's electricity capacity. Given that it provides such a huge amount, even with 20 per cent. overcapacity, it is essential that that capacity remain available for two reasons. First, demand for electricity may increase. Secondly, it is important that capacity is spread over as wide a range of different sources as possible. It is clearly important that we reduce carbon dioxide emissions into the atmosphere and that, if a certain part of the industry hits problems, there is still the capacity for other parts to make up the gap. The industry's importance to the whole economy is phenomenal, and I would be very sad to see such an important industry go to the wall.
The risks of letting the industry go under must not be underestimated, and I commend the Government for bringing the Bill forward, first, to take account of the current financial difficulties, and, secondly, to make available provisions that might not be necessary but that will provide a safety net should the worst come to the worst. Let us not forget why we are here in the first place: a botched privatisation was rushed through in 1996 by a Government who were trying to get as many measures as possible on to the statute book before a general election that they knew that they were going to lose. The industry was privatised and raised £1.3 billion.
Mr. Russell Brown: Does my hon. Friend suggest that that was akin to a scorched earth policy?
Mr. Hendrick: Perhaps I would not use that description, but I can see its merits.
As I said, £1.3 billion was raised. What was the market capitalisation in March 2000? It was £1.2 billion. In 2001, the market capitalisation rose to £1.8 million. [Hon. Members: "£1.8 billion."] I stand corrected. It was £1.8 billion. In 2002, it went down to £1.114 billion. On 11 January this year, its capitalisation was £39.9 million. Those figures speak for themselves in terms of the management of that company since privatisation.
It is essential that the company receive financial assistance. We cannot afford to switch off that essential capacity. As my hon. Friend the Member for West Bromwich, East (Mr. Watson) mentioned, something like eight nuclear power stations are currently involved, and the implications of even switching off the core of those reactors, as the hon. Member for Twickenham (Dr. Cable) suggested, are phenomenal. He said that the cost would be something to the tune of £600 million. Given the scale of the figures that we are talking about, that might not seem a great deal of money. However, decommissioning nuclear power stations is not just a question of stopping the core reactor generating electricity; it also involves the disposal and dismantling of the reactor facilities as a whole.
Albert Owen (Ynys Môn): Does my hon. Friend agree that one factor that has been overlooked in relation to the shutting down of British Energy power stations is that many of them have contracts with other industries, which may have a knock-on effect not just on price but on jobs in those industries?
Mr. Hendrick: Yes. I have not dealt with the jobs issue yet, but what my hon. Friend says is correct. What the hon. Member for Twickenham failed to take into account, apart from the jobs issue, was that those problems were never going to go away. Just because we spend £600 million today does not mean that the rest of the costs associated with decommissioning will not be around for future Governments. It is important to factor in those issues.
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