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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 466-i House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE TRADE AND INDUSTRY COMMITTEE
NUCLEAR DECOMMISSIONING AUTHORITY
Wednesday 16 March 2005 MR DIPESH SHAH and MR STEPHEN WHITE MR MIKE PARKER, MR ALVIN SHUTTLEWORTH and MR DAVID BONSOR MR PETER WALLER, MR ANDREW LAYTON and MS SERENA HARDY SIR ANTHONY CLEAVER, DR IAN ROXBURGH and MR DAVID HAYES Evidence heard in Public Questions 1 - 108
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Trade and Industry Committee on Wednesday 16 March 2005 Members present Martin O'Neill, in the Chair Mr Nigel Evans Mr Lindsay Hoyle Sir Robert Smith ________________ Memorandum submitted by United Kingdom Atomic Energy Authority
Examination of Witnesses
Witnesses: Mr Dipesh Shah, Chief Executive Officer, and Mr Stephen White, Director of Business Strategy, United Kingdom Atomic Energy Authority, examined. Q1 Chairman: Good morning, Mr Shah. Perhaps you could introduce your colleague and yourself and we will get started. Mr Shah: Good morning, Chairman. I am Dipesh Shah, Chief Executive Officer of the Atomic Energy Authority and my colleague Stephen White is the Director for Strategy, also at UKAEA. Chairman, UKAEA has been focused on decommissioning for ten years. We set the pace in the UK with the progressive elimination of our liabilities, including the complete dismantling of 14 of our 26 research reactors. We welcome the strategic focus we expect the NDA to bring to the big issues, which will dictate the future of decommissioning in the UK. We believe that our aspirations are closely aligned with those of the NDA, which are to challenge the timescales and costs of decommissioning; to support the regeneration of the communities around the sites; to create a vibrant British company which is capable of competing with the best; and, most importantly, to maintain the safety, security and environmental standards that are absolutely vital in our industry. Safety remains our first and highest priority. I am sure, Mr Chairman, you will have seen a spate of stories in the media over the past few days about safety standards 20 to 30 years ago at Dounreay. Q2 Chairman: We will go into that in the questions, if we may cut to the chase, as it were. Mr Shah: Certainly. Q3 Chairman: Thank you very much. I think you appreciate that the idea today is that we will do a fairly brisk run round the track - if that is the correct metaphor to apply - with all the players. As we reach the end of this Parliament, as we have reached the stage where we have the NDA, in whose gestation we have taken more than a passing interest, insofar as we were involved in some of the early stages of draft legislation - we were looking at it in embryo - and I will not go on any further than that, but I think you have the point - we thought it was appropriate to see people like yourselves and like BNFL, and we are very grateful to you for coming this morning. As I understand it, you, UKAEA, have reached agreement with the NDA on a contract to manage and clean up your sites for two years, with an option to extend for a further year for the initial contract. This means, in effect, that you have two or three years to get yourself ready for competition. How confident are you that you are going to be able to get there? What do you see as the main problems - either the ones you have overcome already or the ones you foresee coming into sharper relief as the 36 months go by? Mr Shah: Chairman, thank you. For UKAEA, as a non-departmental public body, we do have a major challenge, both in the recent past and ahead of us. We are transforming from an NDPB into an organisation which is capable of bidding with the very best in the world. This transformation is very significant. We have been involved in a root and branch reinvention of the company over the past 15 months or so since I have been there. In addition, of course, as we prepare for competition, we have to bring a number of other skills into the organisation. That challenge is significant but it is one that we are well on the way to achieving. So far as the contract itself is concerned, we have been having constructive dialogue with the NDA. We have not finalised that contract but we are close to getting to that position. As you rightly say, Chairman, the intention there is a two-plus-one contract. Q4 Chairman: You say in your memo to us that you are seeking commercial partners to assist your preparation. Without going into the niceties of that, are you able to say what sort of experience you are looking for, because the impression we have - and you have already stated it twice already - is that you are to all intents and purposes a civil service department and that therefore you have a culture which is not perhaps the competitive culture of a bottom-line driven business. We realise that civil service exercises like your own have a requirement to watch their face financially, but there is a cutting edge required. I know also, from previous contacts we have had, when you were at Grangemouth and I was a constituency member, that you have been exposed to the commercial world. What do you see coming in from outside that is going to be required for you to position yourself credibly alongside a commercial partner? Mr Shah: Chairman, to win in this sector we are going to require a range of skills. Some of these we possess in abundance: the understanding of health and safety, the environmental and security standards, the regulatory framework here, the safety management systems, plus the fact that we are at the leading edge in decommissioning in any event. So there is a whole range of things which will be required which we do already possess. The aspect which you have touched on, it is absolutely right, we need to strengthen the commercial skills. To some extent we have pioneered competition in this industry. We have done those by contracting out to the supply chain, then creating an entire supply industry. We are not unfamiliar with the commercial disciplines which are related there. But of course the bigger transformation for us now is being in a position where we can bid for contracts and not simply assess other people's contracts. To that end, we are actively engaged in recruiting people from the commercial world outside. In addition, we will be looking to strengthen that through the partnering skills that we seek. Essentially they will be in the bid capabilities, in programme management for getting the job done on the ground. Those will essentially be the two skills that we will most be seeking. Q5 Mr Hoyle: In the case of BNFL it has been reported that they have been seeking commercial partners from abroad. Will you be doing the same? Mr Shah: We will indeed be seeking to partner. We will be looking for complementary skills, Mr Hoyle, in exactly the way that I set out a minute ago. That will still focus the expertise and the best-in-class companies that we will be seeking to identify. We have set ourselves a significant challenge of becoming the best in class in this case and therefore we will want to bring in the right partnering skills. Q6 Mr Hoyle: Are there any names in the frame? Mr Shah: It would be premature for me to reveal those at this stage. I think they are the usual suspects within the industry. I would have to say there are challenges to engage the international dimension as well as the UK, and, furthermore, that we are certainly exploring more broadly than just the US. Q7 Mr Hoyle: So, for the worst kept secret: the trade banks, no. Mr Shah: I hope not! Q8 Mr Hoyle: They are all scribbling behind you, I can assure you! You have accelerated the decommissioning over the past two or three years at a phenomenal rate - in fact, the end of date decommissioning now has been brought forward by 35 years - saving £1.5 billion in the process. How did you do this? Is there scope for even greater improvements or is this as far as you can go for the moment? Mr Shah: Thank you for that. We are on a journey. We have had a thorough look at the plants that we have been carrying for many years on how we would go about decommissioning the sites and the costs associated with those. Building around the track records of decommissioning with 14 reactors, we concluded that it is possible to advance the decommissioning of the rest of the reactors, most of which are already in train, by up to 20 years. That, in itself, across our four sites results in a significant reduction in the care and maintenance costs associated with looking at this. We are dealing with the high hazards as early as we can. The combination of those two, results in more than half of the savings to which you have referred. In addition to that, there is the need - as we have done - to integrate across sites. For instance, we were looking at three new stores for treatment and storage of waste at Dounreay and it is possible to integrate those across the site into the one, with a very significant reduction in cost. Having said that, some of the further programmes that we have announced are in need of regulatory and NDA support. We are in active dialogue with both of those and over time they will crystallise. Is there scope to do more of the same? The key learning there is dealing with the high hazards, that if we can accelerate things, whilst being consistent with the efficiency drive that we have dealing with the high hazards, we can significantly reduce the care and maintenance of decommissioning on this site and the real challenges will be only in those areas where the technology does not exist today. Those are not many. Q9 Mr Hoyle: Reduction in care and maintenance, but safety has not been compromised anywhere in it. Mr Shah: Under no circumstances have standards in safety been compromised in any shape or form. Q10 Mr Hoyle: That is great. Mr White: Indeed, I would say that the acceleration in the programme does guarantee reduction of risk, and even safer science. Mr Hoyle: I just wanted to get that on the record. Q11 Chairman: On the safety question, are you confident that the level of regulation by the Nuclear Installations Inspectorate will be adequate to take account of the changing circumstances, the bringing in of new players, the assurances? We have heard stories that the staffing of the AII is under complement, and there have been anxieties expressed. Are these fears that you share, or do you think that, although they exist, they will not be relevant to your particular circumstance? Mr Shah: I am extremely encouraged by the forum which has been established between the regulators, the incumbent organisation and the NDA - the triangular forum, where a lot of these things can be thrashed through in a very constructive way. I recognise some of the speculation to which you refer. It clearly is important that the right staffing is available within the regulatory environment, but that is really a matter for the regulators. The constructive dialogue that we have will, I think, lend us all confidence that we will be able to crack through and move forward. Q12 Sir Robert Smith: One of the other constraints possibly on the pace at which you are going would be: are you getting sufficient financial resources from the NDA in the next years to allow you to maintain this accelerated decommissioning? Mr Shah: In the plans of acceleration that we have announced, they are consistent with the funding line that the NDA has indicated to us. It would certainly be true to say that our funding has declined compared with where we were two years ago. We have, however, addressed how we achieve more for less through efficiency gains and, indeed, through the kinds of accelerations that I have talked about earlier. We could always do with more funding, in which case we could accelerate further, but I am sure the NDA will be under enormous pressure on funding in any event. Q13 Sir Robert Smith: For how long, with this accelerated, will you be economically impacting on the economies of your sites? One of the good news stories about the decommissioning was that it created a clear path of economic activity for sites that were sometimes quite remote. Mr Shah: I think this needs to be taken in the broader context of the stakeholder engagement itself. One of the beauties of acceleration, quite apart from the environmental and safety issues that my colleague has rightly pointed out, is that it also sustains a high level of employment. Otherwise you do begin to tail off fairly rapidly as the decommissioning progresses. Having said that, we have been quite successful - and I welcome the importance that the NDA gives to the stakeholder engagement and the socio-economic development. We have submitted plans for socio-economic development around our sites to the NDA, we are in discussion with the NDA on those. Historically, we have created some very vibrant regeneration communities around our sites. At Harwell and Winfrith we today employ only a few hundred people, but on the sites themselves, through the work that we have done, almost two-thirds as many people are employed on those sites as were ever employed at the height of UKAEA's employment. Likewise at Dounreay we have created a very vibrant supply community around there. It is very reliant on Dounreay. It will be important to continue their good work. Q14 Sir Robert Smith: You say in paragraph 18 of your submission: "Site management teams have been asked to prepare socio-economic development plans for their sites, although it is not clear that additional funding will be available." Are the NDA willing the ends but not the means at this stage? Mr Shah: We have submitted the plans and I think the discussion on precisely how it is funded and whether it is funded from our existing budget or elsewhere is yet to be had. I think this is simply a reflection of where we were at in the discussion in terms of our submission. Mr White: Our socio-economic plans are consistent with the funds we currently have available but we think we could do more. The NDA does have a statutory remit to address this issue. That is not part of our statutory requirements. We have been trying to do it as part and parcel of our decommissioning responsibilities. I think the NDA does provide an opportunity to give even more focus to this. So our plans as submitted are consistent with the funds we currently have. Q15 Sir Robert Smith: But if the NDA were to take on the extra statutory responsibility, then you would hope they would see the need to buy into a greater projects. Mr White: You could always do with more resources. Q16 Sir Robert Smith: Yes. In a certain part of your memorandum you talk about a strong preference for the packaging of sites into groups or clusters for the purpose of putting the management and clean-up out to tender, as opposed to tendering on a site-by-site basis. We have to ask the question: Is this simply to keep the current site in one package, so that you will be the lead applicant in the tendering process? Mr Shah: I think the agenda is slightly broader. Some of our sites are quite small. They do require economies of scale, with central functions that provide the bench strength that is required. It would certainly be the case that if those sites were to be competing site by site, we would consider that the costs will be likely to go up. Having said that, however, if we think of the practicalities - and this is really what we were referring to in our submission - of competing out those sites, it will be important to learn from best practice, not only internationally but here too. It will be important to build on that best practice. Fragmentation runs a degree of risk in that not being evenly transportable as we contractualise site by site or programme by programme. There is an irreducible minimum that it will make sense for us to go for as a nation, so we would contend - and we are quite open about this - that some clustering of sites is both practicable and appropriate and will certainly fit in reasonably well with the way we are structured ourselves. Q17 Mr Evans: In which case, what are you going to do with Sellafield? Mr Shah: It is not for us, of course, Mr Evans. We have said in the submission that, if we are to be competing, we would like to have the opportunity to compete for business also on other sites within the UK, including Sellafield. In that context, I think, because it is a very big site and it does account for a very significant proportion of the total spend on decommissioning in the country, we would consider it should be possible to identify packages which are amenable for competition. Q18 Chairman: Over the years, the Committee has visited Dounreay. It might be some years since we have been there and at least in part our absence has been attributable to the fact that we thought things were improving. We saw recently in the Scottish press - and, indeed, the national press picked it up - the question of radioactive material on the Sandside beach. Is this something that has been, for want of a better expression, reheated? Or is it something new? Mr Shah: It is nothing new. Clearly on arriving in the UK I have publicly and repeatedly expressed my regret that particles should ever have been discharged into the environment. We have taken a number of steps. Certainly the actions over the past year have been intense too. Not only have we commissioned a new effluent plant, we have put filters upstream of the effluent part and we are in the process of putting a filter downstream of the effluent plant. This is a belt-and-braces approach to ensure that any legacy related to this is truly historic. We believe it is. All the investigations that we have carried out - I have asked my safety director to look into this - suggest very clearly that there is no evidence that these are current issues, that it is entirely a historic issue, and therefore it is something we are dealing with from events and operations which were terminated in the early 1970s. Q19 Chairman: If you had been buying Sandside beach and I was your lawyer 15 years ago and you discovered particles now, would you be suing the UKAEA or your lawyer, do you think? Mr Shah: I think one would have to look at the circumstances related to the purchase. I cannot speculate beyond that. Q20 Chairman: What I am really getting at is that if you buy a beach next to a nuclear plant whose safety record, even then, was a bit dodgy, you cannot really cry foul when you find some particles on the beach. Mr Shah: One would imagine so, Mr O'Neill. Q21 Chairman: I ask you to be no more definitive than that. I can imagine as well. Certainly I would have thought the words "due diligence" come into play here. But it was just trying to put this press report into context, because, on a quiet news day, Dounreay is always good for a few column inches, and I just wondered if that was your feeling as well. Mr Shah: I think the approach that we are using in connection with this is to be totally open and transparent. Any information which has been sought, we have put into the public domain. Even internal reports, which we might not have otherwise been required to do, we have put into the public domain. I am hopeful that there will continue to be constructive dialogue and that we can find a mediated settlement in where we head into the future. Certainly we will remain entirely open and receptive to any other advice that people have on offer on practical steps that we could take. I cannot undo the events of 20, 30, 40 years ago. I can deal with the events of today and ensure that there is no damage being carried out to the environment and indeed to position this appropriately for the future. I have every intention that the culture within our organisation reflects that approach. Q22 Chairman: How is the shaft doing? Mr Shah: We are working very hard at identifying the technical challenges in isolating the shaft. As you know, we are moving forward with a programme of isolation. That is the first practical step. The next step will be assaying and, indeed, decommissioning. By putting the shaft in place, we have isolated the environmental risks associated with it - which is a good practical step. Q23 Sir Robert Smith: The legacy of dealing with it is not just the legacy of the particles, it is the legacy of past secrecy that has come back to haunt the industry, in a sense. Mr Shah: I am sure there is a whole body of literature on that secrecy that I have also read, Sir Robert. I would say that we have entered over the past few years into a great spirit of openness. The management team that I have today, many of whom are new, are certainly further going down that route of total transparency and total openness, so that in fact all of this is a matter of public record. Q24 Sir Robert Smith: In the NDA's responsibility to establish an industry-wide pension scheme - and the Energy Act empowers you to administer such a scheme - what is the timescale for having a clear outcome as to what will be happening to that scheme? Mr Shah: I think the discussions are continuing. Something like two out of every three employees within this sector are currently administered by the UKAEA pensions team. We have certainly indicated to the NDA that we would wish to be considered for the NDA scheme for pensions which will shortly be coming into place, and discussions will continue. I hope that we will receive a very sympathetic reception in respect of that, not least because the team up at Thurso is in a location where employment is important, but. quite apart from that, against the best benchmark that we have done both in the private and the public sector, independently carried out by people like Mercers, this team have come across very much as close to if not the best in class. Q25 Chairman: Thank you very much. Mr Shah: Thank you, Chairman. Chairman: As I have said, it is a fairly short inquiry this morning. We have also the buffers of the Budget to consider, so thank you very much for your trouble. Memorandum submitted by BNFL Examination of Witnesses
Witnesses: Mr Mike Parker, Chief Executive Officer, Mr Alvin Shuttleworth, Company Secretary and Group Legal Director, Mr David Bonsor, Director ALFA Group HR and Spent Fuel Services, UKAEA, British Nuclear Fuels Limited, examined. Q26 Chairman: Good morning, Mr Parker. I think it is your first appearance before the Committee. I think some of your colleagues have been here before, but perhaps you could introduce your colleagues and then we will get started. Mr Parker: Thank you, Chairman. Good morning. I would like to capture a couple of things for you, as I explain who my colleagues are and why we are the three who are here representing the BNFL today. As you may remember, we went through a major strategic review with the Government, our shareholder, from August 2003 through to December 2003, basically as I arrived at BNFL, and one of the things we decided to do in parallel with that was to drive major organisational change in BNFL as a group, so we reduced the scope of the corporate centre where I sit and built up a business structure: basically, Westinghouse, already a well-established business, and then the UK activities of BNFL being driven much more into a business organisation and business structure. So we have had major change going on. The folks who are sitting here today sit at the centre of BNFL, overseeing the business structure. I am the group Chief Executive. David Bonsor sits on our board and also has a number of responsibilities: he has had oversight for our BNFL Alpha which was the internal customer basically acting as the NDA; he also has a leadership role for Spent Fuel Services Reprocessing, our reprocessing activities, from a strategic point of view and a commercial consideration; and he also has been given recently an oversight for human resource responsibilities at BNFL. On my right is Alvin Shuttleworth. He is the general counsel of BNFL and is also our Company Secretary. Q27 Chairman: Thank you. Paragraph 6 of your memorandum draws attention to the fact that the Government has given you a fairly challenging timetable, which has forced you to take some tough decisions to get into shape as the "contractor of choice". In some respects the challenges are not dissimilar to those of UKAEA but on a large scale, given the size of the operation. Could you maybe elaborate on the nature of the changes that you have been required to face and how you are shaping up, as someone coming in at a time of both change internally and externally. Mr Parker: Yes, there is clearly a huge amount of change going on. I think the way to describe it, as we would see it and certainly our shareholder would see it, is this need to focus on the NDA and to dispatch decommissioning and clean-up activities within BNFL's purview in an extremely efficient and effective way. That is why we have created British Nuclear Group, to do that. But obviously the company does a lot more things than decommissioning and clean-up. We are operating major facilities up there, reprocessing facilities, we are a world's major nuclear fuels manufacturer and nuclear reactor service player and we have the broadest nuclear reactor technology available in the world today. So we are a very broad company and that is why we had to drive to this business organisation and this business change. Clearly we have agreed with our shareholder that the primary focus of BNFL right now is focusing on working with the NDA to ensure that it is set up very well and very efficiently and it works well, and that we transition that part of our organisation away from an owner/operator cultural mindset and into a manager/operator cultural mindset; that is, that of a contractor. That is what we are doing and that is why we have created British Nuclear Group. Really we recognised when all this was happening that, although we have excellent science and technology and a very good base and grasp around operations, we were not as strong in the commercial areas - you know, supply chain, programme management, purchasing, etcetera - and that we really needed to get on with strengthening that. So we created British Nuclear Group (which was called Government Services Group) and we drove that basically as soon as I arrived and named it what it is today in sort-of April last year, but, in parallel, as we have gone through all this, we have been looking to add people to complement at senior levels our commercial supply chain/purchasing activities. That is what we have been doing and we are very pleased with the people we have been able to attract. Q28 Mr Hoyle: How will the international commercial activities of Westinghouse be separated from the commercial and clean-up work that is being done for the NDA, so that the NDA is not funding and not cross-subsidising those activities? Mr Parker: As I mentioned, we have established the business structure that we have, so Westinghouse is a well-established business organisation. It has been managed, by the way, by BNFL since its acquisition - and we made acquisitions then of ASA Brown and Bavarian Combustion Engineering businesses - essentially as a stand-alone business, which is given governance and oversight and strategic challenge - and, of course, demand in terms of performance - from the corporate centre. So that stands very clearly on its own. Westinghouse has M&O responsibility for the Springfields site because that is where fuel is manufactured. There is also a decommissioning clean-up activity that really Westinghouse will act as an M&O for that site, working for the NDA. That is how it will be done. It will be just as clean and as clear-cut in terms of that as it will be for the British Nuclear Group's businesses. Q29 Mr Hoyle: Will you subsidise Westinghouse reactor bids, either through direct use of NDA money or through indirect use; for example, using NDA money for an operation it would normally have funded, leaving it free - and this is the key - to allocate the same money to Westinghouse, reversing it round? Mr Shuttleworth: As well as the business structure which Mike has just pointed out, which is complete separation coming to the centre for oversight and test and challenging of the business going forward, there is also the contractual arrangement with the NDA, which will, I am sure, have the effect of eliminating any potential for subsidy. Let alone there being any, the contract and the funding mechanisms will rule that out. Q30 Mr Hoyle: So you have all the safeguards, all the measures being taken, you have all the bean-counters watching for any money moving across that should not. Mr Shuttleworth: Yes, and I think it will not just be our bean-counters. I am sure the NDA will be keeping a very close eye on that. Q31 Mr Hoyle: Let's hope so. The last thing we need is someone else crying foul. Your memorandum notes the passing of responsibility for THORP and SMP over to the NDA but makes no mention of the difficulties you have encountered in trying to make the SMP commercial viable. Is there a reason? Mr Parker: No particular reason at all. The SMP plant has been in commissioning now for some time and it has been a challenging plant to commission. You may know that this plant was built some time ago and went through quite a lot of challenges before in fact we were even given authorisation to start commissioning. I am very pleased to say that we have been making a lot of progress on this facility in the last nine months and in fact we are on schedule, by our opinion, to meet our first major milestone, which is the production of fuel assemblies for a Swiss customer. The aim is to get that done by the middle of this year, so we are making good progress now. David has oversight. I do not know whether you would care to add anything else to that, David. Mr Bonsor: As Mike says, we have been having difficulties. We are pleased to be able to say that the plant is now producing high quality pellets, which is the first thing. Those pellets are being put into rods and producing high quality rods. Q32 Mr Hoyle: They must be, given they are from Preston! Mr Bonsor: Some of it is from Preston but it is actually at Sellafield! The rods, we are just about ready now to start producing the first fuel assembly and assembling that. So we do think that over the past few months we have been making good progress with the assembly. Q33 Mr Hoyle: Are the income projections viable? Are they going to stack up? Is your plan going to make money? Mr Parker: For SMP? Q34 Mr Hoyle: For SMP. Mr Bonsor: Clearly delays would mean extra cost on the cost side of the projections. Together with our shareholder we keep a good review, a regular review. In fact, I chair a regular meeting which in future will be chaired by the MDA, that keeps monitoring progress, both physical progress on the plant and also the economic and business progress on the plant. The customers remain keen to buy the product. All the indications are that the economic assessments that were done previously, the parameters that were put in those assessments for price and for quantity, are likely to be achieved. Until the contracts are all signed and so on, you cannot actually say that has happened, and many of the customers would like to see fuel manufactured and performing well in a reactor before they come forward to sign contracts, but the indications are that all the parameters that went into the previous assessments, apart from the delay in the first production, are being maintained. Q35 Mr Hoyle: The critics would say that with all its problems would it not be better to put an end to its misery and close it down. What would you say to the critics? Mr Bonsor: I would say that is always an option and that we need to keep looking at that option. It is not a clean option because there is plutonium that has been separated through the reprocessing process which is at Sellafield. It belongs to our overseas customers. That plutonium would need to be returned to those customers. They would prefer to see it as MOX fuel, so we believe and the customers, I think, would say that is the best way of doing that and that we should do that. If it is not possible to do that and if the plant was shut down, then it would mean transporting extra quantities of plutonium-oxide, which is something I think our critics would also say is not a good thing to be doing. Sir Robert Smith: Caught between a rock and a hard place. Mr Hoyle: A rod and a hard place? Sir Robert Smith: Moving on ---- Mr Hoyle: The do no get any better than that! Q36 Sir Robert Smith: Moving on, in paragraph 17 of your submission you say that short incumbent contracts will not necessarily facilitate contractors being suitably incentivised to invest for future programmes. Are you dissatisfied in the way initial contracts have been framed? Or are you laying down a marker for the future when contracts are put out to competitive tender? Mr Parker: I think the real commentary there is that we know as a company, as we create British Nuclear Group, that we have strengths - as I commented earlier - and we have areas in which we need to become stronger, and the more time that you can have to do that, then clearly the more capable and the more competitive you are going to be. Obviously, therefore, that is a question of time. I think the NDA has chosen here - and it varies by site here: you mentioned two-plus-one for UKAEA, and some of ours, I think, are two-plus-one and some are two-plus-one-plus-one. That is a question for the NDA to decide on those timeframes and it is our job to respond to that. One of the key things we are doing here is making sure we know all of the other players in the marketplace, whether they are UK players or whether they are international players, and start to get to know them better and assess their strengths and weaknesses versus ours and their knowledge and understanding, so that we can make the best decisions in terms of how we go about winning those contracts when they are competed. That is really our mindset and point of view right now. Q37 Sir Robert Smith: Do you stand by your warning that if they remain short you are worried that the incentive to think long term on the contractor's part ---- Mr Parker: Let's put it this way: I would certainly say that we need always to keep that in mind. We are going to be working very hard from our point of view to make sure that we do not lose sight of the longer term. I must say that the Life-Cycle Baselines and the Near-Term Work Plan disciplines that have been brought in by the NDA are all going to help with that a lot actually. Q38 Sir Robert Smith: The chances of getting renewal of a contract will depend on the fact that you have some forward vision as to how you are going to operate. Mr Parker: Exactly. Q39 Sir Robert Smith: The other issue is the one raised by UKAEA about clustering sites. How do you feel about that? Their view is that the very large sites could possibly be broken up but that smaller sites would benefit from economy of management, being put together in clusters. Mr Parker: As you know, Sellafield is a huge site and represents 60/65 per cent of this total of the whole of the UK here. It is absolutely enormous. The NDA will have to decide how it wants to complete that, and that is the most challenging side to compete - how they do that it will be interesting to see, as they evolve their thoughts. With regards to all the other sites we have, you really need to look at them in two ways. First, there are four sites that are still operating (ie, Magnox power points that are producing electricity) and they will all come to finish - the last one being Wylfa in 2010 - so those have a unique aspect for the next few years. You could think of bundling them, for example, because they are operating sites. The others are either sites like Springfields, which is dual-site but has some decommissioning and clean-up, and then you have Capenhurst, which is really for us decommissioning and clean-up, and then you have this other number of Magnox sites that are either well advanced in their decommissioning and clean-up or just starting. How you choose to bundle those together is critical. One of the things we have done is to enable the NDA to compete those sites the way they want, in whatever bundling they want to. We started to address major organisational issues at Berkeley, which was historically and still is today, the corporate centre for Magnox reactors. Q40 Sir Robert Smith: Thank you. If we could move on now to business partners and reports in the press of a concern that you are looking overseas for business partners. First of all, is it true that you are looking to consider overseas? Mr Parker: We are willing to consider any excellent company as a partner for us. Clearly we know the UK companies here who could potentially be our partners quite well, because we have been working with them over the years. The more international companies, particularly the ones in the US - although we have had a decommissioning clean-up arm in the US for many years, BNFL Inc - they have got to know them quite well in their market place, and clearly they understand decommissioning and clean-up in the US marketplace very well, and many of the tools and disciplines and thought processes have been brought in to the NDA through the vehicle of Bechtel. We need to recognise that they have a lot of experience, knowledge and understanding, and what we need to do is also to get to know them. One of the keys is not just fitting together strengths and weaknesses, but really this is a human business, and we need to make sure that we get to know everybody, so that we can make the right decisions, not just from strengths and weaknesses fits but also from compatibility, culture, the necessary human dimensions here. Q41 Sir Robert Smith: At this stage you have not set your sights necessarily on overseas contractors. Mr Parker: No. Q42 Sir Robert Smith: But you have not ruled them out. Mr Parker: Exactly. Exactly right. Q43 Sir Robert Smith: How do you respond to this concern that, if you do go overseas, how is this going to affect the skills base in the UK for the future? One of the priorities of the NDA is to maintain a skills base, an indigenous skills base. Mr Parker: Remember here that the vast majority of the sills will reside inside licensed companies and these will be transferable entities. So the vast majority of BNFL will sit in there. They are owned and basically managed by us at this point in time in the context of the incumbent contracts, but they will be transferred if we were to lose the contract going forward. My point would be that we need right now to make sure we definitely focus on those folks who will truly be cap-badged (as we use the words) as BNFL British Nuclear Group people, and we have the very best people that can do that job. We feel that in fact this ought to work pretty well and that if we partnered with others, whether international or whatever, they would just send some of their very best people in here, with the most experience at the right level. And, quite honestly, if they are not willing to put the right people in and of the right quality to bring in here to help us, then in fact we will not be partnering with them. Mr Shuttleworth: The nuclear skills base is largely in the UK now. Our company has tremendous skills base in the nuclear area. As Mike said earlier, in partners we are looking to supplement and complement those skills by bringing in project management, commercial skills. So the nuclear skill base largely rests with the UK anyway. Q44 Sir Robert Smith: Have you been consulting with the NDA on your plans? Mr Parker: Primarily through the vehicle of the shareholder executive, who basically we interface with. We have been consulting with them. Clearly we have been doing what we can to understand the point of view of the customer here with regards to partnering and other points of view. They have then appropriately balanced in their response to those things and we have been really thinking for ourselves at this point in time. Q45 Chairman: Before we go any further, could I get a wee bit of a handle on this. Am I right in saying there are going to be a number of contracts, so, whether it is the UKAEA style cluster approach or splits of one kind or another, it might well be the thing that you win some and you lose some. Mr Parker: That is correct. Q46 Chairman: We have to recognise that we are talking about really the upper slice, the upper levels of management whose jobs are on the line here. Mr Parker: That is correct. Q47 Chairman: The people on the shopfloor, the people lower down the management, probably will carry on and they will not really see a difference ... well, they may see a difference, but I am saying in terms of the functions that they fulfil that that will carry on. Really would it be right to say that in some instances you will partner and in some instances you will not. Mr Parker: Let's put it this way. Everything you said, we would totally agree with. Whether we will choose to partner to some degree or another in each one of the competed sites or groups of sites, I think we will just have to see as we go along. But I would suggest to you that the nature of the partnering may be different depending on the bundled sites that are put together. Q48 Chairman: I am trying to establish that the essence of the NDA and, indeed, you response to that approach would appear to be pragmatic. Mr Parker: I would think that is exactly the right word to describe it. Q49 Chairman: The loss of one contract does not mean quite the end of western civilisation. Mr Parker: Correct. Q50 Chairman: But there could be a doomsday scenario - which I do not particularly want to paint, especially for yourselves - in that you lose everything. You might be like Chelsea and look as if you are going to win everything or just about everything, but, on the other hand, you might end up like Man-U or Arsenal and maybe not getting anything at all. Mr Parker: Right. Q51 Chairman: Depending on ----- Mr Parker: That is one way of looking at it. Mr Hoyle: There is always the F A Cup! Q52 Chairman: That is a knock-out. Mr Parker: Clearly, when you are leading an organisation that has gone through as much change as this, you want to paint a very clear picture of a direction in the future and an opportunity to win. We really believe we have that. We need to be very realistic on our strengths and weaknesses and we need to be very realistic on the timeframes of these competitions to competition. We need to move our organisation forward - which is what we are doing - and we are going to do everything we can to win those contracts. If we do not win those contracts, we will have to deal with the realities of that. I would hope, though, that of many of those managers and executives that you would see, some or quite a good number would still be regarded as very, very valuable by whoever would actually win those contracts - and I am not saying all of them, but I would be rather hopeful of that. Q53 Chairman: As a Committee we welcome the NDA and the work it is going to do. For an organisation like yours, there will be quite a sizeable challenge in terms of managing keeping the morale of the workforce together. Mr Bonsor: Yes. Mr Parker: On your point, Chairman, that is why I started the way I did: this is not just change related to the NDA and BNG; this is huge change for BNFL as a very large organisation. We are working very dedicatedly here on alignment of our folks - not painting a totally optimistic picture but not painting a bleak picture - painting a very realistic picture but one in which they can win. I think we are in pretty good shape as regards that. One of the fantastic things - I am just so proud of our folks - is that we have been able to run our operations here in the UK, whether it is fuel plants, reprocessing, electricity generating plants, very, very well. We are getting the best performances we have had for years out of these plants, and at the same time we are delivering both industrial safety and nuclear safety performance that we have never achieved before at BNFL. And we are setting ourselves targets for the next three years, going through this change, which demand 15 per cent improvements in industrial safety per annum over the next three years. That is still all to be done, that last part, but I am very, very proud of our organisation in the way that we are dealing with all of the uncertainty that has been generated here and the challenges that we have. It is our job to lead and manage that and I think we have an excellent executive and some very, very good people, and a lot of knowledgeable people, and I am proud to be associated with them. Q54 Mr Evans: I have to say that I thought the Chairman's footballing analogy was pretty poor and strained. He meant to say, "Like the Welsh rugby team - winning everything, apart from everybody else who gets nothing!" Looking at your submission on paragraph 23 on research and development, you say, "The UK is unique amongst nations holding significant nuclear capability in failing to maintain any form of Government sponsored National Laboratory or equivalent capability." Who do you think should be paying for all of this? Mr Parker: First of all, when we went into our strategic review with the British Government in August/December 2003, one of the key things on which we agreed was that in the spirit of keeping the nuclear option and the intellect of research and technology that resides in our research and technology function, that we need to run this thing in a way where we can maintain that and at the same time try to transition that function into a more commercially oriented function which does things in a more efficient and effective way. We have been looking and thinking about who could be the best long-term owner for that. We were not able to arrive at that answer in an absolutely cast-iron way when we went through the strategic review, and the decision was left: "Let's leave it inside the auspices of BNFL for the next period of time." As we evolve our thoughts here, as you see from this comment, we think there is a real opportunity here to look at the BNFL technology centre, the new one that is being commissioned at Sellafield, as a real national asset, that we really could think of as a national lab - and there is a lot of generous support for that. How you would go forward from there - whether it would be a Go-Co type of organisation or whether it could be some other sort of hybrid related to that we will just have to see. Mr Bonsor: Certainly within that organisation there is work that is directly associated with supporting the sites like Sellafield and other operating sites, so there will be a certain amount of funding that would come from the NDA because they did support the NDA operations on the site - indeed, all the signs are that the NDA are very supportive of that. They take the skills agenda right towards the top of their list, so all the signs are good for that. The technology resource that we have within BNFL does more, and certainly is focused on clean-up and so on and supporting the operating plants, but also has more general capabilities, which are appropriate both for ongoing operations of nuclear power stations, including British energies, and also could be appropriate if there were new build in the UK. It is that side of it which is less straightforward as to where the funding would come from. Indeed, I hope that was part of the discussion to which Mike referred which has not yet been fully resolved where that would be from. Q55 Mr Evans: Thank you. I think we should keep the nuclear option open and, indeed, perhaps be more bullish about it, actually looking at it far more seriously than currently we are, with our energy demands for the future. But critics of this research and development plant are people like Greenpeace, who say that they fear you are going to look at new nuclear technology. What do you say to that? Mr Parker: Let me say - and we will all chip in on this - clearly we are going to be focusing very strongly here on decommissioning and clean-up. That is a major part of research and technology, now called Nexus Solutions - as we have branded the business to be. That is a primary point of focus for that. We have what we call "capability kernels" which we have defined, that can serve, whether it is new build or what-have-you. These are very small numbers of people, high calibre people, who need to be available if in fact the Government would want to revisit the subject of energy policy and the role of nuclear in it. That is how we have been defining that: very tightly, very clearly. It adds up, in total, if you take all of these capabilities, to about 120 people or something like that of the 800 or 900 people that make up Nexus Solutions. Q56 Mr Evans: Do you have a lot of support for this idea on having this R&D facility? Mr Bonsor: We do have support, yes, and there is support throughout government and industry for having a technical base within the UK which supports the nuclear capability. As you rightly point out, the issue then is the funding. Q57 Mr Evans: So the Government are in favour of it but they are not that much in favour of it. Mr Parker: The NDA is being very constructive in the areas that cover their purview. There are other parts of government that are really wanting to be and are trying to be very supportive in a very tight budgetary environment. I think we will see how things evolve over the next 12 to 24 months. I think a lot can happen. Mr Evans: I think a lot could happen over the next 12 to 24 months too. The last question has been covered. Chairman: Gentleman, you have covered all the areas we were interested in and we are very grateful to you. If there are any problems, we will be in touch to get any additional information, but I think you have been very fulsome in your responses. Ignore the rugby asides. Memorandum submitted by the Department of Trade and Industry Examination of Witnesses
Witnesses: Mr Peter Waller, Head of Energy Industry Technology Unit, and Mr Andrew Layton, Director, Radioactive Waste Policy, Ms Serena Hardy, Legal Department, the Department of Trade and Industry, examined. Q58 Chairman: Good morning, Mr Waller. Perhaps you could introduce your colleagues and we will get started. Mr Parker: Thank you, Chairman. My name is Peter Waller. I am senior director in the energy group in the DTI. I think it has been my fundamental task for the past 15 months to make sure the NDA project was organised, so as to get the NDA up and running by 1 April. Andrew Layton, on my left-hand side, has been my chief deputy on this and could be described as the chief executive on the project or my element of the project. None of this is ever achieved without lawyers, so Serena Hardy is the departmental lawyer who has been on this throughout the project. Q59 Chairman: Thank you. Maybe we could start with the PSA targets that have been set for the NDA. How were they established? Mr Parker: They were established, as all PSA targets are, in the context of the spending round last year that the Treasury had with all departments. In the context of the DTI, the NDA going forward is going to be spending about a quarter of the DTI's total budget. Therefore, for there not to be a PSA target would have been a bit strange, and we agreed one with the Treasury. It was unusual, however, because we were agreeing a target which would apply to an organisation which was 12 months from being set up. Therefore, the spirit in which we agreed the PSA target was to worry, to be honest, less about the fine detail of it and more about vindicating the direction of travel. The three things that were really important to Government, and are important to Government, are: that we make a real fit on the size and scale of the decommissioning problem (in other words, reducing the total liability); doing so efficiently, improving efficiency year on year; and also the introduction of competition. In each of those cases we are covered by the PSA target. I guess we could have gone out, although it is not really done for PSA targets, to lots of open consultation on it, but actually the key consultation on all these issues is going to be the consultation around the NDA's public strategy which will come out during the course of the year. I have to say that if the NDA comes to us and says, "Actually, we don't think this target is quite right," then there will be an open door in government to say "Okay. What should it be?" which is unusual. Q60 Chairman: What you really seem to be saying is that the Treasury requires PSAs and although it is not quite appropriate in this instance since it involves so much of the DTI's budget, you have got to have something, so you think of a number. It is not quite consistent, as I understand it, with the need for the NDA to consult stakeholders at every point. In some respects until they exist there are not stakeholders, but they have got to have a PSA before they can exist. Is that correct? Mr Waller: That is a pretty fair description of the position we were in. It would have been strange to have said we are going to allocate 25 per cent of DTI resource to this and we are not going to have any targets at all, we are not even going to indicate in broad terms what matters to us and what matters to government, but we do recognise that if as a result of the consultation process it looks as though the target is not quite right it can be re‑looked at again. Q61 Chairman: So it is basically the Treasury's fault. Mr Waller: You would expect me to say that they are freely negotiated between the DTI and the Treasury and we shake hands on a fair deal. Q62 Chairman: And we believe that, yes! How does a two or three year pre-competition period sit alongside the Health and Safety Executive's demand for a 'period of stability' prior to the introduction of competition? Do you think that the two to three year period is going to create uncertainty which could feed into the whole safety culture? Mr Waller: The Health and Safety Advisory Committee effectively said, "We're worried that competition might be introduced too quickly." Frankly, I like my people with a safety hat on to be worried, to be slightly fretful and they are legitimately fretful and concerned. This policy has now been around for two or three years. We have another couple of years to go before competition is introduced. I think that is long enough. Equally, we have to satisfy the Nuclear Installations Inspectorate in fine detail. The NDA will publish its strategy in late summer or thereabouts. The NDA will seek to reassure the HSE and the advisory committees that what they are doing is perfectly legitimate and reasonable and does not threaten safety. Ultimately, I have to say that the safety regulator is in a pretty powerful position. If the safety regulator says on the record, "This is too fast. This will compromise safety," then I think it would be rather strange if the Government ignored that. However, I do not expect that because on the current plans I think there is sufficient stability there. The real issues about safety are about the detailed day‑to‑day activities of sites and there is an awful lot of continuity of the day‑to‑day activities at sites here. Q63 Mr Hoyle: In the case of the Nuclear Liabilities Investment Portfolio, what proportion will be transferred to the Decommissioning Account on 1 April, and is that an appropriate date? Mr Layton: It is about £700 million comes across in the initial tranche and that is calculated in addition to the income it expects to receive. That has been calculated on the basis of what it expects to receive in addition to the income. The NDA will need to deal with the BNFL liabilities during the on‑going state aid investigation. Q64 Mr Hoyle: When will the rest be transferred, and what amount is that? Mr Layton: I think the precise amount remains to be seen. I do not have the details here. We can tell you how much is in the fund currently and write in with the detail later. The remainder of the fund, however, I expect will be transferred once the state aid investigation is complete. Q65 Mr Hoyle: So what is the timescale? Mr Layton: The latest that we expect a decision on the state aid case is in the summer of 2006, but we do not expect it to take that long. Q66 Mr Hoyle: And by then you should also know the amount, should you not? Mr Layton: Yes. Q67 Mr Hoyle: How much do you think the amount will be? I am sure you can send us the details later. Mr Waller: It is roughly three times, so it is about £5 billion. Q68 Mr Hoyle: So you have £700 million down as a retainer and then there is £5 billion to be transferred later, is there not? Mr Waller: Because the Government is taking on the long‑term liabilities the Government will take the money that BNFL had set aside for that, so it is a question of the fine detail of the BNFL partnership. Q69 Mr Hoyle: So it is £53/4 billion or thereabouts in total, is it not? Mr Waller: Yes. Q70 Mr Hoyle: Why will the NDA not be able to plan its budget on a ten year cycle, as was originally forecast in the White Paper? Mr Layton: Like the rest of Government, it has to fit into the three year cycle, it is as simple as that. Q71 Mr Hoyle: But the plan was ten years. Mr Waller: Like any part of government, we would expect long‑term planning. We would expect the NDA to have quite detailed plans looking forward. You never get, in my experience at any rate, the Treasury firmly committing to sign off for more than three years in one go. Indeed, they used to only sign off for one year at a go. Q72 Mr Hoyle: Why put it in the White Paper that it is on a ten year cycle? Mr Waller: I do not know. Neither of us was around at the time. Q73 Mr Hoyle: Someone somewhere genuinely thinks it should be a ten year plan. Everybody is saying the Treasury do not work on ten year plans. Why did it end up in the White Paper in the first place? Mr Waller: I do not know why that is in the White Paper. We can find out for you. Q74 Mr Hoyle: Could you drop us a note if you find out why that is? Mr Layton: The NDA's finances are organised on this three year spending review basis, but that does not mean that government is any less committed to funding decommissioning in the long term. We got a very good settlement this time round. We are already thinking about what we are going to go back and ask of the Treasury next time. I do not think it is significant. Q75 Mr Hoyle: After today I do not think there will be a lot for you. Mr Layton: Maybe not. Mr Hoyle: I hope there is not! Q76 Sir Robert Smith: We are coming back to what rather worried the Committee at the time of the NDA being set up. The whole point was to get a handle on this legacy that had bedevilled the industry and the image of the industry. We were very taken with the fact that a segregated fund would have created that clear financial horizon. We are already seeing, because of the accounts being adopted, the Treasury saying you can have a three year horizon and then you have to plan on the assumption that goodwill will carry on. Mr Waller: I have never known on activity of this sort for organisations not to be able to plan for more than three years. Usually there is a debate as to whether in the next spending round you are going to get five per cent less or five per cent more and so on. I certainly have not had any conversations with the NDA in which they have said that they regard this funding regime as difficult or intolerable. This could come back on the agenda if two things happen, ie if the NDA, which did not exist at the time the discussions were held, can demonstrate real competence and real authority which justifies a ten year commitment by government, and if the NDA could demonstrate that having three year funding regimes reconsidered every couple of years is actually causing it operational problems. I do not know that they will be arguing that to us. Q77 Sir Robert Smith: Obviously we will follow that up. A big chunk of their projected funding at the moment comes from the forecast receipts of commercial activities. How confident are you that the £1084 million will actually appear from the commercial activities? Mr Waller: Those are the forecasts we are inheriting. As always, you make your best estimate of forecasts. We can see downside and upsides. There could be a major failure somewhere and you could suddenly find yourself with a significant loss of income. We would have to handle that just as BNFL have to handle it at the moment with their income. We would expect BNFL to handle the swings and roundabouts of income themselves in the first instance and if they get a major problem with that they will come and talk to government about it. They would come and talk in the first instance to the DTI and the DTI then goes and talks to the Treasury, if necessary. We plan on the basis of the best forecasts. I am pretty confident there is nothing in there which should have any reason to go catastrophically wrong. If they do, we would expect a very early dialogue. Q78 Sir Robert Smith: Most forecasts are best estimates but they also tend to have risk factors and the spread built in. Do you have any information on that that you could send us or give us now? Mr Waller: We will have to send you something on that. Mr Layton: We have upside and downside sensitivities. Q79 Sir Robert Smith: That would be handy. You mentioned that you are still waiting for the European Commission to investigate the state aid situation. A lot of real planning is assumed on the assumption that there is going to be no problem there. How confident are you? Mr Waller: I am personally very confident. We believe strongly in our case. Our case is not that there is not any state aid; our case is that the state aid is thoroughly justified because the state aid is necessary to tackle the legacy that the country has got to deal with. The Commission themselves, in their statement announcing they were going to do an investigation, recognised the potential positive benefits of what the UK was proposing with the NDA. The tone of the document was very much "Here is a case that is important enough to look at" rather than "The UK's in the dock and we're out to get them." Good progress is being made. The Commission have really moved more quickly than the Commission is famous for moving in setting up these inquiries. We have put in our comments, we have put in our comments on third party comments and we would expect, once the Commission has absorbed that, to be in detailed discussion with them really quite quickly. I have to say, I think our case is pretty strong. If the Commission has reservations then I would imagine we will be talking with them about those specific reservations and seeing whether there is anything which can be done to meet those. I doubt that this will come out as a blanket no. Q80 Sir Robert Smith: Is there a fall‑back strategy if you do get a blanket no? Mr Waller: We do not need to do that just yet because we are not anticipating a blanket no. If we find when we start talking to the Commission in detail that they really are deeply and seriously worried then our first strategy will be to tell them they are wrong, but our second strategy would be to look at the fall‑back position. Q81 Mr Evans: You have asked the BNFL Board to manage the other businesses to deliver value and in a way that limits and controls risk to the UK taxpayer. Are you happy that that is being done? Mr Waller: I believe so, yes. We have made a separation within the Department in creating a shareholder executive. I and my team act as the nuclear decommissioners responsible for the NDA and for the customer relationship. The shareholder relationship is the responsibility within the DTI of the shareholder executive and that is quite right. It is there to manage with minimal risk. If BNFL were to want to engage in novel activity they would need to clear it with the shareholder executive who would be looking at it from the point of view of what risks are involved here, but there has not been a move to see the new BNFL go off and take lots of exciting new ventures. Q82 Mr Evans: Is there a plan within the Department at some stage for it to be floated off or privatised? Mr Waller: The statement, which goes back to late 2003, made clear that Government was not really in the market for a flotation or sale of the new BNFL as a single entity and it was phrased something like "would look at the options for private sector participation in different aspects of the business" and that remains the case. Q83 Mr Evans: Part of it could be privatised at some stage in the future. It could be viable doing that. Mr Waller: The shareholder executive made clear that it is prepared to look at all sorts of options for the individual bits of the business. I think there has been a general view that the creation of the NDA and the creation of BNG within the group has been enough of a focus for management until this period of time, but obviously once the NDA is up and running then that agenda can move forward. Chairman: Thank you very much. If there are any points that you want to send in, please do. We will doubtless be in touch with you. Memorandum submitted by Nuclear Decommissioning Authority Examination of Witnesses
Witnesses: Sir Anthony Cleaver, Chairman, Dr Ian Roxburgh, Chief Executive Officer, and Mr David Hayes, Strategy Director, Nuclear Decommissioning Authority, examined. Q84 Chairman: Good morning, Sir Anthony. Perhaps you could introduce your colleagues and then we will get started. Sir Anthony Cleaver: Thank you, Chairman. First of all, on my left I have Dr Ian Roxburgh who is the Chief Executive of the NDA, and on my right is David Hayes who was in the LMU and is now our Director of Strategy and Environment. Perhaps I might make just a very few introductory comments. First of all, it is very nice to see one of our Godparents taking such an interest while we are still in the womb. As I said in the submission that we made, I think so far we have made very good progress and we are confident about our ability to go live on 1 April. The biggest concern I had when I first arrived was would we have the ability to recruit a strong enough team at the top in time and I am delighted to say we have been able to do that, in particular with reference to areas of special concern like safety and the environment which I think we have covered very well. We have had the opportunity to consult on our first annual plan, we had a very good response to that and that is now on its way to the Secretary of State for her approval prior to 1 April. I think we have our basic infrastructure in place and we have the contractual mechanisms there. In summary, we recognise that we still have a huge amount to do, but we believe we are well placed to begin as planned on 1 April. Q85 Chairman: One of the areas that there had been some concern about was the production of registers and inventories of nuclear liabilities, radioactive waste materials and that sort of thing. You have inherited the inventories from BNFL and UKAEA. You have to take what they say on trust. Have you gone through it with a fine toothcomb? What has been the due diligence in this most sensitive of areas? Sir Anthony Cleaver: There is around two years of history already in this context in that the LMU was already putting together that register of liabilities and so on, but they have been incorporated in essence into the life cycle baselines and so we have a basis which in general terms is agreed between us and the site licensees. At the moment we feel that it will take us some time to examine some of those areas in more detail. As you have heard already this morning, there is a long history in this industry and there are some elements on some sites where clarification is still needed in order to be able to be absolutely confident of what is there, but overall we are fairly confident with the position we have. Q86 Mr Hoyle: I want to move on to the monitoring and performance of the United Kingdom Atomic Energy Authority and British Nuclear Fuels on a site by site basis and allowing them to get used to the new ways of working and what you are expecting from them. In simple terms, the M&O contracts are based on reimbursement and it is all about them following this agreed practice. You get additional fees and reimbursement and satisfactory agreements of the objectives that you have all agreed to and that all sounds very good. There are sweeteners along the way. That does not tell us what happens when they get it wrong. What are the penalties? Dr Roxburgh: The penalties come in two kinds. Firstly, we pay them to do the work, but we also pay them performance based incentives for achieving particular milestones having done the work. Clearly if they do not get to those milestones they do not earn their performance based incentives, in other words their fee which in effect is their profit. The second element, of course, is the one of reputation. These companies are looking to be favoured by the NDA as being competent people to bid for this work when we put it to the market and clearly if they have failed to deliver in the interim that must be a significant impediment to their progress. Q87 Mr Hoyle: So in reality there are no penalties. What you do is you withhold the money until they get it right, is it? Dr Roxburgh: We can close these contracts for convenience. In other words, if the performance was that appalling we could actually bring the contract forward and complete these sites earlier. Q88 Mr Hoyle: So there are no penalties that you can enforce by reducing the amount of money that will be given when they reach that objective because of the timescale? Dr Roxburgh: Yes. If they do not get to the PBI point in the time and at the right cost then they do not earn the profit. Q89 Mr Hoyle: In most cases when you have a contract there are penalties that companies have to pay for not reaching it. What you are saying is that it will come out of their profits because they have taken longer. Dr Roxburgh: Yes. Q90 Mr Hoyle: So there is no claw back if they do not reach it? Dr Roxburgh: Yes. If they exceed the allowable costs that we set out for each site then we look to their parent companies to pick up that disallowable element, so any cost overruns over and above what we call the site funding limit come out of the company's own pocket. Q91 Mr Hoyle: I agree. I am just saying there are no penalties built in. What you are saying is it will come out of the profits somewhere along the line. Have you formed a view as to how future M&O contracts will be structured? Do you accept the argument that to rely wholly on site‑specific contracts will unnecessarily fragment the decommissioning and clean‑up effort and not be cost effective for very small sites? Sir Anthony Cleaver: I think this is an issue which you have already exercised with the incumbents earlier this morning. Clearly the situation is that we start with the number of sites that are individually licensed by the NII. In that case they have given one licence to the Atomic Energy Authority. As we go forward one of the things that we want to consult on and determine the best approach to is what combination of sites will make most sense. At one extreme the smaller sites where there is less to be done are probably not going to be very attractive for people to come in and compete and if competition is the main driver to achieve innovation, which is what we believe and is part of our fundamental philosophy, then it is important to us that we do not end up with sites where there is no competition. Obviously that would tend to suggest that in some cases it will be appropriate to put several sites together to form a package. At the other end of the scale, as you have heard, nearly two‑thirds of the overall natural civil liability lies at Sellafield and if it were possible to find a way of splitting that so that one was able to award more than one contract obviously that would be an attractive proposition in terms of the best value for money way forward. However, we are very conscious that our paramount requirement is safety. We cannot trade off anything in terms of safety. Consequently, if we were able to do that it would only be as a result of extensive discussion with the regulators and their satisfaction that to do so would not in any way impact on the safety on the site. That is going to be a very complex issue. Perhaps it would help if I expanded more generally because in this and a number of other areas we have a major opportunity, which is that we are asked from the beginning to be open and transparent which in a sense is easy for a new organisation. We do not have a history, we have not had any problems in the past so to speak and we intend to live up fully to that promise. That being the case, we are also enduring to put out our strategic plan over the next few months. We have the opportunity in that plan to ask questions such as what do the community, our whole range of stakeholders and what do potential contractors think would be the most appropriate way to compete sites or combinations of sites. We have this opportunity over this next two year period really to get ourselves into a situation where everybody understands the way in which they can proceed and why those decisions have been taken. Q92 Sir Robert Smith: One of the other things that differentiate the site is that Sellafield has a four year contract and other sites have two or three. Is that explained by the complexity of the Sellafield site? Sir Anthony Cleaver: Yes. I think it was simply a view that it may well take longer to understand both what is there and the optimum way of competing it and we wanted them to understand that we would recognise that if it transpired. Q93 Sir Robert Smith: One of the things I raised earlier with UKAEA was the socio‑economic responsibilities that the NDA has and that is being passed on to its contractors. There was a question mark over whether any additional funding will follow that responsibility. Is that something you can answer yet? Sir Anthony Cleaver: It is not something I can answer yet in the sense that we have not had the chance to look at the socio‑economic plans from each of the sites, to discuss them with the shareholders and then to determine where we think more may be needed. We have the option given to us to spend more money in that area. It will have to come out of our overall budget and, therefore, £1 million spent there is £1 million not spent directly on decommissioning. Given that it is part of our remit, I think we will want to understand best practice and see where there are opportunities perhaps to transfer what has happened in one area to another. Perhaps I could focus specifically on the two major sites. There are areas where I think what has been happening in Caithness has some lessons for West Cumbria and there are areas where what is happening in West Cumbria has some lessons for Caithness. What we will seek to do is to understand the approaches that have been taken. In West Cumbria, for example, there is a West Cumbria strategic forum which does enable people to take a holistic view of all the areas that impact that community. The NDA can only really act in a sense as a catalyst, but in a number of cases we can provide an impetus which other parts of society can pick up. Q94 Sir Robert Smith: Are you affected by this concern people have that you do not have this ten year horizon that was envisaged when you were first dreamt of? Sir Anthony Cleaver: Having worked for organisations that had ten year plans and never seen them come to fruition as stated in year one, I do not think I am going to worry too much about that. The way in which we are operating is for each of the sites we are creating a life cycle baseline in agreement with the site licence company. That effectively takes the site right through to end of life, so in a number of these cases it is significantly more than ten years. Our role then is to pull together all these life cycle baselines and from that to determine what needs to be done year by year. We will then be focusing primarily on the first three years because that is where one has a degree of certainty. If we saw that at some particular point six or seven years out it looked very likely that there would be a huge discontinuity then obviously we would have to alert government to that and say that we see this on the horizon. The most likely areas of discontinuity are perhaps ultimately in terms of employment when a major operational facility comes to an end. Whenever that is there is liable to be a major discontinuity that one needs to deal with. The other major advantage we have in this socio‑economic area is that we are able in general to look some years ahead. It ought not to be like a car plant closing. We ought to be able to plan and do rather better for the communities and that is where we see our prime socio‑economic responsibility lying. Q95 Chairman: The figure for next year for skills development is £100,000, which does not seem to amount to very much. Is that because other people will be doing the work? Is that a low priority of yours? What is the position? Sir Anthony Cleaver: I think that is just an initial sum put in there so that there is something there for that. Again, we are encouraging the site licence companies to continue the work that they are doing in this area. For example, we have already been approached about the apprenticeship schemes that are already in operation and said that we would expect those to continue. Most of the funding in that context will come through the contract. We also have had a lot of discussions about skills and the skills requirements in the future and I would ask Ian to comment on that. Dr Roxburgh: We have made links with Cogent, the Skills Council. I have spoken with the Vice Chancellors of Manchester, Lancaster and UCLAM. This goes back to the conversation you were having earlier about how we accommodate the skills going forward. There is tremendous unanimity of purpose there. As Sir Anthony said earlier on, we see our role as being a catalyst in that but working principally through the Highlands & Islands Enterprise Council and the North‑West Development Agency and we are keeping in regular touch with them. I am much encouraged that all of our thinking seems to be going in the same way. Q96 Mr Evans: I want to go back to something you said earlier, Sir Anthony, which was that you were open and transparent and you had no history, but that has not stopped Greenpeace having a go at you because they already think that there has been a lack of consultation and that some of the proposals are done deals. Do you think they are being fair? Sir Anthony Cleaver: Obviously not in the sense that we would not have done things that way had we believed there was any unfairness in it. We are a very new organisation. I came on board the day after the Act and we have built the organisation from there. We have had extensive consultation on the annual plan. We had something like 52 responses to that plan. Inevitably our first annual plan was largely the product of BNFL and UKAEA and they were saying, "This is the way that we expect to be able to operate in the next year," and we have been responding and putting that into the year term workplan form. As we go forward we will continue to consult very widely and we will include Greenpeace and any of their colleagues in that consultation. I think the challenge is to distinguish between consultation and necessarily agreeing on everything. I do not suppose it will be possible to get all the stakeholders in total unanimity on every area, but I think we do have a responsibility to make sure that everybody sees all our intentions in good time, has the opportunity to comment and point out any concerns they have and we have a responsibility to respond to that. Q97 Mr Evans: So your door is always open to Greenpeace and you have not made your minds up yet? Sir Anthony Cleaver: No. We have not made our minds up yet on any of the major issues. It would have been inappropriate to do so. Q98 Chairman: On the R&D issue, it has been suggested that £20 million is a fairly small amount. This is a wee bit like the question of skills development in some respects. Do you envisage increasing the research budget or do you still think that is the responsibility of potential contractors or site managers? Sir Anthony Cleaver: I think I see it as both in a sense. There will be areas where the site licence companies will have the skills and it would be appropriate that they do the research directly relevant to the things that they are doing. We have to be conscious that our remit is decommissioning and it is research and development which is relevant to our remit that we are empowered to fund. Where we see any gaps in research, where we can see something that would be beneficial to our mission that is not being covered through the site companies, then we are empowered to fund that and we expect to do so, and it is part of our specific responsibility. Q99 Chairman: So the tramlines on which you are travelling financially are sufficiently flexible to enable you to do that? Sir Anthony Cleaver: We believe in the basis on which the NDA was set up, that there are huge opportunities to make significant cost savings over time and we expect them to have the freedom to use some of those savings in ways that can help with R&D, for example. Q100 Chairman: The evidence we have taken this morning from UKAEA and, even more so, from BNFL indicated their willingness to be fairly pragmatic about the people with whom they will enter into agreements for particular parts of the programmes and they did not discount, understandably so, the involvement of firms from outwith the UK, but in some people's minds this has raised the issue that we will be using foreign skills and that this might be an excuse for indigenous British companies not developing their own workforce. Do you see this as a realistic anxiety and, if it is, how would you want to ensure that the research budget and the staff development budgets can sit alongside this, or is it something of an exaggeration, we are not going to see foreign skills edging out UK? How do you envisage the development in this area? Sir Anthony Cleaver: First of all, in terms of where the skills come from, I think we want to see the best skills in the world applied to the UK taxpayers' liability, that is our responsibility. So we hope and believe that the incumbents will look to partnering wherever they find the best potential partners and some will come, I suspect, from this country, some may well come from abroad and I see no particular problem in that. In terms of the UK skills, we do have a responsibility to ensure that the skills are available in this country and that means, of course, that we are talking to the Sector Skills people, we are talking to the universities, the local colleges and so on and we will encourage them to put in place appropriate courses where necessary and to try and ensure that people are coming through the system right from the schools on, through the apprentice schemes and so on to maintain those skill levels. We are encouraging the incumbents to look at partnering, not least because we would like to see a start made on cost savings and improving value for money in the next two years. They are two years of preparation for competition, but one would hope that in that period the incumbent companies are able to show improvements which, after all, will position them ideally for that competition when it comes. I think we are encouraging them to work with whoever they feel can add real value. Q101 Mr Hoyle: Will funds for long‑term waste management be ring‑fenced within your budget, as Nirex would like? Dr Roxburgh: We are all awaiting Corum's deliberations next June or July. The Government has decided in the interim that Nirex, as I understand it, should continue with business as usual on the assumption that it might be a deep repository to carry on that work. At the same time they continue to provide guidance on appropriate waste forms and waste containers which would be compatible with that repository model. Whilst we await Corum's decision we will have a contract with Nirex which will continue to put in funds to continue that work that the Government wants. Q102 Mr Hoyle: Does that mean that the funds are ring‑fenced? Dr Roxburgh: In the sense that we will have a contract with them, we will obviously honour that contract and the funds are there, yes. Q103 Mr Hoyle: Nirex is concerned that you have not consulted the company on intermediate‑level waste retrieval and packaging. Is this true? Sir Anthony Cleaver: We have had discussions with Corum of a very preliminary nature. They have their objectives which they have been set. I think we all await the outcome of Corum's deliberations before a real strategy can be arrived at. At the moment all the plans are based on what the regulator currently requires, on the requirements that Nirex have, where those are appropriate and those will be followed. Q104 Mr Hoyle: It states that the NDA has not consulted Nirex in the development of intermediate‑level waste retrieval and packaging projects. That seems absurd to me. Surely that cannot be right, can it? Dr Roxburgh: Those are issues ultimately for the contractors, the incumbents, and there is one example at the moment under way. Our friends in the Atomic Energy Authority have a proposal to build a new packaging and cementation plant at Dounreay. As part of that proposal they are in conversation with Nirex to have both the grout and the packaging approved by them. So in reality I am not quite sure where the Nirex question comes from, but in practice they are being consulted. Q105 Mr Hoyle: Have they been consulted? I want a clear yes or no answer. Dr Roxburgh: In the context I have just described, absolutely, yes. Q106 Chairman: They have not been consulted by you because you are not yet in existence. Sir Anthony Cleaver: We have not had a formal consultation with Nirex. Our expectation would be that this is exactly the sort of thing that would come out through our strategy and at that point in time one would expect their input to be taken into account. We have not been asked for and have not had any specific consultation with Nirex in this context. Mr Hoyle: I think you have got a problem with transparency, something which you are supposedly signed up for. People will question that in the future. I worry about the transparency of the industry and I think we have just seen a lack of that coming through. Q107 Sir Robert Smith: On the issue of pensions for the workforce where you are to establish an industry‑wide scheme, how is progress being made on that? When will they know the shape of that? Mr Hayes: The Department of Trade and Industry has been doing some work on this over recent months. The NDA will inherit that work from the Department on 1 April. It will probably take us some 12 to 15 months to develop that into a fully fledged industry wide scheme and our primary requirement is to have that scheme in place before we compete the sites. Q108 Sir Robert Smith: So in 12 to 15 months' time the UKAEA would know where they stood in terms of whether they would be the preferred administrator of the scheme? Mr Hayes: Absolutely. We are conscious that UKAEA have a very good track record for the pension scheme they are running out of Scotland. They would be one of the people we would be considering in bidding for that work along with other people. Chairman: That is all of the questions we have to ask you this morning. As I said earlier to our witnesses, this is a fairly short inquiry, it was intended just to set a backdrop for you getting up and running in a formal way. We are very grateful to you for the time you have taken because we realise that the closer you get to the deadline the busier and more hectic things will become. If there are any other points that we have to pick up on this morning, we will certainly get back to you. If there is anything you want to pass back to us, we would be happy to receive it. Mr Hoyle: Chairman, I think we ought to congratulate you on your chairmanship of this Committee over numerous years. I think it would be remiss of this Committee not to thank you for all that you have done to ensure all the evidence is given and report after report comes out. We have always welcomed the fact that you have chaired the meetings in an honest and open manner. Some may regret coming before this Committee at times, but I am sure they have welcomed the experience of meeting the rottweiler in the chair! Sir Robert Smith: I would just like to reinforce those appreciations of the Committee. This all presupposes that the Prime Minister calls an election on 5 May! This is our last public appearance as a Committee together under this chairmanship. We have very much enjoyed the four years of the chairmanship. I hope that the reports have brought illumination to areas which otherwise might not have seen the spotlight because they are not in the public domain so much. The Chairman has managed to bring consensus to this Committee without losing the edge on our reports. Chairman: I think I had better quit while I am ahead! Thank you very much. |