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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1028-i House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE TRADE AND INDUSTRY COMMITTEE
THE WORK OF THE NUCLEAR DECOMMISSIONING AUTHORITY AND UNITED KINGDOM ATOMIC ENERGY AUTHORITY
Tuesday 28 March 2006 MR DIPESH SHAH, MR STEPHEN WHITE and PROFESSOR SIR CHRIS LLEWELLYN SMITH
SIR ANTHONY CLEAVER AND DR IAN ROXBURGH Evidence heard in Public Questions 1 - 84
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Trade and Industry Committee on Tuesday 28 March 2006 Members present Peter Luff, in the Chair Mr Brian Binley Mr Peter Bone Mr Michael Clapham Mark Hunter Miss Julie Kirkbride Judy Mallaber Anne Moffat Mr Mike Weir Mr Anthony Wright ________________
Examination of Witnesses
Witnesses: Mr Dipesh Shah, Chief Executive, Dr Stephen White, Director, Business Strategy and Professor Sir Chris Llewellyn Smith, Director, Culham Division, United Kingdom Atomic Energy Authority, gave evidence. Q1 Chairman: Gentlemen, welcome to this first evidence session of our inquiry into the work of the Nuclear Decommissioning Authority and the UK Atomic Energy Authority. Can I begin by asking you all to introduce yourselves for the record? Sir Chris Llewellyn Smith: I am Chris Llewellyn Smith. I am responsible for the UK's Fourth Class (?) Fusion Development Programme at Culham, which is part of an integrated European Programme. We also operate the world's leading fusion research facility, JET, on behalf of fusion scientists from across the world. Mr White: I am Stephen White, Director of Business Strategy for UKAEA. Mr Shah: I am Dipesh Shah. I am the Chief Executive of UKAEA. Q2 Chairman: Mr Shah, I would like to begin by asking you're a general question. Could you describe for me the constitutional relationship as you see it between UKAEA (United Kingdom Atomic Energy Authority) and the Nuclear Decommissioning Authority and then how that relationship is actually working in practice? Mr Shah: Chairman, UKAEA was of course established as the UK Atomic Energy Authority under the 1954 Act and it has had a number of its powers reconstituted under the Energy Act 2004. What UKAEA does today is essentially four things. It has been the leader of decommissioning in the past decade here in the UK at its nuclear sites. It has been researching in fusion along the lines that Chris has already mentioned. It is administering the pension scheme which has 50,000 employees and retirees. Finally, it has also been regenerating its sites. All of these will be captured under the 2004 Act. In terms of the relationship with the NDA, the NDA as a newly-constituted body under the Energy Act 2004 will ultimately take on the ownership and the liabilities of each of the sites, the 20-odd sites here in the UK, some of which are certainly ours and we currently own and hold the assets and liabilities for. We, in turn, when it comes to decommissioning in the future, will be competing for our sites and other sites in the form of a newly-established commercial entity. Q3 Chairman: That is a practical and technical explanation. How does that affect the nature of the relationship? Mr Shah: I would characterise the relationship as in the early days. Clearly the NDA has only been in being for about a year; they are staffing up. Just as we are learning to be a contractor for the first time for ever, equally, they are learning to be a customer so it is a growing but a developing relationship and it is very early days at this stage.* Q4 Mr Weir: You mention, Mr Shah, that the NDA would take on your sites in due course for decommissioning. My understanding is that UKAEA is already decommissioning some of its sites, particularly Dounreay in Caithness. I note that the NDA has an obligation to manage the socio-economic consequences of closing down the sites. What is the UKAEA's position on that for the sites they are decommissioning at present? Mr Shah: We have had a very proud track record of working with the local communities and creating employment opportunities over the many years that we have been running these sites. Dounreay for us is one of the places in the Caithness community that is reliant on the work that UKAEA does at Dounreay. We will continue to hold a moral and other responsibility since a lot of our employees live in the local community and we are constantly looking therefore to create a supply chain for tier two type activities; we are looking to create opportunities for employment in the local area, consistent, however, with the competition model that the NDA will seek, in time, to run. Q5 Mr Weir: Do you see yourself as leaving behind anything to help the local economy in say, Caithness? Obviously Dounreay is a major employer there. It is nearing the end of its existence as a nuclear facility. I visited it recently. The reactor has gone and essentially it is in the decommissioning final phases. Are you looking specifically to leave alternative work behind when you leave the Dounreay site? Mr Shah: Mr Weir, in terms of the history, if I can address that first and then come back to talk about the future, we have clearly created a number of supply chain companies in the area. We have trained a large number of apprentices in nuclear skills, over a thousand of those, and we continue with an engineering programme. We work with the local college, the Highland College, in offering courses. In terms of the future, we are continuing to look actively at opportunities for our staff where this might go in the future. The decommissioning programme at Dounreay has another 30 years or thereabouts to go, certainly a quarter of a century. What we chose to do 18 months ago was to announce a dramatic acceleration in order to sustain employment at a high level for longer rather than have a very long tail-off in employment. By doing that we are buying ourselves as a nation and as a community a fair amount of time, quite apart from dealing with the high hazardous waste and the reduction in liabilities. We are buying ourselves a fair amount of time, a decade plus, of a high level of employment in order to create opportunities for the future. In terms of the local community, we are working with John Thurso and others to see whether there are alternatives that the community would like us to help them with. I think we would like to be an active constituent and an active contributor to that development for the future. John has promoted an alternative energy centre. We are very supportive of that. I think in terms of the wet renewables - tidal marine, et cetera - that is clearly an area in which Dounreay has great competence. But Dounreay is not our only site. If you look at the southern sites, and Harwell is an illustration of that, we will be leading, along with the communities in the CCLRC - Rutherford Appleton Laboratory - the challenge to convert Harwell into an international science and innovation campus. Q6 Chairman: We hope to come back to that at the end. We must move on to some other questions. Just a more general question: you outlined your role, which had four different component parts, I might say. You are a private sector company effectively competing for contracts; you are a public sector body doing fusion research; you have a mandate to make sure you are profitable, and one of the issues we will discuss is that you have developed an interest in UK plc; and you manage the pension fund. It is quite a portfolio of interests. The words that suggest themselves to me are that this is a schizophrenic portfolio. Do you think that you really can balance all these different issues and manage them effectively? Mr Shah: We have done, Chairman, and thank you for asking that. If you look at regeneration of sites, decommissioning and regeneration are two sides of the same coin. As you decommission, you need actively to be working with the local planning authorities for what follows the site's decommissioning work as a remediate and build alternative employment opportunities. What follows is a 10-year programme. So decommissioning and regeneration are two sides of the same coin. We have been conspicuously successful in actually putting this together on both of our southern sites and we look to do exactly the same at Dounreay. Likewise, on the pensions scheme: the administration that we provide at Thurso just outside Dounreay has been benchmarked by private sector organisations as amongst the best administrated. We are not setting out at any stage to be a provider of financial expertise. We are an administrator. Given that we have a very long history of administering a very large section of the population in the nuclear industry, that is wholly consistent with everything we have done and essentially we have 35 to 40 people who provide world-beating expertise in that arena. Finally, on fusion, the UK Atomic Energy Authority was established for its research capabilities. Fusion is very much something that we have been leading on globally and essentially it is right at the heart of the charter where it was first established in 1954. When you aggregate some of these activities, there are very good reasons for administering but actually in terms of the synergies across these activities, they are very much a part of what UKAEA has developed over a long time as a track record of expertise. Q7 Chairman: Your portfolio is the product of accidents of history rather than a conscious strategy? Mr Shah: No, we have consciously sought to decommission. The accident of history might have been researching into new nuclear build. We have consciously said that as we have stopped researching in new reactors, we will decommission the sites. We have consciously said that as we decommission, we have an obligation to regenerate those sites. We have consciously said that we remain at the forefront of fusion research and development and we will continue that. The only accident of history to the extent you might say that is around pension administration, but since it was always benchmarked as being the best and since it provides a personalised service across 50,000 employees, not just for the 50,000 employees but for retirees and spouses as well, that has been appreciated. Q8 Mr Wright: The DTI's Annual Report 2005 shows some rather puzzling change in the balance of the UKAEA's expenditure. In 2005/06 the nuclear constabulary was separated from UKAEA and the planned expenditure for support and overheads was reduced from £30.1 million in 2004/05 down to £5.7 million in 2005/06. However, the total expenditure was reduced from £37.5 million to £32.4 million. This is probably because the service providers were increased substantially from £6.8 million in 2004/05 having dropped in consecutive years until it reached a total of £25 million in 2005/06. Could you explain these figures? Mr Shah: Yes. The first thing to say, as you rightly remind us, Mr Wright, is that the total spend has actually come down. Within that, the biggest change is the impact of the constabulary. Until 1 April of last year, the constabulary reported in to me and therefore it was an in-house support and OHS expense. As of 1 April, it moves into to the service provider status and that is why the service provision has actually gone up, and conversely support and overheads have actually come down. In terms of where we go from there, we are continuing actively to reduce the costs of the structure where, for instance, we no longer require the constabulary because we have de-licensed parts of the site. If we no longer have security conscious aspects of that site as we had before, we no longer require the constabulary. We are reducing the costs there. We are also transferring some central bench strength that we have out into the sites in preparation subsequently for when those sites are completed, so we are building it into the front-line activity rather than treating it as support activities. You see quite a bit of movement within those numbers within a total number that is actually declining. Q9 Mr Wright: Something I notice also is that in future years up to 2006 the service providers actually reduced from £25 million down to £18.8 million and then to £18.6 million. It plateau'd at £25milion. That is a significant reduction of just over £6 million in one year. Why would the extra expenditure be needed for service providers in this one year of £25 million? Mr Shah: The figure of £25 million is really just the step up off the constabulary because we still require the services provided by the constabulary across all of our sites with the exception of Winfrith. That is just a reallocation from support activities into service providers because they are now the third party providers of the services. Q10 Mr Wright: Why is there a £6 million reduction predicted? Mr Shah: That is partly because they are having a full year benefit now with Winfrith coming down and that is for the constabulary, and equally we are reducing some of the costs of activities for service provision across all of ours sites. It is a continued drive down of costs that we are embarked on as part of being as competitive as we need to be. Mr White: What we are attempting to do is transfer resource from service support activities into front-line decommissioning. Again, it is an overall, constant level of resource; we are trying to increase the level of decommissioning and reduce the level of support activity. Q11 Mr Wright: I can understand the need to reduce the activities and expenditure but this seems a significant drop. I can understand, for instance from 2006/07 to 2007/08 on service providers there is a £2 million difference, a reduction, but to go from £25 million down to £18.8 is quite a significant drop. Do you agree with that? It seems to be quite a substantial drop. What I am saying is: is £25 million really an excessive amount? Mr Shah: Perhaps I can tackle that, unless my colleague wishes to chip in and help! In terms of the big jump from the £6 odd million to £25 million, as I explained, Mr Wright, a large part of that is the constabulary. As for the wider provision of services on our sites, in many respects we have actually pioneered the supply chain in the country through competing out a whole series of service provision. As we look at reorganisations, as we look at how some of these services are to be provided and how they should actually be provided in a bench strength way across those sites, we are continuously driving down some of those costs. On the face of it, £25 million down to £18 million would seem like a very significant reduction but it is actually a part of the consistent theme of competing out a lot of the service provision and looking for economies and value for money. Q12 Chairman: Mr Shah, it would be helpful if you could give the committee a written note with the full detail of these figures, breaking them down and explaining a little more detail than you can in an oral evidence session why they have gone up so sharply and the plan to reduce. It is a little difficult to understand these figures. A written explanation would be helpful. Mr Shah: We are very happy to do that. Q13 Mark Hunter: You give an impressive account of how you have gone about the decommissioning of the sites in your responsibilities in the UK. How many other organisations and companies are there in the rest of world that have similar experience and expertise? How does your operation compare to theirs? Mr Shah: There is only a handful of companies which have done a fair amount of decommissioning, out in the States for instance. Europe is a little further behind because there has not been a great deal of decommissioning, with the exception of Germany. In terms of the experiences that other companies have elsewhere, I think our experience compares favourably with those. There are different methods that one can use. One can look at a number of reactors which have been decommissioned. One can look how waste minimisation has taken place. One can look at the schedule of performance indices and the cost performance indices and now our indices are actually up amongst some of the best that other competitors will have in those organisations abroad. I think our own experience is now comparing very favourably with the international domain. Mr White: We do have UK licensing expertise. There are not many companies that have licensing experience among the companies that Dipesh Shah was describing. They have engineering contractor experience which is relevant to this market but they do not have the UK licensing experience that we have. Mr Shah: In that context, it is worth perhaps saying that at tier one level there have only been two organisations in this country that have been doing any work in the decommissions area; that is essentially us and BNFL. Clearly at Aldermaston, in terms of the MoD activity, there is some decommissioning work there as well, but the tier one capability is fairly limited in this country and it is in relation to these organisations. Many of the overseas players provide some of their tier one capability but without the experience of doing it here in the UK, or indeed in Europe. Q14 Mr Clapham: Mr Shah, can I follow on the back of that question? You mentioned the States. You also mentioned Europe. From the start of decommissioning in the late 1980s, you have generally concentrated in the UK. A little earlier you referred to the fact that the Dounreay clear-up would take some 30 years. I assume from your submission that within that 35 years you are also referring to the clean-up of the gas type reactors, not just the Magnox reactors and so we are talking about the 35 years being the total period for the clean-up of the Magnox stations and the AGRs. Would that be correct? Mr White: No, our submission relates solely to our current sites and the 30 years relates to the Dounreay site, which is the most complex of our current sites and which is the longest period of decommissioning among our sites currently with 2036 as the expected closure of that site. Q15 Mr Clapham: In terms of the advanced gas-cooled reactors, you would have to make bids, would you, for the clear-up of those sites? Mr Shah: Yes. Mr White: The NDA remit covers the Magnox stations currently, not the AGRs, and we are expecting competition for the Magnox stations in the relatively near future. We would expect to be bidding with partners for management of those sites as well as for our own sites. Q16 Mr Clapham: Given the new structure of UKAEA, you are obviously now going to be looking and planning to look at taking more business in other countries. That brings you into competition. I wondered what the relationship was between yourselves and BNG for example. Would you be looking at coming together with BNG to perhaps make joint bids for work overseas? Mr Shah: In terms of the overseas work, we are looking in a low risk way to do a fair amount of consultancy and growing our expertise to bear in the former Soviet Union and eastern Europe primarily where the programme of decommissioning is a fairly sizeable one. We expect for some of these, particularly where we bring our tier one expertise or programme management, that we will undoubtedly require to partner with other organisations. We will look at the requirements of the job specifically to determine which partners can best contribute to this, and there are undoubtedly some skills in BNFL which would be valid for certain applications. Indeed, for others, there will be other partnerships that we will seek to form and over the past year we have been working with a number of companies in submitting bids in a low risk way across a number of these opportunities. Q17 Mr Clapham: Finally, could you foresee a situation arising where most of your work would be overseas rather than in the UK? Mr Shah: Not in the foreseeable future but our ambition is clear. We would like to use this UK expertise that we have across Europe, and, as the programmes across Europe build up, we would like to make a very meaningful contribution to that. Our ambition in a nutshell is that over a period of five years and in terms of profitability we would be doing as much outside the UK as we would within the UK. Q18 Mr Bone: With decommissioning you were implying, I think, that overseas companies really could not do decommissioning in this country because you have got the expertise. On the other hand, you are saying you can go off to Europe and do decommissioning. Is there a contradiction there? Mr Shah: No. If I can just calibrate what I am saying, I am certainly not seeking to imply that other organisations from abroad could not offer tier one expertise here. I was simply making the point that, given our history, no-one else has that track record here in the UK in terms of the licensing and other requirements. There are certainly some skills which are transferable. I am sure that when we get into competition other organisations will be promoting their skills, just as we will in a very ambitious and aggressive way be promoting our skills. In Europe the market is at a relatively earlier stage. Not many organisations have had to decommission and programme manage large programmes there. We have had that track record and we can bring the skills, just as other companies will be seeking to bring their skills here. This is not a situation where only some companies can participate but certain companies will undoubtedly have a natural advantage, and we do think that we would be one of those in dealing with eastern Europe. Q19 Anne Moffat: This question is also about skill shortages. I see that you are introducing an early retirement scheme for staff in the industry. What sort of staff would that scheme be targeting and would it mean a reduction in the people with technical expertise or otherwise that you have been talking about? Mr Shah: We have been very clear that we do not lose the skills which we require for the future or which may be helpful to others as well. The early and voluntary retirement proposals have been literally at the margin. In many cases there have been certain skills which were entirely appropriate in the 1980s but are no longer required for the decommissioning type work that we do. In the case of fusion, actually we have been building up a lot of the programme and the skills that we have there. It has been very targeted, very tailored and very small. We would not expect the loss of key skills in building round the organisation for our future because we would wish to retain as much of that as we possibly can. To do that, we are going to have to continue to offer attractive opportunities for staff. The younger population in particular we wish to be much more mobile than historically their peers would have been required to be and some of those would want to look for opportunities which are across the country and across sites. We need to be able to provide those opportunities. Part of our ambition in growing this activity is to make sure that we retain the best that we wish to retrain and give them meaningful employment opportunities. Q20 Anne Moffat: This is a sort of tongue in cheek follow-up. Is the pension scheme healthy for those that are taking the early retirement package? Mr Shah: It is but it would be fair to say that the pension scheme that UKAEA is administering, which is a historic one, is one of those unfunded public sector pension schemes, so it is as healthy or otherwise as any other unfunded public pension scheme. Q21 Mr Clapham: Mr Shah, can I come back to the decommissioning question that I asked? I am looking at 3.6 in your submission in which you say: "In October 2004, we announced new plans, bringing forward the end date for decommissioning our sites by up to 35 years - up to 75 per cent shorter than previous plans." That is an enormous change, a review that has brought forward that kind of reduction in your plan. Why did the plan change so radically? Mr Shah: I think we challenged ourselves on what is the right thing to do here. We wanted to continue to drive down the liabilities; it started at £9.4 billion ten years earlier; we had come down to about £6.4 billion by the time this announcement came through in September or October 2004 (I forget precisely which or those two months). We challenged ourselves and asked what it would take to continue to drive down those liabilities to below £5 billion, which we successfully accomplished. We also challenged ourselves by saying: environmentally, what is the right thing to do here? We are restoring the environment, and we should be dealing with the high hazards first and reducing the care and maintenance associated with the high hazard facilities. Dealing with those, you can significantly accelerate the programme, reduce the costs associated with it, and indeed enhance safety because you are dealing with the high hazard issues fist and foremost. The combination of those seemed to us to be a very logical way forward. As we challenged ourselves and as we looked at the plans for each of the sites, we took programmes which, frankly, ran into several generations. I kept saying as a new chief executive that I could not actually see what the fourth generation of my family might look like, let alone imagine what motivates them, so we really ought to be thinking about doing these things in our lifetimes, and if they are technically impossible, then fine, let us understand that, but if it is around doing things differently, we should be able to do it. The organisation rose to the challenge and has put forward very commendable plans which achieve all of those objectives. Q22 Miss Kirkbride: This question follows on because the NDA approach to decommissioning has been to encourage more competition and your case and others has been to break up companies into smaller bodies so that they can compete with one another. Has that been a beneficial way of going about it and is it perhaps one of the reasons why your costs have dramatically decreased when you were asked to look at those again? Mr Shah: Miss Kirkbride, might I say that two years ago I think I was a lone voice in saying that we want to cluster sites. There will be an irreducible minimum. It is for the NDA to decide. I can only provide some advice from a lifetime of working in the private sector and in other organisations. In my view then, and I remain of the view, you do need to have a certain bench strength in order to be able to share in the economies of scale associated with that. Therefore, clustering sites as a model for competition would be appropriate. I think that we will hear later this week, or you may hear earlier when you ask the questions from the NDA, as to how they wish to compete the sites. I am hopeful that there will be some clusters coming through. That will allow us to use our bench strength and continue to drive down the costs. If you do break it down into very small parcels with very small-scale activity, then the support activities associated with these technical skills or sharing of the best practice across organisations will be infinitely more challenging. I think it depends on how it is competed, and we have a view about what we think would certainly be in our interests but also in the national interest. Q23 Mr Weir: I get the impression that you are unhappy with the NDA's approach to the clean-up of Sellafield. What is your preferred approach? Mr Shah: I think the issues for Sellafield for us were two-fold. When the NDA very helpfully put up their proposals for consultation, we did respond to that consultation in a very constructive and positive way. We have two concerns. Firstly, Sellafield is by far the largest part of the liabilities and the decommissioning requirement that we have in the nation. We were concerned that if it was put back a long way from the rest of the sites, we would be put at a commercial disadvantage, and furthermore that this big prize left till later will mean that the big reductions in cost that could be accomplished would have been put back. I am not sure quite where the NDA will be in that now because the complication of the BNG sale will have affected it in some shape or form. I am not clear how that will do that. From our point of view, we think, because of the scale of Sellafield, that it should be possible to package that into parcels of activity where competition can be introduced, where we can accelerate the programme and drive down costs. Each of those will be a bite-sized chunk; it will be material enough to benefit from the bench strength that I talked about earlier. Equally, it will allow a number of players to have a stab at actually sorting out the Sellafield issues in support of the NDA's programme. It may be necessary within that to have a tier one capability across the complex so that we integrate across those. That will not concern us too much, although we would want to be a part of the partnership that bids for tier one capability. We do think that tier two packages should be parcelled out sooner rather than later and that there should be competition to make giant strides in that area. The whole site as one competed out in that way with competition from tier two packages much later we would suggest would not be a sensible way forward but it is for the NDA decide. The other issue, to finish, is that Windscale is a licensed site that we currently have within the heart of Sellafield. We think that it provides a wonderful model, an exemplar of how the future should also hold. The proposal in the consultation for absorbing Windscale into Sellafield gives us some grief. We think it would be demotivating for staff. We also think that some of the progress that we make will be complicated. We are in active consultation, I hope, with the NDA on this to avoid Windscale being absorbed, having created a separate licence site which has clearly been in existence for a while, and putting it all into a bigger package, given what I have said earlier about breaking it down into bite-sized chunks. Q24 Mr Weir: I take it from all that that your preferred option would be for someone, preferably yourself, to be in overall charge of the decommissioning at Sellafield, is that right, rather than having different people operating different parts of it? Mr Shah: We would anticipate participating in the competition, whichever way the NDA chooses to introduce it for Sellafield. We would expect to do that in partnership. It is a very big site and there is complexity. We would expect to do it in partnership, just along the lines of the partnership that we announced earlier this year where we are pairing up with AMEC and an American organisation CH2M HILL; similarly we would intend to construct partnerships. It would not be UKAEA on its own; it would be a partnership with a number of organisations. We would hope very much that we would have an opportunity to participate in that completion, whichever way it is structured. What I was addressing is how we would ideally believe it would be both in our interests but also, more importantly, in the national interest for that competition to be run. Q25 Mr Weir: Given your experience of decommissioning at Dounreay, which is fairly far advanced, and given also that you have run into difficulties with the infamous shaft and not knowing exactly what is in it, how confident are you there is enough information about the nuclear materials on site at Sellafield to enable you to take a robust tender in a competition for clearing up the site? Mr Shah: There is no question in my mind, Mr Weir, that any private sector organisation, any competitor going into this, will have a very sensible dialogue with the NDA on the risk that we are all sharing here and what is known and what is not known. A part of that will be: is the material in the ponds and the silos as safe with sufficient robustness for contractors to take a risk in what it will have, or would they wish actually to provide that assay and then determine how that is done? It depends on what information is already available. What we have access to is publicly available information and, because of our knowledge of the site, we will probably have some further intelligence - intelligence in terms of know-how that we can provide to that. There is no question that we would want to look through the proposals for competition very carefully to determine how we would best want to compete for that and what risks we and other organisations should be prepared to take in that regard. Chairman: We will move on to another area of questions to make Sir Chris Llewellyn's visit here worthwhile. Q26 Mr Binley: I move on to fusion, and I can see your face light up! It seems to me that fusion is the modern version of the alchemist's dream of turning base material into gold. The thought of it has been around for a long time and we have put a lot of effort into it. You run the Torus project on behalf of the joint European consortium. Can I ask how confident you are that JET's operating life will be prolonged beyond 2008 to cover the period while ITER is being constructed? Sir Chris Llewellyn Smith: I think that will depend on the Framework 7 budget but unless it is very bad indeed, and we do not know yet, I am rather confident that JET will run until at least 2012, I would say. We are already embarking on a large upgrade which will be implemented in 2008 and no doubt the dates will then be rolled forward after that. Q27 Mr Binley: Let me follow on from that because we are still talking about a medium-term closure of JET. What will that mean to UKEA and can I ask if there is a long-term future for a fusion research facility within the UK or will we see UK scientists who wish to work in that important area having to move aboard? Can I ask you to look into the future and give me your view of when we might see fusion as a practical possibility? Sir Chris Llewellyn Smith: There are two questions there. On the first question, if we look at the big ITER facility which we are building on a world scale in the south of France, that is going to be a user facility. It will not have a large team of scientists there. The work will be carried out by visiting teams of scientists coming from the different participating countries around the world, including the UK. If the UK wishes to remain a force in fusion, we must retain a capability in this country. In my opinion, that must be based in a national laboratory. It is not appropriate for a university because we are not talking about curiosity-driven research, which could be mixed in with teaching. We are talking about an ordered, power development programme which needs to be well organised in a national centre, and so we will need Culham or some other centre in order to participate in ITER and to build the equipment to take there to do the experiments which will be associated with ITER. In addition to that, at Culham, as well as the Joint European Torus, we have a facility called MAST, which is an innovative alternative configuration of very great promise that has been pioneered - it is a great British success story by the way - which, if it fulfils its promise, could, in the longer term, be a better alternative to the more conventional model. That facility has at least 20 years in it. I think we need to be at Culham if we are going to be the national centre, if we stay in fusion at all. That brings me to your second question: should we stay in fusion? The joke that fusion is always 50 years away is no longer correct. There were some false dawns in the Fifties when people did not understand the basic science. The basic configuration emerged at end of the Sixties but in a device of about 1 cubic metre, and we know we need something 3,000 cubic metres. You do not go from 1 cubic metre to 3000 in one step. It was decided to go through JET as an intermediate step, which is about 100 cubic metres. ITER will be about 1000. Since the date when the basic configuration emerged at the end of the Sixties to today, we could have been where we are today 15 years ago if there had been a sense of urgency, but there was not because people were content to go on burning coal, oil, et cetera, and did not see the problem there. Fusion is developing rather well, I would say. For me, it is hard to imagine that we will not be using it in 50 or 60 years. I believe that we could have it quite a lot sooner than that but I cannot be certain about that; it depends on the will and it depends on surprises in research and development. What I am certain of is that, given its promise, we cannot afford not to do it as urgently as possible. If you are going to do it at all, you should do it as fast as you can because it is the same investment and you bring forward the return and, if there are problems, you discover the problems sooner and stop it. Q28 Mr Binley: Could you drop a line about the project you were talking about, MAST. That would be helpful. Sir Chris Llewellyn Smith: I certainly will. Q29 Chairman: It is referred to in the memorandum but I do not know what the Tokamak is to save my life. Sir Chris Llewellyn Smith: Tokamak is torioidalnaya kamera magnitnaya katushka, which, as no doubt you know, is a toroidal chamber with a magnetic coil. Q30 Chairman: I am sure the committee will have found that fascinating! Can you clarify one point? There is a four-year gap between JET ending and ITER beginning. You have a MAST project and you will have to plan; there is no hiatus? Sir Chris Llewellyn Smith: There is no hiatus. I think there must be such a gap because the focus will move the best people. We have the best people in the world and some of them will be moving to constructing this. In that period, we will be constructing at Culham and designing the auxiliary equipment. Basically ITER is ready to be built but the systems you strap on to it to measure what is going on inside you strap on last of course, so you leave the building of them as late as possible so that they are state of the art. We are just moving into the R&D on that. We will be very active in that phase preparing the equipment to take there. Q31 Judy Mallaber: Professor Smith, you have said you could not imagine us not using fusion in 50 years, which is slightly depressing me. Are you prepared to make any prediction at all as to when you could imagine we might start using it? Sir Chris Llewellyn Smith: It is technically possible that you could have prototype power stations putting power into the grid in under 30 years. We came up with 26 or 27 years if we did this seriously. The real question to me is not when we put the first kilowatt out; it is when we are prepared to go out and build 20 commercial power stations. That will be another 15 years after that. I think it is around 40 years still, unfortunately, but that is the way it is. Q32 Judy Mallaber: Mr Shah, you started off telling us about the Harwell-Chilton campus before you were cut off earlier on. You described it as a world-leading international science and technology centre, which sounds very inspiring. Can you tell us what is going to happen there and what it is doing, what the activities are and a bit about it? Mr Shah: Yes. The ambition really here is to develop the Harwell Science and Innovation campus bringing in the public sector, internationally funded as well as locally funded, along with the private sector institutes to create a hub of science and innovation expertise and to use that as the very cornerstone of the science and technology agenda that we have as a nation. Over the last few years, we have brought in significant investment. The Diamond facility, which is European funded, is now located there. As we de-license more and more of the nuclear facilities, it will open up a wider range of big science as well as small science opportunities. We have also created a new venture outfit called START where a number of private sector new ventures employing science are hoping and beginning to locate on the site. Over the 10 years, we have brought in some 80 other organisations on to the site. The ambition now is really to step this up and, over the next 10 years, to bring in between £1 billion and £2 billion of investment as we de-commission and de-license the site to bring in new facilities, new organisations, all in the science and innovation area. Q33 Judy Mallaber: What are the attractions of the site to outside bodies? What is your selling point? How are you describing it? Mr Shah: There are three or four key areas. Firstly, it has a rich heritage of science and technology. There are 4,500 people employed on the site already. It is a very heavy complex of science expertise. The second area is that, in a nice environment, we have a very large amount of land, which is going to be opened up as we continue to decommission. Thirdly, it is in the corridor of very good universities, so that we can involve the universities in this. Also in the corridor there is a number of major companies, energy companies and pharmaceutical companies, that would also therefore be attracted to putting research and development capabilities on the site. Q34 Judy Mallaber: Is it certain sectors then or are you open to any scientific and technological area to come in? Mr Shah: We are certainly looking to do this on a very broad canvas. It would be fair to say that historically energy, pharmaceuticals and medical research are already fairly strong on the site. I think those are the areas that we would particularly look to. Q35 Judy Mallaber: In your evidence you said that you will shortly form a joint venture with a private sector partner to accelerate the development of the campus. Is that already happening? Do you have that running? Mr Shah: It is about to happen. We would hope in about a month's time to go to the market with a prospectus inviting private sector development companies to join with us. We will be putting in a lot of land. We would expect them to bring in their development expertise and private sector funding to begin to redevelop and regenerate the rest of the site. The site is some 820 acres, so it is massive. Over the next 10 years, we can transform it. Q36 Judy Mallaber: Do you already have activities taking place there? Mr Shah: Yes. Q37 Judy Mallaber: So this has started but on a fairly small scale at the moment? Mr Shah: It has started. A number of companies have located there. We have 80 tenant organisations now from very small science-based venture entities in START to very large national companies. We would want to continue to build on attracting more national as well as small companies through this, but we will need to bring in the private sector. This has to be the best of a public and private partnership because with the scale of investments we are looking to attract here, it would not be practicable to do under the public purse. Sir Chris Llewellyn Smith: There are already significant public sector science facilities on the site. We have the Rutherford Appleton Laboratory with the ISIS facility and Diamond. We have the Medical Research Council there and the Health Protection Agency. It is already a primary centre of public sector science. It does provide an opportunity for a public-private development, which combines science with innovation technology business. Mr Shah: The announcements in the Budget last week with the new national energy sector would be an attractive thing to bring on to the site because clearly it builds on some of the skills which already exist on the site. Q38 Judy Mallaber: You are going to be bidding to have it on your site? Mr Shah: The thought has certainly occurred to us. Dounreay is another place where there would be adjuncts on the wet renewables. We might want to suggest that Dounreay acts as a centre for some of that activity. Chairman: We are well into injury time, which we need because of the late start because of the security problems. We have enjoyed the session very much. We are grateful to you. I know you have extended an invitation for the committee to come to Westfield, Harwell and to Culham. Personally, I will answer your invitation to learn more of what Professor Smith has been talking about on fusion. Other members of the committee may wish to join me. I would certainly like to take you up on that myself. Gentlemen, we are very grateful to you. Thank you very much indeed.
Examination of Witnesses
Witnesses: Sir Anthony Cleaver, Chairman, and Dr Ian Roxburgh, Chief Executive Officer, Nuclear Decommissioning Authority, gave evidence. Q39 Chairman: Gentlemen, welcome to this evidence session. Can I begin by formally asking you to describe yourselves and introduce yourselves for the record? Sir Anthony Cleaver: I am Sir Anthony Cleaver, Chairman of the Nuclear Decommissioning Authority and on my left is Dr Ian Roxburgh, who is our Chief Executive. Q40 Chairman: By way of a scene-setter, can I ask you to describe how you see the constitutional and legal relationship between yourselves and the UKAEA and how you think that relationship is actually working in practice? Sir Anthony Cleaver: We were created by the Energy Act 2004. We actually started operating from 1 April last year. We spent that year getting ready to carry out the mission that the Energy Act gave us, which will obviously take many years to discharge. Our responsibility through the Act is for the 20 civil nuclear sites that were previously owned by British Nuclear Fuels Ltd. and UKAEA. Our relationship with UKAEA is that at the moment we are in the process of working with them on the transfer of those sites to our ownership, which we plan to take place at the beginning of April next year. During the course of the year, obviously we have been setting up, recruiting people and getting ourselves ready to discharge this responsibility, but we have also been implementing a standard approach to the costing and scheduling of the work across all those sites because one of the main objectives of the Act was that we should have a national approach to decommissioning and therefore be able to look across the boundary, if you like, between the historic players - BNFL and UKAEA. In the course of doing that, obviously we have had detailed discussions with UKAEA on a regular basis. We have a monthly review process where we talk to each of the sites about the work that they have done in the course of the month, where they stand in relation to the year's work plan which had been agreed, and how the cost side of the equation is progressing. I believe we have made very significant progress in that time in developing that relationship. Dr Roxburgh: We are a learning organisation. We have been around coming up for one year now formally. Along with UKAEA, we have been trying to work out how we get on together. We set ourselves the task of becoming an intelligent client, with UKAEA and BNG being our primary original contractors. During that period, we have deployed our staff quite extensively throughout UKAEA sites so that we can understand the nature of the assets and hazards that we have inherited and that they are looking after on our behalf. At the same time, we have been trying jointly to evolve reporting formats which give us the information we need actively to manage those sites and to move funds around from sites which, for whatever reason, cannot consume them to sites which can. I would characterise the year as being one of great success in that sense. We have come close together and there is a real sense of trust now between the NDA and the United Kingdom Atomic Energy Authority, and at the same time we have been encouraged to see them partner with CH2M HILL and AMEC to bring on board new management skills and expertise. They have also been quite brave in approaching a restructuring at Dounreay in terms of the senior management there. I think it has been a very productive year all round. Q41 Mr Weir: Our predecessor committee recommended that one of the NDA's first tasks should be to make an independent, authoritative assessment of the civil nuclear liability. Have you been able to make such an estimate and, if so, what is it? Sir Anthony Cleaver: We have made a start on doing that. I think the committee may remember that in the course of the year we put out for consultation our first draft of the strategy. In the course of doing that, we published the results of adding up the estimates of the lifetime costs on each of the sites. That, if you like, was the first such approach. Since then, we have continued to work with each of the sites. We have continued to estimate the cost as best we can. We have reached a further estimate of the likely cost, which is part of the strategy that we have submitted to Government for their approval. Unfortunately, as I think we informed the committee, the timing of this particular hearing is in the week in which we hope to receive approval from Government on that strategy. We are unable, I am afraid, to go into some of the details of that. You can be assured that a significant amount of work has gone in the course of this year, both on our behalf and on behalf of BNFL and UKAEA, to further our understanding of what the costs are and will be. Q42 Mr Weir: Given some of the uncertainties that have arisen in decommissioning to date, and particularly uncertainty about what is in certain shafts for example at Dounreay or certain bits at Sellafield or elsewhere, how confident are you that you have a robust estimate? What other uncertainties may there be waiting to be discovered? Sir Anthony Cleaver: I will ask Ian Roxburgh to comment in a little more detail on those points in a moment. First, I comment that clearly the legacy ponds and silos at Sellafield and the shaft at Dounreay are the highest hazard areas in the site for which we are responsible. As you would expect, we have said that priority must be given to understanding as well as we can exactly what is the situation in each of those cases. In both cases, significant work has been undertaken in the course of the last year which gives us a much better picture. To say that we have fully detailed characterisation in either of those two cases I think would be premature. Dr Roxburgh: We have a major project underway driven by our engineering director called our Life Cycle Baseline Agreement Project. That is a slightly Orwellian term because at the moment "agreement" tends to suggest higher cost. We are picking up on your very theme and that is actually to get into every little dark corner and find out exactly what is there. We have also been re-examining all the handshakes, as we call them, between the various sites. It has been a little bit too easy in the past perhaps for a site to assume that part of its hazard will be taken to another site. They take it off their books but there has not always been a matching entry in the receiving site's books, and so we have tried to tidy all those sorts of issues away as well. I think it is probably fair to reflect, looking ahead, that we would expect one of the first tasks of our chosen contractor when we come to complete is to look again at what we believe is at the site to confirm that so that we have a positive base which is corroborated to move away from. Q43 Mr Weir: Following on that, how confident are you that if you are putting decommissioning out to tender, and presumably that is how you are going to do it, you can get a robust tender when there is so much uncertainty about what actually will be found once you get on site? Dr Roxburgh: One of the processes that we will be going through when we come to compete is that we will not just be looking at exactly what we have at the site, though obviously where we know, we will reflect that in the bid documents; we will be looking at the track record of companies that have gone into comparable situations and applied innovative thought and original approaches first of all to finding out exactly what it is there, and, secondly, to show the most radical way to deal with that in a safe and sensible way to reduce costs and accelerate decommissioning. It is that overall skill base that we will be looking for. You are quite right that there will be uncertainties, and that is the way we will address them, Q44 Mr Weir: Are you telling us that these tenders are going to have an open-ended cost on them because of these uncertainties? Dr Roxburgh: They will not have an open-ended cost on them, no. We will look to those advising us to give us a fair estimate of time and cost that we would use as our benchmark when we consider the proposals that others bring to our table as part of the bidding process. Q45 Mr Wright: You mention the draft strategy which is in the hands of Ministers at the moment. You say that in this it is quite clear that your budget between 2005 and 2008 is £2 billion per annum but that a relatively small proportion of the funds are currently spent on decommissioning. You go on to say, "... we need to work with our contractors to find ways of spending a greater proportion of our budget on actual decommissioning and clean up activity rather than on, for example, overheard costs". Can you give us a rough approximation of the spend on decommissioning; the spend on current clean up; and the spend on overheads? Sir Anthony Cleaver: Obviously there is a question of definition in some of these areas. Roughly, speaking, if you look at the draft annual plan that we submitted to Government for the relevant year, within that £951 million is for decommission and clean up. Of course, within that in turn what we are covering is the safe maintenance of all of the sites. The amount that is actually spent on cleaning up, demolishing buildings and so on will be one element of that, but on all the 20 sites we have to make sure that what is there is safely looked after and maintained for the period until such time as it can finally be decommissioned. The rest of the money is spent essentially on keeping running the various operating assets that we have, the four Magnox stations, the plants at Sellafield, THORP and SMPs, and so on. That is the rough spread. Q46 Mr Wright: Can I take it then that you yourselves are disappointed with what you have actually achieved in terms of clean up at the present time? Sir Anthony Cleaver: No, I think we feel that we have made significant progress in the course of the year, but we think that is where the focus has to be. We were set up as a decommissioning authority and our objective is to spend as much of the budget as we can on active decommissioning as soon as we can. At the same time, of course, as I have said, we have for example some particularly high hazards and we have to focus on those and what we can do to deal with those as early as possible, so there is a balance to be achieved. Q47 Mr Wright: Are you on target for what you were anticipating you would achieve this year then? Sir Anthony Cleaver: We are satisfied that we have made the sort of progress we were looking for. We set an objective to our contractors that we should achieve roughly a 7 per cent reduction in costs over the original plan. At the moment, it looks as though we should be able to achieve that. Obviously we are not quite at the year-end; we do not have the reports for the last month of the year and we will then need to audit those numbers. We believe that we will have exceeded the original plan. Q48 Mr Clapham: Sir Anthony, could I just look at the PSA target? I am looking at your submission in which you say: "As part of the 2004 Spending Review, DTI and HM Treasury agreed three PSA targets for the NDA." I notice one of the targets, and it is the one that I am interested in, is to reduce your total liabilities by 10 per cent by 2010. How do you intend to go about that? Is it going to be in terms of volume or will it be in terms of value? As we do not know the total figure for liabilities, how do you intend to judge whether we are on target or not? Sir Anthony Cleaver: I will ask Ian to comment perhaps in more detail in a moment. That target was to be set against the baseline in 2008. This is very much work in progress at the moment. The work that we were describing earlier to establish that cost base is absolutely essential so that we know what we are working on. Again, as you have rightly suggested I think, there will be some balancing to be done there. Should we be focusing everything that we can on the highest hazards on the basis that that is where the greatest concern is, that could mean that very little was done on a number of the other sites. I think most people would feel that was not acceptable. Again, we are going to have to achieve a balance in what we actually set out to do. Dr Roxburgh: Because of the inherited 2008 baseline, we have instigated the Life Cycle Baseline Agreement project to get us as good a picture as we can by 2008. At the same time, we are measuring our performance on two key indices: one is cost performance and the other is scheduled performance. In an ideal world, we want a CPI greater than 1 so that we are actually doing the work for less than we budgeted, and we would want a schedule from a syndicator of greater than 1 so that we are actually doing more work than we set out to do. The problem with that is that you could be one hundred per cent efficient at doing the wrong things and so for each of our sites we are in the process of calculating as best we can a hazard index, in other words, stacking up all the hazards at each site, and then we will then have a hazard curve and we will look to reduce that curve over a number of years. It would be that that we would be looking to drive down because that is ultimately what the output is; it is hazard reduction at the early stage followed by decommissioning. Q49 Mr Clapham: How many sites does that include? Dr Roxburgh: Twenty. Q50 Mr Clapham: Those are advanced gas cooled reactors sites as well? Dr Roxburgh: No. Our relationship to British Energy is a simple one. The British Energy sites have a single fund called the Nuclear Liabilities Fund, and 65 per cent of the free cash flow from British Energy under the restructuring programme is swept into that fund to pay for the decommissioning of the AGR stations in due course. In the unlikely event or in the event that that fund is not adequate, the Secretary of State stands behind it. On behalf of the Secretary of State, we impose the same life cycle baseline discipline on the AGR stations and they can spend no money from the Nuclear Liabilities Fund without our say-so. In effect, even though we are not responsible, we are applying just the same day-to-day disciplines to that as we apply to our own 20 sites. Q51 Judy Mallaber: From what Sir Anthony said, I take it you are not just going for the easiest way of getting your 10 per cent reductions; you have other criteria as well. Out of interest, could you achieve that 10 per cent reduction just by removing the contaminated topsoil at the sites or have you got to do something more complex by way of decommissioning? Dr Roxburgh: It has to be something far more radical than that. We could not do that in any event because until most of the building has gone, we cannot actually get at much of the contaminated land. All we can do in the interim in many cases is have a good monitoring wall or networks around the sites to make sure that nothing is actually leaking from the sties to outside the licensed area, or indeed progressing downwards towards water tables. Contaminated land is a later operation. Q52 Judy Mallaber: What sort of things do you have to do to reach that 10 per cent target? Dr Roxburgh: Our key issues are the legacy ponds and silos at Sellafield. You have probably heard of the infamous B-30. It is an open tank; it contains an awful lot of sludge which is decomposed fuel. I hate to say this but it had its origins in the miners' strike when they were trying to keep the nuclear power stations running. It also contains an awful lot of debris. One of the first things we have done is ask for that material to be characterised far better than it has been in the past. We now have a fully digitised map of every skip and every piece of material in that tank. We have radar surveys showing the depth of the sludge, and incidentally there is probably 50 per cent more material in there than anybody envisaged. That tank has a number of cracks in it, as is well known. It is very much our number one priority to get that material out, to get it into a passively safe form, and a new stainless steel tank is being constructed and various routes to remove that material into that tank are being explored, even as we speak. We also have at Sellafield about 1,500 cubic metres of highly active liquid. This is the residue of the AGR and Magnox fuel reprocessing. That liquid has to be turned into glass and then contained within spun stainless steel containers and then put in high security, ventilated vaults. We are very keen to see that backlog of material come down steadily as well. Our initial emphasis is very much at Sellafield on the high hazard materials and, to a lesser extent, the high hazard liquids that exist at Dounreay. Q53 Chairman: On the PSA targets, your requirement is simply a 2 per cent efficiency gain from the year 2006/07 but your annual plan promises an eye-watering 7 per cent in 2005/06 and 5 per cent in 2006/07. You offered up those figures yourselves. How can you deliver such substantial gains, and, given you have only been around for a year, what is the baseline on measurement gains? Dr Roxburgh: Perhaps I could explain the background? The 7 per cent for this year is the 2 per cent efficiency saving which I wanted the industry to deliver early for all sorts of reasons. I wanted to be able to say at the end of the financial year that we had covered our own overhead for the year and our start-up costs. I wanted the industry to understand that the world really had changed. I wanted to start to build confidence within my emerging team that they could make a difference. Under the PSA target, we do not just have to make a 2 per cent saving; we also have to save the fee which we pay the contractors for performance. In the current year that is 4.4 per cent. Being a rather miserly individual, I rounded it up rather than rounded it down. As the Chairman has indicated, we are on track to make that 7 per cent saving this year. We have already set out our stall for next year, which is asking I think for 6.59 per cent, which is the fee plus the 2 per cent which gets to that calculation in various ways. Clearly, year on year compound is going to become more difficult but certainly in these early stages, there is low-hanging fruit to be shaken out and there are some radical restructuring proposals which can be undertaken. I am confident in the early years. I will need to come back in four or five years' time and look again to express the same confidence. Q54 Mark Hunter: On the same point, I think what some of us are struggling to understand is that if your incumbent contractors are as inefficient as these expected gains imply, why is it that they are being given bonuses under the incentive scheme? Dr Roxburgh: You have got to understand that this is an industry that traditionally has done what it was asked to do. It was asked to win the Cold War. It was asked to design nuclear power stations. It has operated those stations, the Magnox stations, for 40 years, as far as I know without killing anybody, and it has operated efficiently. The world has changed. They have now been asked a new question, which is: can you carry out decommissioning, please? They are enormously complex businesses without individual cost centres. It has taken them time to actually get those cost centres in place, to start to gear up to answer this new agenda, and clearly in these early days there are possibilities for cost savings. Once we get the competition under way, I would expect quite radical savings. Rather than saying that 7 per cent is really rather clever, I suspect in three or four years' time we may look back and say that we could possibly have done better. Q55 Mark Hunter: That does not really answer the question as to why the contractors are being given bonuses now. Dr Roxburgh: Let me come on to that. I am conscious that during the run-up to the NDA's creation a phenomenal workload was placed upon the incumbents to re-license their sites, to prepare for us, and basically to change much that they were doing. At the same time they had to carry on doing their day job. We asked for this 7 per cent a year early. Part the way through the year, and perhaps I should not express such doubt in my own veracity, we thought they had a very good chance of actually achieving it but we wanted to give them every reason to achieve it because it is very much in the taxpayers' interests to save £140 million and perhaps spend £20 million on special bonuses to get it. That seems to me to be good business. I also wanted to say thank you for what has been a very difficult period for those companies prior to our arrival, and they have certainly responded very aggressively to our agenda since we came. It seemed a small proportion of what we have actually achieved to share back with them. Q56 Mr Bone: I want to touch on financing and the Segregated Fund and the Segregated Account. Our predecessors were very much in favour of the fund and you seem to have finished up with the account. You have the Nuclear Decommissioning Funding Account. Is that going to give you problems when you have long-term contracts to negotiate, given that people might worry about the Government's commitment? Sir Anthony Cleaver: Obviously that is something that, in a sense, will be tested when we actually put the contract out to the market. Our intention in each case is to discuss with the contractors well ahead of time what we are planning to do, to get their feedback and to understand their concerns. I think it is quite difficult. It is not up to us in a sense to re-visit that funding decision that was taken before we were created. Our job is to manage within it. I think, at the same time, it is the same as happens in other spheres, in defence for example, where people take on long-term contracts and it is possible for the Chancellor in future years to take a different view of the budget and things may change. We have had extensive discussions with the likely contractors in the future. There are, as I think our colleagues at UKAEA said, only a handful of companies that are really likely to take on tier one responsibility on this sort of scale. That has not been a particular concern that they have expressed so far. Q57 Mr Bone: You are implying that that would be a commercial risk that they would have to accept. It does seem a shame, in a way, that the Government has given you less independence perhaps than it could have done by this mechanism. Sir Anthony Cleaver: I do not know that I have a response to that, frankly. We were set up with a particular arrangement and our job is to manage within that arrangement. We have not found that has presented a difficulty to us so far. Q58 Anne Moffat: On the financing of the clean-up, we see that the Draft Strategy proposals are going down the route of PFI schemes. What problems do you foresee there and does the private sector take any of the risk factor when it comes to the PFI scheme? Sir Anthony Cleaver: I think actually that may have been less than brilliantly expressed in the Draft Strategy if that is the impression it has given. I think we were anxious simply to point out that we wanted, when we come to let the contracts, the contractors to be as innovative as possible. If that were the sort of approach that they found helpful in responding as competitively as possible, then that would be possible. We are not specifically looking for PFI schemes or that particular approach. Q59 Mr Clapham: Sir Anthony, BNFL also transferred to you assets as well as liabilities. It has always been part of the Government's plan that those assets would contribute to your income, for example the Magnox stations, THORP, MOX and Sellafield. Does that contribution meet what you anticipated for example for 2005/06 and is that likely to continue for 2006/07? Dr Roxburgh: For the current financial year, it has been swings and roundabouts. On the one hand, as you know the THORP plant failed on 18 April. The Sellafield MOX plant, whilst now delivering fuel, is not delivering it quite a quickly as we might have hoped, and we have lost one unit at the Oldbury power station because of graphite embrittlement. But, on the other side, our other power stations have exceeded our expectations of them to generate capacity over the year, and we have also had the benefit of a very robust electricity price. We will actually end the year more or less where we started, albeit there are some quite marked swings within that. Looking to next year, we anticipate a total income in the order of £1.2 billion, and so we see hopefully our good fortune continuing. We put a lot of emphasis on maximising the receipts that we get because clearly this is money that we would otherwise not have for decommissioning. Q60 Mr Clapham: What about Dungeness and Sizewell A? You were expecting to terminate their commercial input by December 2006. Is that likely to happen? Then there are the two other units as well. Do you have a schedule for when they are likely to complete? Dr Roxburgh: Yes, we have inherited a schedule for all of the sites. As you say, Dungeness and Sizewell will go, and Oldbury in 2008 and Wylfa in 2010. Wylfa is the one station where there might be a difference. We have picked up that the actual safety case for Wylfa expires in December 2010 but the original closure was planned for 31 March. We are currently exploring whether or not we can take advantage of that additional nine months under the safety case to get nine months more generating capacity out of Wylfa, and it would be very helpful if we can. Q61 Mr Clapham: In terms of your view with regards to Wylfa, if you were thinking in terms of that extra nine months, does that mean that you have got to go the Nuclear Installations Inspectorate? Dr Roxburgh: We need the regulator's approval, yes. Q62 Mr Clapham: In terms of the income that you are receiving from the Magnox stations, once that comes to an end, do you anticipate that the Treasury will fill the gap or do you have other commercial ventures which may well fill the gap? Dr Roxburgh: We own the Springfields fuel plant, subject to what may happen in the Energy Review. They may continue to have a future producing not just more fuel for the AGR stations in their extended life - Dungeness B you will recall has had its life extended five years unconditionally and 10 years conditionally. There may be possibilities of enhanced income there, but in general you are absolutely right: our main plants will have gone by 2010 - that is the four Magnox stations - unless there are new contracts for THORP, and that is a matter for Government, in probably 2010, but with a little bit of luck SMP may well be firing on more cylinders then than now. What we need to understand is that whilst we have had £1.2 billion of income posted for next year, the actual cost of generating that income is itself in excess of £1 billion. The actual P&L benefit, the marginal benefit, of operating some of these assets is not as obvious as some people might say. Whilst we lose the income, we also lose, over a period, much of the fixed cost. It is not quite as traumatic as some might imagine. Q63 Chairman: What did you hope to fire on all four cylinders? Dr Roxburgh: The SMPs, the Sellafield MOX plant. Q64 Chairman: That is very good because that is what we want to move to next. You hinted at MOX and THORP. Let me just pin you down a bit on MOX and THORP. What is the current situation on MOX? Your annual plan says it is going to be some time before you actually start operating commercially. Are there any contracts? Dr Roxburgh: The good news about the MOX plan is that it is now producing fuel of real quality acceptable to its customers. The first assemblies have actually been loaded and are being burnt and they are performing to specification. In terms of the overall production from the plant, it is too early to say; it is still being commissioned and there are still bottlenecks being worked through. As I say, such fuel as is being produced has been of quality. Q65 Chairman: Do you have any contracts for MOX? Dr Roxburgh: Yes, we have contracts which are currently being completed the moment. Hence, the fuel is being delivered to those utilities. Q66 Chairman: It is operating commercially, is it? Dr Roxburgh: Yes. Q67 Chairman: On THORP there is a pipeline failure. What is happening there? Dr Roxburgh: the NII have issued a schedule of improvements that they would wish to see in place, some procedural and some actually physical works to the plant. The current programme is that they should be completed by late summer and we very much hope that the plant will come back on line. Indeed, it is very much our desire that it should do so. Q68 Chairman: And there are commercial contracts let? Dr Roxburgh: There are indeed, yes. Q69 Chairman: How long will those keep on going? Dr Roxburgh: Until round about 2010. Q70 Chairman: You said that in line with the views expressed by the Draft Strategy you plan to discuss the long-term future of THORP with the Government. What is the long term? Sir Anthony Cleaver: THORP has contracts for foreign fuel. That foreign fuel, if it is not reprocessed, would have to be returned, and there are all sorts of technical and Foreign and Commonwealth Office implications in that. In the first instance, we would want to see that foreign fuel reprocessed and again the income from that and avoid problems that arise if it was not reprocessed. After that, it is a matter of how we deal with the AGR fuel. We are exploring all the possibilities at the moment as to a final disposition. That AGR fuel at the moment is reprocessed because that is the most stable way to manage it in terms of storing it long term. There are other possibilities. Quite what the decision will be I do not know at this stage. What I can tell you is that any new contracts for THORP are the decision of Government on our advice; they are not our decision alone. Q71 Chairman: Is THORP a loss leader for you then? Dr Roxburgh: On the face of it, no. Q72 Chairman: So it is contributing net income? Dr Roxburgh: Yes. Q73 Chairman: I am getting very short answers here. You are being unusually brief. Is there a reason for this brevity? Dr Roxburgh: No. I thought you would appreciate precision. Q74 Mr Weir: In view of these various questions, are you still sure that commercial operations will make up approximately 50 per cent of the NDA's income in 2006/07? Dr Roxburgh: Yes. The figures in our draft plan and I can repeat them. I have them in front of me. The projected income for the coming financial year is £1.2667 billion. The cost of actually deriving that income is £1.1504 billion. Q75 Mr Weir: You talked earlier about income from generation of the Magnox stations. As I recall from the Energy Act, there is a great deal of concern about the apparent contradiction of the decommissioning agency running power stations. Given that if I have understood you correctly it does not bring in that much money, would it be your intention to shut down these stations reasonably quickly or is it your intention to keep them running? Sir Anthony Cleaver: The plans that we have inherited have a finite life for each one of those stations. You may remember that in the Energy Act we are also given responsibilities for example for the socio-economic impacts of what happens on those sites. In each of those communities, the employment anticipated in operating those plants is there at the moment. They know the time when that is likely to come to an end. I think there will be considerable impact if one were to close them down earlier than previously planned. We are trying to balance the various requirements put upon us. We do get the benefit of the income and the income does more than cover the costs, so it is not impacting on us in that sense. I think our responsibility now is to try to ensure that in each of the cases we meet the agreed closure date which everybody understand and we ameliorate where we can the impact that will have on those communities. Q76 Mr Weir: What weight is the socio-economic impact given in that decision? Obviously in some areas the station could be and very likely is the major employer. Closure of the station will have a major impact. As a decommissioning agency, your principal duty is presumably to decommission these stations. You also have the socio-economic aspects. In what way does that impact on the timescale? Sir Anthony Cleaver: It is one of the things that we consider at each site. At each of the sites we have established a site stakeholder group so that we have direct input from the local community. Those are now independent groups, normally chaired by a local councillor or somebody of that nature, somebody not related directly to the industry. We hope and believe we are getting valid input from them. We try, as a result of that, to understand what the impact would be. We also have a relationship, particularly at the major sites, with all the local authorities, the local MPs, the regional development agencies, the Scottish Executive, and so on. We try to work with them to find ways in which we can assist in limiting the impact and, where possible, achieving a sensible transition. I think you were hearing earlier from the UKAEA some of the things that they have been doing up in Caithness. We are very keen that that sort of thing should continue. Perhaps the most important thing that we have been able to do in the case of both Caithness and West Cumbria is to help fund socio-economic plans that have been put together, regeneration plans if you like, for each of those communities so that we can again see ways in which it may be possible for people to be redeployed, for example, when certain types of employment cease. We were also anxious to take the opportunity that we believe accelerated decommissioning gives in this context. Again, we still have work to do in that context in terms of both the financial side, and of course we await the outcome of the Committee on Radioactive Waste Management for an ultimate destination for the waste. Assuming satisfactory outcomes on both those fronts, then the ability to pull forward the decommissioning of the Magnox stations and accomplish the whole task in a 25-year period has a major beneficial impact on smoothing the employment curve in each of those locations. There are significant opportunities where I believe we can assist the socio-economic aim but at the same time also do a better job in straightforward decommissioning terms, Q77 Mr Binley: I want to talk about skills in the nuclear industry. It is generally acknowledged, as you will appreciate particularly, that with the ending of fission research, the nuclear industry has not attracted sufficient young scientists. There are real concerns about the age profile of the industry. Given there is a skills shortage, are there enough companies with expertise to produce real competition for the clean-up contracts that you will be tendering? Sir Anthony Cleaver: Yes, I think all the evidence is that there is huge interest in fact internationally in the work that will be available. I believe they do have sufficient skills in the short term. Again, remember that the vast majority of the people on the sites will remain. It is the management tier that will change when we complete the contracts. Q78 Mr Binley: You also suggest that there is international resource. Is there UK resource? One would hope that money would perhaps be channelled back into UK industry? Sir Anthony Cleaver: Absolutely, and I will ask Ian in a moment to describe a number of things that we have been doing to address the skills issue. I think the issue is not an immediate issue in terms of nuclear skills. In fact, the areas where it is more difficult in some cases to find expertise are very much more at the craft level and in project management and so on in the short term. You are absolutely right that the age profile for the industry in nuclear terms is well up into the fifties, and that is the thing that we have to address. We have to get more young people coming in and there is a range of things that we have been doing in that area. I would like to ask Ian to pick that up. Dr Roxburgh: Could I put a bit of background to this perhaps? You have probably picked up that our preference would be to decommission the Magnox stations over, say, a 25-year period rather than the 80 to 110 years that we inherited. We will wait to see what the Secretary of State has to say about that. One of the reasons for doing that is to generate a better skills profile. Under the existing model, jobs are more or less steady for 10 to 15 years and we fall off a cliff. If you go out 30 odd years or so, you get a small blip when somebody builds a repository. You then go out another 50 or 60 years and you climb a cliff when you come back to actually decommission the reactors which you have left in a safe store condition some 80 years previously. Quite clearly, in that interregnum, the skills that you need have basically died; they have gone. By approaching a 25-year programme, you pull that cliff of 80 years out and append it to you your cliff 15 years out and you can actually get a good steady 30 years of employment. You can say to a young apprentice or to a young graduate, "Rather than being the basket case of the British industrial sector, we are probably in one of the very few areas that can offer you a lifetime's employment provided you are prepared to be flexible in moving around the country". The 25-year programme has a skills element to it and I think quite an important one. More immediately, we have come to an arrangement with the Dalton Institute at the University of Manchester to establish a new nuclear institute in West Cumbria and that will look at the PhD and Masters end of the spectrum. At the other end of the spectrum, we are working very hard with Cogent to establish a Nuclear Skills Academy, which will provide - through existing institutions but it will be a co-ordinating body with hubs all around the UK including Scotland, the North-East, South-West and South East - the basic apprentice and technical skills that we need. There is a great deal of work going on right across the spectrum. Q79 Mr Binley: Can I follow up on that very quickly? You have told me what you expect the new nuclear institution and National Nuclear Skills Academy to achieve. Can you tell us when you think you will start achieving? Secondly, can I ask about your relationship with regard to those very fine gentlemen sitting behind you from the other authority and how much you are working with them on this particular project? Dr Roxburgh: Both the United Kingdom Atomic Energy Authority and indeed the British Nuclear Group have very well-founded and long-established apprentice programmes. We continue to support those through the contracts and encourage them in that regard. In terms of the timetables, the Nuclear Institute documentation will be signed by the end of this financial year, so that is 31 March, and the agreements are all in place to guide that and that will be a £20 million joint investment. That will commence next year. In terms of the Nuclear Skills Academy, the application will go in I believe in June this year, and hopefully that will be supported by Cogent. It certainly already has the support of the North-West Development Agency. Assuming that is successful, again we already have consultants looking at the design of buildings and making planning applications on our behalf. Again, that should start in the next financial year. Q80 Mr Binley: Do you really think that will be done that quickly? Dr Roxburgh: I do not see why not. The local community are very keen to host it. I would like to think that they will reflect that in their planning committee. Q81 Mr Binley: How are you working with the gentlemen sitting behind you on this particular exercise? One assumes there is some mutual interest there. Dr Roxburgh: Very much so and, as I say, there is a hub that will be based up in the north-west of Scotland of the Nuclear Skills Academy. Q82 Chairman: Can I be clear about what the difference is between the institute and the academy? They are both near West Cumbria. Dr Roxburgh: The institute is very much the upper echelons of university research, Masters degrees and PhDs, that type of approach. The Nuclear Skills Academy is more the craft skills, NVQs. I should say that we are also talking to a number of business schools with a view to enhancing generally what is called project management and cost control and scheduling expertise amongst graduate engineers. Q83 Chairman: It is true that the clean-up programme you are engaged on will depend very heavily on United States engineers and expertise as well to supplement the British skills base, such as it is? Sir Anthony Cleaver: I think it will depend on the very best skills that we can find anywhere in the world. Obviously there is a number of companies in the United States that have expertise in this area and have been successful on a number of their sites. There is obviously expertise in France in particular, and they have already shown interest. Yesterday I had four delegates, if that is the right word, from the Japanese Government that came to see us interested in whether there were opportunities for Japan. I hope that we will attract to the competition the very best skills that are available around the world. We are delighted to see that the UK Atomic Energy Authority has already entered into a partnership and that is a partnership that brings together both skills from outside the sector, those in the UK and specific sectoral skills from the United States. It seems to me that is what we really need to apply to get the objective that we are all after. Q84 Chairman: There is one last question from me, unless my colleagues have any points they want to raise. You have already obviously taken over BNFL's sites and the assets and liabilities that went with them but there is a delay in taking over the UKAEA's sites. Why is that? Sir Anthony Cleaver: It is simply a question of the sheer amount of work that was needed in terms of getting all the legal documents assembled and signed, great piles of contracts, in order to ensure that all the liabilities and so on passed correctly. In the case of UKAEA, both they and we are in NDPB's - that is what brings us here today - and both are directly owned and funded by Government and therefore there was not quite the same urgency as there was in the case of BNFL where we are dealing with at least a semi-commercial organisation to make that transfer. It is planned for April next year and that will be in time for the authority then to be able to put in place the appropriate licensed companies. The requirement is ultimately that there be an organisation that can compete for sites on the basis on which we choose to compete. Chairman: Thank you. I think that completes our questioning, gentlemen. I am most grateful to you for your time.
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