Examination of Witnesses (Questions 40-59)
DEPARTMENT OF
TRADE AND
INDUSTRY AND
BRITISH ENERGY
27 MARCH 2007
Q40 Greg Clark: We need to be clear
here. The amount that they got may have been uncertain, but it
would also have been infinitesimally small, if it went into administration
at that point. That is correct, is it not?
Mr Robson: I do not have the precise
details.
Q41 Greg Clark: It is not a question
of detail Mr Robson. Are you saying that the creditors, if British
Energy had gone into administration at the time of this restructuring,
would not have had an extremely small reward from it, if any?
The fact is that it would have been virtually zero. You are not
trying to tell the Committee that it would have been in any way
significant, are you?
Mr Robson: I am not trying to
say that it would have been significant.
Q42 Greg Clark: Would you agree that
would have been insignificant?
Mr Robson: It would have been
less than the £700 million that they took in terms of value
at that point.
Q43 Greg Clark: I do not think this
is terribly satisfactory. It is pretty clear from the finances
of this organisation that this was, effectively, almost a bankrupt
organisation. It is clear from that, that the creditors were not
expecting any significant sum of money. If it was so valuable,
why is it not the case that some other purchaser has stepped in?
The assessment is very clear that this was unsaleable.
Mr Robson: The assessment is absolutely
clear that it was unlikely that any buyer for the entire business
would come forward. What precisely would have happened, if it
had gone into administration, is clearly uncertain and that was
indeed why it was important to come to a position whereby there
was, if we could achieve it, a solvent restructuring, because
under the solvent restructuring route, then we did not have indeed
that uncertainty that you mentioned.
Q44 Greg Clark: The Report makes
clear that actually the possibility of a planned administration
was possible; one can see the disadvantages of an abrupt administration
but page 22 of the Report is very clear that a planned administration
was a perfectly feasible thing. I am slightly mystified as to
why it is the case that British Energy, with £5 billion of
nuclear liabilities, should have been left in the private sector
and restructured with creditors, who contributed very little,
who had low expectations of what they should get back, benefiting
significantly, whereas, not far from that time, it was felt that
Railtrack, which did not have such significant liabilities from
a public safety point of view, had to be taken back into the state
sector. I do not quibble with that here, but it seems bizarre
that a nuclear company should have been found fit to stay in the
private sector and the creditors rewarded but not the shareholders
of Railtrack. What would you say to that?
Sir Brian Bender: The conclusion
reached as part of the discussion on restructuring, as stated
in the Report, was that the costs of the two were roughly equal,
but the risks of going into administration were greater, and therefore
a solvent restructuring was likely to provide the better return
to the taxpayer as well as protection of the interests of security
of supply and safety.
Q45 Greg Clark: On reading the Report
it is clear that those risks attached to an unplanned, abrupt
administration, not to a planned administration. It is slightly
misleading to posit a distinction between administration and restructuring
as being as stark as that.
Sir Adrian Montague: The difficulty
of a planned administration is that there is no such thing as
a sure plan when you enter administration, because the administrators
tend to have minds of their own, they have duties to the creditors
as a whole, not to Government, not to health and safety. This
was not directly my concern, it was a government matter rather
than my matter; I was looking after the company at this stage.
I think that there would probably have been worries as to whether
it would be as easy to get out of administration as it would have
been to get into it.
Q46 Greg Clark: The Report makes
clear that the Department could have funded an administrator and
thereby kept the company running and satisfied safety standards.
If administration is so unpalatable, and there are one or two
remarks which mention the loss of staff morale, for example, if
these are significant, then surely these things apply just as
much to British Energy today running nuclear power stations as
they did before the restructuring. Okay, we have taken out the
nuclear liabilities, but these risks remain, so is it any more
conceivable today that British Energy could be allowed to go into
administration if it were to fail financially?
Sir Brian Bender: There is a NAO
recommendation in the Report that we are looking at which is that,
if the company were to go into administration in the future, a
special administration regime should apply. That is something
we are looking at and we are discussing it currently with the
NII, the Nuclear Industry Inspectorate.
Q47 Greg Clark: It is the case, is
it not, that this is a private company and the evidence from this
Report is that the Government were not allowed to go bust, which
puts it in a very unique position?
Sir Brian Bender: There were issues
then, as there may well be now, to do with security of energy
supply, electricity supply and safety, which caused the Government
to decide, since the costs were about equal and those risks skewed
it one way, that solvent restructuring was the better option.
That was the reason the decision was taken, as it was, in 2002
onwards.
Q48 Greg Clark: Are you concerned
as to the consequences of administration and that the duties would
be to creditors rather than the Health and Safety Executive and
all the rest of it? It strikes me that, sitting where we are today,
those risks continue to be there for administration, if you are
to be consistent, and therefore this company, where another tranche
of shares is about to be sold, comes with a government guarantee
behind it.
Sir Brian Bender: The point I
was trying to make a couple of minutes ago, and there is a recommendation
in the Report on this point, is that we are currently reviewing
whether legislation is required to establish provisions which
could assist if it were to go into administration. In other words,
there is an issue being looked at now as to whether it would be
useful to have a special administration regime to address this
type of problem in legislative form.
Q49 Greg Clark: When will that be
decided?
Sir Brian Bender: I cannot answer
that; it is currently being considered.
Q50 Greg Clark: Before the sale of
shares?
Sir Brian Bender: I cannot answer
that.
Q51 Chairman: May I just ask one
thing on the line of questioning of Helen Goodman and the early
part of Greg Clark's before we move on? I want to ask the Treasury,
if I may? It is quite clear from the questions that Mrs Goodman
put to you that the DTI did not follow the Green Book rules on
the discount rate. Did the Treasury specifically accept this
departure from their own rules?
Ms Diggle: We are going to have
to look into that for you Chairman.
Q52 Chairman: We do want to know.
Ms Diggle: I certainly want to
have a look at this note before it is sent.
Q53 Chairman: We want to know what
you think of this answer that it is all rather vague in 2085.
That does not sound a very good answer to me. A rule is a rule
is it not?
Ms Diggle: Certainly.
Q54 Mr Mitchell: I wonder whether
we really have a situation here where the sky is black with chickens
coming home to roost. The accounts of the whole nuclear industry
have been fiddled for so long to try to show it as profitable,
when it is not, and to try to show it as competitive, when it
is not, that you have just got lost in a miasma of figures. I
have been corresponding for several years with the DTI about the
accounts of British Nuclear Fuels. I have brought the papers along
for Sir Brian, because they might just have gone into that black
hole marked DTI. We had reports done in an association of business
and accountancy which proved that British Nuclear Fuels had been
capitalising on the repairs and the maintenance expenditure for
years, that they had been fiddling the depreciation levels, they
had been fiddling the provision relative to long-term nuclear
liabilities, they had been fiddling accounting standard FRS12,
they had given a pension holiday to add to profits and, long term,
they had shown income above the line. Now here is British Nuclear
Fuels, they are a creditor, they are a beneficiary of what you
did for British Energy. If the accounts of British Nuclear Fuels,
and I imagine the accounts of the rest of the industry, have been
fiddled as vigorously as that for so long, it was no wonder you
had no figures you could rely on in 2002. You did not know where
the hell you were.
Sir Brian Bender: It seems to
me largely a rhetorical question, but—
Q55 Mr Mitchell: No, no, no; my question
was pointed. I shall give you the papers afterwards. The accounts
were in a mess.
Sir Brian Bender: I am not aware
of the issues to do with British Nuclear Fuels and you will give
me those papers afterwards. The NAO Report states that the analysis
the Department did, at the time of the risks that the taxpayer
and the economy were facing, were properly examined. That is the
conclusion NAO have reached in relation to this restructuring.
Q56 Mr Mitchell: But it also says
there was some confusion as to the figures and what the accurate
figures were. That is true, is it not?
Sir Brian Bender: We did not have
the liabilities figures, as is evident from the Report.
Q57 Mr Mitchell: When it comes to
the decision whether to put it into administration or to carry
it on, it was a very different decision to the one for MG Rover
we were talking about last week. Of course, as the Report says,
normally when private companies get into difficulties, the Department's
policy is not to intervene, on the argument that the United
Kingdom productivity goes up if a relatively inefficient firm
is allowed to close. Here was an inefficient loss-making electricity
producer and you decided to keep it going. That is really a political
decision, is it not? You can disguise it with figures, but essentially
they had got you by the balls.
Sir Brian Bender: I was explaining
in reply to previous questions that the costs of administration
versus solvent restructuring were roughly equal, not much to choose
between them, but there were issues around nuclear safety and
security of energy supply that led to the policy decision that
the lower risk option would be to go down the road of restructuring.
Those considerations did not apply in relation to the Rover Group;
it was a very different context.
Q58 Mr Mitchell: Those safety issues
could possibly have been dealt with, but the basic argument was
that you did not want and you could not afford nuclear to fail
in that kind of fashion.
Sir Brian Bender: The decision
was taken at the time that there were very significant risks to
do with nuclear safety and electricity supply if it went into
administration, for the very reasons I was trying to explain to
Mr Clark.
Q59 Mr Mitchell: Did the fact that
you could not find anybody else who was willing to come forward
and run it, even at a knock-down price—that is what administration
is all about, finding some sucker to take it on—not tell
you something about the viability of this organisation?
Sir Brian Bender: It was an issue
around the greater risks, as I described earlier, of going into
administration rather than restructuring.
| 
