Examination of Witnesses (Questions 100-119)
DEPARTMENT OF
TRADE AND
INDUSTRY AND
BRITISH ENERGY
27 MARCH 2007
Q100 Mr Khan: Do you
really mean that? Do you think it is a reasonable outcome at this
stage?
Sir Brian Bender: We are in a
middle stage at the moment. The restructuring has happened and
it has only been completed for about 12 months. I read the NAO
Report as saying that in all the circumstances it was a reasonable
position, although the Comptroller and Auditor General can answer
for himself. Looking forward, the question is then the performance
of the company and the effectiveness and efficiency of managing
the liabilities and the decommissioning costs.
Q101 Mr Khan: You have not touched
upon the cost and the risk to the taxpayer, yet you are reasonably
pleased with that.
Sir Brian Bender: For as long
as the company is viable and being successful, the cost to the
taxpayer is actually an asset not a cost, as the table at the
back that has a figure in it describes.
Q102 Mr Khan: Quite clearly this
is a complex restructuring, huge financial figures at stake and
you are reliant upon the advice you receive. Mr Bacon touched
upon concerns about the lack of competition and you have acknowledged
that. Are you happy with the advice you received from those people
who were given the job without competition?
Sir Brian Bender: I believe, from
having read the files, that we received good advice. Again, the
Comptroller and Auditor General can speak for himself, but I understood
the Report to be saying we examined the right sort of issues and
received the right sort of advice. There are other people, of
course, who will be giving advice on these matters. I believe
the NDA will themselves be publishing a strategy later this week
and they will be setting some of the framework for the future
decommissioning costs and therefore the liabilities over the next
decades. So there is another source of advice there.
Q103 Mr Khan: Are you pleased with
the outcomes to your negotiations?
Sir Brian Bender: I think that,
in the light of the really difficult circumstances that were faced
in 2002, we are now in an adequate position. We have a solvent
company which is still producing electricity, doing so safely
and potentially there is an asset here for the taxpayer. The question
is how we manage those liabilities to make sure that actually
it is an asset for the taxpayer and not a liability.
Q104 Mr Khan: Do you wish you had
had either the advisers or the negotiators that the creditors
had?
Sir Brian Bender: I believe, having
talked to people who were involved at the time, having read the
files, that we had good advice.
Q105 Mr Khan: Do you believe that
you pushed hard enough to get a better deal on the cash sweep?
Sir Brian Bender: We shall see,
later this year, or whenever it may be, how the cash sweep works
when it is first deployed and what return that brings. Again,
this was a balance in terms of trying to ensure the viability
of the company with the Government and taxpayer sharing, if it
was successful, and the risk that if we had struck too hard a
deal there, it would not have been a successful restructuring.
That was the balance to be struck.
Q106 Mr Khan: Sir Adrian, do you
think that your creditors and shareholders have a fantastic deal
vis-a"-vis the risks to them with regard to nuclear liabilities
or lack thereof?
Sir Adrian Montague: The decisions
which were taken very early in the restructuring process were
taken with a view to securing a solvent restructuring. As I understand
it, the cash sweep which we were discussing earlier on was intended
to create a way of the contributions that the Government received
from British Energy fluctuating over time according to the fortunes
of the company. Actually, as things have turned out, we are now
creating value in excess of the liabilities that have been transferred
to Government.
Q107 Mr Khan: So they have done pretty
well and have not shared any of the risks.
Sir Adrian Montague: Clearly there
is risk around the long-term evolution of these costs, but, as
matters stand today, in my judgment it is a successful restructuring.
Q108 Mr Khan: If you are a creditor
or a shareholder.
Sir Adrian Montague: No, no. I
would suggest, although it is not for me to say, also as regards
the Government.
Q109 Mr Khan: Sir Brian, you have
heard what Sir Adrian has said. Why did you not take a direct
shareholding in the company?
Sir Brian Bender: We took the
view that the monitoring arrangements we had, and the cash sweep
arrangements we had, and the controls we set on the company, would
provide the right sort of framework to give us the returns without
us being involved in actually running it and therefore potentially
diluting the—
Q110 Mr Khan: Just pausing there.
Paragraph 2.24 talks about the huge cash payments all the executive
directors received when they left. It says at the bottom of that
paragraph: "Since the completion of restructuring the Department
has no right of consultation on executive remuneration".
That is one example where you have no control at all.
Sir Brian Bender: We have no control
over that. The money which was paid out at the time was subject
to contract and the Department received its operating loan back
from the company. The controls we do have relate to the financial
trading and other trading arrangements of the company, so it must
adhere—
Q111 Mr Khan: Okay, let me read paragraph
3.15: "The Department plays no formal role in approving the
company's commercial strategy". Another example of your lack
of leverage.
Sir Brian Bender: We have set
a number of conditions for the company: it must adhere to prudent
trading principles; it cannot make capital distributions until
it has built up sufficient cash reserves; it cannot undertake
corporate restructuring without the Department's consent; and
its borrowing ability and scope of business activity is limited.
Q112 Mr Khan: Sure; I have read that
as well. What control do you have over the performance of British
Energy's operational side?
Sir Brian Bender: None.
Q113 Mr Khan: Am I able, for example,
to ask you for your comments and your influence over figure 17,
paragraph 3.2, where you see that the company is lagging well
behind not just upon the maximum annual load factor, but also
vis-a"-vis international comparators? Do you have
any say over that?
Mr Robson: What we have and what
we put in place are monitoring arrangements which did not exist
previously. Our main focus is to lead British Energy, as a company
operating in the private sector, to being a FTSE 100 company now
and having the private disciplines with shareholders. We are
looking to have significant monitoring arrangements, so we can
actually determine how the company is performing as well as having,
through various controls, ability to ensure that, for example,
dividend payments are not able to be made until a certain amount
of cash is within the business. We think we have the right balance
between the controls that we feel we need, but also allowing the
company to put forward its own strategy and take the business
forward.
Sir Brian Bender: And we do discuss
operational performance with them as part of the regular monitoring
meetings.
Q114 Mr Khan: But they can ignore
you, can they not? You have fantastic teamwork today, but they
can ignore you if they want to. You would have much more stake
if you were a shareholder, would you not?
Mr Robson: May I just deal with
the point about why we did not take a direct shareholding? One
of the issues that we considered was whether there was any additional
benefit in having equity which would obviously have entitlement
to dividends. One of the benefits of the cash sweep is that we
have a contractual entitlement to 65% of the cash created by the
company. So if the company were to decide that it did not want
to pay a dividend, which is at the discretion of the directors,
we nevertheless would have a contractual right to 65%, with the
ability to convert if we wished to do so.
Q115 Mr Khan: I have one final question
I wish to put. I have heard all that. How can you assure us that
you have adequate contingency plans to minimise the risks for
the taxpayer should things take a dip?
Sir Brian Bender: We have close
monitoring, as I have described already.
Q116 Mr Khan: You cannot impact the
way the company behaves. You can monitor, yes.
Sir Brian Bender: We can monitor
closely, we have controls in the way described. As part of the
restructuring process, we did have detailed contingency plans
for different scenarios. The company itself now has a stronger
hedging strategy so that it will not be as vulnerable to movements
in electricity prices as it was in the past; and we have reviewed,
and keep under review, the contingency plans.
Q117 Mr Davidson: May I clarify this
point about liabilities? Do I take it that essentially there is
an unlimited liability to the taxpayer in the event of catastrophic
failure of any sort and ultimately responsibility for anything
like that would fall back on us?
Sir Brian Bender: The liability
essentially is to do with the waste and the other material that
is described there. That, as the Report makes clear, was not calculated
at the time of the restructuring and that was removed from the
company.
Q118 Mr Davidson: But it still falls
back on the taxpayer. So any catastrophic event, any outage, the
ultimate liability falls back on the taxpayer, does it? I am seeking
to clarify where it does fall, if it does not fall on us.
Sir Adrian Montague: The answer
is that under the network of international treaties, which regulate
not just the nuclear business here but the nuclear business worldwide,
each state, as it says in paragraph 1.8 of the Report, "...must
bear the responsibility and by implication meet the costs in those
cases where no other party is able to discharge those obligations".
That does not mean that the primary recourse is not to the operator.
Clearly that is right. Our responsibility as nuclear energy producers
is to run these businesses competently.
Q119 Mr Davidson: Once you have finished,
it falls back on us.
Sir Adrian Montague: I believe
that is correct.
Sir Brian Bender: That was the
case before the restructuring.
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