Examination of Witnesses (Questions 80-99)
DR IAN
ROXBURGH, MR
JAMES MORSE
AND MR
MARK HIGSON
25 FEBRUARY 2008
Q80 Chairman: Yes.
Dr Roxburgh: I indicated earlier
that is a process of government.
Q81 Mr Mitchell: Yes, but you had
that process in the 1990s. I remember Nirex coming to Grimsby
and reassuring us it would be absolutely marvellous to welcome
this low level nuclear waste and it would provide jobs and interesting
use for the land. I sat outside that site for three months, picketing
it to try to stop the stuff coming in but it never came because
Nirex was wrong. Nirex spent all that money and all those calculations
on trying to find sites; it did not find them and we still do
not have them. You do not know the costs and therefore you cannot
estimate the costs of decommissioning these plants.
Dr Roxburgh: As my colleague said
earlier on the fundamental change of policy is moving from what
is called DAD—Decide, Announce, Defend—to a policy
of consult widely, look for volunteers and recognise that those
volunteers may well require an element of infrastructure investment
by way of compensation.
Chairman: Are we going to volunteer for
this stuff? Which MP wants to put his hand up?
Q82 Mr Mitchell: I think you can
count my area out. We could go round the room but you will find
a massive rejection. What I am emphasising is not where you are
going to put it but what is the cost going to be? You just do
not know.
Dr Roxburgh: As far as the repository
goes until we have identified a location and we understand the
geology and technical challenges there can be no cost.
Q83 Mr Mitchell: You are not being
exploited and conned by the site licensees, are you? As I read
the Report they tell you what needs to be done, they estimates
the costs, they employ the contractors not on the same cost basis
that you are paying them and therefore they have access to as
much money as they want.
Mr Morse: Can I just step back
and look at the process of forming a lifetime plan? The first
period of the NDA's existence has been about establishing compliance
and compliance to the processes that underpin that plan to make
sure that we have no gaps and scope; to make sure that across
the sites things are counted and estimated in the same way and
they are underpinned by the same levels of technology. As Ian
said right at the beginning, that is the first time in the nuclear
area in the UK that that has been established. I might say that
that is a process that a number of other companies across Europe
have looked at and recognise that actually the NDA does that quite
well. So it is the lifetime plan underpinned by those processes
which contains the scope as we see it and there are some uncertainties
about that scope, but there is also a lot of fairly firm and certain
knowledge. It contains the timing and ultimately the cost and
it contains the methods and processes. In our first period we
have established a compliant baseline. We must now move on as
is indicated by the NAO Report to using that baseline effectively
to unlock the opportunities so we can see the uncertainties and
the certainties.
Q84 Mr Mitchell: I am sorry to interrupt,
you say there are some uncertainties—you do not know what
they are or how much it is going to cost—and there are come
certainties. That is true of any forethinking planning. Here we
are bequeathing an enormous debt and responsibility to our future
generations because you cannot imagine that this government is
going to pay it and I cannot imagine the next government is going
to pay it, can you give us a forecast of how much it is going
to cost year by year on this kind of basis, what the accumulative
cost overall is? You cannot, can you?
Dr Roxburgh: What you can do is
to define the scope and you can define the logic around which
you should do the scope so that if you do this today you are not
going to backend load additional cost tomorrow. That is important
in itself. We have a thing called inflation; if we look at inflation
in one of our supply chains, the civil engineering sector, it
is actually significantly more than RPI. If you look at one of
the main products required in our programmes, stainless steel,
that has been inflating in double digits annually because of demand
in China.
Q85 Mr Mitchell: If you have all
those uncertainties about prices, about inflation, the cost of
steel and so forth, which are then compounded by the uncertainties
arising from what you are doing—because there will be areas
where you have unanticipated problems, where you cannot dispose
of the stuff, where a lot more has to be done than you thought
was going to be done—you are entering into a long and limitless
obligation, are you not?
Dr Roxburgh: What we are entering
in on is history. They are there now, whatever we do. Our job
is to characterise them, come up with the best value for money
solution, whatever that ultimate cost is for dealing with them.
We are not creating the waste. We are trying to get a grip where,
for 50 years, the nation has conveniently compromised backend
loading, looked the other way, however you want to describe it.
Q86 Mr Mitchell: The problem then
is that you will find that no government is going to provide you
with the money.
Dr Roxburgh: I do not think that
is an issue. The regulator would insist that things are done.
The Government is, in my view, firmly committed to the Energy
Act, there is cross-party support, it has a profound strategy
behind it; I think it is a seminal piece of legislation and marks
a remarkable shift in Britain's attitude to these things.
Q87 Mr Mitchell: I see from illustration
6 on page 15 that the Americans are well ahead both on decommissioning
and on general issues and site clearance. What indications do
we have about their costs and are they going to be comparable?
Dr Roxburgh: The model that I
described earlier is based on their experience that as you start
to look you find the cost goes up, it then plateaus and as you
apply new innovative thinking to dealing with the issue the cost
starts to come down.
Q88 Mr Mitchell: Where does responsibility
lie in the States?
Dr Roxburgh: With the United States
Department of Energy.
Q89 Mr Mitchell: Not with the individual
contractor?
Dr Roxburgh: The individual contractors
are employed by the US DoE to undertake the decommissioning work
and we have quite close links with the US DoE. As you would expect
we are trying to work from lessons learned and not to repeat their
mistakes.
Q90 Mr Mitchell: It is funded by
government.
Dr Roxburgh: Yes.
Q91 Keith Hill: I wonder if I could
begin by asking Mr Morse a question about costs which ought to
be controllable and to revert I think to a question which the
Chairman raised earlier in this discussion which is to reflect
on the fact that estimates and support costs in real terms rose
by 9% in two years to 2007. Why is it so difficult for you to
control your sites' procurement and human resources costs?
Mr Morse: The cost structure of
this industry is one where there is a high portion of fixed costs,
cost that is fixed for a number of years out. There are 20,000
employees in the industry directly and several thousands as agency
workers behind that. The employment conditions restrict any movement
across sites and that is something that we are looking at. There
is a high proportion of fixed costs so in the near term it is
very difficult to address that. If I remind you of what I said
half an hour ago, we have an initiative to address fixed costs
and to see those reduced progressively from the first of April
2008 onwards. Part of that fixed costs initiatives is also around
shared services so the belief that starting with economy of scale
purchasing power across the 19 sites we can again drive further
efficiencies. The overhead fixed cost structure of the industry
is really quite high as you would imagine. You would expect to
see a higher fixed cost where you have such intense licensing
arrangements to protect safety, security and the environment.
Dr Roxburgh: The nuclear industry
in the UK is very much where I think the construction sector was
perhaps ten years ago: large conglomerates without individual
cost centres which are disciplined. There is still a habit of
placing overhead where it can be borne rather than where it occurs.
There is good experience both here in the United Kingdom with
Aldermaston and from the States that you can take significant
costs out of the fixed cost element when you bring in contractors
of world class pedigree. I am confident that we will see that
happening at Sellafield once the new PBO arrives.
Q92 Keith Hill: Let me ask you about
contractors and draw your attention to paragraph 2.11 or the Report
where the NAO says that you do not have benchmark data and you
do not routinely employ cost consultants. The question therefore
arises how do you know your contractors' cost estimates are reasonable?
Dr Roxburgh: You do that in the
first instance by requiring them to increasingly compete the work
they would otherwise have done in house into the market, what
they call the make buy decision. Traditionally there has been
the tendency to make rather than buy and one of our first duties
was to force the pace and to insist that over a two year period
what otherwise one might call comfortable arrangements were challenged
in the market. That is the first point. The second point is that
increasingly we are to engage with our resources. When the site
wishes to embark upon a major project they cannot just go and
do it even though they are the controlling mind; they have to
bring that proposal as a business plan to our expenditure review
panel and we will interrogate it in the way that any other plc
would interrogate a subsidiary wishing to make an investment on
its behalf. Quite a few of those cases are sent back summarily
or for improvement so there is quite a high degree of assurance
and interrogation.
Q93 Keith Hill: Nevertheless you
are in a situation where, as we have seen with these cost escalations,
the base estimates remain very unstable and they are your comparators
in the situation. In these competitions that you are anticipating
how are you going to judge the cost and price elements of the
bidders' proposals against the instability of those base estimates?
Dr Roxburgh: As I indicated earlier
we have now allocated a sum of £5 million per annum to engage
third parties who are expert in these processes to actually interrogate
on our behalf and to advise.
Q94 Keith Hill: Let me ask two or
three further questions somewhat at random, but issues which have
already been raised in discussion or have come out of the Report.
You impose fines for safety events—this is brought out in
paragraphs 3.9 and 3.10 at pages 23 and 24—and then allow
sites to re-earn the money. Does this not encourage sites to focus
on correcting the problems you identify rather than preventing
the problems in the first place? Mr Morse, you will have to be
very careful about body language; I saw a very heavy nod there
so I thought you might like to come in on that.
Mr Morse: If we take the two sites
at Dounreay and Sellafield we do of course operate across management
and operations contracts so there is a contract between the NDA
and the site operator but of course NDA owns the site and its
infrastructure. That contract is almost entirely reimbursable.
The contract conditions are such that if the contractor is prevented
from making progress in a particular area we are allowed to reassign
the fee and that is simply what we did this time around. Had this
been a contractee in private industry the contractor may well
have reached for an equitable adjustment and extension of time,
a variation of claim and so to avoid all of that expenditure around
contract administration we simply reassigned the fee to other
areas. I think reassignment of fee is just the same as equitable
adjustment in any form of contract. The fact that we recycled
it is really a circumstance within the year's funding.
Dr Roxburgh: One of the reasons
we did it was the incident at Dounreay was a function of a poor
culture. We put the money back in on the understanding that they
would improve the culture and if I look at the evidence that has
flowed from that re-investment and that change in culture, there
has been quite a marked change. If I look at loss time accidents
at Dounreay in 2005/06 there were eight, in 2006/07 there were
three and this year to date there are two. If I look at the international
measure of health and safety, the Total Recordable Incident Rate,
if I go back to the beginning of 2006 Dounreay was at a figure
of three, as of today it is down around 0.3; 0.3 is world class.
To put that in context, the American construction industry consider
a TRIR of six as being average. If I look across our estate it
was not just the measure that you sent Dounreay, individuals in
management lost bonus so that sharpened their attitude and everybody
took notice. We have five sites at the moment who, over the past
12 months, on a rolling 12 month basis, have a TRIR of zero. So
there has been a profound change. It is stick and carrot and I
do believe the policy has borne fruit.
Q95 Keith Hill: That is impressive
and reassuring. On this issue of poor culture, let me just seek
reassurance on a reference you made, almost an in-passing reference,
at an earlier stage which is this thing about contaminated graphite
in UK Magnox reactors. You drew the contrast with France and Japan
which do not have them. Why is this? Why did this occur in the
UK? Presumably it is unlikely to be repeated.
Dr Roxburgh: I think I perhaps
misled you. The carbon is contaminated as a result of the processes
in the reactor and it is just as prevalent in Japan and in France
as it is here. One of the reasons we have embarked upon a memorandum
of understanding with those two countries is because they too
are looking for a final disposition for their C-14 contaminated
graphite. It is not something that has happened as a result of
poor practice.
Q96 Keith Hill: That is reassuring
also. Mr Higson, you made the observation which other colleagues
have remarked upon, that the modern reactors are designed with
decommissioning in mind. You have talked a little bit about a
plan and Dr Roxburgh pointed out that there would no authorisation
for a future nuclear reactor without a plan. What are the contents
of the plan?
Mr Higson: The bill currently
before the House requires new nuclear operators to have produced
a funded decommissioning plan which is subject to the approval
of the secretary of state. We have issued draft guidance, last
week in fact, setting out what the secretary of state on a provisional
basis would expect to be in that plan, the level of detail and
the nature of the financing arrangements. That is to give potential
operators a very clear idea of what the secretary of state would
be minded to approve so that they can factor that into their considerations
when they come forward in due course with a plan for approval.
Q97 Keith Hill: Give me three key
points.
Mr Higson: I think the most important
point is that there has to be a clear plan. The second point is
that it has to be funded on a prudent basis and that basis has
to include, for example, protection against the event of insolvency;
the trust has to be managed by people who are competent to do
so. A point I was trying to get across earlier is that to live
with the degree of uncertainty that necessarily attaches to any
estimates of future construction or decommissioning, this is a
process that constantly assesses and reassesses the costs to ensure
that at all times action is being taken to ensure that the funded
decommissioning programme is prudently funded and that the funds
are sufficient to finance the decommissioning and waste management.
Q98 Keith Hill: I am glad I gave
you the opportunity to clarify that since you were trying to get
it across earlier. Finally, Dr Roxburgh, you have referred repeatedly
to what appears to be your determination to introduce world class
standards into the way in which we operate decommissioning. What
are the conditions of acquiring world class standards and management
in the UK?
Dr Roxburgh: World class managements
have choices as to where they go and work. I have indicated the
type of world class project manager that we would require at our
sites could equally go and work in the oil and gas sector, aviation,
tunnelling, wherever. You have to pay the going rate and one of
our skills is to pay the rate but not leave too much on the table.
That is why I was indicating to you earlier that as part of our
competitive dialogue tension between the four bidders, whilst
we believe we are leaving enough money within the contract to
attract those world class teams, we want them in turn to be competitive
with each other to actually define the smallest amount that we
leave on the table, in other words we do not pay more than we
have to.
Q99 Chairman: Dr Roxburgh, that concludes
our hearing. I personally have no prejudice against nuclear power,
indeed it is not the job of this Committee to look at the policy
implications but I do think we have a right to look at what this
is going to cost the tax payer and I think any tax payer listening
to this inquiry would have been worried about the uncertainty
surrounding this figure of £73 billion, already an enormous
figure. What particularly worries me is that these costs are continuing
to escalate even on work about to begin. The decommissioning relies
on income from increasingly unreliable plants; unforeseen expenses—which
are no fault of yours—continually pop up; we have to meet
urgent commitments at places like Sellafield. These factors it
seems combine to disrupt plans. We have or have had a stop/start
process in decommissioning. All this is extremely worrying and
adds to the bill of the taxpayer. I do not think this is your
fault, Dr Roxburgh. We have many witnesses coming in front of
this Committee, they all have a very difficult job to do, some
are very competent and some less so; I think you have a far more
invidious position. You are obviously an extremely competent person
doing an impossible job. I wish you well.
Dr Roxburgh: You are most kind
in your remarks.
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