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The Deputy Chairman of Committees: I draw the attention of noble Lords to the fact that if this amendment is agreed to, I shall not be able to call Amendment No. 13 because of pre-emption.
Lord Ezra: I support the remarks of the noble Baroness, Lady Miller. It is worrying that we again have a proposal for an open-ended facility. Surely the Government should give us a figure—figures of £3.5 billion, £5 billion and even £10 billion have been mentioned. There must be some limit above which the Government feel, even in the most extraordinary circumstances, expenditure should not be incurred. We believe that it would be quite wrong to introduce the concept of unlimited expenditure in this clause, as well as in previous clauses. I therefore strongly support the remarks of the noble Baroness.
Lord Jenkin of Roding: In replying to the amendment, I hope that the Minister will tell us about the progress of the nuclear liabilities fund, into which all nuclear generators are contributing so as to provide a fund to deal with the problem. I believe that I am right in saying that the Nuclear Decommissioning Fund is up and running and that money is being paid into it. The nuclear liabilities fund was proposed in a White Paper some while ago but I believe that its inception has been delayed. I am not entirely clear where we stand now. Presumably, some part of the moneys that will be put forward on behalf of British Energy to cover its nuclear liabilities will go into the nuclear liabilities fund. However, if that does not exist, that might be rather difficult. It would be helpful if the Minister explained the situation.
I will continue talking for a bit because the gentleman behind the Minister is still scribbling and I do not want to place the Minister in any embarrassment. Another relevant Bill will come before the House but I believe that it will not deal with this issue. We need to know where we stand. As I understand it, legislation is not required to set up the body; it merely requires a government decision to get it involved.
On the figures, I am interested to hear the Minister's comments because we are dealing with vast sums. I turn to the length of time for which the nuclear waste process should be left before the approach starts in earnest. I say this in deference to the noble Lord, Lord Tombs, who chaired a committee four years ago and gave the Government a clear steer in that regard. So far, practically nothing has happened. That is part of the problem that the Government face in dealing with nuclear liabilities. I hope that the Minister can tell us
something about that fund and answer the questions of my noble friend and the noble Lord, Lord Ezra, and that he is now briefed!5.45 p.m.
Lord Sainsbury of Turville: I thank noble Lords for tabling Amendments Nos. 12 and 13. There is understandably some concern about the size of the liabilities that the Government intend to take on. The amendments posed represent a constructive attempt to address those concerns. However, for reasons that I will explain, I do not agree with them.
As noble Lords will know, the Government, as part of BE's restructuring package, have agreed to take responsibility for BE's historic spent fuel contracts with BNFL, and to underwrite the nuclear liabilities fund, which will meet decommissioning costs and uncontracted liabilities and to which BE will be making contributions. That nuclear liabilities fund will be established on the restructuring of British Energy.
For the restructuring to work, the Government must be in a position shortly where they can give a binding commitment to BE, in the form of a legal undertaking, to meet those liabilities. There is an important point to note here. Although those expenditures—payments for the historic contracts and any payments that might be necessary for underwriting the other liabilities—may have to be paid over many years, the binding undertaking needs to be given up front. The reason for that is that the other parties to the restructuring plan, such as the board of directors of BE and BE's creditors, need to have confidence that the Government will deliver on their part of the plan.
There is a problem with that in the shape of the current limits in Schedule 12. As noble Lords are aware, Schedule 12 to the Electricity Act 1989 permits the Government to provide financial assistance towards nuclear liabilities. Expenditure under this schedule is currently limited to a total of £1 billion. This limit itself can be raised up to a maximum of £2.5 billion through a statutory instrument. These limits were set at the time of privatisation of the electricity industry in 1989. They have not been changed since. As they stand, the limits represent a barrier to the Government delivering on their part of the British Energy restructuring package. The existence of these upper limits could cast doubt on the validity of a commitment from the Government. The limits that are in place are too low. However, given the form of the commitment that we need to make, I do not think it appropriate to try to place any limit up front in this way.
Noble Lords have already asked why the existing limits are too low. The undertaking from the Government needs to give enough certainty to assure creditors that the Government will deliver their part of the deal. It also needs to be able to be recognised by the company as an asset that can offset its existing provisions for nuclear liabilities. We do not expect to pay the full value of these provisions—the whole point
is to get the company back on its feet so that it can make significant contributions itself—but we do need to be able to underwrite those amounts to allow this deal to work.[The Sitting was suspended for a Division in the House from 5.46 to 5.55 p.m.]
Lord Sainsbury of Turville: I explained why we have a problem with the limits on Schedule 12 to the Electricity Act 1989. I turn to our position on nuclear liabilities.
The company's estimate for the full cost of its nuclear liabilities—in other words for station decommissioning and spent fuel management—is £5.2 billion discounted at a rate of 3 per cent real per annum. The payments will not have to be made until many years—in some cases, many decades—in the future. By the time the payments are made, time will have changed the estimated present value of the cost, which is £5.2 billion, into cash of perhaps as much as £14 billion. Within that figure, the current estimate of the cost of the historic spent fuel contracts is £2.1 billion discounted, but that is expected to result in cash payments of perhaps as much as £5 billion.
The actual amount of cash that will be paid out in due course will depend on a variety of timing issues and the rate of inflation of the costs in future, which is impossible to predict now. That point was not recognised in Schedule 12 to the Electricity Act 1989—which set limits that would apply to the eventual cash payments, not to their present value, and therefore set the limits at a level that was clearly inadequate to deal with liabilities of such a magnitude.
The sums that I mentioned are large. However, it is important that, rather than focusing on the numbers, we focus on why the Government have decided to give the undertaking and on existing mechanisms for monitoring and scrutinising government expenditure in this area.
The Government have agreed to take on responsibility for paying for BE's fuel management contracts which relate to historic spent fuel. They have also agreed to stand behind the nuclear liabilities fund, which will cover the cost of decommissioning and uncontracted liabilities. The undertaking recognises the fact that, ultimately, the Government must ensure that nuclear liabilities such as these are dealt with safely and properly. If the company failed and could not afford to pay to deal with the liabilities, the Government would need to step in. Our commitment of support, and the removal of the limit that enables it, is largely an honest recognition of this position.
Providing a commitment in this way has the benefit of providing BE with a chance of restructuring. The proposed restructuring deal ensures that the company will contribute significantly to the cost of its own liabilities. It will do that by making certain fixed payments to the nuclear liabilities fund and will in addition contribute 65 per cent of available cashflow in perpetuity to the NLF. Essentially, although the Government are underwriting the NLF, the mechanism is in place to ensure that the better the
company does, the more it contributes to the cost of meeting its liabilities. The Government strongly believe that the deal offers the best option for taxpayers going forward.It is also important to note that in considering the restructuring proposal and the implications for the company's viability after restructuring, the company's exchange of a long-term liability for an obligation to make fixed and variable contributions to the nuclear fund—contributions that would vary depending on station lives and BE's ability to pay—was an important factor taken into consideration by the directors of BE and by the creditors. Any restriction on the Government's undertaking, and therefore the re-opening of a potentially open-ended liability for BE, would mark a material departure from the proposal and would risk jeopardising the success of the restructuring deal.
We all share a desire to keep BE in the private sector, if possible. If that is truly the position of the Members of the Committee who tabled the amendment, they must give the Government the legislative power to play their essential part in the restructuring. The Government have been careful to ensure that taxpayers' interests are met and that mechanisms are put in place to guarantee that the company is doing all that it should to meet the costs of its own liabilities. Under the operation of the NLF, the Government propose to put in place a series of controls and incentives to ensure that BE runs its nuclear stations as though it were exclusively responsible for the discharge of nuclear liabilities.
I hope that the Government's prudent planning offers some comfort to Opposition Members. In addition to the ongoing monitoring provided by the Government, there are mechanisms for providing accountability to Parliament in the current system. Parliament will have an opportunity to scrutinise Government expenditure on liabilities through the usual supply estimates process. In addition, information on DTI-managed nuclear liabilities is also provided to Parliament in the annual expenditure plans report, including expenditure. That would also be the case for liabilities that we have taken on for British Energy. We believe that this process, complemented by the annual report to Government from the NLF, provides a far more sophisticated and transparent check on the Government's expenditure than could a fixed statutory limit.
Some concern has been expressed at the idea of Parliament being given authority to spend money without setting a limit. But there are numerous examples of powers of expenditure in primary legislation, wide and narrow, that are not subject to any limit other than that provided by the existing system of parliamentary scrutiny; for example, Section 126 of the Housing Grants, Construction and Regeneration Act 1996.
The Government are committed to meeting the cost of nuclear liabilities to the extent that the company is unable to meet them itself. The eventual costs of the
undertaking is subject to some uncertainty, but it is certain that the Government need to ensure that liabilities are dealt with safely, whatever the cost.Amendments Nos. 12 and 13 would specify the amount that the Government could provide to meet nuclear liabilities. That is the wrong approach. Apart from the issues of the timing of payments and the future inflation rate, it would be difficult or impossible to set a limit flexible enough to ensure that the Government could give a valid undertaking to stand behind their responsibilities to meet those liabilities, should the company fail to do so. If the company could not meet its nuclear liabilities, the Government would have to step in and deal with them in any event.
The existing accountability in the parliamentary scrutiny system, combined with the additional reporting mechanisms that the Government have put in place, should comfort Committee Members that they can apply the same level of scrutiny to the power to incur expenditure under Schedule 12 as they do to other legislation that does not include limits for expenditure. I ask that the amendments be withdrawn.
6 p.m.
Lord Jenkin of Roding: Will the Minister say something about the NLF?
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