Nuclear sale will not pay for tax cuts

PLANS TO privatise the nuclear industry received another set-back this weekend when financial advisers close to the sell-off finally admitted the sale would raise only a fraction of the hoped-for pounds 3bn required to fund pre-election tax cuts.

The disclosure casts doubt on why the industry is being floated on the stock market at all. It comes just days after MPs were told in a leaked report by a leading nuclear industry expert that the power stations to be privatised were potentially so unprofitable that the Government might have to pay private investors to take them off its hands.

Reacting to the secret report, a senior executive close to British Energy, the company that will own the eight most modern nuclear stations to be sold off next year, said: "I personally think estimates of pounds 2bn to pounds 3bn from the sale are very high."

His comments will be an acute embarrassment to the Department of Trade and Industry, whose White Paper on nuclear power concluded in May that proceeds from the sale of the seven advanced gas-cooled reactor (AGRs) stations and the Sizewell B pressurised water reactor (PWR) would total at least pounds 2.6bn, while the country's 11 older Magnox stations and their waste liabilities would remain in the public sector.

How the DTI arrived at this figure remains unclear. But in his secret report to the Commons Trade and Industry Select Committee examining the sale, Gordon MacKerron, of Sussex University, suggested the only way the Government can sell the industry for anywhere near pounds 3bn is if taxpayers pick up the huge clean-up bill for the stations lined up for privatisation.

That would be at odds with the Government's stated aim of transferring most of the long-term risks of the industry into the private sector and could constitute illegal state aid under European Commission rules.

Investors are keen to cap these potential liabilities at a level that ensures the reactors remain financially viable in the private sector - the very issue that forced the Government to withdraw the nuclear industry from the privatisation of the electricity generators six years ago.

"The report shows that the concerns that sank nuclear privatisation in 1989 are still real today," says Dr Patrick Green, at the environmental campaigning group Friends of the Earth.

A segregated, externally managed fund is being set up to reassure investors and taxpayers alike that British Energy meets its longer-term decommissioning liabilities. But the fund does not cover the cost of reprocessing accumulated spent fuel or the longer-term issue of managing nuclear waste after the stations shut down.

According to the report, these costs could easily double to more than pounds 12bn if, as in the case of the Magnox plants, waste costs turn out to be higher than the industry expects. That in turn would render all the AGR stations earmarked for privatisation unprofitable.

It has also emerged that the Nuclear Installations Inspectorate, the Government's nuclear safety watchdog, is coming under pressure from the report's commissioners not to renew British Energy's nuclear site licences.

Friends of the Earth and the Coalition of Opposing Local Authorities have written to the Nuclear Installations Inspectorate to highlight the "major questions about the financial standing of British Energy" raised in the report.

They note that the NII must be satisfied before granting a nuclear site licence that applicants can meet day-to-day operational requirements and long-term decommissioning and radioactive waste disposal liabilities.

British Energy, the new name for the merged Nuclear Electric and Scottish Nuclear companies, last week signalled the end of the nuclear era when it abandoned plans to build more nuclear plants in the UK.