NDA unravelled

As its name suggests, the raison d’être for the UK’s newly-established Nuclear Decommissioning Authority (NDA) is to manage country’s nuclear legacy. But there’s more to it than just that, as the NDA becomes the owner of BNFL’s Magnox reactors, the Thermal Oxide Reprocessing Plant (Thorp) and other nuclear fuel cycle facilities.

A STRATEGY FOR ACTION

The idea for the NDA was first outlined on 28 November 2001, when secretary of state for trade and industry Patricia Hewitt made a statement to parliament about the future management of civil nuclear liabilities. Referring then to the Liabilities Management Authority (LMA), which was later to become the NDA, she said: “We are clear that it is only by managing the liabilities as a whole that we can achieve the necessary focus and strong strategic control and direction. I therefore propose to set up a Liabilities Management Authority responsible for government’s interest in the discharge of public sector civil nuclear liabilities, both BNFL’s and the UKAEA’s.”

The LMA, she said, “will have a specific remit to develop an overall UK strategy for decommissioning and clean-up.” In order to achieve this, “the LMA will work in partnership with site licensees – at the outset, the UKAEA and BNFL – as well as the safety, security and environmental regulators, to achieve the most effective and safe means of discharging the liabilities. It will look to deepen the level and breadth of expertise in nuclear clean-up in the UK and to foster competition as a means of achieving that.”

Hewitt went on to describe the changes in BNFL’s structure, which are outlined on page 23 of this issue. “To enable the LMA to exercise its role across the whole public sector civil nuclear liabilities portfolio, the government now propose to take on responsibility for most of BNFL’s nuclear liabilities and the associated assets. The most significant of those will be the Sellafield and Magnox sites.” However, she continued: “Responsibility for the assets and liabilities associated with BNFL’s commercial fuel, reactor services and international clean-up businesses will remain with the company.”

A few months later, in July 2002, the government set out its approach to discharging the UK’s public sector civil nuclear liabilities in its white paper titled Managing the Nuclear Legacy – A Strategy for Action. The white paper again emphasised that the specific remit of the LMA was to “ensure the nuclear legacy is cleaned up safely, securely, cost effectively and in ways which protect the environment for the benefit of current and future generations.”

To help achieve this, the white paper outlined four ‘guiding principles’ for the LMA:

• Focus on getting the job done to high safety, security and environmental standards.
• Provide best value for money consistent with safety, security and environmental performance.
• Commitment to openness and transparency.
• Emphasis on competition – so as to make the best possible use of the best available skills.

The white paper also gave further details about the significant changes in store for BNFL. “The transfer of assets and liabilities to the LMA will trigger a fundamental restructuring of BNFL,” it states, adding that the aim in restructuring is three-fold:

• To make the LMA responsible for all those activities and assets that are integral to, or may be required for, the on-going management of the liabilities it is taking on.
• To set the platform for competitive site management.
• To create the right framework for the future development of BNFL’s clean-up and other commercial businesses.

However, it notes: “There are some assets and activities at Sellafield, however, which are not integral to legacy management but which cannot be separated from it. The prime example is Thorp, which is dependent on other plants, facilities and site control

systems and for regulatory and operational reasons can only be managed as part of a single integrated site. Legal and financial responsibility for these assets will therefore pass to the LMA as part of its overall responsibility for Sellafield. For the same reasons, the BNFL Technology Centre, associated research and development facilities and other assets used to support commercial activities at Sellafield will also pass to the LMA.”

With regard to the operation of the Magnox stations and commercial facilities at Sellafield, once they have been transferred to the LMA, the white paper states: “The government will expect the LMA to ensure that they are operated as efficiently as possible. The government’s focus, however, will be squarely on the LMA’s performance in delivering its clean up objectives, not on short term financial returns.” The future of these commercial facilities are therefore a cause for concern: somehow, the LMA is expected to focus primarily on clean-up activities, yet at the same time operate nuclear businesses with an income of the order of some £1 billion a year. This subject is discussed in more detail later on.

ARRIVAL OF THE NDA

The Energy Act 2004 received royal assent on 22 July 2004. The act covers three main areas: the civil nuclear industry; sustainability and renewable energy sources; and energy markets and regulation. For the first of these, the act implements the commitments made in the July 2002 white paper described above, namely the establishment of the NDA and outlining plans for the restructuring of BNFL, as part of new arrangements for funding the decommissioning and clean-up of the public sector civil nuclear legacy.

Unfair competition?

Under the arrangement, BNFL is effectively split into two parts, with the part comprising facilities such as Thorp and the Magnox plants being transferred to the NDA. The second part, which comprises in particular Westinghouse, continues normal commercial operations. The transfer of the first part to the NDA is done at no cost to BNFL, which will continue normal commercial operations, although this transfer relieves it from nuclear liabilities that it would normally have met under the ‘polluter pays’ principle. The European Commission (EC) has said it considers that this advantage provided to BNFL by the UK government is likely to be state aid.

In principle, state aid is forbidden by the EC Treaty, but it can be authorised by the EC provided it can be clearly proved that the negative impact of the aid on trading conditions is outweighed by its positive contribution to the fulfilment of other objectives within the European Union (EU). At the end of last year, the EC therefore commenced a formal investigation to check whether the establishment of the NDA complies with state aid rules.

Referring to the EC investigation, BNFL CEO Mike Parker said at the Waste Management Symposium 2005 in Tucson, Arizona at the end of February: “There’s only one complication that we have to deal with when it comes to the Nuclear Decommissioning Authority. All the assets actually do get transferred on 1 April 2005, but actually, because the European Commission wants to investigate this very major transaction for what would be a type of state aid consideration, the liabilities remain on our books for the time being. This investigation will probably take somewhere between 12 and 18 months and was started in December.”

NDA’s budget

The NDA’s draft annual plan is currently available, though the strategic plan is not expected to be ready until this autumn. The draft annual plan states that the budget for the financial year beginning 1 April 2005 is approximately £2.2 billion, of which £2.1 billion will be spent directly on clean-up activities and site operations.

The NDA budget for 2005/06 will be funded by grant from the secretary of state for trade and industry. This grant will be made up of three elements:

• Funds from government for the clean-up of those facilities associated with government research and military functions (£503 million).
• Funds equivalent to resources transferred to the secretary of state from BNFL, for the NDA’s commercial operations and associated clean-up and decommissioning activities (£675 million).
• Funds equivalent to receipts from income-generating activities (£1.084 billion).

Due to the EC’s state aid investigation, the level of resources available to the NDA will be limited to ensure that it does not receive any state aid, and its responsibilities in respect of sites currently operated by companies in the BNFL group are restricted to the resources it has available. Accordingly, the amounts available to the NDA in respect of commercial operations and associated clean up will be limited to the level of existing funding transferred from BNFL’s Nuclear Liabilities Investment Portfolio (NLIP) and the income from commercial operations. The NDA’s financial responsibility at each site will also be limited to the level of its resources, through agreements with the relevant site licensees. Arrangements are in place to make further transfers from the NLIP when this initial transfer has been exhausted.

Contracts and competition

The NDA draft annual plan stated that the NDA would have 15 initial contracts, with BNFL, Magnox Electric, UKAEA and Springfields Fuels, by 1 April 2005. The BNFL, Magnox Electric, and Springfields Fuels contracts will be site specific – one contract for each site. Each of these contracts will cover both decommissioning and revenue-generating activities as appropriate. The initial contract with UKAEA will be for all its five sites, but the NDA expects that each site is managed separately from a cost, scope, and schedule perspective.

The NDA has made it clear that it intends to eventually open up the contracts to competitive tender. BNFL and UKAEA will get the initial contracts for two years to manage and operate their sites. Provided they perform satisfactorily, they will have the option of a third year. Thereafter, the contracts will be open to a competitive bidding process. On this, Parker said: “We’ll be given the incumbent contracts to run these sites for the next few years until competition. Ultimately, we have the opportunity to go and pursue the winning of those contracts as we go forward – obviously for the sites that we are already responsible for owning and operating, but also potentially for the UKAEA sites.”

Commercial operations

As already noted, £1.084 billion of the NDA’s funding for this year is apparently dependent on income from commercial operations. BNFL has been reluctant to talk about the transferral of these facilities to the NDA, on the grounds that it is not appropriate for them to comment on facilities they no longer own. From the NDA’s side, due to the spectacularly short time available between the initial decision to set up the LMA/NDA and the actual full operation of the NDA, it has not been particularly easy to get much information from the NDA in the run-up to the 1 April ‘going live’ date. Indeed, at the Waste Management Symposium 2005, held in Tucson, Arizona on 27 February to 3 March, the NDA was conspicuous by its relative absence. We will have to wait until the 10th International Conference on Environmental Remediation and Radioactive Waste Management (ICEM ’05) meeting, to be held in Glasgow, Scotland on 4-8 September 2005, before getting a full picture of the status of the NDA. It will be interesting to see whether the NDA follows the nuclear industry’s approach to communications once it is fully up and running.

The NDA has, however, been extensively involved in stakeholder events, and both NDA chief executive Ian Roxburgh and NDA strategy director David Hayes were present at a conference titled Managing contaminated land on nuclear and defence sites – driving good practice, held in London, UK on 10 March and organised by the Safegrounds (Safety and Environmental Guidance for the Remediation of UK Nuclear and Defence Sites) Learning Network.

Both Hayes and Roxburgh commented on the income-generating facilities at this Safegrounds Learning Network event. Rather worryingly, Hayes said on this subject: “The NDA will basically inherit a £1 billion a year commercial business. It picks up the commercial operations of BNFL sites like Springfields where they manufacture nuclear fuel, where at Sellafield where they continue the reprocessing of spent nuclear fuel, and the Sellafield mixed oxide fuel manufacturing plant. The NDA will also have responsibility for four operating Magnox nuclear power stations, albeit with a requirement that under legislation the NDA only operates those stations pending their decommissioning. But the NDA will need to work with government to determine what the future of plants like Thorp and the SMP is. Whether the current timeframe for the closure of the Magnox power stations – currently envisaged for closure finally by 2010 or so – is the right one, or whether we bring forward closure, bring forward the decommissioning programme, that’s another issue we’ll have to look at.”

So essentially, Hayes believes it’s up to the NDA to review the lifetimes of these facilities, despite BNFL having looked into this extensively. Ultimately though, it won’t be the NDA that makes the final decisions on controversial issues such as this, it will be the government. According to Roxburgh: “Whilst I can advise, the decisions are for government.”

Roxburgh acknowledged that the issue of early closure of the Magnox reactors had already been raised. “I operate as I said under the Energy Act 2004, and for example that act requires that I hold the Magnox stations pending their decommissioning,” he said, adding: “Now I’ve got an awful lot of people who through the consultation process are telling me to turn them off. That is not what I’m about. I’m about doing what parliament has asked me to do.”

As for the bottom line, that too doesn’t look particularly good. The draft annual plan states that forecast expenditure on the operations of installations and facilities are expected to exceed the forecast receipts by some £50 million in 2005/6. The July 2002 white paper requires the NDA to set out in its annual report “specific information, consistent with the requirements of commercial confidentiality, on the financial and operational performance of Thorp and SMP and the rationale for keeping the plants open.” The NDA notes that the £50 million figure is on a cash basis rather than on accounting or economic viability bases and only for a single year. In other words, this annual figure alone does not provide a suitable basis for assessing commercial viability.

In any case, the outlook is not particularly promising for these facilities, and the chances are that they will be closed as soon as is practical to do so. The only incentive to operate them effectively being that expected income from these facilities, though passed on to the government, will apparently be matched in funds the NDA receives from the government – expected to account for half of the NDA’s budget for this year. So what this means is that the NDA will spend some £1.142 billion this year (about 50% of its budget) on operating income-generating plants and, all being well, these plants will generate an estimated £1.084 billion for the government, which will be passed back to the NDA. Should operations cost more than expected and/or income from these operations is less than expected, then it looks like the NDA might end up with less money to spend on clean-up activities. Quite an interesting situation for an organisation whose top priority is clean-up.

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