Origins of BNFL

  4. The United Kingdom Atomic Energy Authority (UKAEA) was established by the 1954 Atomic Energy Act and given responsibility for virtually all aspects of the then developing UK nuclear industry, covering civil and military programmes. In 1965 the Authority set up a Trading Fund to cover some of its activities, principally the production of nuclear fuels at Springfields in Lancashire. By 1970 annual sales had reached around £30 million, including exports of around £5 million. In order to provide fuel for the new generation of reactors, an agreement was signed in March 1970 with the Dutch and German Governments for the creation of two international companies to design, build and operate plants in the UK and the Netherlands for the enrichment of uranium by the gas centrifuge process. The prospects for sales of nuclear fuel in the UK and overseas looked rosy.

5. In the course of 1967 the House of Commons Science and Technology Select Committee examined the UKAEA's activities, in the context of a broad inquiry into the UK nuclear reactor programme. In its Report agreed in October 1967 it recommended the establishment of a fuel supply and manufacturing company.[3] The Committee envisaged an organisation " capable of preparing nuclear fuel, enriching it and fabricating it ...and also equipped with the facilities for processing irradiated fuels", and suggested that companies with a direct interest might "be invited to join the new company". The Government accepted the recommendation, which accorded with its efforts to create a national nuclear design and construction company. A Bill to give effect to the proposal was eventually introduced in the Lords in March 1970, under the auspices of the then Minister of Technology, Mr Wedgwood Benn. The Bill fell on the dissolution of Parliament in May 1970, without having been debated in the Commons.

1971 Act

  6. The new Conservative Government reintroduced the Bill in very similar form in December 1970, including the provision which had been deleted by the then Opposition in the Lords earlier in the year that more than half of the voting shares in the company would be held by the Secretary of State or the UKAEA. It became law in 1971 as the Atomic Energy Authority Act — " the 1971 Act". Under the terms of the 1971 Act, most of those parts of the Authority's functions which were at that time financed out of its Trading Fund - the Production Group - were transferred to a specially created company, British Nuclear Fuels Limited (BNFL). BNFL was given responsibility for the Authority sites at Windscale (now called Sellafield) and Calder Hall in Cumbria, Springfields in Lancashire, Capenhurst in Cheshire and Chapelcross in south west Scotland. The production of radio-isotopes at Amersham in Buckinghamshire was transferred to a separate company, subsequently privatised as Amersham International.

Status

  7. The status of BNFL has remained unchanged since 1971. The proposal for a public private partnership now being advanced by the Government is effectively the same as that first proposed over 30 years ago by the House of Commons Science and Technology Committee, and taken up by both major parties. The discussions preceding and during the passage of the 1971 Act are therefore of more than historical significance.[4] There was bipartisan support for the view expressed by the then Minister for Industry, Sir John (now Lord) Eden that there were "strong grounds for ensuring that in the foreseeable future there shall be a majority public shareholding", and that "private participation" should be sought from an early date. A merchant bank was indeed retained to advise on share valuation and on an appropriate capital structure. There was also general assent to the proposition that the conversion to company status of the UKAEA's trading fund would enable it to raise capital and to enter into international partnerships. The limits on Government financing of the company were set on the explicit expectation that it would be able to raise "a significant amount of its capital requirements from the private sector". The original concept therefore was that there should be a majority public shareholding, with minority private investors.

Activities

  8. The memoranda and articles of the new company were drawn in such a way as to avoid "any artificial restriction" on the employment of its assets to the best advantage.[5] As its name suggests, however, the company's principal focus was plainly intended to be on the production of nuclear fuels for domestic and export markets — so-called "front-end" services. In its early days it concentrated on the production of nuclear fuel for the older Magnox and newly constructed Advanced Gas-Cooled Reactor (AGR) nuclear power stations operated in the public sector by the Central Electricity Generating Board, and for the various research and experimental reactors run by the UKAEA and the Ministry of Defence. BNFL sold electricity to the Grid from the Magnox reactors at Calder Hall and Chapelcross. It was also involved from the outset in dealing with spent fuel — "back-end" services. It provided facilities at Sellafield for reprocessing Magnox fuel. The company became increasingly involved in the provision of nuclear fuel services, including the reprocessing of used fuel, for several overseas customers. Because of its overall responsibility for the Sellafield site, BNFL also became involved in the business of managing its own redundant nuclear facilities, and those on the site dating from before 1971 for which UKAEA or the MoD retained financial responsibility.

9. In the1970s plans were drawn up for the construction of a plant — the Thermal Oxide Reprocessing Plant, or THORP — for the reprocessing of used oxide fuels, in use in the AGRs in the UK and in reactors overseas. It began processing operations in 1994. Two-thirds of its throughput in its first ten years is to come from overseas customers, principally in Japan and Germany. In the 1980s decisions were also taken to construct large-scale facilities to use some of the plutonium arising from reprocessing in the manufacture of further nuclear fuel — mixed oxide fuel or Mox — for export to those countries to whom the plutonium belonged.

10. In the last two years the scope of BNFL's activities has grown yet further.

• In February 1998 the Magnox power stations, which had remained in public ownership in a separate company, Magnox Electric, when the newer nuclear power stations were privatised, were transferred to BNFL. BNFL became thereby one of the nation's principal generators. The Magnox transfer brought into BNFL around 2,500 further employees.
• In June 1998 BNFL purchased, together with a US commercial partner, the nuclear business of the US company Westinghouse, giving it another 4,000 employees, predominantly in the USA.
• In January 2000 it purchased the nuclear business of ABB, mainly based in the USA and Sweden, bringing in a further 2,000 employees.[6]

From the 13,000 employees almost exclusively in the UK two years ago reported in the 1998 Accounts, BNFL now has around 24,000 employees worldwide.

Current BNFL operations

  11. BNFL is engaged in providing a full range of nuclear services[7] —

• nuclear fuel manufacture and supply, under the Westinghouse brand, concentrated at Springfields in the UK, and at several American sites
• nuclear reactor design, engineering and support, predominantly arising from the recently purchased Westinghouse and ABB nuclear businesses
• generation of electricity at UK Magnox power stations
• spent fuel management, by reprocessing spent fuel at Sellafield
• engineering and waste management arising from its own and others operations
• decommissioning and clean-up of its own sites; of those of other UK nuclear operators; and of sites in the USA, through its US subsidiary BNFL Inc, and elsewhere in the world, including the former Soviet Union
• nuclear facilities management, notably since 1 April 2000 at the UK MoD Atomic Weapons Establishment (AWE) at Aldermaston and Burghfield.

Since the April 2000 reorganisation — and BNFL has experienced a number of recent internal reorganisations — the business has been divided into four groups: Westinghouse covering fuel manufacture; electricity generation; engineering, waste management and decommissioning; and spent fuel management. Its UK operations are concentrated at Sellafield; at Springfields; at the corporate and technical headquarters at Risley near Warrington in Lancashire; and at the Magnox central offices at Berkeley in Gloucestershire.

12. BNFL had a turnover in 1998-99 of nearly £1.5 billion. It recorded pre-tax profit on "ordinary activities" of £228 million, but a loss of £62 million on its continuing operations. This loss was covered by a profit on investment income of £181 million, by profits from joint and associated ventures in the UK and US, and by sale of assets, including the exceptional profit realised on the sale of the Sudbury House in London, the former CEGB Head Office.[8] BNFL does not release information on the profitability of the individual parts of its business. Around 35% of turnover is attributable to the Westinghouse Business Group; 25% to reprocessing; 25% to Magnox power generation; and the remainder largely to waste management and decommissioning. Prior to the Westinghouse and ABB purchases, BNFL's exports were worth around £450 million a year. 75% of these exports were attributable to reprocessing and over half of that to Japan.

Monopoly

  13. As a result of the nature of its business, and its origins in the public sector, BNFL is a monopoly provider of some goods and services in the UK , regulated only by DTI and subject to general competition law.

• AGR fuel supply: BNFL is in effect a monopoly supplier of fuel for BE's Advanced Gas-Cooled Reactors ( AGRs). BE seek lower prices than those recently agreed.[9] The capital costs of BNFL's Oxide Fuels Complex at Springfields are reflected in the contract price for oxide fuels.[10] BNFL recognises the importance of ensuring the survival of its principal customer, but not at excessive costs to its own commercial situation.[11]
• Drigg: the Low Level Waste Facility at Drigg near Sellafield is owned and operated by BNFL, who charge customers for disposals there. In the 1980s, improvements in site management following criticism by the Environment Committee in its 1985 Report led BNFL to impose steep price increases. UKAEA noted the importance of ensuring some control over prices charged for access to a national resource.[12]
• Magnox: now that the full Magnox fuel cycle from fuel fabrication to spent fuel management and decommissioning is within one company, BE raised the importance of ensuring that there is no unfair competition with other generators.[13]

Prior to implementation of a PPP, there must be clear arrangements for ensuring that BNFL is not able to use its UK monopoly position to unfair commercial advantage.

Competition

  14. In other areas of its business BNFL faces national and international competition-

• at the "front-end", its Westinghouse/ABB business faces competition from Framatome of France, Siemens of Germany and General Electric of the USA:
• in generation, its Magnox business competes with all other generators in the UK wholesale electricity:
• in reprocessing, it faces competition from the publicly-owned French company COGEMA:
• in nuclear facilities management, decommissioning and clean-up there are a number of global companies.

4  See debate on Second Reading of Bill, HC Deb, 17 Dec 1970, cols 1590ff Back

5  Ibid Back

6  The deal was completed on 2 May 2000 Back

7  See Annex 2 for summary of nuclear energy cycle Back

8  Report & Accounts, 1998-99, p 61 and Ev, p 83 , G Back

9  Ev, p25, paras 18-20; Qq 111-5 Back

10  Qq 109-118: Ev, p 25 , paras 21-22 Back

11  Q 318-321 Back

12  Qq 160-1: 189-191: Ev, p 41, para 16 Back

13  Qq 151-6: Ev, p 26 , para 31 Back