House of Commons - Trade and Industry

Select Committee on Trade and Industry Ninth Report

IV REGULATION

37. In order to explore the possible impact of a PPP on the safety of operations conducted by BNFL, we took evidence at the outset from the two regulators principally involved, the Nuclear Installations Inspectorate (NII) of the Health and Safety Executive (HSE) and the Environment Agency. The regulatory regime is the same whatever the ownership of an enterprise: from a regulatory viewpoint, a PPP is neither better nor worse "than any other arrangement".[48] As the Chief Inspector of Nuclear Installations told us —

Regulators have experience of a range of different ownership and management arrangements, including the completely private such as British Energy, Rolls- Royce and Nycomed-Amersham;[50] the contractor-operated, such as AWE Aldermaston and Burghfield;[51] publicly owned plcs, such as BNFL; and non-departmental public bodies, such as UKAEA. There does not seem much to choose between them. What distinguishes one organisation or site from another is the quality and expertise of its management and workforce, its financial resources, and its management structure.[52]

Ownership

38. The principal concern expressed some years ago on privatisation of British Energy was that market pressures would lead to corners being cut on safety, and that pressures to cut costs would lead to excessive staff reductions. The recent NII Reports into UKAEA, BE and BNFL suggest that the pattern of seeking to reduce staff costs is not a feature unique to the private sector. BE accepted in evidence to us that it had perhaps "taken a few too many people out."[53] Licence Condition 36, which gives the Inspectorate some handle on organisational change, was introduced in recognition of this possibility.[54] There is however no evidence that private ownership would put safety at risk so long as there is an alert and independent regulatory regime. The Chief Inspector told us

The recent history of nuclear safety regulation does not suggest that private ownership offers a danger, nor public ownership a protection.

Expenditure

39. Written evidence from the HSE candidly recognised that "a company's accountability to shareholders may encourage deferment of capital expenditure where there is no expectation of a return on the capital employed (eg clean-up and decommissioning activities)."[56] The HSE has the necessary powers to ensure that actions are taken in a timely manner. Its evidence indeed suggested that "access to capital markets may encourage speedier decision-making on investment issues."[57] In oral evidence, the Chief Inspector emphasised that the powers available to regulators had been used.

The planned merger of the two constituent companies of British Energy have in effect been held up by the regulator on safety grounds;[58]
the Trawsfynydd power station was refused leave to operate until specified measures had been taken;[59]
the Environment Agency is taking its time over licensing BNFL to operate the Magnox sites;[60]
NII has not yet acceded to BE's proposals for a 135 year lifetime for decommissioning under the "safestore" concept.[61]

The regulators are therefore confident in the sufficiency of their powers, and hopeful that delays in getting things done, whether as a result of shortage of capital or management delay, may diminish with a stronger private sector ethos.

Readiness of compliance

40. It is conceivable that a partly or wholly privately-owned company might be more resistant to the sometimes intrusive process of regulation, inspection and public criticism than a state-owned entity; that it might be less inclined to accept the regulators' view on what was required for purposes of safety or minimisation of discharges to the environment; and that it might contemplate an appeal to higher executive or judicial authority more readily. A privately-owned company might resist the requisite investment in abatement technology with greater vigour than a publicly-owned one. The justification for the expense of construction and operation of some of the plant introduced at Sellafield in recent years to reduce discharges might have been more rigorously questioned by a company with private shareholders. The Chief Inspector told us that the Inspectorate had told BNFL that it would use its powers to reduce the throughput of waste at THORP if the new vitrification line did not perform its task up to expectations.[62] The response of a wholly or partly privately owned company to an ultimatum to reduce liquid waste volumes by investing in further vitrification capacity or have its throughput and thus its revenues reduced might be different from that of a publicly owned company.

41. The NII assured us that their experience suggested "no significant difference between the way private sector companies behave and the way public sector companies behave in respect of our licensing requirements". The Chief Inspector did however note that, while "they are not running to lawyers to take us to judicial review", British Energy for example, "might question a little more than perhaps they might previously have done".[63] At the same time, the regulators are perhaps more conscious — and properly so — of commercial requirements "even if that means working over weekends".[64] Investors and shareholders value a strong but fair regulatory regime.[65] They seek above all a greater degree of certainty as to future regulatory requirements, particularly in respect of environmental discharges.[66] We have noted that British Energy has responded to the January 2000 NII Report co-operatively and have submitted a draft action plan.[67] Experience does not suggest that a change in ownership will of itself make the task of BNFL's regulators significantly more difficult. The private sector disciplines to be introduced may bring about a less automatically compliant attitude to regulation and a greater resistance to requirements involving significant non-productive expenditure, balanced by swifter decision-making on required investment.

Environment Agency

42. The problem of discharges to the environment from Sellafield is a long-running one. There are also concerns over discharges from other BNFL sites, and from AWE Aldermaston where BNFL is part of a consortium which took over management on 1 April 2000. On 3 March 2000, a few days before the Environment Agency appeared to give oral evidence to us, its Director of Operations wrote to BNFL to express his concern at the number and nature of issues brought to his attention in relation to the exercise of BNFL's environmental responsibilities. The Agency's review of its Sellafield authorisations for discharge of radioactive wastes to the environment had encountered some lack of co-operation.[68] A Regional General Manager of the Agency told the Head of Magnox Generation in November 1999 that "the Agency has gained an overall impression that the company is not demonstrating sufficient corporate ownership of the problems."

43. BNFL is under notice further to reduce its radioactive discharges, in line with recent Government policy statements on the minimisation of any headroom allowed between actual discharges and discharge limits, and on progressive reductions in limits.[69] In 1998 the OSPAR Ministerial agreement committed the UK to reduce radioactive discharges to the sea to as close to zero as practicable by 2020. There are reviews in progress of general Sellafield authorisations: of technetium-99 discharges: of Magnox authorisations: and of disposal of solid waste at Drigg. Reviews of Springfields and Capenhurst authorisations are due to start in 2000 and 2001 respectively.[70] In its submission to us, BNFL noted as a key issue the need for "a clear framework for environmental regulation — Progress is needed to provide the longer term regulatory framework to underpin key business operations and enable long term planning".[71] We gained the strong impression from our June 1999 visit to Sellafield and from subsequent evidence that the relationship between BNFL and the Environment Agency is not as constructive as it should be. Preparations for the introduction of a PPP offer an opportunity for a fresh start by both bodies.

Security

44. Nuclear materials require an unusual degree of security against theft, and represent a possible target for terrorism of various sorts. Experience suggests that the introduction into an organisation of commercial disciplines, including more stringent questioning of any avoidable costs, may lead to pressure to reduce the costs of security. The Defence Committee reported in 1990 on the attempts made in the 1980s by the recently privatised British Aerospace to cut back on the numbers and costs of Ministry of Defence Police at Royal Ordnance Factories.[72] As a result of the presence of separated plutonium and other nuclear material at some BNFL sites, there is a UKAEA Constabulary (UKAEAC) presence at BNFL's licensed sites at Sellafield, Springfields, Chapelcross and Capenhurst. These police have to be paid for by BNFL. We learned from evidence submitted by the recently retired Chief Constable of the UKAEAC and by DTI in the course of our 1998 inquiry into Georgian Nuclear Material at Dounreay that in the recent past BNFL had sought a reduction in the police presence at several of these sites, including Capenhurst and Chapelcross.[73] The level of policing of nuclear sites is kept under review by the Directorate of Civil Nuclear Security. Following our recommendations in 1998, the Directorate is being given a greater degree of real and visible independence. It has the power to insist on the security levels it deems necessary.[74] We have no reason to believe that the PPP represents any threat to the integrity of security at BNFL's sites, but would welcome in response to this Report a clear exposition of the Department's view of any implications.

45. In the course of our abbreviated inquiry, we have not sought to explore the relationship between BNFL and the Ministry of Defence (MoD) and its agencies. BNFL has a financial relationship with the MoD in respect of decommissioning facilities on BNFL sites for which MoD retain financial responsibility. It is a contractor for MoD at Aldermaston and Burghfield. In future it may well seek other similar contracts. In the USA BNFL has a number of highly visible contracts to clean up nuclear sites with a former military purpose. We have received no evidence to suggest that the PPP has any evident implications for BNFL's ability to undertake such tasks requiring security clearance. The issue of whether to seek to impose restrictions on security grounds on those able to buy into the company will have to be addressed. Given BNFL's holdings of plutonium and other sensitive nuclear materials, and its relationship with MoD, we would welcome an early indication from Ministers of any proposals to restrict overseas participation in the proposed PPP.

48 Q 80; also Q 2 Back

50 Ev, p1 , para 5 Back

51 Ev, p 15, para 2 & Q 7; also Q70 Back

52 Eg Qq90- 94: see Qq 56, 72 & Qq 82, 85 Back

53 Q 109; Ev, p 28 Back

54 Qq 3-4; Ev, p 2, paras 9-10 Back

55 Q 39 Back

56 Ev, p 2, para 8 Back

57 Ibid; Qq 8ff Back

58 Q 26 Back

59 Q 45 Back

60 Ev, p 17, para 5.4; Q 28, 57-8: Qq 77-9 & 83 Back