74. Nuclear liabilities can be described as the future costs of clearing out and decommissioning redundant nuclear facilities, disposing of wastes arising and return of a site to its original condition. The work involved is highly complex, speculative in its costing, and unlikely to be completed until many decades after a facility is closed. No major nuclear facility has been fully decommissioned, although a number have reached an advanced stage. Cost estimates are generally produced as if the work were to be carried out immediately, and then discounted by 2.5 per cent for each year against a notional programme.

75. BNFL's total nuclear liabilities are currently estimated at around £27 billion undiscounted (£14 billion discounted)

• £7 billion over the next 10 years;
• £8 billion over the subsequent 40 years
• £2 billion in the year beyond 2050, to around 2150.

£18 billion of these relate to Magnox. Some of these liabilities are recoverable from others —

• the Secretary of State gave an undertaking in 1998, subject to quinquennial review, to provide up to £3.7 billion over the 108 years from 2008, uprated each year by 4.5 per cent above inflation, in respect of Magnox liabilities, arising from Magnox power stations and from Magnox facilities on BNFL and other sites.[122]
• other bodies, principally UKAEA, MoD and British Energy, are under an obligation to meet their share of liabilities, in the first two cases from public funds, and in the last from its ring-fenced funds.

76. BNFL estimated in its 1998-99 Accounts that 89 per cent of its liabilities were funded, half from its nuclear liabilities investment portfolio and half from the Secretary of State's undertaking.[123] Dr Mackerron underlined the risks in these figures and claimed that potential investors "will undoubtedly regard a significantly higher proportion of liabilities as "unfunded" than BNFL estimates".[124] There is no ring-fenced fund, such as is maintained by British Energy. In our Report in 1996, we considered the question and concluded that such a fund was inappropriate in the public sector. The introduction of a PPP, while leaving the public as the majority shareholder, alters the balance of the argument towards an external fund, at least for longer-term liabilities. The KPMG report clearly assumes the creation of a fund. BNFL seem to favour a segregated fund. We would welcome early confirmation by Ministers that they intend BNFL to establish an independently managed and segregated liabilities fund.

77. The scale of the liabilities is very significant. Governments have sought to reduce the financial burden by giving incentives to BNFL to make savings. In the sums originally estimated, the Magnox guarantee of £3.7 billion was £0.6 billion less than that given to Magnox Electric. If savings can be achieved, a proportion is retained by BNFL, on a sliding scale designed to give BNFL higher proportions as the savings increase. Savings of over £1.6 billion are retained by BNFL.[125] Improvements in the management of its liabilities "through new techniques, skills and strategies" is one of the six key targets set by Ministers in 1999. BNFL is tasked with "identification and delivery of forecast liability reductions", and significant progress on three specific projects "as tangible indicators of future capability and as a measure of confidence in complex clean-up projects", at the Drypac and B 241 plants at Sellafield, and the dismantling of the Windscale AGR. The three closed Magnox stations are at various stages of decommissioning.[126] We recommend that the Corporate Plan include a detailed account of BNFL's liabilities and an indication of the basis of current costings, and that the new targets to be set be extended to cover the decommissioning of Magnox facilities.

123  Page 75 Back

124  Ev, p 48, para 29: HC 471, Ev, pp 131-2 Back

125  HC 471, Ev, pp 131-2 and 141-2 Back

126  Ev, p 83: HC 471, Q 292 Back