81. One of the targets set by Government in July 1999 related to BNFL's "Development of US business", requiring an increase towards 15 per cent in the proportion of BNFL profits derived from "the US business", combined with specific targets for integrating Westinghouse Electric (WE) business into BNFL.[135] As we set out above, BNFL's purchase of WE in mid-1998 was the trigger for active consideration of the merits of a PPP. Expansion in the US was a key point in the previous Chief Executive's vision for BNFL. In January 2000 BNFL purchased ABB's nuclear business, predominantly based in the USA and Sweden.

82. There are several separate but related activities undertaken in the USA by BNFL and its subsidiaries, complicated by the still changing pattern of their management, and the limited extent to which the ABB business has as yet been absorbed into BNFL. The two principal areas of US activity are fuel manufacture under the Westinghouse brand and decommissioning and "clean-up". The Westinghouse business also includes a global presence in reactor design, construction and servicing. The ABB acquisition will substantially increase WE's US and global turnover. There is no obvious reason to focus exclusively on BNFL Inc's clean-up business in setting proportionate profit targets. DTI's target, if it is to mean anything, will have to be adapted to recognise the difference between the different parts of BNFL's business in the US. We recommend that DTI's target on US business be more closely focussed on the constituent parts of that business.

83. BNFL devoted a page of its 1998 - 99 Annual Report to the operations of BNFL Inc, recording net profit of $5.7 million, and setting out some of the major projects.[136] Given the importance accorded to US business as a driver of BNFL profitability in the years ahead, we sought some further information on the projects concerned —

• the flagship project is the River Protection Project Waste Treatment Plant contract at Hanford in Washington State, involving the treatment of 54 millions of gallons of highly radioactive liquor stored in 177 underground tanks. In September 1998 BNFL Inc were awarded a contract worth around $250 million to "quantify/mitigate risks" in the project, and deliver a firm fixed price offer by August 2000. BNFL's Annual Report stated that the overall contract to be awarded could be worth up to $6.9 billion over 20 years.[137] On 24 April 2000 a firm fixed price offer was made to the US Department of Energy. The price quoted of around $15 billion has been said by the US Department of Energy to be unrealistic. The project is likely to be retendered on different terms, and BNFL may submit a new bid.[138]
• BNFL Inc lead a contract to design, build, operate and eventually decommission a facility in Idaho, the advanced Mixed Waste Treatment Facility, to treat mixed wastes for final disposition.
• Other projects include the clean-up of buildings and material at Oak Ridge, Tennessee — the East Tennessee Technology Park; a $35 million contract awarded in early 1999 to dismantle the Big Rock Point nuclear reactor at Charlevoix, Michigan; and clean-up activities at Rocky Flats in Colorado, where a contract extension worth an additional $50 million annually was won in 1998-99. Westinghouse also pursued similar opportunities: the Annual Report notes that this "will present BNFL Inc with many new opportunities in the US in the years ahead".

84. On 22 March 2000 US Energy Secretary Bill Richardson told the New York Times in a telephone interview from Algeria that he had sent a team to the UK to talk to BNFL about safety. He was quoted as saying "We are now placing BNFL under extra scrutiny because of these problems .... I have been uneasy about some of their operations in the US. If we uncover anything, I will take swift and strong action .... Business as usual is over with BNFL and with all our contractors, but especially with BNFL." The situation was "itching for stronger management review". The Chairman of BNFL told us that BNFL was negotiating on "two very big contracts" in the USA with the Department of Energy.[139] He was confident that the remarks reflected concern over what the US DoE had read in the press "about the rest of BNFL". The Chief Executive, in evidence given before BNFL presented its April 2000 estimate, emphasised the scale of the Hanford contract and told us —

"The DoE, as you can imagine, quite rightly, are very demanding on that".[140]

The Minister told us that the review referred to by Secretary Richardson was part of a "normal process" of "regular discussion".[141]

85. Much of BNFL's future hangs on the reputation of its US subsidiary for effective management of highly complex and in some cases controversial programmes of nuclear clean-up. It is competing in the US against powerful and well-connected competitors, who will naturally not hesitate to use any ammunition offered. As a British-owned business successfully operating in a difficult US market, BNFL is entitled to expect vigorous and visible support from those tasked with protection and promotion of British commercial interests in the United States and from British Ministers. While the US authorities must of course satisfy themselves on BNFL's qualifications as a contractor, we would be disturbed were commercially damaging actions to be taken as a knee-jerk reaction to press reports.

136  Page 31 Back

137  Ev, p 82, Answer F(a): Annual Report, p 31 Back

138  Ibid, p 85 Back

139  Q 305 Back

140  Qq 304-6 Back

141  Q 350 Back