MPs told: BNFL will never make profit on Mox fuel

There is no commercial logic behind the product on which British Nuclear Fuels has staked its future and the best option is for the publicly owned company to get out of reprocessing nuclear waste altogether, a leading economist told MPs yesterday.

Gordon MacKerron, head of the energy programme at Sussex University's science policy research unit, said that mixed oxide (Mox) fuel was destined to be a loss-making operation and a financial millstone around the neck of BNFL and the taxpayer.

Dr MacKerron told the House of Commons Trade and Industry Committee that it was more or less inevitable that the world market in Mox fuel would decline over time "because it has no commercial logic" to it.

In the run up to a planned part-privatisation of BNFL, the company has based its future profitability on its contracts for Mox fuel but Dr MacKerron calculates that these fall far short of the level needed for production to break even.

He said that the new £300m Mox plant at Sellafield, which has still to receive a government licence to open, would have to operate at between 30 and 40 per cent of full capacity in order to break even, yet contracts amount to less than 7 per cent of full production.

A dramatic collapse in confidence in BNFL by its two main customers in Japan and Germany following the scandal over data falsification has raised questions about whether these contracts will now be completed.

The decision to build a Mox plant was supposed to be the logical outcome of an earlier decision to construct the giant £2bn nuclear waste reprocessing plant, Thorp. However, this was planned in the Seventies at a time of high prices for uranium prices - which is an alternative fuel to Mox.

Since then, however, the end of the Cold War has unleashed vast quantities of military uranium onto the world market, which has exacerbated a fall in uranium prices, making Mox a more expensive alternative, Dr MacKerron told the committee.

Dr MacKerron calculates that the current price of uranium would have to rise fourfold before Mox fuel became commercially attractive.

The demand for uranium is not rising but falling, as ageing reactors come off-line and new reactors become more fuel efficient, Dr MacKerron said.

However, BNFL could be a profitable operation if it withdrew from reprocessing and concentrated on becoming a centre of excellence for other nuclear skills, such as decommissioning and waste storage. "It may be worth more to the taxpayer if it did," Dr MacKerron said.

* Martin O'Neill MP, chairman of the Commons Trade and Industry Committee, said that he would be questioning BNFL on Dr MacKerron's criticisms of how the company prepares its annual report. Dr MacKerron alleged that BNFL used accounting terms that "swing from year to year", hindering the interpretation of its true financial position.