The Government wants to privatise the bulk of the British nuclear industry some time next year. Nuclear Electric and Scottish Nuclear will be sold as one company, though a separate body, owning the oldest reactors, will stay in state ownership. The sale should raise about £2.5bn.
What gets sold off?
There are 16 active nuclear power stations. Eight are Magnoxes, built in the 1960s, which will remain in state hands. The stations being sold comprise seven advanced gas cooled reactors (AGRs), built from the early 1970s to late 1980s, and Sizewell B in Suffolk, a pressurised water reactor (PWR), which started generating in February.
Didn't they try to sell it before?
The Government intended to sell the nuclear stations along with the rest of the Central Electricity Generating Board in 1990. But in 1989, the plan was reversed after it became clear that the nuclear issue could scupper the entire sell-off. No money had been set aside for the costs of decommissioning nuclear stations and reprocessing unused fuel, and no-one knew how much this would cost. So Nuclear Electric and Scottish Nuclear were set up as separate companies, and kept in state ownership.
What has changed since then? First, the decommissioning issue has been largely dealt with. After much debate, the Government decided Nuclear Electric's liabilities should be £10.7bn, of which £9bn would represent the future costs of closing the Magnox stations that were nearing the end of their useful lives. Most of these costs were to be wiped out by the "nuclear levy", a charge to be added to every electricity consumer's bill from 1990 to 1998. In addition, the regional electricity distributors were told they had to buy a certain amount of power from "non-fossil fuel" sources - mainly nuclear.
Second, management of the nuclear stations has improved immeasurably. Scottish Nuclear, born in 1990, has always been efficient. But Nuclear Electric inherited the bureaucracy and staff of the CEGB: it was hopelessly overmanned, and its AGRs were, by its own admission, the least efficient in the world.
The staff has been cut from 14,400 to 9,000, and the company now claims its AGRs are running at a profit. The Government always said it would reconsider privatisation in 1994. The nuclear review is complete and led to last week's White Paper. The decision to go ahead with the sell-off was probably heavily influenced by the views of Nuclear Electric, which is keen to operate without government interference.
What will be the new industry look like?
Nuclear Electric and Scottish Nuclear will be merged into one company, with its headquarters in Edinburgh, but only after the Magnox reactors have been hived off to a new company controlled by British Nuclear Fuels. The merged organisation - let us call it New Nuclear - will have a 22 per cent share of the UK electricity market. BNFL, with eight Magnoxes, will have another 8 per cent, though this will run down to nothing as the stations are shut over the next 10-15 years.
Why not keep the Scottish side separate? That is what the Scots would like to know: the location of the company in Edinburgh is being called "Scotsop". The Government believes competition lost by merging the two companies will be balanced by the emergence of the enlarged BNFL/Magnox company. The electricity regulator, Stephen Littlechild, is unimpressed. He wanted Scottish Nuclear to be given charge of more stations, so there would be two equal-sized companies competing against each other. Although Scottish Nuclear has only two AGRs, they generate 55 per cent of Scotland's electricity; the nuclear share in England is 18 per cent.
Will New Nuclear compete fairly?
The Nuclear Levy is disappearing in 1996, two years ahead of schedule, and the electricity companies will no longer be forced to buy nuclear- generated power. As New Nuclear will have to make a profit to keep its investors happy, the playing field looks level. However, you cannot switch a nuclear reactor off, so the company will have to make sure it offers electricity at a price low enough to ensure it is bought. That means that in times of low demand, New Nuclear will keep selling, while others have to stop.
What happens to electricity prices?
They should fall by about 8 per cent when the Nuclear Levy is abolished.
Will there be tax cuts as a result of the sale?
That depends on the Government. As the Nuclear Levy is being scrapped two years early, there is likely to be a shortfall of about £2.5bn on the Magnox decommissioning provisions. Ministers may decide to use the proceeds of the sale to fill this gap - or they may use it to fund a tax cut.
If they did this, a future government would have to find the Magnox money from somewhere. But as the bill may nor appear for several decades, there will be a strong temptation to go with the tax cuts.
Will private stations be more dangerous?
Almost certainly not, and they might well be safer than at present. The main concern would be that New Nuclear might endanger safety by cutting back on staff, but the present companies have already made huge economies. New Nuclear will still be regulated by the same body, the Nuclear Installations Inspectorate (NII), whose job it is to make sure that it does not erode safety margins. The NII, which answers to the Department of Employment, may be tougher on a privatised body, and will certainly be seen to be independent of it.
What do environmental groups think?
They do not like to admit it, but the same groups that opposed the water, electricity, coal and rail sell-offs secretly rather favour privatising nuclear power. This is because they are convinced that private investors will never finance the building of new nuclear stations, which the White Paper shows to be currently uneconom- ic. They fear a future government, particularly a Blair-led Labour one, might be tempted by another flutter with the atom.
So will any new nuclear stations be built? The White Paper says it is unlikely the finance could be found. Nuclear Electric's bosses disagree: they want to build Sizewell C - a PWR station twice the size of Sizewell B - in collaboration with industrial partners and, possibly, foreign utilities. If a new station is not built, they point out, New Nuclear will eventually fade away as first the AGRs then Sizewell B are decommissioned.
Could New Nuclear get into other businesses?
Certainly. If it cannot build another nuclear station, it could build gas-fired generating plants, or move into other areas. It could also find business overseas: Nuclear Electric believes its Sizewell design is competitive, and it has come close to clinching a contract for a clone in Taiwan. The problem is that the design is likely to be made obsolete by a new station being developed by the Germans and French. Whatever happens, the company will have to work more closely with foreign companies in the future.
Would Labour renationalise it?
Labour's Jack Cunningham, the party's shadow trade and industry secretary, takes a robust line on that point, refusing to consider renationalisation because Labour opposes privatisation and is convinced it will prevent the present proposals from being realised.
In practice, if it came to the point, renationalisation would have to wait its turn in the queue with all the other legislative priorities of a new Labour government. But, to allay the fears of the 11 million holders of privatisation shares, Labour has said it will pay fair compensation in any renationalisation programme. That in itself would be expensive enough to deter wholesale renationalisation except over a prolonged period.
Flotation or trade buyer?
A would-be trade buyer, Lord Hanson, came forward when the conventional electricity generators, National Power and PowerGen, were being privatised, offering to buy the latter. This was rejected, being seen as too much of a carve-up.
The only trade buyers, in the literal sense, would have to come from the electricity industry, where most players are trying to diversify away from regulated activities. A foreign buyer would be discouraged for political reasons, and few private companies or individuals could raise the £2.5bn price. So a stock market flotation looks likeliest - and, as with National Power and PowerGen, it will probably be aimed at institutions rather than small investors.
Will anyone want nu- clear shares?
Yes, the City will invest in anything as long as it is legal and commercially feasible - at a price. But uncertainty is always a good excuse for haggling the price downwards, and the scare factor behind nuclear should be enough to ensure that the Government is forced to lower its sights on the amount it will raise.
More seriously, the continued need for further investment in new power stations will probably mean that the management of New Nuclear will have to keep returning to the market to issue more shares.
That in itself will have a depressing effect on the price, so the shares' attraction will almost certainly lie more in the dividends they pay than in their growth prospects.