BNFL aims for sell-off

British Nuclear Fuels, the state-owned reprocessing giant, is hatching privatisation proposals for its vast Sellafield complex.

A team has recently been set up at BNFL to devise future ownership options for the company. These include the possibility of offering the entire operation - including a substantial chunk of its pounds 11bn decommissioning and waste management liabilities - to investors.

The research was prompted by the Government's recent reviews of London Underground and the Post Office. Both are examining ways of changing the publicly owned bodies' ownership structure, including a partial share sale or full-blown privatisation.

BNFL, which had long harboured privatisation hopes under the Conservatives, is under- stood to be concerned that it could end up with less commercial freedom than other state-owned concerns. The internal study is likely to suggest a range of options to the Department of Trade and Industry and the Treasury, but it will almost certainly back some form of public offer as its preferred option.

The group currently operates in effect as a private company, with a conventional board structure and report and accounts. However, BNFL was dismayed to be brought back under the auspices of Treasury borrowing constraints in the Public Sector Borrowing Requirement in 1994.

Executives complained privately that ambitions to expand decommissioning work for overseas customers was being hampered because BNFL could not raise cash from the private sector. One suggestion in the review was to remove the goverment guarantee from BNFL, allowing the group to go to the City for money. While this would mean changing Treasury rules, such ideas of public companies operating outside the PSBR have been floated by Labour think tanks.

Sources close to BNFL said full privatisation was one option being canvassed, despite its looming merger with Magnox Electric, the state-owned nuclear generator. The merger, due at the end of the year, was planned after the elderly Magnox generating stations were exempted from last year's nuclear privatisation because of their pounds 9bn decommissioning liabilities.

The on-going BNFL review has shed new light on its dispute with the Government and Magnox over the merger plans. BNFL was concerned that the inclusion of Magnox would blunt its diversification plans.

John Taylor, BNFL's chief executive, insisted last month that there were "no show stoppers" holding up the discussions. The Treasury wants to reduce its pounds 4bn guarantee covering Magnox's liabilities in the light of the generator's improved efficiency.

The BNFL ownership team is examining how much of the combined liabilities of the merged group could be included in a float. One possibility would be that part of the decommissioning bill would remain with the Treasury in a ring-fenced company.

BNFL recently revealed a pounds 100m drop in profits for last year, to pounds 216m, blaming the temporary shutdown of its Magnox fuel reprocessing plant. It has been aggressively cutting costs under Mr Taylor in its "Beyond 2000" programme. The workforce fell by 500 last year to just under 13,000. The company declined to spell out how many jobs would go under the new programme, but it aims to reduce costs by 25 per cent - about pounds 200m a year - by 2000/2001.

Another spur to the discussions was last year's hugely underpriced pounds 224m privatisation of AEA Technology, the science and engineering arm of the UK Atomic Energy Authority. BNFL's review is examining whether smaller parts of the group could be hived off as stand-alone businesses.