Jeremy Warner's Outlook: Forget the Post Office, BNFL looks like being the first to be put on the privatisation block

Chinese currency; inscrutable as ever; Diageo factor in Hollick's finder's fee
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At the time, it was a pretty strange old deal. There was obviously some industrial logic in BNFL buying Westinghouse of the US, for together the two became the biggest nuclear reprocessing operators in the world, with top-notch expertise in nuclear design and clean-up to boot. Yet BNFL was a state-owned company controlled by a Labour government which back then (1998) was committed to a steady decommissioning of what remained of Britain's nuclear power industry. The only way the $1.2bn (£658m) acquisition could be explained at all was as a way of dressing up BNFL for eventual privatisation.

At the time, it was a pretty strange old deal. There was obviously some industrial logic in BNFL buying Westinghouse of the US, for together the two became the biggest nuclear reprocessing operators in the world, with top-notch expertise in nuclear design and clean-up to boot. Yet BNFL was a state-owned company controlled by a Labour government which back then (1998) was committed to a steady decommissioning of what remained of Britain's nuclear power industry. The only way the $1.2bn (£658m) acquisition could be explained at all was as a way of dressing up BNFL for eventual privatisation.

This was soon revealed as a hopeless endeavour. No private investor would buy BNFL, saddled as it was with huge decommissioning liabilities. The uncertainties surrounding Sellafield, Britain's main nuclear reprocessing plant, made it less appetising still. On top of everything else, BNFL seemed to have saddled itself with some extraordinarily onerous fixed-priced contracts for nuclear clean-ups in the US.

Seven years on, and it appears that privatisation is back on the agenda, at least in so far as the Westinghouse bit of BNFL is concerned. Indeed it might even be possible now to sell the whole thing, as ownership of Sellafield and the ageing Magnox nuclear power stations, together with their decommissioning liabilities, has been transferred into a separate government agency. This leaves BNFL with just the management contract for operating these plants, plus the prospect of lucrative clean-up contracts when the decommissioning begins. The problem of what to do with the nuclear waste stacking up in containers at Sellafield is one for another part of government.

So the liabilities are ring-fenced, but what makes Westinghouse and possibly the rest of BNFL suddenly attractive to private investors? The answer is that nuclear has become respectable again. Even Labour is being forced to reconsider the option of new nuclear build, partly for reasons of security of supply as other sources of energy become scarcer and more expensive, and partly because it offers a partial solution to meeting greenhouse gas emission targets.

Westinghouse is one of only four companies worldwide with a credible design for new nuclear build, the AP1000, which it is already hoping to sell in substantial quantity to China and India. Any business it can pick up in Britain would be icing of the cake. The Government needs the money a lot more than it did back in 1998, so it is keener than ever to sell.

Furthermore, should the Government decide to give the go-ahead to a new generation of nuclear power stations, it would probably be wise not to tie itself exclusively into the Westinghouse design. All other things being equal, it might be better, for diplomatic reasons if no other, to go for the rival French system, which would in any case help secure a lot more European jobs. It's early days and it may not happen, but it makes eminent sense to sell. The oddity was buying the business out of taxpayers' money in the first place.

Chinese currency; inscrutable as ever

It's one of those weird things that is simply not meant to happen in today's supremely well informed capital markets. Acres of column inches and billions of dollars have been devoted to speculating on when and how the Chinese might abandon their dollar currency peg, yet virtually nothing is known about official Chinese thinking on these issues. There are plenty of people who pretend they know, but most of them have already been disproved too often already to have any faith in their supposed knowledge of the machinations of Chinese economic policy. The Chinese seem determined to stick to the national characteristic of inscrutability.

Over the past couple of weeks the speculation has reached fever pitch, and so too has the volume of noise made by the politicians. In the US, where it is generally believed that a revaluation of the Chinese renminbi is essential if America is to address its burgeoning current account deficit, the rhetoric has become increasingly threatening. The more threatening it becomes, the more intransigent the stance adopted by the Chinese, who have promised to do something eventually, but in their own good time and in the perceived interests of China, not anyone else's.

Whatever the Chinese do, don't expect fireworks. China is adopting the traditional route to development which rests first and foremost on achieving a thriving export performance. Domestic demand can come later. China won't risk damaging these exports by allowing the renminbi to float freely, for the consequent appreciation would be considerable.

Yet at the same time there are sound domestic reasons for moving away from the status quo, never mind any pressure that is coming from the US. By holding with the present currency peg, China also ties itself to exceptionally lax US monetary policy, which is almost certainly inappropriate for a country that is growing so strongly.

Most people are betting on a relatively minor adjustment of, say 5 per cent, with a new peg established against a basket of trading partner currencies, rather than just the US dollar. Unfortunately, that's unlikely to make a great deal of difference to the US's current account deficit. It provides no more than a small, temporary respite.

All of which further strengthens the case for China to be invited on to the high table of G7 economic policy makers at the earliest possible opportunity. Unlike the other members ­ the US, Japan, Britain, France, Germany, Italy and Canada ­ China is still a developing country, yet it has become such a powerful force in the world economy that continued exclusion just looks silly. As presently constituted, the G7 is a nonsense. Neither Italy nor Canada should be there at all, and arguably nor should Britain. Instead it should be a G4 of the US, Europe, Japan and China, for these are the currencies that these days determine the imbalances.

Of course, the reason why China doesn't sit at the high table is not for lack of invites: it doesn't particularly want to participate. China much prefers its present, obligation-free, lack of accountability. The last thing the Chinese government would wish for is to put its name to a collective statement that in effect calls for the renminbi to be revalued. Somehow or other, the Chinese have to be coaxed in. Then we might at least know what they are thinking even if we still don't agree with their policies. Unfortunately, there may be a way to go yet.

Diageo factor in Hollick's finder's fee

Further to the mystery of why Lord Hollick changed his mind over the £250,000 "finder's fee" that was to have been paid to him for choosing his successor as chief executive at United Business Media, here's a little bit of intelligence on the matter. Lord Hollick remained completely intransigent over the fee as the wrath of shareholders gathered around him, and he even refused to waive it after investors voted by an unprecedented majority against the UBM remuneration report.

Then after a weekend to sleep on it, the Labour peer inexplicably changed his mind. Having already been through all the grief of the row, why would he do that? If it was because he wanted to be remembered for the shareholder value he created during his time at UBM, rather than some tawdry little row over pay, it was a bit late for that. No, the real reason, I'm told, is his position as head of the remuneration committee and senior independent director at Diageo, one of Britain's biggest companies. This would have become untenable had he continued to resist the will of institutional shareholders. It may be all good, clean fun to face down angry shareholders at UBM, but to be publicly hounded out of Diageo would have turned triumph into humiliation.

j.warner@independent.co.uk

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