Deal offered to speed Nuclear Electric sell-off: Company accepts ring-fenced fund to cover future decommissioning costs

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NUCLEAR ELECTRIC is willing to accept the setting up of a separate ring-fenced fund to cover the future costs of decommissioning power stations and managing their waste if it helps make the case for privatising the company more acceptable to the public and the City.

The chairman, John Collier, has also conceded that the ageing Magnox stations will have to be left out of privatisation because they are likely to deter City investors.

But the key to whether investors will buy NE will be the Government's long-awaited nuclear review, whose terms of reference were promised by the end of this year but are now expected to slip into the new year.

The review will embrace privatisation and the question of whether a third station should be built at Sizewell in Suffolk. Without the promise of further stations, NE will be even harder to sell.

A favoured option is for NE to continue to manage the Magnox stations under contract but for ownership to stay with the Government.

The Government would also keep responsibility for the pounds 7bn of provisions in the accounts relating to the Magnox stations, which are beginning to be taken out of service after three decades.

Nuclear provisions are unlike those in most other industries because reserves have to be set aside to meet costs, some of which stretch as far as 135 years into the future - the final stage of decommissioning a power station under present plans.

There have been fears that after privatisation there will be no guarantee that NE will always be able to find the cash, and environmentalists have been demanding a ring- fenced fund.

In normal trading a company would keep provisions in its business until the cash had to be paid out. Of NE's total pounds 10.7bn provisions, only pounds 1.6bn is currently backed by cash and the rest is tied up in the company.

But a separate fund would operate like a pension fund, with the proceeds of its investments used for waste management and decommissioning. Instead of NE managing the provisions on its balance sheet it would make payments to the fund, losing the benefit of part of its cash flow.

Mr Collier has indicated that, though this would be a burden, it would be a price worth accepting if it was necessary to smooth the way to privatisation.

The company is expected to generate cash strongly over the next few years as the Sizewell B nuclear station comes on to the grid.

Exclusion of the Magnox stations from privatisation would leave NE with a slimmed-down balance sheet and ownership of the advanced gas cooled reactors and Sizewell B, a pressurised water reactor.

The Magnox stations were the first to be withdrawn from sale when the electricity industry was privatised, though the Government eventually withdrew all the nuclear stations from the sale.