Mandelson warns Bonn not to renege on pounds 1bn BNFL contracts

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BRITAIN HAS warned Germany not to renege on pounds 1bn of nuclear fuel reprocessing contracts signed with BNFL, the state-owned group that ministers are considering privatising.

Peter Mandelson, Secretary of State for Trade and Industry, yesterday told MPs: "Everyone has to be reminded of their contractual obligations."

The future of the contracts, covering reprocessing of 1,000 tonnes of spent fuel from German reactors, has been thrown into doubt by the election of a government in Bonn committed to ending Germany's nuclear power programme.

Giving evidence to the Commons Trade and Industry Select Committee, Mr Mandelson said he was sure Germany was mindful of the contracts and that there was no reason for political considerations to override contractual obligations.

BNFL has contracts with six German electricity utilities, making it its second-biggest overseas customer after Japan. The contracts were signed in 1990 and run to 2009. About half the spent German fuel has been shipped to BNFL's Sellafield site in Cumbria and a small amount has been reprocessed at the Thorp facility. BNFL proposes to convert the reprocessed plutonium and uranium into mixed oxide fuel and return it to its customers in Germany for recycling. But this may not be possible.

Friends of the Earth says the agreements with the German utilities allow them to withdraw from contracts for reprocessing of fuel discharged after 2000 and 2001 without financial penalty, provided they notify BNFL before then. But a BNFL spokesman said: "One of the strengths of the contracts is their robustness. If our German customers did pull out they would have to pay for doing that." Reneging on the contracts would also open the possibility of the spent fuel that has already been sent to Sellafield having to be shipped back to Germany, which would cause an environmental furore.

The Social Democrat-Green coalition pledged to decide what to do with overseas reprocessing contracts within 100 days of taking office, and then determining the future of its nuclear reactors.

One option would be to honour all reprocessing contracts signed so far, but then to store and dispose of all further spent fuel on site.

In his evidence yesterday Mr Mandelson said privatisation of BNFL had not been ruled in or out, but if it were sold there would be no question of allowing safety standards to fall.

KPMG is to report to ministers before Christmas on options for selling BNFL.

Mr Mandelson said that following its takeover of Westinghouse's nuclear activities in the United States, BNFL was set to emerge as "an important world player" in reprocessing, which meant the time was right to review its options.