Nuclear clean-up arm set to go out to auction

The Government is planning to sell off the rump of the state- owned UK Atomic Energy Authority.

The auction of the nuclear decommissioning division of UKAEA, which will raise up to £400m for Treasury coffers, will be hotly contested. US engineering giants such as CH2M Hill, Bechtel and Fluor, as well as UK services company Amec, are all likely to be interested as they seek a slice of the £70bn nuclear clean-up market.

UKAEA, which employs 2,300 people, receives some £300m a year from government body the Nuclear Decommissioning Authority (NDA) to clean up civil nuclear research sites such as Dounreay in Scotland. It also leads UK research into nuclear fusion and is involved in the international venture to build a €4bn (£2.7bn) test facility in France. This smaller division will remain in government hands.

It will be easier for the UKAEA arm to compete in the nuclear clean-up market under private ownership. The Government wants the bidding for contracts to be run on a commercial basis, and handing them to a state-owned body would leave officials open to potential conflicts of interest. UKAEA has already formed an alliance with CH2M Hill and Amec.

The Department for Business, Enterprise and Regulatory Reform (BERR), which has replaced the Department of Trade and Industry, will appoint a bank to run the sale early in the autumn. Initially, only a minority stake in the clean-up arm will be sold. The Government plans to sell the rest once the new five-year contract to decommission the Dounreay site is awarded in 2009.

The NDA, set up to introduce a competitive market for decommissioning two years ago, will put the contract for UKAEA's largest site out to tender for the first time next year. But as the incumbent operator, UKAEA hopes to beat other bidders for the work. The deal, which can be extended by a further five years, would be worth up to £1.5bn and so would boost the UKAEA arm's value. Owning the division would also bring technical expertise, skilled people and knowledge of UK nuclear sites.

Norman Harrison, who was appointed chief executive of UKAEA in February, told The Independent on Sunday: "Our main stream of business going forward is decommissioning and environmental remediation. We have a business plan which is supported by BERR. We would ideally be looking in late autumn to go ahead with the part sale of the decommissioning business.

"If all goes to plan, the sale of a minority stake would be followed by a sale of the whole business once the Dounreay contract has been awarded, hopefully to us. The track record of the business speaks for itself. It would make bidding for future decommissioning contracts more straightforward. This is an exciting time for UKAEA."

As well as the Dounreay site, where the UK's experimental "fast breeder" reactors were built, UKAEA carries out decommissioning and environmental remediation work at Harwell in Oxfordshire, Windscale in Cumbria and Winfrith in Dorset.

Last year, UKAEA completed its decommissioning work 15 per cent, or £44m, under budget, using the savings to accelerate other clean-up work.

Previous chief executive Dipesh Shah explored the possibility of a part-privatisation of UKAEA but this was blocked by the Government.

Separately, BNFL will report annual results this week for the year to March. Profits have been boosted by a strong performance at the uranium-enrichment company Urenco, in which BNFL holds a one-third stake. Urenco reported earlier this year that pre-tax profits in 2006 were up over 15 per cent to €353m.

State sell-offs: It's time to run for cover when the Government tries to offload its nukes

The Government will hope that the sale of UKAEA's decommissioning arm will go more smoothly than the recent botched sell-offs of other state-owned nuclear assets. The continuing sale of the Sellafield operator BNFL has been very messy indeed.

The original plan was to offload the rump of the group - the clean-up operator BNG - together with a dowry contract to decommission Sellafield, worth at least £5bn. But BNFL and the government body responsible for awarding the £70bn of clean-up contracts in the UK, the Nuclear Decommissioning Authority, could not agree on how to manage the complex sale.

When the Amicus union (now part of Unite) cried foul, the game was up. Amicus, backed by UK companies, said that the planned sale of BNG with a hugely lucrative contract was anti-competitive, as only the large American companies could afford to buy it. Rather than open up the market to greater competition, they argued that such a sale of BNG would do the opposite.

Ministers stepped into the fray, but that did not stop frustrated US giant Fluor making an unsolicited bid for BNG. This was rejected. Instead, it was sold in pieces and the Sellafield contract. which was to be the jewel in the BNG crown, will be put out to competition separately.

The sale of the UKAEA division is not expected to be as controversial, mainly because it is much smaller than BNG and so more companies will be able to buy it.

BNFL, which reports results this week, is also trying to sell its one-third stake in uranium-enrichment company Urenco. But the Dutch and German governments, which are co-shareholders, are blocking the sale. Sources close to the company confirm that talks remain deadlocked.

And finally, in a nuclear sector where nothing is ever straightforward, so it has been with the Government's plans to sell its two-thirds stake in publicly quoted nuclear generator British Energy. Last summer, ministers were planning to sell down some of the shares - but that was before technical problems forced some reactors to close and sent its share price plunging.