Nuclear confidence trick will not fool investors

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The Independent Online
Nuclear power is dead, long live nuclear power. British Nuclear Fuels this week came close to calling British Energy a traitor to the cause of power from the atom by "trying to distance themselves from their heritage". The fuel processing company now sees itself as carrying the banner forward into the 21st century.

The cause of the explosion was British Energy's decision last year to abandon plans to build a new nuclear power station, ahead of the flotation in June.

Not only has an appalled BNFL offered to take over the sites at Sizewell and Hinkley that British Energy will leave empty, it has offered to organise the finance and start building new nuclear power stations itself early in the next century.

This little spat must be read on two levels. Managers in nuclear power tend to believe in their product with almost religious fervour, a reaction perhaps to spending their careers in an embattled and unpopular industry. Until last year's decision by British Energy to back away from new construction, the nuclear protagonists were remarkably successful in defending their interests. They are furious at being let down by, of all people, the senior managers of the flagship nuclear company.

The enemy was not, as once widely assumed, the environmental movement, but accountancy and economics. You can see why nuclear power failed to inspire private sector financing for a new power station: the Government will probably sell British Energy for less than the pounds 2.5bn cost of the newest of its stations, Sizewell B. What a bad bargain that project proved for the taxpayer.

The other argument made for nuclear power is that it is all very well saying there is a glut of cheap gas now, but it takes a decade to design and build a new nuclear station. Cheap gas will not last forever, oil prices may rise and global warming may prompt heavy taxes on fossil fuels. So we must replace old stations as they close with new ones, even if they are currently not economic.

Stripped of the detail, this is an argument for paying over the odds for an expensive insurance policy. This is a confidence trick the nuclear industry has pulled off on the Government for 40 years. Private investors are unlikely to give BNFL the time of day.

Home truths needed from G7 meeting

Ahead of today's meeting in Paris of finance ministers and central bank governors from the Group of Seven leading industrial countries, the dollar has continued to make gains against the mark. The US Treasury Secretary, Robert Rubin, did his best to talk up the greenback by saying that a strong dollar was good for the US.

Following the success of the "orderly reversal" of the yen bubble last year, it would be foolish to write off the ability of the G7 to target the mark. But the signs are it will prove a much tougher nut to crack.

Joint central bank intervention, notably last August, certainly brought about a sea-change in sentiment towards the dollar. But the main reason for the 25 per cent depreciation of the yen since its high of last April is that the Bank of Japan opened the monetary floodgates, intervening on a massive scale to purchase dollars and driving down interest rates to a record post-war low.

In short, warm words were matched by cold deeds. The German Bundesbank could, in theory, follow suit. However, it is most unlikely to do so, since Germany is not facing a crisis of the same magnitude as threatened to engulf the Japanese economy. The German economic slowdown is serious, but it does not combine the same lethal components of debt and deflation that spelt depression.

Even so, there are worrying signs that the European slowdown could prove more stubborn and protracted than is generally anticipated. The fragility of the world economy is going to be a key feature of the G7 policy discussions - and not before time.

Despite concerns about the sustainability of the US recovery, higher- than-expected employment growth in December in the US suggests that the Fed has successfully engineered a soft landing for the US economy. Japan, too, is expected to grow by almost 2 per cent in 1996. The main problem for G7 policymakers is the black cloud of economic weakness hanging in particular over France and Germany.

At its centre is that small town called Maastricht. The programme of fiscal retrenchment needed to comply with the deficit and debt criteria for European monetary union have pushed down demand. The obvious antidote, an easing in monetary policy, has been undertaken too gingerly to offset the shortfall in activity.

European leaders still think they can muddle through to EMU, hoping for an economic upturn that will allow compliance with the key Maastricht objective of a deficit/GDP ratio of 3 per cent or less.

But before long, the markets may decide the game is up, pouring funds into the German mark as hopes of convergence evaporate. Only when that happens will European leaders really get round to addressing the stagnation of their economies. At best, the G7 meeting will help if finance ministers from the US, Canada and Japan deliver some home truths to their European counterparts.

Carnival offer a drop in the ocean

Evidently Carnival Corporation thinks it has spotted the next big holiday trend in Europe - cruising. If it hasn't, then yesterday's announcement from Airtours of a potential co-operation deal with the world's largest operator of cruise liners poses more questions than it answers.

For months now the Airtours share price has been driven by the prospects of a full bid from the US tour operator. News that the Americans might take a stake of less than 30 per cent had the City clamouring for hard facts.

Unless there is a hidden agenda, Airtours does not need the money (about pounds 151m at yesterday's prices). And while Carnival has long said that it wants entry into the European market this deal looks, on the face of it, an odd way to go about it.

A straight co-operation agreement between the two companies would afford each partner no more than a drop in each other's trading ocean.

The US cruising market traditionally draws only 10 per cent of its customers from outside the US, offering a limited opportunity for Airtours. And industry specialists see difficulty in attracting Americans over in any numbers for Airtours' Greek and Spanish package deals.

Rather, the answer may lie in the success of Airtours' two cruise ships currently plying the Med.

That prompted Thomson, the market leader, to follow suit by chartering its own ships. Yesterday it reported bookings for 60 per cent of its cabins this summer. Carnival could not have had a clearer sighting of which way way the tourist fleet is heading.