The art of making the unthinkable possible
City & Business
Sunday 07 May 1995
We already know that the plan is to marry Nuclear Electric with Scottish Nuclear and privatise the merged organisation. It will, however, first be shorn of the unsaleable bits - the Magnox generators, the oldest nuclear plants, whose decommissioning costs remain unquantifiable but probably horrendous. These will be transferred to BNFL, which remains in the public sector.
Politically, nuclear privatisation is a hottish potato - but probably less controversial than attempts to sell the railways (ongoing) or the Post Office (shelved). Any attempt to lower the safety standards imposed on the British nuclear industry ahead of the sell-off would quite rightly be greeted with howls of protest. But as long as the safety question can be resolved, the politics look possible.
Financially, too, it can be done, according to my soundings in the City. As David Bowen reports on page 4, the nuclear industry, stripped of the Magnox reactors, looks pretty profitable. Merchant bankers and other City advisers are already running their slide rules over the business. The Government has yet to appoint its adviser on the sale, but a price tag of £3bn has been mooted and some experts believe it could fetch up to £6bn.
Privately owned nuclear stations are not unusual. Outside Britain, the majority are already in the private sector, including plants in the United States, Spain, Sweden, Belgium, Germany and Japan.
Flotation looks the most likely sale option. It's hard to think of many trade buyers, though Electricit de France might conceivably be interested. But this is unlikely to be a Sid-style float. It will be too risky for the widows and orphans: institutional investors will have to be wooed. As we report on page 1, insurers are being urged to devote less investment to fossil fuels and more to alternative energy, though whether nuclear is envisaged as alternative isn't clear.
Would there be any appetite for shares in nuclear power stations? Probably. Institutional investors have been sounded out before now: Rothschild is currently assessing the feasibility of privately financing a stand-alone nuclear station.
Much has changed since the botched attempt to privatise the nuclear industry within National Power. Prospective investors balked then, and NP was in the end despatched to the private sector as a purely conventional generator.
This time round investors would need comfort about the long-run liabilities associated with nuclear power: the most difficult to quantify are the decommissioning costs - the expenses of reprocessing the fuel and cleaning up when a station is shut down. There is also the uncertainty of who pays in the event of an accident.
But Nuclear Electric is well aware of the importance of quantifying these costs. In its aggressive campaign to be privatised, it has put in a lot of work assessing the costs. Under the CEGB there was little attempt to calculate them - the pro-nukers didn't want to acknowledge nuclear energy had such a downside.
As long as these liabilities can be quantified, nuclear power can be privatised. But the danger is that if they can't, then private investors will require them to be capped, with the Government required to pick up the tab on any surplus cost.
Such a quiet wedding
THE presentation of S G Warburg's engagement with Swiss Bank Corporation could not have been more different from the grand marriage announced five months ago with Morgan Stanley. The original wedding was trumpeted with gilt-edge invitations, bridesmaids galore and all the trimmings. But the embarrassed bride was stood up at the altar. This time she is planning a no-frills register office job. The announcement last week was a curt few sentences. And Warburg isn't amplifying on them in any way.
The Morgan Stanley deal foundered because of resistance from Mercury Asset Management, Warburg's 75 per cent- owned fund management company, and a misunderstanding over where the jobs axe would fall in the combined operation.
The new deal, which could be clinched as early as this week, has been designed to keep MAM happy. Doubtless there will still be jousting over who should shoulder the job losses. But at least this time the two sides aren't airing their differing views in the public prints. Moreover, Warburg this time is in a much weaker position to complain. It cannot afford this deal to fail. Its credibility would be seriously damaged. Many of its top people are already looking for an excuse to depart for sounder, happier pastures. And if its people desert, its clients won't be far behind.
Ken drops a stitch
THE Chancellor has taken a gamble by not lifting interest rates on Friday. The City consensus is that a stitch in time really would have saved nine, and that by throwing away this opportunity, rates will have to go even higher later if the Government is serious about keeping within its target range for inflation.
Signs of incipient inflation are all too apparent. Sterling's 5 per cent depreciation over the last quarter will undoubtedly deliver an inflationary burst unless it is quickly reversed. Raw material and energy prices have increased by 11 per cent in the last year. Pay settlements are starting to pick up. The strike threat by normally docile Barclays staff is the latest manifestation of wages pressure.
After their bruising by local voters last week, the Conservatives' popularity could hardly have sunk lower. They might as well have bitten the bullet. As a general election approaches the political will to lift rates will become all the harder to find. Meanwhile Ken Clarke will look doubly silly if a run on the pound over the next few weeks forces him to eat his words.
A sabbath lesson
DIY RETAILERS pioneered illegal Sunday opening. The supermarkets followed. But changes to the law have turned the trickle into a flood. Sunday on some high streets is indistinguishable from Monday to Saturday. Pubs are exploring new-found freedom to open longer hours on Sunday. Some theatres also open on Sundays. And from today around 9,000 betting shops join the throng.
The competition for discretionary spending has never been so fierce. But if the Sunday openers are to flourish, the spending cake itself will have to get bigger. Otherwise there will be casualties.
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