Industry experts say the prospect of decommissioning and waste management costs spiralling out of control puts the City in a strong bargaining position to drive down the price it is prepared to pay.
Nuclear Electric and Scottish Nuclear are being merged and the new entity, British Energy, is to be floated on the stock market next summer. It will consist of eight nuclear power stations.
Even after leaving the older Magnox stations out of the sale, British Energy will still carry decommissioning liabilities of pounds 10bn stretching into the foreseeable future.
The tight timetable for priv-atisation is also playing into investors' hands. Any delay in floating British Energy would severely restrict the scope for the Chancellor, Kenneth Clarke, to deliver tax cuts in his November 1996 budget - the last before a general election must be called.
The Government will want to avoid at all costs a repeat of the fiasco in 1989 when City objections to the unknown costs of decommissioning scuppered plans to sell off the nuclear industry.
A source in the City closely involved in the nuclear privatisation programme admitted that many problems still lay ahead this time around.
"There are number of issues such as waste disposal, competition and regulation which have to be resolved, some of which are quite technical. These will be fully reflected in the price. Like other utilities, the company will command a yield premium to the market. It is a big learning process, but it is manageable."
With the Government in such a weak negotiating position, potential investors are likely to seek a Government guarantee to cap potential liabilities at a level that ensures the reactors remain financially viable in the private sector. Decommissioning costs could go through the roof if, for example, a nuclear accident led to calls for early dismantling of radioactive cores.
Similarly, the bill for disposing of low and intermediate level waste in nuclear repositories such as the pounds 3bn dump that Nirex, the government- owned waste executive, is proposing at Sellafield in West Cumbria, could increase substantially. In the US, waste disposal costs are said to be increasing at 6 per cent a year in real terms.
"A plausible escalation in liability value could wipe out net operating income from the reactors," warned Gordon MacKerron of the Sussex Uni- versity Science Policy Research Unit in a speech given to a nuclear energy conference in London last week.
It was this demand for a government guarantee that sank nuclear privatisation in 1989. Lord Wakeham, the then Energy Secretary, complained to the House of Commons: "Unprecedented guarantees were being sought, and I am not prepared to underwrite the private sector in this way."
Some of the City's fears have been allayed since then. The Government's recent nuclear review ruled out building more nuclear reactors on cost grounds, thus limiting the potential future liability, while the operating performance of the the seven advanced gas-cooled reactors (AGRs) - once acknowledged by the old Central Electricity Generating Board as the least efficient in the world - has improved immeasurably.
In addition, the eight ageing Magnox reactors that carry the largest liabilities will be not be privatised, but hived off to state-owned British Nuclear Fuels, although it remains unclear how future Magnox decommissioning will be funded. The Labour Party wants the private sector to assume more of the risk.
But experts say the key question - how the nuclear industry manages the waste it produces - has still not been resolved.
Nirex had hoped it would solve the problem of disposing of low and intermediate level nuclear waste by 1994, thereby removing a barrier to further nuclear power construction. But plans to build an underground waste disposal site near Sellafield ran into difficulties when Nirex found that hydrogeological conditions in the area were more complicated than envisaged. The dump would store all Britain's existing intermediate and low-level waste plus that arising from the de-commissioning of existing nu-clear power stations.
Nirex now wants to build a pounds 195m underground laboratory at Sellafield to prove the scientific case for a full-scale nuclear dump in the area. A public inquiry into an appeal by Nirex against Cumbria County Council's refusal to grant planning permission for this laboratory opened last week and is expected to continue into the New Year.Reuse content