The new German environment minister wants to cancel contracts for the plant at Sellafield, Cumbria, to reprocess 1,000 tonnes of spent fuel from its nuclear reactors. But the proposal has caused a diplomatic dispute between Britain and Germany. The British Government has insisted that Germany cannot end the contracts, which run until beyond 2004, without paying millions of pounds in compensation. It fears that if Germany is allowed to pull out without paying the penalties, other countries, such as Switzerland, may follow suit.
If Germany succeeds, it would be a blow to the reprocessing industry in Britain and could cost jobs in the Sellafield area.
Talks between BNFL and government representatives, and German officials and power companies have failed to reach agreement and are due to continue in the new year. They hinge on whether Germany must pay millions of pounds of penalties to break its contracts with Britain.
A spokesman for BNFL said: "The contracts we have with Germany are for reprocessing, not for anything else. They have very robust penalty clauses."
Germany is Sellafield's second largest overseas customer, after Japan. Most of the reprocessing contracts with Sellafield, which began in 1994, expire in 2004 although some continue to 2009. The loss of German contracts would cost pounds 1bn of BNFL's pounds 12bn business at the Thorp reprocessing plant.
BNFL's reprocessing contracts are with six German electricity companies but because of the safety implications of nuclear power the contracts are underwritten by both governments. The British and German governments are involved in the talks because the contracts are underpinned by an "exchange of letters" making assurances about safety.
Germany's environment minister, Jurgen Trittin, believes that he can pass a law ending reprocessing without paying any money to BNFL. But Britain has insisted that Germany cannot pull out.
"BNFL's contracts will be one aspect of the discussions taking place between the UK and Germany governments at both industry and government level," a government spokesman said. "The discussions are ongoing, they are already taking place. Ministers have been kept informed on both sides."
BNFL is understood to have received the strong support of Tony Blair and Peter Mandelson, who until last month was Trade and Industry Secretary. Last week John Guinness, Chairman of British Nuclear Fuels, received a knighthood in the New Year's honours.
But other ministers, including John Prescott, Secretary of State for Environment, Transport and the Regions, and Michael Meacher, Environment minister, are thought to favour a compromise that would mean that Germany pays Britain the same amount of money to store the waste.
Some directors within BNFL believe the company should concentrate further on the "clean up" side of the business, including offering more "dry" storage of nuclear fuel for overseas customers. Dry storage is regarded as a safer option by many because it means that plutonium is not extracted to be stockpiled and does not lead to discharges into the environment.
Environmental groups say they would back such a shift in emphasis because it would also help Britain meet commitments to reduce nuclear discharges into the Irish Sea.
"The British should be grateful that the Germans are trying to get out of these contracts because it will help them meet the terms of the Ospar convention on marine pollution in the north-east Atlantic," said Pete Roche, a nuclear campaigner with Greenpeace. "John Prescott signed the convention. At the moment discharge from Sellafield goes by pipeline into the sea."
The German environment minister has hinted to German power companies that he might back a dry-storage option if Britain agrees. That would mean the reprocessed waste and extracted plutonium and uranium would not have to return to Germany, where transport of nuclear waste by rail through residential areas is increasingly controversial.
In November, the British government ordered a review of the safety of transporting spent nuclear fuel by train. That followed plans by BNFL to store nuclear trains in sidings in a London suburb. Germany has recently banned the shipment of nuclear waste out of the country by train because of fears over the safety of the flasks. Tons of spent fuel bound for Sellafield are sitting in Germany.