Nuclear industry may be worthless

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The Government may get just pounds 800m from the privatisation of the nuclear industry, less than a third of the pounds 2.6bn it is hoping for, according to one of the leading experts in Britain on energy policy.

Britain's most modern nuclear reactors might even be worthless, according to an analysis drawn up by Gordon MacKerron, of Sussex University, and Mike Sadnicki, an operational research consultant.

City analysts share their concern that the costs of reprocessing spent nuclear fuel and of decommissioning power stations in the future mean the sale may actually be made at a loss. Spent fuel which will cost some pounds 3bn to reprocess is already sitting in cooling ponds at Sellafield.

Although the research was commissioned by two avowedly anti-nuclear organisations, Friends of the Earth and COLA, the Consortium of Opposing Local Authorities, its publication today will be a blow to the Government's privatisation hopes because Dr MacKerron is regarded as an independent authority on the finances of the nuclear industry.

One City analyst, who asked not to be identified, said, "It is quite possible that the net proceeds will not add up to much at all - if anything. The problem is that no one has a clear handle on what the liabilities will be. It is also entirely unclear what the capital structure of the industry will be."

A new company, British Energy, has been set up to run the most modern reactors - the Advanced Gas-cooled Reactors (AGRs) and the Sizewell B Pressurised Water Reactor - in preparation for privatisation. The unsellable Magnox reactors are being left in the public sector.

Mr Sadnicki said, "It is extremely hard to put a valuation on British Energy. Our best estimate is that the figure is small and positive. But if we use our assumptions and the nuclear industry's own accounting conventions then we get negative pounds 2.6bn."

A spokesman for British Energy said the Financial Services Act prevented the company from giving a detailed response. "We will in the end have to be judged by investors and others on our track record. That will be published later as an integral part of the privatisation process and that's the time at which a fair and balanced assessment can be achieved," he said.

Barclays de Zoete Wedd, which is acting as financial adviser to the Government, declined to comment. One independent City analyst described the Sussex University report as "an interesting academic exercise but one which is based on assumptions which may not be plausible."

The Government faces a further headache over exactly how to deal with the ageing Magnox plants. John Guinness, chairman of British Nuclear Fuels, has demanded financial guarantees on decommissioning before he will accept the Government's proposal that his company takes over the plants .

Dr MacKerron is one of two expert advisers to the Commons Trade and Industry Select Committee investigating nuclear privatisation.

The committee will question nuclear industry executives and the merchant bankers James Capel on privatisation later today.