British Energy asks for £2.6bn discount on BNFL contract

British Nuclear Fuels suffered a fresh blow yesterday after its biggest customer, British Energy, demanded a £2.6bn reduction in the cost of its contracts with the Sellafield plant in Cumbria.

The nuclear power generator said it was in negotiations with BNFL to switch from reprocessing its spent fuel to storage, estimating that the move could reduce its charges by two-thirds. British Energy has £4bn worth of reprocessing contracts with BNFL and accounts for about a third of the baseload work for the Thorp reprocessing facility at Sellafield.

If BNFL is forced to end reprocessing of British Energy's spent fuel in addition to the loss of further contracts from its biggest overseas customer, Japan, then it will spell the death-knell for Sellafield. Michael Kirwan, British Energy's finance director, said: "As far as we are concerned, reprocessing is an economic nonsense and should stop straight away."

British Energy's chief executive, Peter Hollins, said that the £300m it paid BNFL for reprocessing last year would have been cut to £100m if the spent fuel had been stored instead. Mr Hollins said negotiations with BNFL were highly sensitive and would not put a timescale on how long they would take to complete, but he added: "We believe that ultimately BNFL will take the right commercial view. They have to recognise that it is in their interests that the nuclear generating industry remains fully competitive. We have had an encouraging meeting of minds."

Mr Hollins refused to be drawn on whether it would withdraw future business from BNFL if it refused to agree to reduce its charges. Last month Hugh Collum, the chairman of BNFL, conceded that it might have to "think the unthinkable" and end reprocessing at Sellafield although he insisted that reprocessing remained its preferred strategy.

The threat of losing the British Energy reprocessing contracts follows the cancellation of a multi-billion dollar nuclear clean-up contract with the US government. Bill Richardson, the US Energy Secretary, said the contract had been withdrawn because of "serious concerns" about BNFL's management and business approach.