Meltdown for BNFL as nuke sale is dropped

The Government will next month drop plans to privatise BNFL, strip it of its most famous asset, Sellafield, and signal it is running down the controversial nuclear group.

The bad news for BNFL will be included in the draft Bill to create the Nuclear Decommissioning Authority, the £48bn body that will clear up the radioactive legacy left by 50 years of nuclear power and weapons development.

The Bill, which is expected to be presented to Parliament by Trade and Industry Secretary Patricia Hewitt on 10 June, will come with a statement setting out the terms of reference for the NDA and how it will work with safety regulators.

Ms Hewitt is also expected to indicate that plans for a part- privatisation of BNFL are being shelved. This will come as a surprise at BNFL, where managers had hoped to revive the privatisation plans. The group is currently attempting to hire a new chief executive to replace Norman Askew, who retires later this year.

When it came to power in 1997, Labour hoped to privatise BNFL and brought in former SmithKline Beecham finance director Hugh Collum to guide the selloff. But a scandal three years ago, when BNFL was found to be falsifying safety documents, blew that off course. Though BNFL has now sorted out the problems, the near-collapse of British Energy last year has scared investors off the nuclear sector.

The final blow is that the bill to create the NDA could lead to BNFL having no substantial business interests in the UK by 2010.

In the Bill, the whole of the Sellafield site, including the controversial MOX fuel plant and the nuclear waste storage facilities, as well as BNFL's six ageing Magnox reactors and the £4bn fund it has built up to pay for decommissioning the reactors, will be passed to the NDA.

Sellafield and the Magnox reactors will continue to be run by BNFL in management and operation (M&O) contracts after the NDA takes them over, which is expected to be in 2005. However, some of these deals will only be six months long, and BNFL fears its main Sellafield contract may be as short as five years.

Other groups have already shown interest in the M&O deals. The most feared bidder is Bechtel, the US group that has been hired to advise on setting up the NDA.

Bechtel will initially have a two-year contract with the NDA and will then be prevented from bidding for any M&O deals for another two years. However, this may leave it free to bid to take over at Sellafield when BNFL's first contract runs out.

BNFL also owns a business in the US, Westinghouse, which it bought for its expertise in building nuclear reactors. But in the wake of British Energy's near-collapse, the Government decided to put a moratorium on the building of any new reactors, undermining BNFL's reason for owning Westinghouse.

On Friday, British Energy and BNFL agreed a reduced deal for the supply and reprocessing of fuel used in British Energy's reactors. The high price of these contracts was cited as one of the reasons for British Energy's financial problems last year, which led to a bailout by the Government.

British Energy also took the unusual step on Friday of warning that its shares, which were trading at 5.96p having been as high at 7.5p last Monday, were overvalued.