From Sellafield to sell a reactor

Under Hugh Collum, BNFL has had to deal with scandals, safety scares and management shake-ups. But now things are looking up

Internal links

BNFL division sale could strangle privatisation

British Nuclear Fuels Limited (BNFL) has had its fair share of problems. The government-owned company has a dreadful public image even within the nuclear industry, which probably ranks below GM food and Carol Vorderman in the popularity stakes. BNFL's recent financial performance has been dismal, and high- profile safety breaches and management shake-ups have led to confidence in the company scraping rock bottom.

But a ray of sunshine is falling on Sellafield. Suddenly the nuclear industry is back in favour and BNFL, which does everything from generating electricity to making nuclear fuel and reprocessing nuclear waste, is up off the canvas.

Hugh Collum, who became BNFL's chairman after a career in the pharmaceutical industry, is feeling optimistic for first time in his two years in the role. "Six months ago no one was expecting the change that has happened in the energy industry and nuclear industry," he says.

This has been driven by two conflicting demands. Economies need electricity, as demonstrated in California where an energy crisis left many homes without electricity. But the Kyoto Protocol has committed many countries to reducing carbon emissions, and, therefore, the amount of oil, gas and coal that is consumed. Renewable energy sources such as wind and solar power are one option, but nuclear power has been increasingly touted as the solution.

"It was very good news for us when the lights went out in California because it suddenly made people realise the security of energy supply was a very important part of the quality of life," says Mr Collum. "That, plus the Kyoto Protocol, and the issues raised on climate control, created two subject matters on which nuclear came back on the agenda again." Dick Cheney, the US vice-president, has given firm commitments on nuclear power expansion after a 20-year moratorium, but the UK Government is more cautious. In 1989, building new nuclear power stations was banned, although the moratorium ended six years ago. BNFL's ageing UK power reactors, the Magnox reactors, will be shut by 2010, so something must replace the electricity they produce if the Government is to stick to its targets on reducing carbon dioxide emission. Environmentalists hope renewable energy will fill the gap. The Government says it wants 10 per cent of electricity derived from renewable energy by 2010. As nuclear power now provides nearly a quarter of our electricity requirements, either the British landscape will end up being peppered with wind turbines and solar panels, or the Government has to bite the bullet and invest in nuclear energy.

The Prime Minister, Tony Blair, has ordered an energy review that will consider these problems. Mr Collum says ministers have a sense of urgency about the issue. "We're talking about the next 20 to 50 years. You've got to start planning now ... or nothing will ever happen," he says. BNFL had a stroke of luck when Brian Wilson was appointed energy minister. The Hunterston nuclear power plant is in Mr Wilson's Ayrshire constituency and he is known to be supportive of the nuclear industry.

Mr Collum thinks the US's bold move into nuclear power will persuade other doubters. "If America starts to build nuclear power stations I think it will have a beneficial impact, a beneficial message for the UK and Europe," he says. He has already met Dick Cheney, whose promise on nuclear plants in the US offers opportunities for BNFL and British Energy, the stock market-listed company that owns the other significant nuclear power business in the UK. And the US market will become even more vital if Mr Blair's energy review does not bring a change of policy on nuclear energy, as BNFL will have to look abroad for expansion.

Mr Collum says BNFL is well placed to do this, because it is the only company in the world with a full range of nuclear services. The Westinghouse business, bought two years ago, gives BNFL some of the most up-to-date technology in nuclear plans, the AP 600, AP 1000 and pebble-bed systems. Decommissioning and fuel reprocessing are a business area that hardly anyone else has, the jewel in the crown, at least in financial terms, in the nuclear fuel manufacturing business.

British Energy has said it would like to buy the fuel manufacturing side, claiming it would break BNFL's monopoly in reprocessing. The business could be worth £1.5bn, so that would be a tempting short-term sale for the Government. Publicly, Mr Collum says such a sale would be up to ministers, but he is known to be lobbying strongly to keep the fuel manufacturing business. Selling it, BNFL believe, would leave a gaping hole in the company's product range and would make it much more difficult to sell to potential private partners.

BNFL's international ambitions have been successful so far, at least with its acquisitions in the US. It bought ABB's nuclear business in May last year and Westinghouse's a year before that, both US-focused businesses that specialise in nuclear reactor design and fuel manufacturing. They have provided a much-needed boost to last year's financial figures. The purchases have also embellished the fuel-manufacturing business, which the company considers its treasure. It is one thought essential if the Government's Public-Private Partnership (PPP) plans, which involve selling a 49 per cent stake in BNFL to the private sector, are to succeed.

Originally, the PPP was meant to happen in 2002, but with liabilities of £16bn, connected with the ageing Magnox reactors, as well as the £210m loss it made last year and shareholders funds of just £356m, the privatisation will have to be delayed. "Obviously with what has happened over the last two years, it's not a practical proposition," says Mr Collum. "It's my present view that the earliest target for that is 2004/2005." He believes restructuring is necessary before privatisation is possible. The massive liabilities need to be managed, "but above all we have got to trade effectively. The company has got to deliver reliable figures going forward".

Another question that must be answered before the go-ahead is the future of the mixed oxide (Mox) plant at Sellafield. Mox is a method of turning the nuclear waste substance, plutonium, into a usable fuel. But the plant has been dogged with controversy. It has never been officially launched, although it was built in 1995.

In 1999, after a trial run, it was found workers had been falsifying data from the safety checks on a fuel shipment to Japan. The scandal threatened many of BNFL's contracts, particularly with Japan, Germany and Switzerland. Mr Collum was forced to share the management, getting rid of the chief executive, John Taylor, and replacing him with East Midlands Electricity boss, Norman Askew.

But Mr Collum says BNFL lost no orders and recently signed new orders with Swiss, German and Swedish customers. But the problems strengthen the hand of critics who say the plant will increase the likelihood of terrorists getting their hands on potential bomb material, and environmentalists say the use of plutonium in this way is "irresponsible and expensive". The plant has a lot of negatives, but it will also support 400 jobs directly, and 1,600 more indirectly, says BNFL, and nearly £500m has been invested in it.

Margaret Beckett, the Environment, Food and Rural Affairs Secretary, is mulling over these issues as she decides whether the plant should be given the official go-ahead. She commissioned a report by consultants Arthur D Little which gave ammunition for both the pro- and anti-Mox camps.

Mr Collum is confident that reopening the Mox unit will be allowed. "I think we will be successful, I think we've established an economic case for Mox. In addition to that there are a lot of customers who are expecting that plant to come on ... we have orders we have to deliver next year."

Mr Collum admits that should the Japanese cancel their orders, the impact on Sellafield will be "terrible", because Japan is an important future customer. A recent referendum in Kariwa, a town north of Tokyo, showed strong opposition to use Mox at the local nuclear plant.

But after the intervention of the Prime Minister and two years of lobbying, he says the problems are over. "We're rebuilding our reputation with the Japanese," he says. "The new Prime Minister [Junichiro Koizumi] who took over very soon after that [the scandal], had publicly stated his commitment to the nuclear policy they had in place at the time, and for that they need Mox fuel."

The Mox issue as well as the recent incident at the UK's Shawcross plant, where radioactive fuel rods were dropped to the ground, does nothing for the company's image. It is clear that if the nuclear industry is really going to experience a renaissance, it must change the hearts and minds of the public. Mr Collum says: "The most important thing is to improve the perception of nuclear energy. That's the biggest issue in the industry. So many people refer back to Three Mile Island or Chernobyl, bearing in mind Three Mile Island was in 1979 and Chernobyl was in 1986. It was a long, long time ago and technology has come on a long way since then."

He denies there are any health risks from the industry. "Very few people have been killed from nuclear incidents," he says, and he maintains there was no risk to safety at Shawcross, and the newer versions of nuclear power generators will be safe and reliable. Lobby groups will not be put off campaigning against all things nuclear. Friends of the Earth says the biggest issue is without doubt the management of nuclear waste, however safe the reactors are now.

With the complexity of the industry, one would think Mr Collum has just about had enough. When he started in 1999 he intended to steer the company through privatisation, rather than deal with the crises of the last two years. But had he known the plight that was ahead of him, would he have taken the job?

"It's very much a hypothetical question," he says. "The only thing I can say is it's been a very interesting couple of years. When I was looking at this job originally, it came across to me as a very interesting industry, which is not well understood. But I could have done without some of the problems I've had."

Fact file

BNFL

* The year to March 2001 was a tough one for BNFL. It made a loss before exceptional items of £210m on a turnover of £2.54bn. In its business areas it lost £250m in Magnox generation, £68m in spent fuel and engineering and £30m in nuclear decommissioning and clean-up. The only area that made money was fuel manufacture, which recorded a profit of £50m.

* The group employs more than 21,000 people of whom around 7,000 are at Sellafield, the group's fuel reprocessing operation in Cumbria. The group has seven Magnox power stations, all of which are to close by 2010.

* The company estimates the cost of meeting all its nuclear liabilities at £34.7bn, more than half of this relating to decommissioning the Magnox plants. Most of this work will not be needed for many years, so BNFL reckons the cost could be met by £15.8bn invested now, of which BNFL is responsible for only £10.4bn, the rest falling on the Ministry of Defence and the UK Atomic Energy Authority.

Hugh Collum

* Hugh Collum, 61, became chairman of BNFL in 1999. He had been finance director of Beecham, until its merger with Smithkline Beckman, and Smithkline Beecham until its merger with Glaxo Wellcome, Cadbury Schweppes and Courage.

* He is a non-executive director of Invensys, South African Breweries, Safeway, Celltech and Whitehead Mann.

* And he is a member of the MCC, describing his hobbies as opera and sport.