Outlook: Forget the Post Office, BNFL Looks Like Being the First to Be Put on the Privatisation Block

May 21 - Independent, The; London (UK)

London (UK)

At the time, it was a pretty strange old deal. There was obviously some industrial logic in BNFL buying Westinghouse of the US, for together, the two became the biggest nuclear reprocessing operators in the world, with top notch expertise in nuclear design and clean-up to boot. Yet BNFL was a state-owned company controlled by a Labour government which back then (1998) was committed to a steady decommissioning of what remained of Britain's nuclear power industry. The only way the $1.2bn (pounds 658m) acquisition could be explained at all was as a way of dressing up BNFL for eventual privatisation.

This was soon revealed as a hopeless endeavour. No private investor would buy BNFL, saddled as it was with huge decommissioning liabilities. The uncertainties surrounding Sellafield, Britain's main nuclear reprocessing plant, made it less appetising still. On top of everything else, BNFL seemed to have saddled itself with some extraordinarily onerous fixed-priced contracts for nuclear clean- ups in the US.

Seven years on, and it appears that privatisation is back on the agenda, at least in so far as the Westinghouse bit of BNFL is concerned. Indeed it might even be possible now to sell the whole thing, as ownership of Sellafield and the ageing Magnox nuclear power stations, together with their decommissioning liabilities, has been transferred into a separate government agency. This leaves BNFL with just the management contract for operating these plants, plus the prospect of lucrative clean-up contracts when the decommissioning begins. The problem of what to do with the nuclear waste stacking up in containers at Sellafield is one for another part of government.

So the liabilities are ringed fenced, but what makes Westinghouse and possibly the rest of BNFL suddenly attractive to private investors? The answer is that nuclear has become respectable again. Even Labour is being forced to reconsider the option of new nuclear build, partly for reasons of security of supply as other sources of energy become scarcer and more expensive, and partly because it offers a partial solution to meeting greenhouse gas emission targets.

Westinghouse is one of only four companies worldwide with a credible design for new nuclear build, the AP1000, which it is already hoping to sell in substantial quantity to China and India. Any business it can pick up in Britain would be icing of the cake. The Government needs the money a lot more than it did back in 1998, so it is keener than ever to sell.

Furthermore, should the Government decide to give the go-ahead to a new generation of nuclear power stations, it would probably be wise not to tie itself exclusively into the Westinghouse design. All other things being equal, it might be better, for diplomatic reasons if no other, to go for the rival French system, which would in any case help secure a lot more European jobs. It's early days and it may not happen, but it makes eminent sense to sell. The oddity was buying the business out of taxpayers' money in the first place.