Business Analysis: BNFL leak leaves Tony Blair's nuclear ambitions in disarray

For the world's nuclear industry, next month's G8 meeting at Gleneagles in Scotland will be crucial. On the agenda for world leaders attending the three-day summit will be how to tackle the global warming crisis facing the environment.

For the world's nuclear industry, next month's G8 meeting at Gleneagles in Scotland will be crucial. On the agenda for world leaders attending the three-day summit will be how to tackle the global warming crisis facing the environment.

Before last month's election, prospects for Britain's nuclear power sector looked good. Downing Street had been gearing up for a highly politically sensitive initiative guaranteeing that extra government money would be poured into it for many years to come.

The plan was to build a new generation of nuclear power stations, to replace Britain's ageing reactors which will reach the end of their lives in the next 10 to 15 years, and to provide an alternative to greenhouse gas-emitting fossil fuels such as coal.

Since then, the entire picture has changed. Just a few days after Mr Blair returned to No 10 for a third term, a story broke that made alarm bells ring in Westminster. BNFL's main plant in Sellafield had discovered one of the most serious nuclear accidents ever.

Probably since August last year, highly radioactive nuclear fuel dissolved in nitric acid had leaked, creating an Olympic-size swimming pool of toxic liquid and containing enough plutonium to make 20 nuclear weapons.

The leak has been contained entirely within Sellafield's thermal oxide reprocessing plant, known as Thorp. But the disaster has highlighted the controversial nature of the nuclear industry, and has provided a powerful opportunity for opponents to raise alarm about its potential danger.

MPs said yesterday it would be "foolhardy" to press ahead with the establishment of new nuclear power stations after the revelation that the Sellafield leak had been undetected for months.

Norman Baker, the Liberal Democrat environment spokesman, said: "The history of nuclear energy in Britain has been one of accident, leak and cover-up. It would be absolutely irresponsible to generate more waste when we don't know what to do with the mountain we have already got."

Mr Baker's scepticism is backed up by some well-placed members of the Government, including Margaret Beckett, the Environment Secretary, and Patricia Hewitt, the Health Secretary. Even Alan Johnson, the new Energy Secretary, has expressed caution about nuclear power.

There are now signs that Mr Blair himself is backing away from announcing a far-reaching nuclear project. Those close to the industry noted there was no mention of nuclear energy in the Queen's Speech in May.

The Independent revealed on Monday that ahead of the G8 meeting, civil servants have been preparing a document, Powering a Cleaner Future, which shows Britain does not want to devote an entire section of the G8's high-profile action plan on the environment to nuclear power.

The change of heart over what will be included in the G8 talks could not have come at a worse time for BNFL, which is trying to patch up a protracted period of bad relations with its masters in Whitehall.

Its charm offensive appears not to have been successful. The Department of Trade and Industry is poised to halve the bonuses of Mike Parker, BNFL's chief executive, and two other senior employees this year as a punishment for the leak at Thorp, which a safety report by the company itself said was in part due to "complacency" among employees for missing warning signs.

For the Government, the disaster has too many unpleasant similarities to the revelation in 1999 that BNFL's safety documents for shipments of mixed oxide to Japan were found to have been falsified. The scandal cost BNFL's chief executive at the time, John Taylor, his job, with Chris Loughlin, who ran Sellafield, being ousted two years later.

There has also been a chill in relations between BNFL and the DTI over the fact that BNFL, a loss-making government-owned company which controls most of the nuclear work carried out in the UK, has been unable to get back $500m (£277m) from the US government in costs on clean-up work it was commissioned to do in Idaho in the Nineties. Senior officials at the DTI and Downing Street have been forced to intervene, and the money has still not be handed over.

Sources close to Sellafield say the Thorp disaster could be the final straw for BNFL bosses. Mr Parker survived a boardroom coup last year but may not be able to facedown the public outcry caused by the plutonium leak.

Reflecting the seriousness of Mr Parker's predicament, one possibility the Government is understood to be considering is flouting the Higgs code on corporate governance and replacing him with Gordon Campbell, the chairman of BNFL. Mr Campbell could do both jobs until a replacement chief executive is found.

Lawrie Haynes, the chief executive of BNFL's clean-up subsidiary, British Nuclear Group, also looks vulnerable. Mr Haynes, who is directly responsible for the Sellafield site, is among the executives whose bonuses will be slashed.

BNFL is well aware that the Government's plans do not end there. Downing Street wants to sell off the only major generator of profits for the group, its US arm Westinghouse, this year, in a move expected to net more than $1bn. The prospectus is expected to be available to interested parties in the next few weeks, and has already attracted interest from private equity firms, including Cerberus Global Investments, chaired by the former US Vice-President, Dan Quayle.

The little-noticed but crucial uranium business, Urenco, could also be on the block for a sale. Urenco, which processes uranium, is one-third owned by BNFL. The remainder is owned by the German and Dutch governments. The UK Government said in a strategic review of Westinghouse and Urenco in 2003 that both would be managed for "value", and analysts think now could be a good time to sell the uranium arm. With those two businesses sold to shareholders, the Government would be left with its problematic domestic business, which no private investors are likely to want.

BNFL may be able to draw comfort from the situation in that however much the Government might now like to wash its hands of nuclear problems, it still has to clean up spent reactors dating back to the Fifties. Yet whether that continues to be done by a British company in the years to come is uncertain. One source said: "The Government is making decisions at the highest level about the future of BNFL, and is likely to look entirely different in the next few years."