View from City Road: Possible fall-out with the Government

Nuclear Electric has plainly decided to ignore undisguised hints from the Government that it should shut up for a while, and brazenly relaunched its privatisation campaign, first aired in public last year.

Tim Eggar, the energy minister, has already said publicly that the Government thinks privatisation is too hot to handle before the next election and that he would welcome a period of quiet on the issue. But, undeterred, Nuclear Electric says the sell-off could be completed within 18 months and without new legislation.

The company's boasts about the enormous increase in efficiency since it was separated out from the old CEGB are true enough, with output up 45 per cent, productivity doubled and market share up from 16.7 per cent to 23 per cent. To further increase its attractions to investors, Nuclear Electric also proposes, after soundings in the City, that the ageing Magnox reactors and their associated decommissioning costs should be left with the Government, because they are unsaleable to the private sector.

However, this would still leave a privatised Nuclear Electric with pounds 6bn of decommissioning and other liabilities for the Advanced Gas Cooled Reactors and the Sizewell B Pressurised Water Reactor. No matter how confident its estimates of liabilities and its provisioning for them, Nuclear Electric would still have a hard job selling investors the idea of privatisation without some kind of cap - underwritten by the Government - on the costs of fuel clean-up and decommissioning. Environmental standards have a habit of changing only in one direction; they become more and more burdensome.

One of the reasons for the privatisation campaign is that Nuclear Electric believes the Government will not pay for a new PWR at Sizewell, while the private sector will. The first is true, the second might be. To get the issue away at a sensible price, the Government would undoubtedly have to rig the electricity market so as to underwrite long-term revenue from the PWRs. Such a mechanism would be highly vulnerable to a Labour administration still deeply ambivalent towards nuclear energy. The campaign in any case seems a futile one. Whatever Nuclear Electric says, there is no possibility of privatising this industry before the next election. Even if there were, not even a government with as little sense of self-preservation as this one would contemplate such a controversial sell-off just ahead of one.