Bankruptcy feared over demolition of reactors: Nuclear company needs government money to pay for work

THE COST of demolishing old nuclear power stations is expected to bankrupt Scottish Nuclear, one of the two state-owned nuclear generating companies, unless it is bailed out by the taxpayer, according to a report from the National Audit Office published today.

Although Scottish Nuclear denies that it will become insolvent within three or four years, a company spokeswoman confirmed that it would request payment of up to pounds 1.1bn from the Government to cover decommissioning costs that it had inherited from its predecessor, the South of Scotland Electricity Board (SSEB). The issue will form part of a review of nuclear power which the Government is to carry out later in the year.

The NAO report, which puts the total bill for decommissioning old nuclear facilities at about pounds 18bn, also casts doubt on the way the industry is putting money aside to meet its future liabilities - the first time any official body has questioned the industry's financial practices in this way.

In addition, the NAO warns that the other nuclear generating company, Nuclear Electric, has further liabilities of up to pounds 17bn for reprocessing and waste disposal which will have to be paid before money can be put aside for decommissioning.

Nuclear Electric's strategy assumes not only that the company will still be in existence in 100 years' time but that by then it will be making a profit of more than pounds 40bn a year, calculations by the NAO suggest. The plan is to defer actually knocking the plants down - the most expensive aspect - until the 22nd century. Meanwhile, Nuclear Electric would make comparatively small financial provisions in its accounts now which would be reinvested in its own business - on the basis that the funds will grow at 2 per cent each year over the century.

The NAO calculations show that while Nuclear Electric would need to set aside only pounds 4.17m in a reactor's first year to provide for its eventual decommissioning, it would need to set pounds 3bn against profit 100 years' hence, in the year before demolition. Since the company currently has 13 nuclear stations, the bill in 100 years' time would be nearly pounds 40bn.

The NAO report notes that 'the British companies are free to set up a separate fund for decommissioning provisions'. Although the Treasury would not object to such a move, and unofficially some companies favour it, the Department of Trade and Industry prefers the money to be reinvested in the existing businesses.

Nuclear Electric's chief executive, Bob Hawley, said: 'We know exactly how to decommission all our nuclear stations, we know what it will cost - and that cost is coming down. We're right on track to meet our liabilities without any need for subsidy.'

A spokeswoman for Scottish Nuclear said the NAO report did not take into account the company's plans to extend the life of its Torness power station, to change its decommissioning strategy and to store spent fuel at its reactors rather than send it at once to Sellafield for reprocessing. When these are taken into consideration, 'our estimates are that we will not be technically insolvent in future'.

The company's liabilities are for two old Magnox reactors at Hunterston A, on the Clyde coast in Ayrshire, and a share of the cost of decommissioning Chapelcross in Dumfries and Galloway - owned and operated by British Nuclear Fuels.

Scottish Nuclear maintains that it has been unfairly saddled with the costs of Hunterston A, which was owned by the former SSEB and was closed before Scottish Nuclear came into existence. The company argues, in effect, that since the taxpayer got the benefit of the SSEB operating Hunterston A, the taxpayer should meet the bill for knocking it down.

The Labour Party is expected to call for a public inquiry before any decision is made on the future of BNF's new pounds 2.8bn Thermal Oxide Reprocessing Plant (Thorp) at Sellafield. The plant is located in the constituency of Jack Cunningham, Labour's spokesman on foreign affairs, and trade unions are concerned over job losses if it does not go into operation. A government decision on Thorp is expected in the next few weeks.