Government announces next steps for BNG sale and plans for National Nuclear Laboratory

October 25, 2006

London, 24 October 2006

The future of BNFL's nuclear clean-up and research arms were today outlined by the Government, as it approved plans to break up and sell off British Nuclear Group and announced its intention to establish a new National Nuclear Laboratory.

Accepting the joint recommendation of the Boards of BNFL and the Nuclear Decommissioning Authority, Ministers have agreed that, in order to safeguard the interests of the taxpayer and ensure the best solution for the company, its workers and the market in nuclear clean-up, BNG should be split up before being sold off.

Alistair Darling, Secretary of State for Trade and Industry, said today: "I have given the sale of BNG careful consideration and I have met with interested parties. I have concluded that there are real benefits to the Project Services and the Magnox businesses in separating them from the process of choosing the right contractor for Sellafield.

"I also believe that the best way of securing the right contractor for Sellafield is to proceed with a separate competition with the full focus on what is best at that site. That process will be run by the NDA, and the criteria it is setting will include, first-rate health, safety, security and environmental performance, and effectiveness as a contractor.

Ministers have also announced the intention to establish a new National Nuclear Laboratory, to be formed out of the British Technology Centre at Sellafield and Nexia Solutions, the research company currently owned by BNFL. The Laboratory will play a central part in safeguarding the necessary skills for the UK's civil nuclear industry.

Alistair Darling continued: "We have looked at how to best safeguard the UK's key nuclear R&D skills and capabilities to ensure that our future requirements are met.

"The National Nuclear Laboratory will play a key role in supporting the UK's R&D requirements, and operate world-class facilities. As the market for the provision for R&D skills develops, the NNL will ensure key skills are safeguarded and enhanced, part of which will entail the NNL playing a key role in the development of the UK?s R&D supply base.?

Notes to editors

Alistair Darling set out the plans in a Written Statement to Parliament today:

THE SALE OF BRITISH NUCLEAR GROUP AND THE ESTABLISHMENT OF A NATIONAL NUCLEAR LABORATORY

I would like to make a statement regarding a joint proposal from BNFL and the Nuclear Decommissioning Authority about the process for implementing the sale of BNFL's subsidiary, British Nuclear Group. I would also like to make a statement on the establishment of a National Nuclear Laboratory to safeguard key nuclear Research and Development skills and capability. The Government's objectives for nuclear clean up, are:

(i) keeping a clear focus on safety;

(ii) ensuring the taxpayer gets best value for expenditure on clean up; and

(iii) ensuring that, within this framework, we do what is best for British Nuclear Group as a business and especially for its employees and also its wider stakeholders, including the local communities.

These objectives were essential elements of the Energy Act 2004, which established the NDA to take on decommissioning and cleaning-up the public civil nuclear legacy on a UK wide basis while bringing renewed drive and focus to this work through competition. The clear policy intention behind the Act was that while the sites themselves would remain in public ownership through the NDA, they would be operated in time by a range of different contractors.

Since April 2005, the NDA has owned the sites and facilities previously owned by BNFL (the Magnox stations, Sellafield, THORP/SMP, and Springfields). BNG was created as a subsidiary of BNFL at the same time and was awarded short-term contracts to manage and operate those facilities on behalf of the NDA. All these sites were to be opened up to competition progressively in line with the NDA's obligations under the Energy Act.

BNG consists of four key business areas: the management of the Sellafield contract; the management of the Magnox sites; Project Services - a specialist contractor at Sellafield and Magnox sites which is looking to expand non-NDA work; and a 33% stake in AWE, which manages the Aldermaston weapons complex on behalf of the Ministry of Defence. Its assets are these contracts. The sites and facilities are owned by the NDA and will continue to be.

When announcing the sale to the House on 30 March, the then Secretary of State, my right honourable friend the member for Hull West and Hessle, Alan Johnson said he envisaged a sale of British Nuclear Group, as a single entity by Autumn 2007 to coincide with the NDA awarding a new 5-year contract for cleaning up the Sellafield site. Following that announcement, BNFL and the NDA have proceeded along this route with the emphasis on potential Sellafield performance given the size and urgency of the clean-up task at that site.

However, as they have got into the detail it has become increasingly clear that this approach was not the best way of meeting the different needs of BNG's other businesses or staff. The Board of BNFL became concerned that the organisation best suited to succeed at Sellafield may be less suited to helping Magnox succeed in the subsequent competitions at its sites or to developing Project Services as a key contractor in the evolving market both here and overseas. These businesses may be better served by a range of operators with different skill sets rather than a single overall one.

The BNFL Board's concerns were reinforced by evidence in the market that instead of single buyers for BNG, consortia were being formed for the bid, suggesting that a future split of BNG was likely with a risk that the non-Sellafield pieces might be sold on at a premium to the loss of the taxpayer. In addition, the requirements and duration of the formal procurement process for the Sellafield contract were felt to have the potential to damage the prospects for Project Services, which might have been restricted from pursuing new business opportunities during a prolonged sale process.

The BNFL and NDA Boards have therefore concluded that it would be appropriate to modify their approach in response to this new information. Their joint recommendation is that BNG should continue to operate the Sellafield contract until the NDA can put in place a new contractor following a full competition (potentially the middle of 2008) and that BNFL should conduct individual sales of its other businesses on an early timescale to complete during the course of 2007.

I have given these points very careful consideration. I have also considered all the representations made to me. I have concluded that that there are real benefits to Project Services and the Magnox business in separating them from the process of choosing the right contractor for Sellafield. I also believe that the best way of securing the right contractor for Sellafield is to proceed with a separate competition with the full focus on what is best at that site. That process will be run by the NDA, and the criteria it is setting will include, first-rate health, safety, security and environmental performance, and effectiveness as a contractor, as well as demonstrable engagement with stakeholders, including trade unions, and understanding the socio-economic issues of the area.

On this basis and in the knowledge that the regulators agree with the change subject to strengthening of the site licensee company arrangements and capabilities, which I shall be insisting upon, I am satisfied that the Government should support the new approach proposed by BNFL and the NDA.

Earlier in the summer, I announced that we would be carrying out some detailed work to establish how best to safeguard the UK's key nuclear R&D skills and capabilities to ensure that our future requirements are met. These capabilities reside principally within Nexia Solutions, a subsidiary of BNFL, and key facilities in the British Technology Centre in Sellafield, West Cumbria. I also said that whilst the UK nuclear R&D market is developing it might be necessary to preserve and develop these skills potentially as part of a National Nuclear Laboratory.

In the light of these discussions, I am therefore pleased to say that we expect a National Nuclear Laboratory will be set up as soon as practicable. Subject to agreeing appropriate contractual terms, the Lab will be based around the British Technology Centre in Sellafield, West Cumbria, and Nexia Solutions and managed by a contractor operator.

As the NNL, it will play a key role in supporting the UK's strategic R&D requirements, and operate world-class facilities. As the market for the provision for R&D skills develops, the NNL will ensure key skills are safeguarded and enhanced, part of which will entail the NNL playing a key role in the development of the UK's R&D supply base.

UK Department of Trade and Industry
News release P/2006/2

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