British Nuclear Fuels faces bankruptcy
By Mary Fagan, Deputy City Editor

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BRITISH Nuclear Fuels, the state-owned atomic energy company which the Government plans to privatise, is facing bankruptcy after the discovery of a £9 billion black hole in its accounts.

 A confidential internal report has exposed unexpected costs which bring the total long-term liabilities in BNFL accounts to up to £36 billion - which threatens the company with financial ruin and will be seen as the last nail in the coffin of privatisation plans and could lead to customers unilaterally revoking their contracts.

 The disclosure will be a huge embarrassment to the Government, which was criticised last week by the cross-party Trade and Industry Select Committee for being ill-informed about BNFL and told to "get a better grip" on the company's affairs.

 The new liabilities are thought to relate to the costs of cleaning up the company's Sellafield site in Cumbria, where nuclear fuel is reprocessed and are between £7 billion and £9 billion, according to the report.

 Although a share of the liabilities will be passed to BNFL customers and the rest can be spread over many decades, the immediate impact is to leave the company technically bankrupt. It means BNFL is £1.5 billion worse off than it thought - given that it had shareholders' funds of £600 million, the company now has a deficit of about £900 million.

 The problem was uncovered during a review conducted by the BNFL's Liabilities Management Unit. Industry insiders say the unit, staffed largely by executives from Magnox, the nuclear generator which was merged with BNFL last year, took a more rigorous approach to how easily and efficiently decommissioning and clean-up at the Sellafield site can be carried out.

 The report will also fuel the debate over whether the site should be closed. BNFL was involved in controversy last year when it admitted falsifying quality checks on mixed oxide nuclear fuel sent to Japan. Since then the company has faced a barrage of criticism with calls from Denmark and Ireland to close down Sellafield and attempts by some of its major customers to renege on their contracts.

 Sellafield discharges eight million litres of nuclear waste into the Irish Sea every day, according to scientists, making it the most radioactively contaminated sea in the world. It also releases 40 different types of radioactive substances into the sea and the air.

 This waste spreads along the Irish Sea towards the north coast of Scotland and on to Denmark, Norway and Sweden as far as the Arctic. Plutonium lodges in coastal mud and is carried inland by sea spray. Other forms of radiation enter the food chain through fish, lobster and seaweed. Ireland and Denmark will be joined by Iceland and Norway in calling for an immediate halt to reprocessing at a meeting from June 26-30 of OSPAR, the commission set up to protect the marine environment in the north-east Atlantic region. 

Stephen Byers, the Trade and Industry Secretary, will be anxious to save BNFL from closure because it employs thousands of staff in marginal seats in the North West. Industry insiders expect ministers to attempt to bale out BNFL by issuing a "letter of comfort" - a reassurance that it will not be allowed to go bust or that, should it do so, the Government will shoulder the liabilities. But a letter of comfort would be seen as state aid and could be blocked by the European Commission. Moreover, the situation will generate debate among the company's critics over whether BNFL should be legally trading at all.

 BNFL's supporters will argue that the figure is overstated as some of the liabilities on its sites will be shared with customers, including the Government. The company will also say that the figure of up to £36 billion is an "undiscounted" number - that is, a paper liability which need not be paid for many decades. A fairer figure, they argue, is closer to £10.5 billion - the amount the company needs to invest now to ensure that its share of the costs will be covered as they arise.

 BNFL declined last night to comment on any figures. A spokesman said: "At the end of 1998 a substantial project was begun to examine in detail BNFL's future liabilities. It is the most complete review since BNFL's integration with Magnox Electric.

 "The review is still in progress and the fully audited numbers, when they are available, will be approved by the BNFL board before being made public as part of our reporting for 1999/2000 annual results. Until then it would be premature for BNFL to give further details of the review findings."

 BNFL is struggling to recover from criticism by the Nuclear Installations Inspectorate in February, which accused the firm of systematic management failures and a "lack of a safety culture". Last month it announced sweeping management changes, including the departure of senior directors.