Nuclear survival on the line

British Nuclear Fuel’s mixed oxide fuel plant at Sellafield is crucial to the company’s fortunes. But five years after it was built, consent to operate it continues to be elusive.

Norman Askew must have been fuming. On 22 June, the chief executive of British Nuclear Fuels heard the government announce he would have to wait at least another two months for a decision on whether he would be able to operate a fuel-manufacturing plant at Sellafield.

The Sellafield Mox Plant (SMP), which is critical to the future of his company, has been awaiting consent to start operating ever since it was completed in 1996.

The new delay followed a judicial review of the government’s latest consultation process for the project, forced by an application to the High Court by Friends of the Earth.

FoE succeeded in forcing publication of an independent assessment of BNFL’s economic case for the Mox plant, carried out by consulting firm Arthur D Little for the Department of the Environment, Transport and the Regions – to be followed by an additional four-week consultation period.

With this latest consultation phase set to run until the end of August, the decision on whether to give the SMP the go-ahead has slipped back at least until the end of September.

It was the latest chapter in the saga of what is arguably the most controversial project in BNFL’s history – an achievement in itself.

Completed in 1996, the Sellafield Mox plant was intended to exploit the market for mixed oxide fuel by providing a safe disposal route for the growing stockpiles of plutonium, which, since the end of the cold war, had become an expensive and dangerous liability.

The SMP would also hugely improve the prospects for extending the operational life of the £3bn Thermal Oxide Reprocessing Plant (Thorp) at Sellafield. This has a committed throughput for its first 10 years, but needs further orders to justify a second decade of operation.

Thorp’s extended operation seems certain to depend on overseas business. But its customers in Germany, Japan and elsewhere are obliged to take back the products of their fuel reproce – or pay BNFL several million pounds a year to store it – is not appealing. Mox fuel seemed to provide the answer, wrapping up the plutonium with uranium in a fuel matrix whose transport would attract less public protest and involve nothing like the security problem posed by plutonium.

Long authorisation process

BNFL itself is largely to blame for the delay in sanctioning the SMP’s operation. The long process of authorisation, taking in three public consultations on environmental impact and economic justification, was drawing to a close in September 1999 when it was discovered that workers at the small pilot Mox fabrication plant had falsified quality assurance data on fuel produced there.

It would have been difficult to inflict a more damaging blow to BNFL at a time when the government was preparing the company for flotation in 2001.

A consignment of the fuel had been dispatched to a utility in Japan, the country widely perceived to be the biggest potential customer for the SMP’s output, and the outraged Japanese company, power generator Kansai Electric, demanded BNFL take back the fuel.

The Health and Safety Executive, through its Nuclear Installations Inspectorate, launched an investigation into the company’s operations at Sellafield. John Taylor, then chief executive, was obliged to resign.

The NII probe resulted in three damning reports in February 2000. There were more than 40 recommendations for improving site safety.

BNFL’s accounts for 1999/2000 recorded a £113m exceptional provision to cover the disaster. This included a £40m compensation payment to Kansai, and an undertaking to take the contaminated fuel back.

Last November, Askew warned that the SMP faced being scrapped before it had produced a pellet of fuel unless the plant received commitments for orders by the end of February 2001. The delay in commissioning the facility had by then caused its capital cost to soar from the £300m design and construction bill to £462m.

Askew’s threat was almost certainly a ploy to secure commitments from foreign customers. It seemed to have the desired effect, for in December BNFL told the government it would submit a fresh business case for the SMP’s operation.

It did so in January this year. The submission was commercially confidential, but its basis was that the company had ‘firm contracts’ for 22% of the SMP’s capacity over its planned operating life, nominally 20 years, with an annual production capacity of up to 120 tonnes. BNFL also said the plant had an estimated net present value of between £301m and £315m, although this did not include the ‘sunk cost’ of the project, which had now risen to £473m. The DETR asked BNFL to provide a public version of the document and an updated review of the Mox market. Once it had received these in March, it announced yet another public consultation exercise to run until late May.

It was at this time that Arthur D Little was commissioned to carry out an independent assessment of the case presented by BNFL. Meanwhile, the Department of Trade and Industry endorsed the company’s review of the Mox market.

By May, BNFL must have thought it had strengthened its case by securing contracts for the SMP from the giant German utility E.ON, and from the Oskarsham nuclear plant in Sweden.

A spokesman conceded that this business comprises a mixture of firm contracts, heads of agreements and reservations of capacity. But BNFL maintained that these two additional deals had increased the contracted/ reserved business to 40% of the plant’s lifetime reference case, the point at which the project breaks even.

Askew said at the time: ‘These new orders signal strong support for the plant. We look forward to it opening so we can start to fulfil these orders.’

While the company was careful not to make presumptive statements in public, its senior management was convinced it would secure the go-ahead to start production by the end of summer. This deadline was important to meet the contracted timescales of some of the customers. But shortly after the public consultation period closed on 23 May, Friends of the Earth brought its High Court action, causing the latest delay.

In response to the FoE challenge that there had been no opportunity to examine the Arthur D Little analysis, the Department of the Environment, Food and Rural Affairs agreed to publish the Little report and to a further four-week consultation.

Frustration at BNFL

A terse statement from BNFL could hardly disguise the company’s frustration: ‘We see this as a further, and hopefully final, step towards achieving a positive conclusion, and look to government to bring this uncertainty to an end as soon as possible.’

Privately, Askew and his senior managers were furious. ‘It is now important that the SMP is given the go-ahead as soon as this further consultation is over,’ he said when the Little report was finally released last month.

The report agrees that the case for the SMP is ‘robust’. But it puts the present value of the project to BNFL at £216m – substantially lower than the company’s £315m estimate at the start of this year.

FoE seized on this, saying: ‘The report confirms the plant will lose hundreds of millions of pounds. We consider it unlawful for the government to give the go-ahead. Ministers must dismiss BNFL’s application or risk further legal challenge.’

Disastrous consequences

Should the SMP project founder, the consequences for BNFL will be disastrous. Not only will it be faced with a write-off cost approaching £500m, but Thorp will almost certainly have to close early.

The Radioactive Waste Management Advisory Committee cautioned last year that the plant’s operational life may be limited to 2010, as it would be ‘difficult’ for it to secure more orders from the UK and ‘not easy’ to find further overseas contracts. Without the SMP, ‘not easy’ would become ‘impossible’.

With the fuel manufacturing division accounting for half the company’s £2,146m turnover in 2000/2001 – and the only one of the four divisions to make an operating profit of any consequence (£52m) – the impact of losing the SMp could prove terminal.

It would certainly scupper the idea of selling part of the company to the private sector. The Thorp/SMP combination is the BNFL’s only realistic route to profitabilty.The Magnox generation division continues to be a financial basket case, with a £199m loss in 2000/2001 coming on top of a £107m deficit last year.

The decommissioning and clean-up operation has not fared much better. There has been a loss of £66m this year, following one of £89m last year.

While the long-term prospects for decommissioning are immense, it is unlikely to be a big contributor to the corporate bottom line for several years, after the company’s unhappy experience in the US over the last three years. There, poor project valuation and pricing on two multi-billion dollar government contracts led to their cancellation and a £139m provision in 1999/2000.

The fortunes of the spent fuel and engineering division hinge on the Moxproject – and there is a risk that if the SMP runs into more delays or legal challenges, BNFL’s customers will lose confidence and melt away. It is easy to understand Askew’s acute frustration.

Sidebar: The attractions of MOX

Mox fuel is made from a mixture of uranium and plutonium oxides. All civil reactors produce plutonium as the irradiation process converts non-fissile uranium-238 – which makes up more than 90% of uranium fuel – into plutonium-239, the prime material for nuclear weapons.

Plutonium has much greater energy potential than uranium. But the limitations of the gas and water coolants in conventional nuclear reactors mean that no more than 10% of Mox fuel can be plutonium, and the usual proportion is 5-7%.

The manufacture of Mox in the UK began in the early 1960s as a potential fuel for gas-cooled and light water reactors, but its first real use was in the abandoned experimental fast-reactor programme during the 1970s and 1980s.

British Nuclear Fuels began producing Mox for conventional reactors in the early 1990s. The first stage of the operation was the construction of the Mox Demonstration Facility at Sellafield. This had an annual capacity of 10-12 tonnes and began operation in 1993.

That year, the company announced its intention to build the commercial-scale Sellafield Mox Plant, which would be capable of producing up to 120 tonnes of the fuel a year.

One of the original reasons for developing Mox was concern that depletion of sources of uranium would drive up its price. This has not happened, and Mox is probably at least 25% more expensive than fuel made from enriched uranium.

However, it is now seen as a valuable means of getting rid of the still accumulating stocks of plutonium, which cost several million pounds annually per tonne to store and remain a huge security headache.

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