UK: Nuclear Decommissioning – Challenges Facing The NDA

Last Updated: 30 September 2005
Article by Mark Richards and Rebecca Harvey

On 11 August 2005, the Nuclear Decommissioning Authority ("NDA") published its first draft strategy for consultation (the "Draft Strategy"). The Draft Strategy outlines an ambitious programme for the decommissioning and clean up of the UK's civil nuclear sites, but one which faces considerable challenges.

The NDA came into operation in the UK on 01 April 2005. A non-departmental public body, established by the Energy Act 2004 to manage the UK's nuclear legacy, it has taken over responsibility for the operation, decommissioning and clean up of the UK's 20 civil nuclear sites.

In the months leading up to 01 April 2005 and subsequently there has been a significant rise in major commercial / corporate activity as those who want to participate in the UK nuclear decommissioning market position themselves. To cite just a few examples: the establishment of the British Nuclear Group (BNG) by BNFL; UKAEA tendering for partners to form an alliance to bid for the site management and operations contracts with the NDA (the "Tier 1" contracts as well as for partners at other levels of the supply chain; the acquisition by Amec of NNC; the proposed sale of Westinghouse; and clear indications from a number of major international suppliers and contractors of their interest and commitment.

Such activity is perhaps unremarkable against the backdrop of a marketplace where the estimated cost of the clean up of UK sites has already increased from an initial £48 billion to £56 billion. By its own admission, the NDA does not yet fully understand the scale of operations required to deal with the high hazard legacy facilities at Sellafield and Dounreay (its number one decommissioning priorities). Once the full extent and nature of those tasks are appreciated, the estimated cost will surely increase yet further.

The Draft Strategy

The Draft Strategy, published for consultation on 11 August 2005, addresses decommissioning, waste management, operations, competition and contracting, finance and socio-economic conditions. The consultation period expires on 11 November 2005. The NDA Board meets to approve the final Strategy on 15 December 2005, before submitting it to the Secretary of State and the Scottish Ministers on 23 December 2005.

Perhaps the first, and rather obvious observation to make is that the period between 11 November and 15 December does not allow much time for the NDA to digest and discuss the responses it receives on its Draft Strategy.

The first challenge – creating a commercial climate for effective competition

Having excited the market, the NDA now has to deliver on its statutory duties and none more so than the promotion of effective competition for contracts.

The contracts which are to be competed by the NDA are the Tier 1, site management and operations contracts. Bidders will compete for the right to become the parent company of the "Site Licensee Company" (i.e. the licence holder at each site, all of which are currently owned by BNG or UKAEA) (the "SLCs") and thereby to take over the management of the SLC and the operation of the relevant site.

In its short life to date the limitations of the financial arrangements which underpin the ability of the NDA to operate effectively have already become apparent. It is seemingly bound by a straightjacket, the ties of which comprise:

  • the unattractiveness of prospective multi £million unsecured bid costs for Tier 1 contracts to manage and operate the SLCs for short term contracts of circa five years for a fee of 4% if the performance indicators are met;
  • a contract structure that provides little financial security for the supply chain who are therefore unlikely to accept the flow-down of significant financial risk from the SLCs;
  • the ability of the Tier 1 contractors to manage the SLCs is rightly subject to the requirements of the regulators but now also by the desire of the NDA to micro-manage certain processes (see, for example, CT15 – Sub-Contracting/Procurement), but where NDA are significantly short of resources to do so; and
  • uncertainty over the income stream of the NDA.

The NDA is funded from three sources: (1) Government, (2) commercial activities and (3) funds equivalent to those transferred from BNFL's Nuclear Liabilities Investment Portfolio (NLIP). In the current year (2005/06) the total funding is £2.262 billion of which the amounts are respectively £503 million, £675 million and £1084 million.1 It is envisaged by the Draft Strategy that the funding will remain at around £2 billion per annum until 2008. However, the limitations of the funding arrangements are increasingly clear including:

  • the uncertainty over the future of the Thermal Oxide Reprocessing Plant (THORP) and the Mox (Mixed Oxide) Plant at Sellafield have significant impacts on income from commercial activities;
  • that income is vulnerable to unplanned outages;
  • funding is annually approved by the Secretary of State, making long term financial commitments difficult in a market where the achievement of value for money and the technical complexity of much of the work often demands the letting of long term high value contracts;
  • the European Commission's state aid investigation has restricted the sources of funds available to the NDA for work to be carried out on former BNFL sites to those raised from commercial activities and the sums equivalent to the NLIP. If the outcome of the investigation is unfavourable to the NDA, it has no published plan to address the situation; and
  • the likelihood of a further increase to the estimated £56 billion clean up costs, as the full scale of the NDA's task becomes clear coupled with the proposed accelerated programme for decommissioning and clean up, means that the level of Government funding must increase significantly.

Although permitted in certain circumstances by the Energy Act, it is unlikely that borrowing will provide any long term solution to the NDA funding challenges and there is no mention of any such intention in the Draft Strategy. Instead, the NDA has indicated that it intends to look for alternative ways of funding the decommissioning and clean up programme and has highlighted the UK Government Private Finance Initiative (PFI) as a possible route.

In any PFI arrangement it will be the contractor, and not the NDA, who will be the borrower, probably through a special purpose vehicle company. On the current contract structure it will be the SLC who is the procuring authority. However, the only assets of the SLC are its contract with the NDA, its employees and its insurances. In the circumstances, it is hard to see how project finance would be forthcoming without central government guarantees.

As well as concerns about cashflows and the strength of the covenant, funders will look at three categories of risk: technical, political and commercial. In the context of work on nuclear licensed sites, non-nuclear risks may be more highly rated by funders so that funders will be looking for higher cover ratios than either for traditional independent power plant deals or PFI projects.

The second challenge - liability for third party nuclear damage

It is important to recognise that the nuclear decommissioning marketplace is an international one for contractors, consultants and suppliers. Potential bidders will only engage with such programmes if they are satisfied as to the arrangements relating to liability for third party nuclear damage. In Europe, such arrangements are largely provided by the incorporation of international conventions into national legislation.

The UK is a signatory to the Paris Convention, which is incorporated into the law of England and Wales through the Nuclear Installations Act 1965 (as amended) ("the Act"). The overriding principle of the Paris Convention and the Act is what is known as the "channelisation" of liability to the licensed operator of a nuclear licensed site: only the operator can be liable (subject to three exceptions) in respect of nuclear damage to property or injury to persons.

The exceptions are, in general terms:

  • nuclear damage which results from an act of war;
  • nuclear damage which results from an act committed with the intention of causing harm or with reckless disregard for the consequences; and
  • nuclear damage to the operator's (the licensee's) own property.

The operator's own property is deemed for the purposes of the Act to include any property which is on site for use in connection with the operation or cessation of operation or the construction of a nuclear installation.

The Act creates an immunity in respect of any nuclear damage to any nuclear installation and/or any other property which is on the licensed site for use in connection with a nuclear installation, unless the person who has caused the damage has entered into a written agreement accepting liability for such damage or causes such damage intentionally.

Unfortunately, in the 'flow down' terms which the NDA has required the SLC to impose on its contractors and contractors of any tier, there are deficiencies. In particular, the terms fail properly to reflect the provisions of the Act, do not provide a sufficient written agreement whereby the SLC agrees to accept a liability for nuclear damage to property on site and also potentially exposes a contractor to third party claims for nuclear damage from the NDA under the Contract (Rights of Third Parties) Act 1999. The NDA needs to address these deficiencies.

The third challenge – skills shortage

The decline of skilled recruits within the nuclear industry is well recognised. Many within the industry were relieved that the NDA had, ostensibly as one of its duties, the obligation to ensure the maintenance and development of a skilled workforce. The NDA recognises that there is likely to be a skills shortage in the next 3-5 years.

However, what is not clear from the Energy Act and even more so since the publication of the Draft Strategy, is not only how far the NDA is obliged to go to address the issue, but exactly how it intends to do so.

The Energy Act provides that the NDA can educate and train persons in the decommissioning of nuclear installations, the clean-up of nuclear sites and any other activities in relation to which it has functions. Although "other activities in relation to which it has functions" would include the NDA's operational functions, the obligation on the NDA to provide this education and training is only "to the extent that it considers it appropriate to do so." In other words, the Draft Strategy was the opportunity to address this, but it is silent on the issue.

Nothing in the Energy Act actually obligates the NDA to develop a skilled workforce for the continued operation of designated nuclear installations or facilities for treating, storage and disposal of hazardous material.

This poses a number of questions. Why is the NDA not under an obligation to ensure the maintenance and development of a skilled workforce in respect of the continued operation of the facilities the NDA has responsibility for? How does the NDA propose to ensure the maintenance and development of a skilled workforce? What budget has the NDA for performing its somewhat limited obligation?

The NDA has stated that it intends to work closely with others tasked with improving the situation, such as Cogent (the Sector Skills Council) and will support initiatives such as the Nuclear Institute, a National Nuclear Skills Academy and Young Foresight .

However, it does not appear that the NDA itself intends to take any action, other than relying on new or pre-existing initiatives to fulfil its obligations. Whist these initiatives may have a long term impact on the skill-base, it seems unlikely that they will have any significant impact over the next 3-5 years. The Nuclear Institute will take its first intake of students this year for MRes, MPhil, PhD & EngD courses later this year. The National Nuclear Skills Academy has not yet been established and Young Foresight, which has yet to develop a nuclear programme, is primarily aimed at 13 to 14 year olds.

The NDA has allocated £25 million over the next 5 years to support these initiatives, but the Draft Strategy does not make clear how this money will be allocated.

The fourth challenge – tackling long term waste management

One of the criticisms of the Draft Strategy is that much of it is dependent on decisions first being reached or action being taken by other bodies (notably the Government). For example, the strategy for management of nuclear fuels depends largely on the Government making a decision on nuclear new build in the UK.

One of the most ambitious targets of the Draft Strategy is the reduction of the Magnox decommissioning programme: the NDA aims to have all 11 Magnox reactor sites cleared and available for alternative uses within 25 years. This is a significant acceleration of the current proposed 125 year programmes.

Acceleration of the Magnox decommissioning is, however, dependent on finding a long term solution to storage of the intermediate level waste ("ILW") from the Magnox sites, or at least an alternative interim storage solution to the current method of storing the waste in facilities on each reactor site.

The NDA has made a clear link between the need for the Government to make an early decision on the CoRWM recommendations (due in July next year) and the benefits of early clearance of the Magnox stations and provision of long term ILW arrangements.

Conclusion

The NDA is facing some tough commercial challenges. High bid costs, short term contracts and low margins may undermine effective competition. The Draft Strategy is too contingently dependent on decisions and actions from parties outside the control of the NDA. It is also long on expenditure plans and short on income plans, including the financial and contractual security for long-term contracts. Interested bodies are busy preparing their responses to the Draft Strategy. It remains to be seen whether the NDA has allowed itself sufficient time to assimilate them.

Mark Richards is a partner with law firm Pinsent Masons and the Co-Chairman of the Nuclear Industries Association Legal / Commercial Issues Working Group.

Rebecca Harvey is an Associate with Pinsent Masons.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.