British Nuclear Fuels Ltd. (Hansard, 13 July 1999)

§ Mr. Byers

I am now in a position to make a statement about the future of BNFL.

On 11 November 1998, Official Report, column 222, my hon. Friend the Minister for Energy and Industry announced that KPMG were carrying out an initial review of the options for BNFL's future structure including, but not restricted to, some form of Public Private Partnership (PPP).

BNFL is pursuing an ambitious strategy designed to achieve global market leadership in nuclear business. Its objective should be to grow and flourish in a fast-growing global market by exploiting the benefits of its unique expertise in nuclear clean-up and decommissioning. The acquisition of Westinghouse and winning the opportunity to take part in two major nuclear waste clean-up contracts in the United States at the US Department of Energy's 159W Hanford site in Washington and at the Idaho National Engineering and Environmental Laboratory are an integral part of this strategy.

I have now considered KPMG's report and the subsequent work which my Department asked KPMG to undertake. The report states that the need for Government to approve these major transactions has thrown into sharp relief the difficulties which it can face in judging major commercial transactions of this nature. I agree with this analysis.

It is clear from KPMG's work that a public-private partnership, involving a partial transfer of BNFL to the private sector, possibly by a flotation of part of the equity of the company, would be the best way of injecting private sector expertise and entrepreneurial spirit, while holding to the Government's priorities of rigorous safety, health and environmental standards.

I have therefore decided that, in principle, a PPP would be good for the company, the employees, the taxpayer, and the wider community. Accordingly, I am asking my officials to tender for advisers to provide advice on a PPP for BNFL. Our current working assumption is that a PPP would involve BNFL as a whole. The KPMG report noted that there would be major operational and regulatory obstacles in separating the businesses and that such an approach would run counter to BNFL's vision as an integrated nuclear services provider. Existing legislation provides for the sale of up to 49 per cent. of the business.

Before a PPP is introduced into the business, I want to see BNFL achieve improved safety and environmental standards and I must be sure that the taxpayer will get proper value for money, reflecting the company's commercial performance.

I have therefore decided to take an innovative approach, which will set this PPP apart from the privatisations of the previous Administration, and which will focus on BNFL achieving improved safety and environmental standards, sustained and progressive improvement in its commercial performance, and a constructive partnership between management and workforce in developing the skills and capabilities of all those who work in the business. To this end, the Government will, together with the company, explore the scope for developing an employee partnership scheme, with the aim of ensuring that the employees share in the future success of the business, and that they are rewarded for their part in the progress the company makes towards achieving a successful PPP.

In considering my approach to this PPP, I have taken careful consideration of the recent work and advice of the National Audit Office, the Public Accounts Committee and the Trade and Industry Committee about the lessons to be learned from past Government share offerings to enable the taxpayer to receive due value from the introduction of private capital, reflecting the company's performance and potential for future earnings.

I have therefore set BNFL a number of specific performance targets.

The targets relating to safety and the environment are being developed with the Health and Safety Executive and the Environment Agencies.

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Both BNFL and I attach great importance to the health of the company's workforce and to its safety. No less important is care for the environment and the need for BNFL to strive towards continuous improvement in this area with the aim of bringing work practices, culture and performance into line with world-class international standards.

The company will therefore build on its recent record in safety, health and environmental performance by aiming at continuous and measurable improvement in these areas against a new and challenging index, based on best practice and developed in consultation with the Health and Safety Executive and the Environment Agencies.

The new index will reinforce the efforts the company are making to achieve this sustained improvement in achievement in their record on safety, health and environmental protection.

The company, and all the trade unions representing the workforce, will build on their recent success in developing the concept of partnership. This has led to proposals for a new single contract which will enhance skill levels, introduce new competencies and create a flexible mobile workforce generating high value employment opportunities in the communities where BNFL operates. Under the existing Partnership Council involving union representatives, it is intended to monitor progress in implementing the new contract, including measuring targeted improvements in skill enhancement and productivity levels. The company and the unions are agreed that the introduction of a PPP into BNFL could help create a climate in which initiatives to improve productivity would be encouraged and which would underpin and enhance recent progress in establishing a partnership approach within the company. The company will also aim to achieve improvements in productivity as expressed in sales per unit of cost.

The company will seek to enhance its financial performance further through material and progressive growth in the profits generated from ordinary activities. It will also aim to increase the overall contribution made by its US business to BNFL profits, and increase towards 15 per cent. the proportion of BNFL profits derived from the US business. BNFL's progress in winning an increasing share of the US clean-up business will help contribute towards this goal.

In 1997 BNFL set itself the target of achieving cumulative reductions in controllable costs of 25 per cent. by March 2001. This remains the aim: thus far BNFL has achieved reductions in controllable costs of some 14 per cent.

The company has established a Liabilities Management Unit to reinforce the strategic management of its liabilities and will, without compromising safety and consistent with the regulatory framework within which it operates, seek to identify ways to manage them more efficiently and effectively through the development of new techniques, skills and strategies.

The company will also continue to sustain a Research and Technology capability which will contribute to the company's overall business performance and enable it to continue to meet high standards of safety and environmental protection.

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These targets reflect the company's commitment to high standards of safety, health and the environment; they focus on the key drivers of value in the business; and they acknowledge the importance of developing the skills of the workforce and of productivity gains. Each target is backed up by an understanding between my Department and the company of how it will be measured, the precise details of which must, for obvious reasons, remain commercially confidential. They form a balanced scorecard of stretching targets which provide BNFL—both management and the workforce—with the opportunity to demonstrate that the company can realise its full potential, in line with its "Beyond 2000" Strategy.

The Government will look to introduce a PPP into BNFL before the end of the current Parliament, subject to BNFL's overall progress towards achieving these targets, as well as the further work which will now be undertaken by my Department and its advisers.

I am arranging for a summary of the key points in the KPMG report to be placed in the Libraries of both Houses.