Sellafield: too big to be private

As Davey confirmed that Nuclear Management Partners (NMP), a consortium of Amec Foster Wheeler, Areva and Aecom-owned URS, was to be stripped of its role running the decommissioning of Sellafield, he said the following:

“It is now clear that Sellafield’s complexity and technical uncertainties present significantly greater challenges than other Nuclear Decommissioning Authority (NDA) sites, and it is therefore less well suited to the transfer of full site-wide responsibility to the private sector.”

There are some infrastructure projects so big, so complex, and of such national strategic importance that they cannot be managed effectively by the private sector

Davey said ultimate ownership of the Sellafield clean-up needed to be held by the publicly-owned NDA, with the private sector playing an advisory role as a programme partner, instead of owner (since 2008 NMP has held the role of Parent Body Organisation (PBO), effectively owning Sellafield).

He said this public-ownership model had proven successful on other major infrastructure projects such as construction of the London 2012 Olympics and London’s Crossrail.

He was effectively saying that there are some infrastructure projects so big, so complex, and of such national strategic importance that they cannot be managed effectively by the private sector. Ultimate decisions on these projects must be made a body that will put public interest ahead of that of its shareholders.

Whether he is correct in his judgement is debatable: the overwhelming majority of nuclear engineering expertise in this country lies in the private sector, and given the deep complexity of Sellafield, little progress could be made without a private sector advisor (which is why NMP is remaining in its role for the next 12-15 months until a programme partner can be appointed by the NDA).

Indeed, the government said it was happy for the private ownership PBO model to continue at other nuclear decommissioning sites such as Dounreay.

And at Sellafield itself, NMP claimed it had achieved savings of over £250 million.

The cynic in me would suggest this move is politically motivated: ever since the Public Accounts Committee (PAC) report last year detailed huge cost increases and delays on a glut of projects at the site, the government and NDA have been under pressure to do something to arrest Sellefield’s decline into a black hole for public finances.

Sacking the management team and allowing them to be vilified in the tabloid press as “greedy profit chasing private companies” suits the politicians, as it deflects blame from them.

However, the optimist in me would regard this as a sensible move, one which ultimately comes down to the transfer of risk.

By taking on the risk, government can still procure the private sector expertise it needs, but at a fraction of the cost

Last year’s PAC report claimed NMP’s cost equated to £300,000 per employee. This sounds a lot, but given the deep complexity of the Sellafield site and the fact that NMP as PBO was essentially taking all of the responsibility (and therefore risk) for this, it is unsurprising that their fees were astronomical.

Let’s not be coy about this: having already cost £67.5 billion and with annual costs ranging between £1.6 billion and £3 billion, the risks involved in decommisioning Sellafield easily have the capacity to financially ruin these companies, and so they were paid commensurate with this risk.

Transferring risk from a handful of private companies back into one of the world’s richest nations, which can easily absorb this risk, makes a lot of sense.

By taking on the risk, government can still procure the private sector expertise it needs, but at a fraction of the cost that it procured it under the PBO model.

The only question is, how long will it persist with the misguided PBO ownership model at the rest of its nuclear decommissioning sites?