THE SALE OF THE GOVERNMENT'S INTEREST IN BRITISH ENERGY
Publication of the Committee's 22nd Report, Session 2009-10
Edward Leigh MP, Chairman of the Committee of Public Accounts, today said:
"The Department of Energy and Climate Change has no guarantee that EDF, the company to whom it sold its stake in British Energy, will build new nuclear power stations without public subsidy. Given that there is a clear risk that EDF will not build them, with or without such subsidy, the Department needs to say sooner rather than later how the country's increasing energy demands would be met under those circumstances.
"It is of concern, to say the least, that the Department does not know how much nuclear generating capacity will be needed to meet our future energy needs. This Committee is not convinced by the Department's reliance on the market and a rapid acceleration in renewable energy to fill any gaps in future energy supplies.
"This highlights a systemic weakness in the approach of the Department and the Shareholder Executive to monitoring and managing risk. When selling strategically important assets, like its stake in British Energy, the Department should carry out systematic and timely assessments of risk - particularly where residual, and serious, liabilities might fall to the public purse."
Mr Leigh was speaking as the Committee published its 22nd Report of this Session. The Committee had taken evidence from the Department of Energy and Climate Change (the Department), which was responsible for the sale objectives, and the Shareholder Executive. The Shareholder Executive works with departments to improve the Government's capabilities and performance as a shareholder, and managed the sale of the Government's interest on the Department's behalf.
In January 2009, the Government sold its 36% interest in British Energy, as part of EDF's purchase of the Company. The sale had potentially important implications for future energy security as British Energy, though not financially strong enough to invest in new nuclear power stations itself, owned land viewed by industry as being in the most suitable places for them. The Government had identified new nuclear power stations as having an important contribution to make to future energy security when existing power stations close and it therefore wanted to open up British Energy's sites to a new owner.
The Department's primary objective was to ensure nuclear operators would be able to build and operate new nuclear power stations with no public subsidy. The Department did not, however, secure a binding commitment from EDF to build new nuclear power stations. It also failed to establish whether EDF had previously built any new nuclear power stations without public subsidy. A number of factors, including planning decisions, could result in EDF abandoning its plans to build new nuclear powers stations, with or without public subsidy.
This Committee is not convinced the Department's reliance on a rapid acceleration in renewable energy to fill any gaps in future energy supplies is adequate, but note the Department is working with the Treasury to determine whether the current configuration of the United Kingdom's energy market is fit for purpose for the longer term.
The Shareholder Executive hired investment bankers UBS at a cost of £4 million, equivalent to a monthly payment of around £400,000, to advise on sale tactics, assist with negotiations and provide valuations of British Energy. We consider it unacceptable that the Shareholder Executive considered it necessary to spend so much on external advice when it is supposed to possess expertise in these areas. Its explanation of why this was necessary was unconvincing, and we are particularly concerned that it agreed to pay UBS a success fee when UBS had significantly under-estimated what EDF was willing to pay for British Energy. The Government was, however, fortunate in selling its interest in British Energy when energy prices were at a peak, and this was reflected in the price.
The £4.4 billion sale proceeds were allocated to the Nuclear Liabilities Fund, to put towards the future cost of decommissioning British Energy's existing power stations. As required by the Treasury, proceeds were invested in the National Loans Fund, which carries a lower risk of capital losses compared to equity investments but, in the longer term, may offer lower returns. This could affect the ability of the Fund to cover British Energy's liabilities. We found, just as the Committee concluded in its three previous reports on British Energy, that there are still weaknesses in the monitoring and management of the risks relating to these liabilities.