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Department for Environment, Food & Rural Affairs

Sellafield MOX Plant
Decision of the Secretaries of State

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ANNEX 1

RE. BNFL'S MOX PLANT AT ITS SITE IN SELLAFIELD, CUMBRIA

JUSTIFICATION FOR THE MANUFACTURE OF MOX FUEL

Summary of the main issues raised by interested organisations and individuals and the Secretaries of State's views on those issues

Contents

1. In November 1996, British Nuclear Fuels plc ("BNFL") applied under the Radioactive Substances Act 1993 for variations to the gaseous and liquid discharge authorisations for its Sellafield site in Cumbria. That application contained information on the Sellafield Mixed Oxide (MOX) Plant ("the SMP") and as a result of this the Environment Agency ("the Agency") asked BNFL to provide information on the SMP in a separate package. This was provided by BNFL in January 1997.

2. Five public consultation exercises have been carried out since BNFL provided the information in January 1997. The Agency carried out a first round of public consultations in early 1997 and a second round in early 1998. The Government carried out its first round of public consultations in June 1999, a second round in March 2001 and final round in July 2001. This last round of public consultations closed on 24 August. However, any subsequent comments which arrived in time to be considered have been taken into account. In addition to the three rounds of public consultations carried out by Government, interested parties have taken other opportunities to send their views.

3. All comments which have been received have been considered and all relevant issues which have been raised have been taken into account by the Secretary for State for Environment, Food and Rural Affairs and the Secretary of State for Health ("the Secretaries of State" or "the Ministers") in reaching a decision.

4. Over 9,000 responses have been received in total, including responses to the two consultations carried out by the Agency. Approximately 7,000 responses were in favour of the SMP and approximately 2,000 were against.

5. This Annex sets out a summary of the main issues raised since1997, including issues raised in the responses to the five consultation exercises. This Annex also sets out the conclusions of the Secretaries of State in respect of these issues.

Environmental issues

6. Issues raised. Several respondents expressed concern that the manufacture of MOX fuel would lead to greater emission of radioactive discharges and greater accumulation of wastes and that this would endanger the environment and public health of, for example, fishermen in Ireland or Norway or consumers of seafood. Some other respondents said that these risks were negligible. Some respondents said that the Government should devise a long-term strategy for managing radioactive waste before reaching a decision on the SMP.

7. Ministers' views. The Agency considered radiological detriments in drawing up its proposed decision on the justification for the plutonium commissioning and full operation of the SMP. The conclusion it reached in respect of radiological hazards to members of the public who might be exposed to discharges from the SMP was that the radiation doses would be extremely small and would have negligible radiological significance.

8. The radiation dose from the SMP to the most exposed group among the general public is estimated at 0.002 microsieverts ("microSv") per year for gaseous discharges and at 0.00003 microSv per year for liquid discharges. The higher dose from annual discharges is about one-millionth of the aerial dose from natural background radiation (e.g. radon and cosmic rays) of 2000 microSv received by average members of the UK population. A dose of 0.002 microSv per year represents an estimated annual risk of one person in 10,000,000,000 contracting a fatal cancer. The Health & Safety Executive ("the HSE") and the National Radiological Protection Board have set an annual risk of death of 1 in 100,000 as the maximum radiation risk to be tolerated in a single nuclear plant.

9. With regard to the impact on wildlife from discharges from the SMP, the management of waste generated from operation of the SMP, the operation of the plant itself and the transportation of MOX fuel, the Agency concluded that the radiological detriments associated with each of these activities would be small and would have a negligible effect on wildlife.

10. The Agency concluded that radioactive discharges to the air from the SMP would contribute less than 1% to the total discharges to the air from the Sellafield site. Annual discharges from the SMP are estimated to be 0.0566 Gigabecquerels ("GBq") of plutonium-241 ("Pu-241"), 0.00268 GBq of plutonium alpha ("Pu alpha") and 0.000512 GBq of americium-241 ("Am-241"). With regard to liquid radioactive discharges from the SMP, the Agency concluded that these will contribute less than 0.0001% to the total annual liquid radioactive discharges from the Sellafield site of these radionuclides. Annual discharges from the SMP are estimated to be 0.0113 GBq of Pu-241, 0. 00534 GBq of Pu alpha and 0.000102 GBq of Am-241.

11. The Agency is currently carrying out a review of radioactive discharges from the Sellafield site as a whole and has recently published a consultation document in which it proposes a reduction in the total discharge limits for the site. For discharges to the air, it is consulting on the basis of reducing the annual limit for the THORP stack - which would include discharges from the SMP. Therefore, the maximum permitted discharges to air from the THORP stack - and from the Sellafield site as a whole - would be significantly lower even with the SMP in operation. The liquid discharge limits for the Sellafield site as a whole for these radionuclides would be the same (or in the case of Pu-241, slightly lower).

12. The Agency concluded that the gaseous, liquid and solid wastes which would arise from the operation of the SMP where the plutonium used is that separated in THORP and owned by foreign customerscould be disposed of within the constraints of the existing Sellafield authorisations - in other words, that the total discharge limits for the Sellafield site as a whole would not need to be increased as a result of operating the SMP. The Agency and the Secretaries of State are satisfied that the SMP can be operated in accordance with the restrictive limits provided for in the existing Sellafield discharge authorisations and that these limits will effectively protect human health, the safety of the food chain and the environment generally.

13. The Agency calculated that the total volume of plutonium-contaminated solid waste arising from the SMP would be around 120 cubic metres per year - or, to put it another way, around 2% by volume of the total plutonium-contaminated solid waste then stored at the Sellafield site. The Government published on the 12 September a consultation paper on a long-term strategy for managing radioactive wastes. However, in the meantime, the Government is satisfied that this type of waste can be safely stored for many years in conditions tightly regulated by the HSE and the Agency.

14. Under Article 37 of the Euratom Treaty 1957, the Government made available to the European Commission a submission on the plans for the disposal of radioactive waste in any form arising from the SMP. The Commission is of the opinion that the implementation of the plan for disposal, both in normal operation and in the event of an accident of the magnitude considered in the general data, is not liable to result in radioactive contamination, significant from the point of view of health, of the water, soil or airspace of another Member State.

Health and safety issues

15. Issues raised. Some people expressed concerns about the risks to people's health and safety from the manufacture of MOX fuel, including the risks to the workers of the SMP who would be subject to higher doses of radiation at the SMP than elsewhere at the Sellafield site. Several mentioned the risk of nuclear accidents, some mentioned past incidents and prosecutions relating to safety or environmental controls on BNFL and some predicted a rise in cancers. Some considered that the use of MOX in reactors poses a greater risk of accidents than the use of uranium because it introduces new accident initiators and pathways and because there is a greater activity of actinides being released from MOX-fuelled reactors. Some were concerned that an accident from a MOX-fuelled reactor or from the SMP (such as a hydrogen explosion in the sinter furnace) could be very severe. Others said that spent MOX fuel was more hazardous than similar waste arising from uranium oxide fuel. Some said that BNFL had yet to meet the HSE's recommendations following the data falsification incident at its MOX Demonstration Facility ("MDF"). Some people said that the health and safety risks were negligible.

16. Ministers' views. The HSE estimates that the radiological risk to workers at the SMP (between 3.2 and 4.4 millisieverts per year) will be higher than for the Sellafield site as a whole (1 millisievert per year), but that these risks will be as low as reasonably practicable ("ALARP"). ALARP is a level at which the HSE believes that a risk is acceptable and can be reduced only at disproportionate cost. These doses are well within HSE's Basic Safety Limit of 10 millisieverts per year, as expressed in its Nuclear Installations Inspectorate's Safety Assessment Principles.

17. The HSE has considered the other potential risks at the SMP and has concluded that the design and construction of the SMP are appropriate. BNFL will have to obtain the HSE's approval before it can begin plutonium commissioning of the SMP; this is a requirement in the Sellafield nuclear site licence. If BNFL receives that approval, it would then have to comply with any conditions or restrictions which might be imposed then or later by the HSE or the Agency relating to minimising risks to health and safety and to the environment.

18. It is for nuclear utilities - in Japan and elsewhere - to decide whether they want to make or buy MOX fuel, to consider how the properties of unirradiated or spent MOX fuel will differ from those of other nuclear fuel, and to consider the costs of, and arrangements for, management of the spent MOX fuel including the option of disposal. It is also up to those nuclear utilities to obtain any necessary agreements or consents needed from their respective Governments or regulatory bodies for the use of MOX fuel in their reactors. Several hundred tonnes of MOX fuel have been used over 25 years in many countries, including in Japan and in Europe.

19. With regard to the claim that spent MOX fuel is more hazardous than other spent fuel, the Agency concluded that radioactive wastes arising from the reprocessing of spent MOX fuel would not present significantly greater management problems than those of radioactive wastes arising from spent uranium fuel.

20. ADL has spoken to the relevant UK regulatory bodies and has concluded that BNFL can be expected to meet all of the HSE's recommendations relating to the MDF data falsification incident and to the management of the whole Sellafield site. These recommendations were published in February 2000, and, in April 2000, BNFL published its response outlining the management and organisational changes it proposed to put into place at its Sellafield site. BNFL has implemented all the recommendations concerning the MDF and these have been "closed out" by HSE. HSE has indicated that BNFL is making satisfactory progress towards implementing those changes affecting the Sellafield site as a whole. Therefore, Ministers are satisfied that the site and the SMP can be operated safely.

Implications for plutonium and uranium

21. Issues raised. Some people said that it would be better and cheaper to treat spent fuel as a waste (e.g. by vitrifying it). Some said separated plutonium should be made into a lower-specification "MOX waste" rather than to turn it into MOX fuel - a process which they claim would itself increase the amount of plutonium waste being generated. Some said that operating the SMP would cause more plutonium to be produced than it removed and would add to the UK's plutonium stockpile. Some said that more research should be carried out into other ways of dealing with the plutonium stockpile, such as immobilising it as a form of waste. It was suggested that customers might have preferred plutonium immobilisation if it had been offered as an alternative to MOX fuel. Some people said that operation of the SMP would enable more plutonium to be used up, and so reduce the total volume of separated plutonium as well as contributing to the recycling of used fuel to generate energy. Some said that using MOX fuel reduces the need for raw uranium.

22. Ministers' views. The SMP's customers have made it clear to ADL that they want their separated plutonium back as MOX fuel; they have said that they do not want it immobilised as a waste. Ministers have no reason to believe that customers would have been unaware of the work that has been undertaken to investigate plutonium immobilisation and that has been reported in the relevant literature. BNFL's economic case for the SMP will not increase the UK's plutonium stockpile. It is for UK owners of plutonium to decide whether to immobilise it or treat it in other ways and to seek any regulatory approvals which might be necessary for this. The Secretaries of State are required in this particular case to consider whether the manufacture of MOX fuel is justified; they are not required to consider whether the conversion of spent fuel into a form of waste or any other proposal which operators might make in the future are justified. Re-using separated plutonium as a fuel reduces the demand for raw uranium as a fresh fuel, thus reducing the environmental and safety risks associated with its mining, transportation and processing.

23. The manufacture of MOX fuel does not increase or reduce the total amount of plutonium in existence; it simply allows plutonium derived from spent fuel to be re-used. The use of MOX fuel in some reactors may actually reduce the total amount of plutonium in existence because some of the plutonium is burned up, while less plutonium is generated from a MOX-uranium oxide fuel mix than is generated using 100% uranium oxide fuel.

24. Ministers note that some of the plutonium fed into the SMP would emerge from the plant as plutonium-contaminated solid waste and that the company intends to provide an additional input of its own plutonium into the finished product sufficient to allow for this. This approach will ensure that an equivalent amount of customers' separated plutonium would be returned to them within the MOX fuel and that there is no increase in the amount of plutonium present in the UK. The Agency noted BNFL's proposal to substitute plutonium owned by the company for foreign customers' plutonium contained in waste and to retain this waste in the UK. Although the Agency did not have any objections to this from an environmental point of view, it queried whether the retention in the UK of the plutonium contaminated waste was considered when Government policy was framed. Ministers note that the retention in the UK of this waste was not considered when current Government policy on the management of radioactive waste was formulated (Cm 2919: Review of Radioactive Waste Management Policy, July 1995) but they take the view that there is no conflict with that policy.

Security issues

25. Issues raised. Several people were concerned that the operation of the SMP would increase the risk of nuclear proliferation - which they defined as the risk of nuclear materials getting into the hands of terrorists or rogue States. Some said that there was a risk of terrorist attack at the SMP or during the transportation or storage of nuclear materials, and that it would be relatively easy for a sophisticated terrorist group to make a powerful nuclear bomb using MOX fuel. Some felt that this risk would be lower if plutonium were immobilised in waste form. Some said that the manufacture of MOX fuel would have the opposite effect, by reducing these risks.

26. The terrorist attacks which took place in America on 11 September prompted some further representations to Ministers to the effect that the risk of such an attack on the SMP constituted grounds for refusing to allow the project to go ahead and that there should be no decision until a review has been completed of the adequacy of the current security arrangements.

27. Ministers' views. A large amount of plutonium has already been separated from foreign customers' spent fuel at THORP. The foreign customers referred to in BNFL's revised economic case have made it clear that they want their plutonium back in the form of MOX fuel. If the SMP does not operate, plutonium already separated at THORP would have to be transported back to customers or taken to a third country for manufacture into MOX fuel or for some other treatment. The shipping of MOX fuel (which is in the form of ceramic pellets), rather than that of separated plutonium (which is in the form of plutonium oxide powder), would have the effect of reducing the risks, such as the security threat, because MOX fuel is less attractive to potential terrorists and has safety advantages over separated plutonium during transport.

28. Security risks to nuclear and other installations are kept under review. The Office for Civil Nuclear Security ("OCNS"), which regulates security within the civil nuclear industry, has taken account of the terrorist attacks which took place in America on 11 September and continues to be satisfied that the security arrangements to be applied by BNFL will provide effective security once the SMP starts to operate. The operation of the SMP does not materially affect the availability of potential targets for hi-jacked aircraft. The SMP is one of many plants within a large industrial site, and has no special features which would single it out from others on the Sellafield site.

Transportation issues

29. Issues raised. Some respondents said that the transportation of radioactive materials posed risks to the environment or (see above) to security. Others said that the transportation of radioactive materials was safe. Some were concerned with the cost of transporting MOX, including the extent to which this might act as a disincentive to use of MOX fuel by Japanese customers. Some said that the transportation of MOX fuel would not be profitable, bearing in mind the cost BNFL was incurring in taking back MOX fuel from the Japanese utility, KEPCO, following the data falsification incident.

30. Ministers' views. BNFL's transportation of nuclear fuel - including that of spent fuel, separated plutonium and MOX fuel - complies with all UK and international regulatory requirements. These requirements are designed to minimise environmental, safety and security risks. MOX fuel is inherently safer to transport than separated plutonium. Firstly, it presents less environmental and safety risks when built into fuel assemblies. Secondly, the difficulty of extracting the plutonium from the assemblies, makes it less attractive to terrorists or others.

31. In over 30 years of transporting radioactive materials by all modes of transport, BNFL has had no case of radiological release. The OCNS has advised that the manufacture of MOX fuel and its transportation present negligible nuclear security or proliferation risks. This remains their view following the events of 11 September.

32. The transportation business is a separate company in which BNFL has a majority holding. The costs of transportation are therefore excluded from the consideration of the Reference Case's net present value ("NPV"). However, Ministers have considered whether transportation costs would act as a disincentive to the use of MOX fuel by Japanese customers and have concluded that, if the SMP did not operate, customers' separated plutonium would have to be transported back, either directly to the customers or taken to a third country for manufacture into MOX fuel or for some other treatment. Therefore, Ministers do not accept that transportation costs would constitute a significant disincentive to the use by Japanese utilities of MOX fuel manufactured from the plutonium in the spent fuel they have sent to Sellafield for reprocessing.

33. The cost of taking back the KEPCO fuel that was made at the MDF and which was subject to the data falsification incident is not part of the future costs of the SMP or of the transportation business, but rather a cost attributable to BNFL's main Sellafield business.

Wider nuclear issues

34. Issues raised. Several respondents said that the UK should increase energy efficiency and generate more energy from renewable sources (such as wind, wave and solar power), whereas the manufacture of MOX fuel could be a first step towards building more nuclear reactors in the UK. Some advocated an end to the reprocessing of spent nuclear fuel. Some said that the UK needed a plutonium strategy, or an energy policy, when taking a decision on the SMP. Some said that there was a need for more energy conservation. Others said that nuclear power helps to address energy demand and tackle environmental problems - for example, nuclear power generates no carbon dioxide and so helps reduce the UK's "greenhouse gas" emissions.

35. Ministers' views. Energy policy - including the role of nuclear energy and the use of plutonium - is primarily a matter for the Secretary of State for Trade and Industry. The Government is conducting a separate review of the UK's future energy needs and policies. The decision before the Secretaries of State for Health and for Environment, Food and Rural Affairs in this particular case is whether the manufacture of MOX fuel is justified. It is a matter of speculation whether any UK operator might use MOX at some point in the future, and, if so, whether this fuel would be used in an existing nuclear reactor or in a new one. Any proposals for new reactors would have to be subject to the usual planning and regulatory procedures and assessments and no existing reactor could be converted for MOX use without first obtaining regulatory approval from the HSE and the Agency.

36. Ministers are required to decide whether the manufacture of MOX fuel is justified, taking account of the economic benefits to be derived therefrom and, for that purpose, having regard to a forecast of MOX sales abroad. In considering whether the manufacture of MOX fuel is justified, Ministers have not found it necessary to determine points made about trends in the UK in the use of renewable forms of energy, improvements in energy conservation and the need for a UK plutonium strategy.

Issues affecting West Cumbria

37. Issues raised. Some respondents said that the operation of the SMP would provide a boost, in terms of skilled employment and prosperity, for a region which has suffered many job losses. Some disagreed. Some felt that the Sellafield site was bad for tourism. Some said that treating spent fuel as a waste would generate more productive employment at the Sellafield site or that the site as a whole should be put to other use, such as waste management.

38. Ministers' views. ADL has estimated that the operation of the SMP will support up to 480 jobs in total - 400 on the Sellafield site and the remainder in the local area. Ministers believe that there is always a degree of uncertainty in such estimates but they do not doubt that the SMP would support significant levels of employment in West Cumbria.

39. As for converting the use of the Sellafield site, this is a matter for its owners - provided they met all the relevant environmental, safety or other standards set by the Government or its regulatory bodies.

40. The effect of BNFL's overall Sellafield operations on tourism is generally outside Ministers' scope, though they note that the vast majority of responses from local people and businesses have been in favour of the SMP.

Economic issues - costs

41. Issues raised. Several people said that there was a substantial economic benefit in allowing the SMP to operate and some said that there would be significant costs if the plant were not allowed to operate. Some disagreed and said that "sunk costs" (e.g. the costs already incurred in building and preparing the SMP for operation, including the costs associated with the data falsification incident at the MDF and the costs of paying compensation to Japanese customers) should be taken into account in the Government's decision. Some questioned the scope or accuracy of ADL's quoted figure for sunk costs. Some said that the sunk costs represented a reason for letting the SMP go ahead.

42. Others expressed concern that the cost of decommissioning the SMP, the cost of managing wastes, potential environmental risks and public protests or any future regulatory costs (such as, complying with the OSPAR Convention on the Protection of the Marine Environment of the North-East Atlantic on Marine Pollution) could become a burden on the taxpayer. Some felt that ADL had incorrectly excluded business rates from the calculation of BNFL's costs. Some said that problems at THORP could affect the viability of the SMP, while others said that the build-up over time of americium in separated plutonium made it harder to turn this into MOX. Some said that successive consultants' reports showed the costs increasing while expected revenues were falling and that the trend in costs had not been properly analysed in the ADL report.

43. Ministers' views. ADL has concluded that there is a substantial economic benefit in allowing the SMP to operate and that there would be substantial costs if it were not allowed to operate. It has concluded that operation of the SMP would have a NPV of £216M when compared to the cost of the plant not going ahead. The consultants calculated the NPV of operating the SMP at £159M as compared to a loss of £58M if the plant did not operate. ADL has also concluded that not operating the SMP would be likely to result in the loss of some post-baseload orders for THORP and reduced economies of scale at the Sellafield site.

44. ADL's analysis includes the cost of the management of operational wastes, the cost of decommissioning the SMP, (including the cost of managing associated wastes), the cost of complying with current or forecasted environmental and other regulatory requirements, and a range of downside scenarios. ADL has taken a cautious approach and assumed lower throughput and higher decommissioning costs than did BNFL. ADL has also taken into account the possibility of delays or interruptions to the production of MOX. Even if there were problems at THORP, there is already many years' supply of separated plutonium at Sellafield. However, the analysis which has been undertaken cannot take account of hypothetical events, such as public protests or potential requirements that cannot be predicted with any degree of probability.

45. If the SMP were to operate in the next year or so, americium should not be a major problem since the short time delay between reprocessing and the manufacture of MOX would not have allowed the concentration of americium to build up significantly.

46. The costs of building and preparing the SMP for operation and the costs resulting from the data falsification incident which have already been incurred or are irrevocably committed have been treated as sunk costs because they will have been incurred regardless of whether the SMP operates or not. However, ADL included the costs associated with the decommissioning of the MDF (in both the Reference and Cancellation Cases) as the MDF forms an intrinsic part of the SMP business and the differences in decommissioning timing between the two cases will make a difference to the NPV.

47. Sunk costs were explicitly excluded from ADL's analysis. In assessing the economic issues and the NPV of operating the SMP, the Secretaries of State consider that it is appropriate and consistent with the justification test in the 1996 Directive to focus on the present circumstances, both on the costs of operating the SMP in the future and on the present assessments of available commercial opportunities. The Secretaries of State do not consider it appropriate to deduct BNFL's sunk costs from ADL's calculation of the NPV - which costs were themselves incurred at a time when a different assessment of commercial opportunities may have been made. For this reason, Ministers do not believe they need to comment on criticisms of the precise figure for sunk costs used by ADL in their report.

48. ADL has excluded business rates from the appraisals as these constitute transfers within Government and there is no overall national economic cost. Ministers concur with this view: although business rates are normally included in appraisals as part of the estimate of the opportunity cost of the land, in the case of the SMP there are no alternative commercial uses for these assets. They are sunk and thus all related costs are excluded.

49. Ministers have noted the comments made in respect of changes which have occurred since 1997 in the figures for costs but believe that their decision should have particular regard to the recent estimates provided in the ADL report.

Economic issues - revenues

50. Issues raised. Several respondents said that there is no market for MOX fuel. They have said in particular that there is a shortage of firm contracts and that MOX fuel is too expensive when compared to other fuels or options, such as dry storage of spent fuel or immobilisation of plutonium (e.g. in the form of a MOX type waste). Some said that, even if Japanese utilities wanted MOX fuel, public opposition in Japan would prevent or delay any contracts for the fuel far beyond the timescale assumed in the ADL report. Some said that there was only enough demand to keep the SMP operating for around 5 years. Some said that countries like Japan, France and Germany were seeking alternatives to nuclear power, that France was reconsidering the economics of reprocessing spent fuel, that the Swedish Government had not given approval for the import of MOX fuel, and that Swiss policy was likely to move away from the reprocessing of nuclear fuel abroad. Some said that there was no demand for MOX fuel in the UK and others that the ADL report presents conflicting views of the prospects of MOX business beyond that covered by the Reference Case.

51. Several people said that customers abroad do want to buy MOX fuel from BNFL and that increasing exports would benefit the UK as a whole. Some said that it was Japanese Government policy for MOX fuel to be used in Japanese reactors and that a refusal to let the SMP operate would simply help BNFL's competitors abroad. Some said that if a decision was not taken soon, the SMP would lose valuable customers and as a result the decision would go against the SMP whatever Ministers' intentions.

52. Ministers' views. ADL reported that 11% of BNFL's anticipated business was covered by contracts, 14% by heads of agreement and 74% by letters of intent/support. Eighty-eight percent of customers' plutonium is already at the Sellafield site and customers confirmed to ADL that they intend to go ahead with the full volume of MOX contracts. Japan still intends to operate 16-18 reactors using MOX fuel and ADL's assessment allows for a substantial delay in order to reflect the need for Japanese utilities and officials to address the concerns of the Japanese public. In Sweden, OKG has signed a binding contract for MOX fuel, reflecting its confidence of securing regulatory approval. German policy is that plutonium already separated from reprocessed fuel should be used as MOX fuel. And Switzerland has been using MOX fuel since the 1970s and is likely to follow this route for the rest of its plutonium separated via reprocessing. BNFL's case does not assume any sales to France or the UK. Customers will pay more for MOX than uranium or other ways of dealing with their spent fuel because this is the way they have chosen to deal with their plutonium.

53. Ministers recognise the uncertainty surrounding any further reprocessing contracts for BNFL. However, BNFL's economic case for the operation of the SMP relates mainly to spent fuel covered by THORP baseload reprocessing contracts. Much of the spent fuel has already arrived at THORP and customers have said they will send the rest there. ADL has estimated deliveries to customers over at least 10 years from 2002.

Arthur D Little's assessment

54. Issues raised. Some people said that ADL lacked competence, misunderstood key issues, did not interview the right people, did not substantiate key findings, did not consistently follow the HM Treasury Guidance on Appraisal and Evaluation in Central Government ("the Green Book") and made other errors in its report. Some said that, partly as a result of these errors, ADL took an optimistic view on key issues such as the SMP's ability to produce MOX fuel within customers' deadlines - for example, by failing to take into account delays in the supply of plutonium separated at THORP - and on the extent of demand from customers, particularly in Japan. Others said the Green Book was irrelevant since BNFL was a commercial operator.

55. Some said that BNFL's accounts list the SMP not as a sunk cost but as a tangible asset in the course of construction, that the "carrying value" of the SMP as shown in the accounts does not include all sunk costs and that even if the SMP were allowed to operate, much of the plant's carrying value would have to be written off because it exceeds its NPV.

56. Ministers' views. Ministers are satisfied that ADL carried out a thorough investigation and that its conclusions are valid. They believe ADL has acted properly in having regard to the guidance in the Green Book, which is about the principles of central government appraisal and evaluation, because the Government is BNFL's sole shareholder.

57. Ministers have considered the criticisms in some responses about the discount rate used in the ADL analysis. It has been suggested that the figure used for the cost of capital (i.e. 8%) is too low and that a rate which is more appropriate to the private sector should be used in the calculation of NPVs. Ministers have had regard to the Green Book which suggests 6% as the standard discount rate to be applied to public expenditure but proposes a figure of not less than 8% in situations where Government bodies are selling goods or services commercially. ADL describes 8% as the higher, and hence more prudent, of the discount rates generally used for public sector investment in their assessment of the BNFL economic case.

58. Ministers have also considered the criticisms of the use by ADL of the same discount rate in the treatment of SMP liabilities, such as decommissioning. Such comments as have been made have promoted a lower figure, but those comments are based on the setting up of an external segregated fund which would allow a low, long-run, risk-free discount rate to be used. There is no such segregated fund in existence and the creation of any such fund would require a legislative framework that does not currently exist. In relation to post operational costs, Ministers have noted that ADL has taken a more prudent approach than BNFL and has used a figure for decommissioning costs which is higher by £18M.

59. Ministers did not consider it appropriate for ADL to interview individual respondents who wished to express their views in respect of the SMP and are satisfied that ADL, in preparing its report, had regard to all the responses resulting from the consultation carried out in March this year.

60. The Foreign Office has recently confirmed that since ADL reported in June there has been no change in the assessment by the British Embassy in Tokyo of the prospects for MOX fuel in Japan.

61. Ministers do not believe that the criticisms they have received about BNFL's accounts should weigh heavily in their consideration of the justification test now before them. The accounts are audited annually and have been approved as a true and fair view of the state of affairs of the company. Ministers have passed on to the DTI and HM Treasury the criticisms they have received.

62. Ministers' general conclusions on ADL's treatment of sunk costs are dealt with above.

Trust

63. Issues raised. Some people expressed concern that BNFL employees had falsified data in 1999 and that the company could not be relied on in the future. Some felt that the Government could not be trusted either when it came to protecting public safety.

64. Ministers' views. Following the data falsification incident which occurred at the MDF in 1999, the HSE carried out a thorough investigation and concluded that the MOX fuel in respect of which some data had been falsified was safe to use. The HSE made extensive recommendations for improving health and safety at the Sellafield site and is now monitoring BNFL's progress towards meeting these. It is for the HSE and the Agency to enforce health and safety and environmental standards at the SMP and other nuclear facilities in the UK. It is for BNFL's commercial customers to satisfy themselves that BNFL's products meet their commercial requirements and it is for the regulators in the countries where the MOX fuel is used to ensure that it complies with all necessary regulatory standards. The Secretaries of State are satisfied that the appropriate regulatory systems are in place in the UK.

65. Ministers are answerable to Parliament in respect of their record in protecting safety and the environment.

International and other issues

66. Issues raised. Some said that a decision to use MOX fuel could damage relations with countries abroad. Others said that the operation of the SMP would help the UK to keep an internationally prominent profile in an advanced technology sector. Some asked whether a decision to allow full commissioning of the SMP would be compatible with the principle of sustainable development. Some people simply said that they were opposed to or in favour of MOX fuel; some of the opponents of MOX fuel lived abroad, for example in Japan.

67. Ministers' views. Ministers give a high priority to maintaining friendly relations with other countries. It is for the customers in those countries to decide whether to buy MOX fuel from BNFL and for their regulators to decide whether to approve its use.

68. Sustainable development - that is, development that meets today's needs without compromising the ability of future generations to meet their own needs - is central to Government policy. The Agency has advised that spent MOX fuel is similar to spent uranium fuel in terms of radiological hazards and waste management. Using MOX fuel reduces the amount of fresh uranium that needs to be mined and processed, thus reducing the detriments associated with those activities.

69. The Secretaries of State recognise that some people feel strongly against the re-use of plutonium in MOX fuel but they have set out in this decision why they consider the manufacture of MOX fuel to be justified. In addition to evaluating the economic case for the manufacture of MOX fuel, the Secretaries of State have also considered the wider risks and benefits involved and have concluded that the manufacture of MOX fuel will produce sufficient benefits to offset any radiation or other detriments which may be caused.

Issues relating to the decision-making process

70. Issues raised. Some people expressed concerns with regard to the decision-making process. Several said that the Government should get on and make a decision, while some felt that the decision should be left to BNFL. Others said that Ministers should defer a decision on SMP until there was clearer evidence of market prospects in Japan. Some said that Ministers could not consider justification in the present case without reviewing whether the operation of THORP was still justified. Some said that the THORP justification took account of sunk costs and of the existence of firm contracts and so Ministers should take a consistent approach to the SMP. Some people said that the Agency should change the authorisation for the Sellafield site. Some said that there should be a public inquiry, an assessment by several Government Departments or a debate in Parliament.

71. Some people had concerns about how the Government had reached its provisional conclusion in 1999 and how this might pre-judge its decision in 2001. Some said they saw no evidence that ADL and Ministers had taken account of previous consultation responses. Some argued that too little time had been allowed for comment in 2001, that too little information had been published for comment in 2001 and that they or others should have been given an opportunity to be interviewed by ADL.

72. Ministers' views. The Government decided that, following the entry into force of the 1996 Basic Safety Standards Directive, justification would be a matter to be determined by the appropriate Secretary of State.

73. Ministers do not think that a decision should be deferred until market prospects in Japan are clearer. Firstly, there is already sufficient information about such prospects to take a decision. Secondly, the first of the five Japanese conditions for restarting MOX supplies is that operation of the SMP should be approved by the Government.

74. Ministers are in no doubt that the manufacture of MOX fuel is a separate class or type of practice within the terms of the 1996 Directive and so consider it reasonable to assess the justification for the manufacture of MOX fuel as a separate issue from that of the continued justification of THORP or of other facilities operated by BNFL at the Sellafield site. The manufacture of MOX fuel is capable of being considered, and in Ministers' view is appropriately considered, as a separate class or type of practice which has its own distinct benefits and detriments.

75. Article 6(2) of the Directive would enable the justification of the reprocessing of spent fuel and/or the manufacture of MOX fuel to be reviewed in future if new information were acquired about the efficacy or consequences of these classes or types of practice. If in future any additional radiological impacts from the operation of the SMP or other detriments were to arise, as a result of its relationship with THORP or some other facility operated at the Sellafield site based on additional reprocessing contracts, it would be open to Ministers to review the issue of justification for the manufacture of MOX fuel at that stage. In addition, the system of periodic reviews of discharges and authorisations for the whole of the Sellafield site allows the Agency and Ministers to keep the radiological impacts of the activities at the site under review.

76. The decision issued by Ministers in December 1993 in respect of the authorisation of discharges relating to THORP does not adopt a different treatment of sunk costs.

77. Ministers announced their provisional view in 1999, but the data falsification incident which occurred in September 1999 caused serious uncertainty about the market prospects for the operation of the SMP. When BNFL put forward a revised economic case this year, Ministers considered the case as it stood in 2001 - in other words, they considered the matter afresh, taking into account previous comments received as well as the later comments, and bearing in mind what had changed since reaching their provisional view in 1999. They re-consulted interested parties and the general public, engaged independent consultants to advise them on BNFL's revised economic case for the SMP and published the consultants' report for public comment before taking a final decision. Ministers' final decision also reflects specialist advice received from many other Government Departments and agencies on such matters as MOX markets, proliferation, security and other issues.

78. The justification requirements set out in the 1996 Directive do not require a Parliamentary debate or a public inquiry to be held. Ministers have been questioned about the SMP in Parliament several times and the public have had numerous opportunities over the last 5 years to provide their views on the justification for the operation of the SMP and the manufacture of MOX fuel. The time allowed for comment followed Cabinet Office guidelines on consultations and reflected the opportunity people had already had to comment on the case. The guidelines indicate that a shorter period may be appropriate in cases where there has been previous consultation.

79. Ministers published substantial information on the economic case for the SMP in 1999 and significantly more such information in 2001. Ministers have been keen to put into the public domain as much information as possible, but they have had to have regard to the need to avoid releasing information that would cause unreasonable damage to BNFL's commercial operations or to the market for MOX fuel.

80. Ministers view the requirement of justification as a very serious issue and as a result have taken the necessary time to collect all the relevant information, have sought the views of interested organisations and individuals on several occasions and have considered all the relevant factors carefully before reaching a final decision. Ministers do not believe it would have been appropriate for ADL to interview selected consultees who wished to express their views about the justification for the SMP and are satisfied that ADL in preparing its report had regard to all the consultation responses which arose from the consultation carried out in March this year.

Published 3 October 2001
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