1
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fljtS D O C U M E N T IS T H E P R O P E R T Y O F H E R B R I T A N N I C M A J E S T Y S G O V E R N M E N T
CP(73) 34
COPY NO
19 M a r c h 1 9 7 3
CABINET
REORGANISATION OF T H E N U C L E A R DESIGN A N D
CONSTRUCTION INDUSTRY
N o t e b y t h e S e c r e t a r y of S t a t e f o r T r a d e a n d I n d u s t r y
1.
I w a s i n v i t e d b y the C a b i n e t t o i n i t i a t e n e g o t i a t i o n s w i t h the G e n e r a l
E l e c t r i c C o m p a n y (GEC) and the o t h e r i n t e r e s t s c o n c e r n e d t o set up a s i n g l e
p r i v a t e s e c t o r n u c l e a r d e s i g n and c o n s t r u c t i o n ( d / c ) c o m p a n y l e d by G E C ,
2.
In a d d i t i o n t o G E C I h a v e t a l k e d w i t h t h e E l e c t r i c i t y C o u n c i l , t h e
Central E l e c t r i c i t y Generating B o a r d (CEGB), the United Kingdom A t o m i c
E n e r g y A u t h o r i t y ( A S A ) , t h e t w o e x i s t i n g n u c l e a r d / c c o n s o r t i a and H a w k e r
S i d d e l e y ( S i r A r n o l d H a l l ) and B r i t i s h I n s u l a t e d C a l l e n d a r C a b l e s ( B I C C )
(Lord M c F a d ^ a n ) .
3,
I outlined to t h e m the a l t e r n a t i v e s of a G E C m a j o r i t y shareholding
and a G E C m i n o r i t y shareholding coupled with a m a n a g e m e n t a g r e e m e n t
which would g i v e GEC full m a n a g e r i a l authority,
I e x p l a i n e d that u n d e r
e i t h e r a l t e r n a t i v e the c o m p a n y would o p e r a t e within the G o v e r n m e n t s
n u c l e a r s t r a t e g y , a s a d v i s e d b y t h e N u c l e a r P o w e r A d v i s o r y B o a r d , and
that the G o v e r n m e n t would have r e s e r v e d rights to safeguard in particular
o p e n p u r c h a s i n g and i n t e r n a t i o n a l l i n k s ,
I a l s o e x p l a i n e d that we w i s h to
s e e p a r t i c i p a t i o n by other private s e c t o r f i r m s i n the n u c l e a r b u s i n e s s ,
4
T h e E l e c t r i c i t y C o u n c i l , the C E G B and the A E A c o n f i r m e d t h e i r
v i e w t h a t G E C i s t h e o n l y c o m p a n y a t p r e s e n t c a p a b l e of l e a d i n g t h e n e w
company.
T h e e l e c t r i c i t y a u t h o r i t i e s w a n t t h e m a x i m u m c o m m i t m e n t of
G E C s resources.
The AEA would p r e f e r a G E C m i n o r i t y share which
t h e y b e l i e v e w o u l d b e m o r e a c c e p t a b l e p r e s e n t a t i o n a l l y to t h e r e s t of the
industry.
M o s t of t h e o t h e r i n d u s t r i a l i n t e r e s t s a r e , a s e x p e c t e d , u n e a s y
about c o n t r o l b y a s i n g l e p o w e r f u l c o m p a n y , but t h e y a c c e p t the n e e d for
r a t i o n a l i s a t i o n of t h e i n d u s t r y i n t o a s i n g l e s t r o n g c o m p a n y a n d t h a t the
present consortium system must go,
In g e n e r a l if the d e c i s i o n i s t o give
G E C m a n a g e m e n t control they see no advantage f r o m their standpoint in
this being achieved by a minority share supported by a management
a g r e e m e n t (a c o n c e p t t h e y d i s l i k e ) ; t h e y p r e f e r a s t r a i g h t m a j o r i t y
GEC holding.
0
1 1
5.
Other f i r m s m a i n c o n c e r n r e l a t e s to the p u r c h a s i n g a r r a n g e m e n t s .
They doubt whether an open purchasing p o l i c y can be m a d e to work
effecStvely.
T h e y r e c o g n i s e h o w e v e r that t h i s r i s k i s an i n e s c a p a b l e
c o n s e q u e n c e of b a s i n g t h e n e w c o m p a n y o n a s t r o n g u n i f i e d o r g a n i s a t i o n
w h e t h e r it b e G E C o r a n o t h e r c o m p a n y s u c h a s B I C C .
M o r e o v e r the r i s k
can be m i t i g a t e d .
In a d d i t i o n to G o v e r n m e n t s r e s e r v e d r i g h t s and r e l a t e d
m o n i t o r i n g a r r a n g e m e n t s on p u r c h a s i n g p o l i c y t h e r e will be ­
e
T h e opportunity for other f i r m s to be d i r e c t l y i n v o l v e d in
a
the company.
0
b.
T h e G E G B ' s intention to m o v e a w a y f r o m the t u r n k e y
approach and to p l a c e s e p a r a t e and d i r e c t o r d e r s for
t u r b o g e n e r a t o r s and a s s o c i a t e d plant.
This would further
protect f i r m s such as Reyrolle P a r s o n s , Hawker Siddeley
and B I C C .
!
Cc.
T h e C E G 3 s and o t h e r g e n e r a t i n g b o a r d s ' a b i l i t y to
n o m i n a t e s u b c o n t r a c t o r s f o r e l e m e n t s cf the n u c l e a r s t e a m
supply s y s t e m a s well.
d
In the e x p o r t f i e l d G E C h a v e s a i d that t h e y w i l l b e p r e p a r e d
to w o r k i n a s s o c i a t i o n with e g R e y r o l l e P a r s o n s i n t e n d e r i n g for
complete power stations.
s
6.
My n e g o t i a t i o n s with G E C have e s t a b l i s h e d ­
a.
T h e i r r e a d i n e s s t o t a k e 100 p e r c e n t o w n e r s h i p w h i c h t h e y
t h e m s e l v e s , h o w e v e r , r e g a r d a s p o l i t i c a l l y and i n d u s t r i a l l y
unacceptable.
b.
T h e i r u n w i l l i n g n e s s t o t a k e a m a j o r i t y i n t e r e s t if o t h e r
f i r m s a r e to have a m i n o r i t y share (they fear this could a l l o w
o b s t r u c t i o n of t h e m a n a g e m e n t a n d f r i c t i o n ) ,
c.
T h e i r w i s h to h a v e a G o v e r n m e n t s h a r e h o l d i n g at l e a s t
a s l a r g e a s t h e s h a r e h o l d i n g of a n y o t h e r f i r m ,
7,
I h a v e a c c o r d i n g l y b e e n n e g o t i a t i n g with G E C on the b a s i s that
G F C s h o u l d h o l d 50 p e r c e n t a n d G o v e r n m e n t a m i n i m u m of 10 p e r c e n t
and a m a x i m u m of 2 0 p e r c e n t w i t h r e s e r v e d r i g h t s .
I s u g g e s t that we
p r o c e e d o n t h e b a s i s of 15 p e r c e n t .
Other f i r m s would be o f f e r e d the
balance aubject to c e r t a i n conditions including that their s h a r e s should
be h e l d i n a group which m i g h t b e c h a i r e d b y s o m e o n e like L o r d M c F a d z e a n ,
The p r o p o s e d s t r u c t u r e i s o u t l i n e d at A n n e x I.
T h e r e would be no
m a n a g e m e n t a g r e e m e n t a s s u c h but G E C w o u l d s u p e r v i s e t h e s u b s i d i a r y
o p e r a t i n g c o m p a n y and be paid for s e r v i c e s provided,,
G E C a g r e e with
m e t h a t t h e b o a r d s h o u l d i n c l u d e l e a d i n g p e o p l e f r o m o t h e r f i r m s i n the
n u c l e a r a n d e l e c t r i c a l b u s i n e s s i n c l u d i n g L o r d M c F a d z e a n and M r W o o d e s o n
(Clarke Chapman/John T h o m p s o n Limited).
GUARANTEES
8
I p r o p o s e that all s h a r e h o l d e r s should initially be a s k e d to
p a r t i c i p a t e in j o i n t and s e v e r a l g u a r a n t e e s .
S o m e of t h e m m a y b e
unwilling to a c c e p t the substantial r i s k s i n v o l v e d , having r e g a r d to
t h e i r s m a l l s t a k e and s a y in the m a n a g e m e n t , and we m a y h a v e to
reconsider,,
G E C a r e c o n c e r n e d that s o m e m i n o r i t y s h a r e h o l d e r s
w o u l d b e u n a b l e to m e e t t h e i r g u a r a n t e e s if c a l l e d and a r e t a k i n g t h e
line that t h e y cannot be involved beyond their shareholding s i n c e the
m i n o r i t y i n d u s t r i a l s h a r e h o l d i n g s a r e at G o v e r n m e n t ^ s p e c i f i c r e q u e s t .
On t h e o t h e r h a n d , w h i l e G o v e r n m e n t s h o u l d i n m y v i e w b e p r e p a r e d t o
c a r r y s o m e of t h e c o s t of d e f a u l t , i t m a y b e r e a s o n a b l e f o r G E C t o b e a r
a proportion since they have complete management responsibility,,
This
w i l l n e e d f u r t h e r n e g o t i a t i o n w h e n w e ksxow t h e c o m p o s i t i o n a n d s i z e of t h e
s h a r e h o l d i n g of the m i n o r i t y i n t e r e s t s , but m y c o l l e a g u e s s h o u l d k n o w that
t h e G o v e r n m e n t m a y h a v e t o u n d e r w r i t e g u a r a n t e e s b e y o n d t h e s i z e of o u r
shareholding.
0
9.
D i s c u s s i o n s with G E C a r e s t i l l c o n t i n u i n g and I w i l l r e p o r t o r a l l y
on further d e v e l o p m e n t s .
H o w e v e r I b e l i e v e that we n o w h a v e the b a s i s
of a g o c d s o l u t i o n m e e t i n g t h e r e q u i r e m e n t f o r a u n i f i e d a n d s t r o n g
m a n a g e m e n t , G o v e r n m e n t ^ n e e d s on r e s e r v e d r i g h t s and a l l o w i n g
participation by other interests.
If m y c o l l e a g u e s a g r e e , I w o u l d
a i m t o m a k e a s t a t e m e n t t o P a r l i a m e n t i n t h e w e e k b e g i n n i n g 19 M a r c h
outlining the b a s i s on which the c o m p a n y i s to be s e t u p ,
NUCLEAR POWER ADVISORY BOARD
10.
C P ( 7 3 ) 15 s o u g h t a p p r o v a l t o e s t a b l i s h i n g t h e N u c l e a r P o w e r
Advisory Board.
F o r c o n v e n i e n c e I a m a t t a c h i n g a g a i n a t A n n e x II
t h e n o t e o n t e r m s of r e f e r e n c e a n d m e m b e r s h i p .
RECOMMENDATION
11*
I seek agreement to:
i.
C o m p l e t e n e g o t i a t i o n s with G E C and the o t h e r i n t e r e s t s
o n the b a s i s s e t out in p a r a g r a p h 7.
ii.
A n n o u n c e i n t h e w e e k b e g i n n i n g 19 M a r c h t h e b a s i s o n w h i c h
the n e w c o m p a n y i s to be set up.
iii.
E s t a b l i s h the N u c l e a r P o w e r A d v i s o r y B o a r d on the l i n e s
s e t o u t i n A n n e x II.
P W
D e p a r t m e n t of T r a d e a n d I n d u s t r y
16 M a r c h 1973
ANNEX
1
OUTLINE STRUCTURE OP THE NEW DESIGN AND CONSTRUCTION COMPANY Shareholding 1.
Three g r o u p B : ­
a)
The Government, through' the AEA
iyj
b)
GEC
$Ofo
c)
A grouping of
0
other privato sector interests - BNH * .35$
(approx)
(approx)
Shareholders' Rights and Obligations 2.
A shareholders' agreement between the AEA (for the G o v e r n m e n t ) , GEC, and the other interests will provide, inter alia, for the following The AEA's shares to carry rights, reserved to Government, to (i)
control:
a)
the purchasing policy of the company, which will bo open
ie shareholders, as such, would have no claims to contracts.
-
b)
formation of international links.
c)
issues relating to R and D affecting the AEA's statutory posit
d)
any material change in the company's activities.
e)
any alteration of share capital or rights of shareholders.
(The AEA would only operate these rights by agreement with Government) (ii)
Liability to give guarantees to be a condition of shareholding.
(iii)
The Chairman and all main Board members to be appointed by agreement between Government and GEC. ' (There would be no restriction on number of directors but the Board would be kept fairly small.) (iv)
Share transfers.
BNII shares to bo transferable to other existing BNH shareholders without Government or GEC approval so long as no one participant thereby obtains a shareholding which . *
tho grouping might bs called British Nuclear Holdings - BNH, exceeds
that
of
the
Any reduction in BNrTs Government.
proportion of the company's shares has to have such approval and Government and GEC would have equal rights in the purchase or disposal of shares.
Government will have first option on any shares­
which GEC decide
to
dispose
of
as w i l l
GEC
in the
event
of
sales o f Government shares. (v)
The company to supply the Government with regular information on
operation of reserved rights and jtis financial affairs; this
to meet the needs of public
(vi)
information
accountability,
I n all other respects the rights of shareholders to b e equal. Share capital 3.
The company's capital will be £10m, all called up.
Operations
4*
The company will have a wholly-owned operating subsidiary, provided in the
shareholders' agreement, the Board of which will have as Chairman the Chairman
of the main Board and as members the executives of the company.
Appointment
of
directors and the Managing Director of the operating company will be made by
the Chairman with main Board approval.
In the event of equality of votes on
such appointments he will have a casting vote,
5.
The managing director and vice-chairman of the operating company will attend main Board meetings and other directors will attend when required. None of thern will be main Board members, 6,
GEC will act in a supervisory capacity in respect of the operating subsidiary company and vail
the main Board.
negotiate the
fees
The supervisory arrangement will be subject to approval and review by the main Board. 16 March 1973
for their services with CONFIDENTIAL
AKK3X II NUCLEAR TQWR
ADVISORY BOARD Introduction 1
On the advice of an Intei'-J5epart:r.entai Official Committee,
decided last summer ( C X ( 7 2 ) 4 0 t h )
KO
that a N u c l e a r Power Board
should be set up with the responsibility of providing concerted
advice to the Secretary of State -for Trade and Industry on strategy
for the uso of nuclear power.
This followed frorr. our judgement
that
the existing machinery for advice and consultation available to the
Department of Trade and Industry did not seem adequate to ensure
that Government
decisions were based on full consultation with the
various industrial interests and, in particular,
that the consumer
interest of the generating boards was taken into account fit all stages
of the development
2
of new nuclear systems.
The Government's intention to set u p a Board.to this end was
announced in the statement on the future of the nuclear industry on
8 August
3
1972.
The rest of this note sets out briefly my present proposals on
—
establishing the Board,
Name 4
T h e Board is to be a purely advisory body which is not to be
backed b y legislation.
It will not have executive functions.
The
Nuclear Power Advisory Board (NPAB) is the most suitable title for it.
/
Terms of reference * 5
I propose for the formal terms cf reference: "To provide the Secretary of State for Trade and Industry with continuing advice on ail strategic aspects of civil nuclear energy
policy." (On matters of safety of civil installations, I will continue to ho advised and the K P A 2 will in future he advised by the Chief Inspector of Nuclear Installations and
Safety Advisory
the Nuclear Committee). Within these general terms of reference I envisage the following subjects as coming within the scope of the Board,
necessarily a firm list.
This is not The choice of subject will depend on developments and on the Board itself: i
the choice cf reactor systems to be developed in the UK, taki domestic, international and overseas trade
considerations into account;
ii
.
specific programmes of development work which are believed to have commercial potential (including prototype and design studies) and the allocation of this work, e.g, between the new company and the ASA; iii
the allocation of Government funds for R and D ; iv
the ordering of nuclear power stations; " v
possible ways- of developing
vi
the position of specialist component
vii
the underlying nuclear research
international collaboration; manufacturers; programme;
viii major system developments of longer term
e.g. fusion. application 6
The KPAB ;;.lll also "be able to initiate it a own studies and
make
vac ommendat i o ns.
7
I will appoint its Chairman and members, and its Secretariat
v/ill be provided by my Department.
Chairman 8
The choice is between a DTI Minister or senior official and an independent Chairman,
O n balance I regard an independent
with relevant industrial experience as preferable.
The
Chairman
industry seems to expect it and his position would not be complicated,
as
would a DTI Chairman's, by the individual statutory relationships between the Department and sere of the proposed members.
in a
better position to get the members to give clear and
He would be committed views and to produce concerted and firrr. (if not always unanimous) advice even though the members' individual interests could diverge. Membership 9
The membership should be representative of all the main interests in the nuclear field.
At the same time the KFA3 will perform better if its formal membership is small.
The following outside
membership is proposed: The new d/c company
- (one member) The Electricity Supply industry
- (one member each from the Electricity Council, the CEG3 and the SS3B).
The A E A
- (one
BIIPL,
- (one member)
the fuel company
The nuclear power component industry
- (one
member)
member)
I am looking further to see if the representation of the "electricity industry can be reduced to two. 10
t.a
r.;g:::-dr; C c v c r ^ n t
Bopartriftts, il in prcpoocd that thcro
be a member from my Dopai-imeni who would consult
involved and represent
the Government
should
the oth-:-r. Departcento
interest or. the Board.
machinery would be established for ouch consultation,
Clear
I do not
consider
we can have r.ore than one voice of -Government cn the Board,
11
Kombcrs would be expected, so far as is possible, to participate
with full commitment
on behalf of the bodies they rcpro^i:!.
Confidentiality of reports 12
Since the KP/JVs role will be a continuing one, unlike many external Committees, it will need to have a clc^e and regular relationship
the DTI.
The intention is not normally to publish its advice.
with It may bo difficult to persuade the Select Committee or; Science and Technology to accept this but we do not believe
it would be suitable to make any general premise to make public any advice, reccmrer.dations or reports of a body whose members will be representative of the
industrial interests -and whose advice is to be given on a continuing basis and is bound to b e based on commercially confidential information.
It would, prejudice the KPA3's work if its members did not feel protected in this respect,
The Select Committee, of course, would bo at liberty to examine members if they wished. 8 February
1973