the course of operations, many industries (mining, quarrying, chemical
industries) have to plan for end of lifetime costs for their plants, whether
dismantling or reconditioning of the sites. The nuclear sector must do
so for all of its activities: mining sites, fuel cycle installations,
power stations, research centres, factories that produce isotopes, containers,
and radioactive product casks. In the nuclear industry, dismantling has
a particular character due to the nature of the technical operations,
the long term perspective and the amount of money involved. These characteristics
have financial consequences in regards to cost estimating and financing,
for which there does not exist to date one single answer.
Phases of the Operation
purpose of decommissioning is to return a former operational plant back
to brown or green field site status, using technologies adapted to the
nuclear industry. Decommissioning uses radioactivity analysis and measurement
techniques, decontamination, cutting, remote-controlled tasks and robotics,
treatment, conditioning and evacuation of materials and waste.
phases precede dismantling itself:
suspension of operations, during which the fissile materials and radioactive
fluids are evacuated and process circuits are rinsed.
shut-down, during which non-necessary materials are dismounted, safety
is maintained, the state of containment is checked and a radioactivity
assessment is made.
two phases lead to IAEA Stage 1 classification, characterised by
"closed, under monitoring".
more intense clean up programme, including site decontamination and partial
or total dismantling, can lead to IAEA Stage 2 or 3 classification,
depending on future site use and national regulations. Stage 2 status
is given to a site when most of the radioactive components have been confined
to a particular sealed zone. The site requires less surveillance than
in Stage 1, although periodic inspections are still desirable. Stage 3
is when all radioactive materials have been removed and the site can then
be released for unrestricted use. In some countries, Stage 3 is a
the level of decommissioning to be achieved and the proceedings with the
regulatory bodies, the operators have to set up an operational planning
process which takes into account the reports and investigations required
by the authorities. The question of timing is subject to a wide-ranging
debate among specialists and affects future cost estimations. Is it necessary
to intervene as soon as the installation has been closed down, or is it
better to wait?
decommissioning to Stage 1 is always immediate. Deferring the passage
from Stage 1 to Stage 2 or from Stage 2 to Stage 3
allows the radioactivity of the short-lived radioactive elements significantly
to decrease, diminishing doses and the volume of waste to be evacuated.
However, waiting does increase the costs related to monitoring and maintenance.
Those favouring a speedier dismantling process emphasise the ageing of
the installations and the collective loss of memory, or even the exemplary
nature of this approach.
concern of the operators is the management of the wastes generated by
dismantling, which is a component of the complete cost of the operations.
wastes (primarily concrete and rubble) which are, a priori, the largest
share of total waste.
low level radioactive waste, more than half of which is scrap. Depending
on the nature of this waste, its activity and the relevant regulations,
this waste can be either recycled or stored in packages in a dedicated
facility without posing a danger to the public.
or low-medium level activity waste, which accounts by far for the smallest
share. This waste is governed by national regulations which dictate
disposal procedures, either in a surface storage or interim storage
facility before being sent to a medium level long-lived waste storage
waste, from dismantling or from operations, will be sent to a long-term
storage centre if available or will be stored on an interim basis until
such a storage centre is complete. The future costs of storage, which
can be relatively large, are subject to the same type of financial treatment
as future costs of dismantling (the Cogema UP-1 reprocessing plant at
Marcoule, for example).
dismantling, safety and radiation exposure questions will be raised. Under
the ALARA principle, everything reasonable is done to limit doses received
by workers or the public. The usual safety criteria will also, of course,
have to be respected at all times.
summary, this short presentation of technical issues clearly highlights
that cost evaluations related to closing nuclear facilities, including
the cost of decontamination of the equipment, dismantling, conditioning
and shipment waste, are complex operations involving uncertainties related
to deadlines, changes in technology and evolving requirements for safety
and radiological protection.
and Financial Responsibilities
Making sure that the consequences of industrial activities do not harm
present and future generations is essential under the principle, widely
shared today, that the "polluter pays". Economic costs generated
by future downgrading of nuclear installations have to be evaluated today,
knowing that these operations will occur several decades after the start
up of the plant. The financing of these operations has to be assured when
is generally acknowledged that future financial expenses must be presented
in the accounts of the operators as accurately as possible. Nevertheless,
the methods of evaluation and of presentation of the costs differ from
one country to another and even from one operator to another within the
countries, total expenditures are estimated based either on costs resulting
from the experience in similar situations, or on particulars related to
each installation. For example, the cost of dismantling a power plant
is generally estimated at 15–20% of the initial cost of construction.
Dismantling represents less than 1% of the production cost of each kWh
in actualised figures, or 2–3% without discounting (Ref
the costs of dismantling nuclear power plants, nuclear research sites
and fuel cycle facilities are estimated at FFr170 billion (US$27 billion)
(Ref 2), compared to an order
of magnitude of FFr1000 billion (US$160 billion) invested in these facilities.
to current accounting standards, two methods are used by companies to
evaluate expenses which will occur in the future but for which a precise
date cannot be attributed:
method of current value consists of evaluating future expenses by their
present cost. The result is corrected every year for inflation and is
revised periodically for technical and legal changes. In this way, the
value of future expenses does not depend on when the expenditure is
carried out. This is the method generally used in France and Germany
method of net present value consists of calculating the current value
by discounting future costs. This method is notably used in Belgium,
the United Kingdom and Sweden.
choosing the method of calculation, the various companies are largely
influenced by the legal requirements and accounting practices used in
their respective countries, as well as by contractual considerations.
The current value method accelerates the making of the necessary provisions.
The net present value method is very sensitive to the precise calendar
of the forecast expenditures and to the real yield (above inflation) expected
in the long run of accumulated capital.
the current value method provisions are made gradually during the operation
of the installations, according to their estimated duration and rhythm
of activity (economic and technical). The net present value method provides
an annuity to cover future costs by comparing the difference with the
previous year’s calculations.
Germany, Belgium, France, the United Kingdom and Switzerland, for example,
operator assessments must normally show the provisions necessary to cover
future costs. Costs must be justified to controlling bodies such as boards
of directors, independent inspectors, and official authorities. Consequently,
the estimated total cost is checked at the time of the audit of the responsible
entities. This system is the most widespread.
the other hand, in countries where responsibilities for the end of cycle
and dismantling have been transferred to agencies funded by taxpayers,
these costs no longer appear in the producers’ financial statements, but
in those of the agencies. A wide variety of situations exists, covering
both these cases and all situations in between.
future costs are recognised in the accounts of the organisations which
will have to support these charges, it is then appropriate to secure the
availability of the necessary funds at the appropriate time. The operator
either pays into an external fund controlled by the lawful authorities,
or makes provisions in his accounts whether associated or not with a mechanism
of internal funds managed inside the company.
lawful organisation ensuring the availability of funds is usually created
by governments, which can take responsibility for final waste storage
and/or dismantling (in Belgium and France in particular, the government
created public establishments responsible for the storage of waste). Based
on final usage of sites, the government is often directly involved in
dismantling the installations and managing the waste.
majority of European countries, the government is not responsible technically
or financially for dismantling operations except when managing historical
waste. Operators in Germany, Belgium, France, the United Kingdom, Sweden
and Switzerland take responsibility for both activities.
countries, like Germany, Belgium, Sweden and Switzerland, laws stipulate
operator financing. In other countries, where the companies involved have
become privatised, part of the future charges is always subject to special
agreements (e.g. USEC in the United States, Magnox Electric/BNFL in the
various existing practices concerning technical responsibility and financing
were analysed by the Nuclear Energy Agency of the OECD (Ref
3) and split into four categories:
of funds and responsibility in a centralised account, with operations
and their financing transferred to a central governmental organisation
(examples are ENRESA(Spain), ONDRAF/NIRAS (Belgium)).
of centralised funds accompanied by decentralised responsibilities.
The companies remain responsible for operations and financing (e.g.
Sweden and Finland).
of responsibility for the operations with legal or contractual guarantee
mechanisms (e.g. United States and Canada for the mining industry).
decentralisation of the technical and financial responsibilities, with
companies remaining responsible for operations and their financing.
This last category includes the majority of situations in the Netherlands,
Switzerland, the United Kingdom and France, with various degrees of
control of the financial responsibilities.
often the case that in the same country the solutions adopted for dismantling
and the management of waste differ.
Financial Assets for Decommissioning
an operator, Cogema has the legal obligation to dismantle its nuclear
facilities upon total or partial shutdown, according to the processes
presented above. The largest costs relate to back end fuel cycle facilities,
i.e. reprocessing and MOX fuel fabrication plants.
of 31 December 1998, the financial commitments of the Cogema Group
were estimated at FFr25.5 billion (US$4.1 billion) (1998 values). This
figure, representing more than three years of cash flow, proceeds from
the estimates established plant by plant starting from a detailed modelling
of the dismantling operations and based on previous dismantling experience.
year Cogema registers in its accounts provisions for decommissioning,
waste retrieval and other end-of-cycle activities linked with its own
future estimated commitment. The FFr14.5 billion (US$2.3 billion) accounted
for at year end 1998 illustrates the gradual recognition of these charges,
based on the careful estimation of the utilisation period of each facility
for contracts in progress or reasonably expected contracts.
so, such provisions are merely accounting entries anticipating future
expenses, which will come up when the facilities in question are no longer
generating any income or cash-flow; they do not guarantee the capability
of the company to face expenditures in the remote future. This is why
Cogema began five years ago to gradually put in place a mid- and long-term
portfolio, making it possible to provide in due time sufficient cash to
proceed with decommissioning.
started in 1993 to invest in a specific portfolio for decommissioning
funding. At the end of 1996 the company had ensured a coverage of 60%
of the provisions and 30% of the quota of the estimated commitment remaining
to its charge (see Table 1).
The need to optimise the use of the funds was quickly addressed. From
the viewpoint of financial management techniques it seems at first analogous
with pension funds and the technical reserves for insurance companies.
However, the differences are substantial:
two quoted cases are managed with constantly flowing deposits and withdrawals
according to well-known statistics. Cogema’s portfolio is intended to
be completely emptied over a period of years, while its total charge
to cover remains exposed to risks.
is an industrial company subjected to common laws regarding accounting
and tax standards.
broad consultation with financial partners well known for their competence
on long term issues, a special policy was set up.
general policy can be summarised by the three following points:
engage in a policy of financial coverage specific to the costs (which
is not obligatory). Cogema earmarks a portfolio thus dedicated to decommissioning
in the balance sheet in a transparent way, and separates it from the
management of the current treasury.
grow this portfolio by optimising the timing of financial investments
in such a way that the capacity of the company to finance its industrial
development is not restricted.
have the opinion of an external adviser on the methodology of the constitution
of the portfolio and the strategic asset allocation process; this adviser
being at the same time the guarantor of the long-term viability of a
system of reporting and performance measures.
the operational aspects related to the technique of fund management, the
principal orientations are as follows:
long term investing, it is proven that as an asset class equities will
do better than bonds or short term money market instruments, but with
the highest volatility among these three type of asset classes. They
are likely to provide in the long term a higher return than inflation,
which impacts the future costs. Paradoxically "day to day"
investments in bonds and cash instruments, periodically rolled over,
would present important risks. There are indeed combinations of inflation
and interest rates in which performance after taxation is not sufficient.
However, when payment of expenditures is sufficiently specified, equity
exposure of the portfolio will be gradually decreased by selling shares
and purchasing bonds of maturity matching the outlays.
portfolio is 75% composed of a rather small number of equity holdings
in French companies listed on the Paris stock exchange (the initial
component of the portfolio), managed in-house, and 25% of other European
equities, the management of which is carried out through mutual funds.
management requires a certain diversification and an acceptable level
of risks. The cost coverage in the euro currency directed, until now,
the portfolio of European stockholding (it is supposed that the United
Kingdom and Sweden will adopt the euro at some point). Taking into account
globalisation, however, the quoted values of the European companies
are dependent on the level of the euro versus other currencies. Management
of European equities excluding France is today the major contribution
to the diversification of the initial portfolio, which concentrated
on a single country and a few lines of shares.
external management of these mutual funds was entrusted to a small number
of asset-management companies selected by invitation to tender. The
objective is to exceed in the medium term a benchmark (MSCI Europe without
France, net dividends reinvested) with a controlled active risk. The
active risk or "tracking error" measures the volatility of
the difference between the portfolio and a benchmark performance. For
example, a tracking error of 4 means that there is a 66% chance that
over one year the portfolio does not deviate more than ± 4% from its
benchmark. An indexed fund has a zero tracking error. The fund managers
were selected to represent a range of management styles: selection of
"value" as well as "growth" equities, and bottom-up
as well as top-down approaches. The non-correlation of styles within
the combination of mutual funds tends to reduce the resulting tracking
control is carried out with our external adviser to ensure that combined
in-house and externally managed portfolios fit with long term objectives.
shown in Table 1,
on 31 December 1998 the portfolio reached a historical value worth FFr15.4
billion (US$2.5 billion) for accountable provisions of FFr14.5 billion
(US$2.3 billion). Thanks to the remarkable performance of the European
markets in 1997 and 1998, the market value before taxes on accrued unrealised
gains reached FFr22.5 billion (US$3.6 billion).
nuclear power industry is committed to managing its future costs suitably,
better than the majority of other industries.
costs, though important in absolute value, are reasonable in comparison
with the cash-flows generated by the industry over a long period.
Cogema example shows that in a few years a mechanism can be put in place
to manage prudently the funding of future costs.