STANDING COMMITTEE ON ECONOMICS

Australian Nuclear Science and Technology Organisation
Discussion
03/06/2008

Senator MILNE—Firstly, I would like to ask about the operating losses. Can you explain what they are? Are we still looking at a five-year value of $89 million or is it more than that, forward estimates?
Dr Cameron—Sorry, which losses are we talking about?
Senator MILNE—I was looking at the operating losses and I wanted to know what the portfolio budget statement for the next five years presumes in terms of those operating losses.
Mr Cubbin—The operating losses for ANSTO in the last two years and in the forward years are as a result of the adoption of the equivalent international financial reporting standards. Those losses occur because we need to make provision for the decommissioning and restoration of all of our assets, and the expense for that appears over the future years.
Senator MILNE—That refers to the decommissioning of which reactor?
Mr Cubbin—Of all assets on our site.
Senator MILNE—Can we just go to the OPAL reactor. What has been the capital cost of the OPAL nuclear research reactor in current dollars?
Dr Cameron—I am not sure of the exact number but it is approximately $400 million.
Senator MILNE—Would you be able to provide a breakdown of the costs for each financial year since the project was given the go-ahead by the government?
Dr Cameron—That information is available. It is also worth pointing out that we are funded for depreciation on our current OPAL research reactor. The decommissioning restoration relates to the other assets on our site.
Senator MILNE—Are there any more envisaged capital costs associated with the OPAL project?
Dr Cameron—The OPAL project is essentially at the end of its commissioning phase and we think over the next year it will move into field operation. It will then be an operational expense for us and we will deal with that as part of our normal budget process.
Senator MILNE—Are you saying you are not envisaging any more capital costs, just operating costs?
Dr Cameron—Just operating costs.
Senator MILNE—Minister Carr, you were reported on 6 May this year as criticising the former government for signing a contract for the new nuclear reactor, which cost millions of dollars. Was the story accurate? Did you in fact criticise the former government for the reactor contract, and what was your objection to it?
Senator Carr—Do we have the figures on the losses so far? There are a couple of issues. One goes to the question of the warranty arrangements for the construction of the reactor. I understand that there remains disputation on that issue. Then there is the issue of the loss of revenue as a result of the shutdown, and who is responsible for those matters. As I understand it, there remains disputation on those questions. I understand the totals now are in excess of $10 million.
Dr Cameron—Yes, these are two issues that we have to deal with as a result of the extended shutdown of OPAL because of the fuel issue. There are contractual issues with the constructor, obviously, and we are pursuing those negotiations in terms of what is recoverable to us under the contract. The contract is generally, though, a performance based contract. There is unlikely to be any compensation for the shutdown period per se. However, we are also pursuing insurance arrangements under our business continuity insurance to see if it is possible to recover costs in that way.
Senator MILNE—You are saying that the shutdown cost us $10 million?
Dr Cameron—I think it is probably more than $10 million when we add it all up. But to understand how much it actually costs, we do have to resolve those issues of the contract—what is recoverable under the contract and what is recoverable on insurance. When we have those issues resolved then we will be able to say what the actual cost to the organisation was. But, yes, there had to be a cost to the organisation.
Senator MILNE—You said it is likely to be more than $10 million. How much more—can you give me a ballpark figure?
Dr Cameron—What we know, for example, is that the import of radio isotopes has cost us about $5 million for the year. Additionally, the reduced income from irradiation is probably another $5 million. We have had to purchase new fuel, which is about $2 million. We know these are costs that we have to deal with as part of our budget.
Senator MILNE—So we are talking about $22 million?
Dr Cameron—Those costs—$5 million, $5 million and $2 million—add up to $12 million.
Senator MILNE—So it is $10 million-plus. Minister, can you or ANSTO tell me whether the reactor contract was standard commercial practice? It seems to me that whoever wrote that contract and agreed to it has not served the Australian people particularly well.
Dr Cameron—I think it is very hard to have a standard contract, because a reactor is a unique piece of equipment we are buying. We were conscious that we only do this once every 40 years. Therefore, our focus, and I think rightly so, was on getting the best performance out of the reactor that we could. Therefore, when the contract was written, it had a very strong emphasis on getting the best performance in our neutron beams and the best irradiation performance. I think it will still serve the nation very well into the future if we are able to deliver that performance.
Senator MILNE—If we are able to deliver that performance. We have had a reactor that was supposedly to be shut down for eight weeks and it stayed closed for 10 months. It is either poorly designed or poorly managed, or both.
Dr Cameron—I think we would recognise that, in the design of the fuel, there were deficiencies from the manufacture. We now have resolved those deficiencies with the new fuel design. We have to also understand that in the nuclear area we take things very cautiously and very slowly. When we looked at the problem we needed to understand it completely and we needed to make a design change that we were totally happy with. We needed to go through an exhaustive regulatory approval process so that we could give an absolute assurance that there were no health or safety impacts of any changes that we made. Just the nature of the nuclear industry means that any change of that nature takes time. I think it would be right to take time in doing it.
Senator MILNE—It just concerns me that the way the contract was written or not written has led to a substantial cost of $12 million or thereabouts. Can you tell me the expected annual operating cost of the OPAL reactor?
Dr Cameron—Yes, it is about $10 million a year.
Senator MILNE—Does that cover an allocation for future spent fuel management?
Dr Cameron—We are within the operating costs. We will be covering the costs of spent fuel management.
Senator MILNE—Does it cover an allocation for future decommissioning?
Dr Cameron—No. As I said, there is a special provision for decommissioning and restoration, which we have to account for.
Senator MILNE—Is that within the $89 million?
Dr Cameron—Yes, it is.
Senator MILNE—I will come back to that in a minute. What is the provision in your current operating budget for breakdowns, replacement of fuel plates, repair of leaks and that sort of thing?
Dr Cameron—Issues to do with the reliability of the reactor and the components are part of the warranty arrangements with the manufacturer. When there is an issue of that nature we lodge a defect notice with the manufacturer and they are obliged to resolve that particular defect. The costs of the repair or any design change lie with the manufacturer.
Senator MILNE—In relation to those fuel plates and OPAL’s track record, why did the fuel plates need to be fixed?
Dr Cameron—As I said earlier, there was a design deficiency with the fuel plates. This was not a safety issue. It was purely an operational issue for us. It was ANSTO, operating the reactor, that noticed it. We then decided there was a need to have a different fuel design. That is the process that has taken this period of time.
Senator MILNE—Why did you go to France with regard to the plates and not back to the Argentineans? Why could they not fix it?
Dr Cameron—The redesign of the fuel was done by the Argentineans. They are the design authority, so they had to do that redesign process. We then had to look at where we could source the redesign fuel from. The only organisation that could supply what we call a start-up core in the time that we required was the French organisation.
Senator MILNE—Is that going to be covered under the warranty?
Dr Cameron—As I said, we have a number of negotiations still to be conducted with the manufacturer, and we are not able yet to say what the final outcome of those will be. But they are certainly issues we are pursuing.
Senator MILNE—I am just astounded that we could have signed a contract that does not provide for warranty. We are not even at the start-up stage at the point at which this has all had to be dealt with.
CHAIR—Senator Johnston is waiting for questions.
Senator MILNE—On the reactor?
Senator JOHNSTON—On the litigation. Dr Cameron, where are we at with respect to the liability for the loss of our reactor due to the, I think, unstable fuel rods?
Dr Cameron—As I said, there are two sides to this process that we are following. One is we are in very serious negotiations with the manufacturer in terms of what their liability is.
Senator JOHNSTON—Is that the Argentineans?
Dr Cameron—Yes, the Argentineans. Certainly they have a responsibility to fix it, as there would be under any warranty process. Then there are issues to do with what compensation the organisation should receive for the period we were shut down and for the extra costs. That is part of the negotiation that we are going through with the manufacturer, and in addition we are pursuing our business continuity insurance to see if that is another means by which we can recover.
Senator JOHNSTON—Has there been a formal admission of liability by the Argentineans with respect to their fuel rod problem?
Dr Cameron—Yes.
Senator JOHNSTON—There has been?
Dr Cameron—We served a defect notice and they accepted that defect notice and they accepted their need to fix the problem.
Senator JOHNSTON—Does the warranty cover contingent damages, consequential loss?
Dr Cameron—No, it does not.
Senator JOHNSTON—The insurance policy does?
Dr Cameron—The insurance policy may do so.
Senator JOHNSTON—May do so?
Dr Cameron—Depending on the outcome of the negotiations with the manufacturer.
Senator JOHNSTON—Who is conducting the negotiations with the Argentineans?
Dr Cameron—I am.
Senator JOHNSTON—How long do you think they will go on for?
Dr Cameron—I think they have been going for some months now, but we both took the decision that the most important issue for us was to solve the problem and get the reactor back, and that we did not want prolonged negotiations to interfere with that process.
Senator JOHNSTON—And neither should they. Where is the reactor at the moment? I am sorry I missed the first part of your evidence. Is the reactor online yet or not?
Dr Cameron—The reactor is online. It is at full power today.
Senator JOHNSTON—And working well?
Dr Cameron—And, at the moment, working well.
Senator JOHNSTON—Again, when do you think we will have a definitive answer from the Argentineans as to the level of compensation they are going to meet pursuant to the warranty?
Dr Cameron—Certainly over the next year and we think over the next six months.
Senator JOHNSTON—When I come back in November we should have an update.
Dr Cameron—We should certainly have an update on that process.
Senator JOHNSTON—I will save that for next time.
Senator MILNE—In relation to the contract, who reviewed the contract before it was signed? Who in the government? Did it go to the legal eagles?
Dr Cameron—Yes. We received advice from the Government Solicitor about the contract. We also employed an external expert law firm who were able to give us advice on constructing such contracts.
Senator MILNE—So neither’s reputation stands in good stead as result of this, I would have thought, now that we are struggling to recover costs associated with the lack of rigour in that contract. Has ANSTO taken this matter up with the expert team, expert lawyers, and the government lawyer?
Dr Cameron—We have certainly been in touch with the expert law firm to get their advice on how we pursue this issue with the manufacturer. As I said, I think we are a little bit early in making such judgements because we do not know the settlement that will be arrived at.
Senator MILNE—We will be pursuing that with great interest, including the ongoing costs to this expert law firm, no doubt. If we can continue with the light water/heavy water issue in terms of the reactor. ANSTO at the time said that if left unrepaired, the light water dilution of the heavy water, it would ultimately affect the performance of the reactor. What would have been the time line for leak repairs if the fuel plates had not offered another opportunity for shut down?
Dr Cameron—I think it would have been quite extended. There was no urgency on us to take any immediate action because we would have had many months to think about the process, and what we would have done would be to have worked with the manufacturer to determine what was the best repair process, and then we would have programmed in a shutdown at an appropriate time when we could have done that repair. So, again, there were no safety issues to do that. It was just simply a matter of how much flux we were getting, and we would have programmed in our repair process. The fuel plate movement meant that while we were shut down we were able to carry out that repair.
Senator MILNE—Can you tell me what was the cause of the leak? Was it a build quality or a design fault?
Dr Cameron—No, it was not a design fault. We believe the leaks were simply a matter of a welding process that occurred in the vessel, and it left these very tiny little pores or flaws and they were sufficient to allow some of the heavy water to move from one tank into the other tank. So they have gone through a particle injection process to essentially seal those hulls and we have asked them for a long-term solution as well. They are now working on a longer term solution that will allow us to maintain the purity of the heavy water throughout the lifetime of the reactor.
Senator MILNE—Minister Carr, in February you indicated that you were not satisfied or had not been briefed properly on the closure of OPAL because of ANSTO’s interpretation of the caretaker provisions?
Senator Carr—Yes.
Senator MILNE—Now that you are the minister, have you actually sought clarification on those caretaker provisions that applied at the time and hence the refusal to give you a proper briefing, and will you ensure that will not happen next time?
Senator Carr—The circumstances were that ANSTO actually wanted to brief me as shadow minister. The minister, Ms Bishop, refused the permission to ANSTO to provide that briefing. Because it was claimed to be a caretaker convention issue, the briefing did not occur. It is not my intention to deny Senator Abetz briefings, and I do not believe there have been any breaches of that convention in the last six months. I would trust there will not be in the future. In fact, Senator Abetz has had access to agencies without a supervising advisor, which was different from when I was the shadow minister, and those will be the arrangements that we will maintain.
Senator MILNE—I understand that you have indicated that there will be a charter for public research agencies, including ANSTO. Has this charter yet been issued to ANSTO?
Senator Carr—We have circulated proposals to ANSTO. The discussions being had with ANSTO, as with all the other agencies about matters that are specifically relating to the operations, are ongoing. It is my intention to discuss it further with the boards, but to date there has been no indication of any difficulty on those matters. We are now waiting on the agencies to come back to us with any matters that they would like to see in the charters that relate to specific questions concerning individual agencies.
Senator MILNE—So you would expect to have that issued by the next Senate estimates?
Senator Carr—I do not want to pre-judge the pace at which the agencies work on these questions, but it is my intention to have those in place this year. The charters are an important part of the relationship we have with the agencies. The current arrangements under the new regulations require statements of expectation to be lodged. This are a more comprehensive approach to dealing with those types of issues.
Senator MILNE—A couple of years ago the now Minister for Infrastructure, Anthony Albanese, asked for full public disclosure of all radiation accidents at facilities operated by ANSTO. Can you tell me what is the process now that ANSTO has for informing the public about radiation accidents, and is it full public disclosure?
Senator Carr—I will let the officers deal with it.
Dr Cameron—Yes, we have a number of processes in place. Obviously, under the regulations that we are governed by from ARPANSA, which is our nuclear regulator, we are required to disclose to it on an agreed basis any incidents that might occur. We have also agreed in our process of informing our local council about any such incidents and we have taken a very transparent approach. We put out releases on our website of anything which is significant that occurs on the site.
Senator MILNE—So you consider you offer full public disclosure?
Dr Cameron—We certainly provide full details of anything significant that occurs.
Senator MILNE—How do you define ‘significant’?
Dr Cameron—That obviously relates to something that would either have a potential for an impact on site or off site or be likely to attract public attention or media attention. Even though it may not trigger the normal levels of reporting we would still report it, anyway.
Senator MILNE—Would you be able to clarify for me the ANSTO budget figures? There has been quite a lot of discussion about ANSTO having had a cut, and yet it looks to me in the budget that ANSTO gets a 14.4 per cent budget increase, despite a $4 million cut to some key programs and some staff cuts. There are two discussions going on about ANSTO’s funding. Is there an overall 14.4 per cent voted increase for ANSTO?
Dr Cameron—ANSTO is funded against a number of outcomes. Outcome 1 relates to OPAL. That no longer attracts any government funding. Outcome 2 relates to issues to do with spent fuel. Outcome 3 is our general science and technology area. In terms of the budget in outcome 3, the reductions for next year are approximately $4 million. However, we have some additional funding for defined decommissioning activities. Overall it looks like an increase, but it is a special one-off application for a decommissioning program that we cannot transfer into another area. It can only be used for that purpose. But if you take that one-off number aside, then overall the reduction has been $4 million, and on last year it is about half a million difference between 2007-08 and 2008-09.
CHAIR—It is 10.45 and we will break for morning tea at this stage.
Proceedings suspended from 10.46 am to 11.01 am
CHAIR—I will reopen the meeting with ANSTO. Senator Milne.
Senator MILNE—I was just asking about the one-off. We were discussing that. I was asking about the clarification of the budget numbers, and you were saying there was a one-off payment. Can you clarify the size of the one-off payment and what it is to cover?
Dr Cameron—There is a one-off payment of $12.1 million towards specific decommissioning activities. That primarily relates to the decommissioning of the previous research reactor, HIFAR, but we also have some other decommission activities that we will conduct this year, and for the forward years there is $10 million in the year after for the same process.
Senator MILNE—Is that out of the $89 million?
Dr Cameron—No. The $89 million relates to the provision for total decommissioning. These are some of the activities that would be part of that and we have had specific funding for those.
Senator MILNE—What do you see as the full cost of decommissioning HIFAR?
Dr Cameron—We have previously reported that we expect the full decommissioning cost of HIFAR will be $53 million.
Senator MILNE—Have you been given $10 million for this?
Dr Cameron—Twelve million dollars in 2008-09 against some specific activities that we wanted to carry out.
Mr Cubbin—And none in the forward years.
Senator MILNE—None in the forward years?
Mr Cubbin—That is correct.
Senator MILNE—Where is the rest of the $53 million going to come from?
Dr Cameron—We will have to make an application to government under a new policy proposal for that additional funding.
Senator MILNE—In the forward estimates there is only $12 million this year for decommissioning HIFAR and no money into the future—you will have to apply for more money for that—to a total of $53 million.
Mr Cubbin—I will just clarify that. What happened was when we determined the future liabilities associated with decommissioning, we approached the government regarding funding options. As an interim arrangement we were given an agreement to fund the cash component in the 2007-08 year and in the 2008-09 year while a solution was found on a whole-of-government basis to the whole issue of decommissioning. We received $1.1 million in 2007-08 and $12.1 million in 2008-09 against specific decommissioning activities.
Senator MILNE—Where do you get the $53 million from as being the total cost of decommissioning HIFAR? What is that based on?
Dr Cameron—To determine the total liability for decommissioning and restoration we looked at all our assets across site and what the likely decommissioning costs would be, and we totalled that up. That is the total decommissioning liability and that is what we have to put into our balance sheet at the moment. With regard to HIFAR in particular, there are a number of HIFAR type reactors around the world. These are in various stages of decommissioning and we have used estimates that we derived ourselves from engineering calculations, plus the experience that we find from looking at these reactors overseas.
Senator MILNE—We have got an unfunded liability into the future for decommissioning HIFAR?
Dr Cameron—As yet there is no overall solution to that liability issue.
Senator MILNE—What is the estimated total cost of decommissioning OPAL?
Dr Cameron—OPAL has obviously taken advantage of modern practice and we estimate that is about $30 million.
Senator MILNE—What is the cost of the decommissioning the MOATA research reactor?
Dr Cameron—Decommissioning that will be between $5 and $10 million.
Senator MILNE—Is that built into the future costs of $89 million?
Dr Cameron—It is part of the total decommissioning that we worked out for the sites as a whole.
Mr Cubbin—We should explain how this works. It is not a straight correlation because, when you determine the liability for decommissioning, you determine the present value and that is what you show in your balance sheet. Over time you then index that to show future cost and you depreciate it as well. The provision for decommissioning in the ANSTO books is around 160 million to 170 million in current dollars. However, it will be much more than that if you looked at the actual cash expended, but you should understand that it is expended over a period of 50 years so the $89 million that we are talking about in terms of losses is only the indexing impact on that five-year period, so it is what we actually expend in those years.
Senator MILNE—When you gave me a figure back then of what has been the capital cost of the OPAL nuclear reactor in current dollars, I understand that the initial amount that was projected in 1997 was $286.4 million and in the 2006-07 annual report the reactor cost was cited at $474.817 million. I asked a little while ago what was the capital cost in current dollars and I got approximately $400 million. It cannot have reduced $74.817 million in the last two years, so can you perhaps give me a more accurate figure as to what has been the capital cost?
Dr Cameron—It might be better if we provided it, because the budget was made up of three different sections. When we talk about the reactor, there was the reactor construction itself, but then there are the neutron beam instruments that were going to be attached to it and they were considered separately. Sometimes the costs are given with the instruments and sometimes it is not, and that is why there is that variation.
Senator MILNE—I would appreciate if you could provide me with the full capital cost in current dollars breaking down all the component parts so we get a sense of what the cost is in real dollars. I have indicated that I put some questions on notice unfortunately because we are running out of time, but I wanted to ask one question in relation to ANSTO’s current role in the Generation IV International Forum. Former Prime Minister Howard wanted to make a firm commitment to Australia’s participation in Generation IV. Can either the department or the minister indicate to me whether we are proceeding with that; what is our view about Generation IV; what is our commitment to it; and are we still attending meetings?
Senator Carr—I will ask the officers to comment on their involvement.
Dr Cameron—Under the previous government we did go through an initial process of approaching the Generation IV International Forum about membership and we indicated the sort of research that ANSTO does that could be part of their particular program.
Senator MILNE—What was that?
Dr Cameron—It relates mainly to our expertise in waste forms, which is well known internationally, and also to our expertise in materials, particularly materials that are exposed to high temperatures and high radiation environments. ANSTO has a lot of expertise in those two areas. We did make an application for membership last year and all of that process is currently on hold, so there is no activity from our side with regard to Generation IV.
Senator MILNE—Minister, has the government made a decision whether to withdraw that application for membership or are you going to proceed?
Senator Carr—The matter is currently before government.
Senator MILNE—When is the community likely to get a response from government as to whether Australia is going to proceed with the Generation IV application for membership?
Senator Carr—The whole issue is currently before government and the matter will be resolved in due course.
Senator MILNE—Thank you.