Sir Adrian Montague: There are two parts to our restructuring process: firstly, arriving at a stable financial framework, which is what the restructuring itself delivered; then secondly, there is, as the report says, work to do on the operational side.

Q98 Mr Khan: So happy with the first and reasonably happy with the second.

Sir Adrian Montague: We are making good progress on the second and the first has delivered a stable framework.

Q99 Mr Khan: Sir Brian, could I ask you whether you think that the Department has achieved an equitable sharing of the costs, the benefits and the risks of restructuring?

Sir Brian Bender: In what was an extraordinarily difficult position that we were discussing in response to earlier questions and given the importance of nuclear safety and security of supply and given that we shall not actually know for certain the answer to that for many tens of years, the answer is that it is a reasonable outcome. We now need to make sure that we monitor the situation closely and secure the best return for the taxpayer as well as the policy objective in the period ahead.

Q100 Mr Khan: Do you really mean that? Do you think it is a reasonable outcome at this stage?

Sir Brian Bender: We are in a middle stage at the moment. The restructuring has happened and it has only been completed for about 12 months. I read the NAO report as saying that in all the circumstances it was a reasonable position, although the Comptroller and Auditor General can answer for himself. Looking forward, the question is then the performance of the company and the effectiveness and efficiency of managing the liabilities and the decommissioning costs.

Q101 Mr Khan: You have not touched upon the cost and the risk to the taxpayer, yet you are reasonably pleased with that.

Sir Brian Bender: For as long as the company is viable and being successful, the cost to the taxpayer is actually an asset not a cost, as the table at the back that has a figure in it describes.

Q102 Mr Khan: Quite clearly this is a complex restructuring, huge financial figures at stake and you are reliant upon the advice you receive. Mr Bacon touched upon concerns about the lack of competition and you have acknowledged that. Are you happy with the advice you received from those people who were given the job without competition?

Sir Brian Bender: I believe, from having read the files, that we received good advice. Again, the Comptroller and Auditor General can speak for himself, but I understood the report to be saying we examined the right sort of issues and received the right sort of advice. There are other people, of course, who will be giving advice on these matters. I believe the NDA will themselves be publishing a strategy later this week and they will be setting some of the framework for the future decommissioning costs and therefore the liabilities over the next decades. So there is another source of advice there.

Q103 Mr Khan: Are you pleased with the outcomes to your negotiations?

Sir Brian Bender: I think that, in the light of the really difficult circumstances that were faced in 2002, we are now in an adequate position. We have a solvent company which is still producing electricity, doing so safely and potentially there is an asset here for the taxpayer. The question is how we manage those liabilities to make sure that actually it is an asset for the taxpayer and not a liability.

Q104 Mr Khan: Do you wish you had had either the advisers or the negotiators that the creditors had?

Sir Brian Bender: I believe, having talked to people who were involved at the time, having read the files, that we had good advice.

Q105 Mr Khan: Do you believe that you pushed hard enough to get a better deal on the cash sweep?

Sir Brian Bender: We shall see, later this year, or whenever it may be, how the cash sweep works when it is first deployed and what return that brings. Again, this was a balance in terms of trying to ensure the viability of the company with the Government and taxpayer sharing, if it was successful, and the risk that if we had struck too hard a deal there, it would not have been a successful restructuring. That was the balance to be struck.

Q106 Mr Khan: Sir Adrian, do you think that your creditors and shareholders have a fantastic deal vis-à-vis the risks to them with regard to nuclear liabilities or lack thereof?

Sir Adrian Montague: The decisions which were taken very early in the restructuring process were taken with a view to securing a solvent restructuring. As I understand it, the cash sweep which we were discussing earlier on was intended to create a way of the contributions that the Government received from British Energy fluctuating over time according to the fortunes of the company. Actually, as things have turned out, we are now creating value in excess of the liabilities that have been transferred to Government.

Q107 Mr Khan: So they have done pretty well and have not shared any of the risks.

Sir Adrian Montague: Clearly there is risk around the long-term evolution of these costs, but, as matters stand today, in my judgment it is a successful restructuring.

Q108 Mr Khan: If you are a creditor or a shareholder.

Sir Adrian Montague: No, no. I would suggest, although it is not for me to say, also as regards the Government.

Q109 Mr Khan: Sir Brian, you have heard what Sir Adrian has said. Why did you not take a direct shareholding in the company?

Sir Brian Bender: We took the view that the monitoring arrangements we had and the cash sweep arrangements we had and the controls we set on the company would provide the right sort of framework to give us the returns without us being involved in actually running it and therefore potentially diluting the ---

Q110 Mr Khan: Just pausing there. Paragraph 2.24 talks about the huge cash payments all the executive directors received when they left. It says at the bottom of that paragraph "Since the completion of restructuring the Department has no right of consultation on executive remuneration". That is one example where you have no control at all.

Sir Brian Bender: We have no control over that. The money which was paid out at the time was subject to contract and the Department received its operating loan back from the company. The controls we do have relate to the financial trading and other trading arrangements of the company, so it must adhere ---

Q111 Mr Khan: Okay, let me read paragraph 3.15 "The Department plays no formal role in approving the company's commercial strategy"'. Another example of your lack of leverage.

Sir Brian Bender: We have set a number of conditions for the company: it must adhere to prudent trading principles; it cannot make capital distributions until it has built up sufficient cash reserves; it cannot undertake corporate restructuring without the Department's consent and its borrowing ability and scope of business activity is limited.

Q112 Mr Khan: Sure; I have read that as well. What control do you have over the performance of British Energy's operational side?

Sir Brian Bender: None.

Q113 Mr Khan: Am I able, for example, to ask you for your comments and your influence over figure 17, paragraph 3.2, where you see that the company is lagging well behind not just upon the maximum annual load factor, but also vis-à-vis international comparators? Do you have any say over that?

Mr Robson: What we have and what we put in place are monitoring arrangements which did not exist previously. Our main focus is to lead British Energy, as a company operating in the private sector, to being a FTSE 100 company now and having the private disciplines with shareholders. We are looking to have significant monitoring arrangements, so we can actually determine how the company is performing as well as having, through various controls, ability to ensure that, for example, dividend payments are not able to be made until a certain amount of cash is within the business. We think we have the right balance between the controls that we feel we need, but also allowing the company to put forward its own strategy and take the business forward.

Sir Brian Bender: And we do discuss operational performance with them as part of the regular monitoring meetings.

Q114 Mr Khan: But they can ignore you, can they not? You have fantastic teamwork today, but they can ignore you if they want to. You would have much more stake if you were a shareholder, would you not?

Mr Robson: May I just deal with the point about why we did not take a direct shareholding? One of the issues that we considered was whether there was any additional benefit in having equity which would obviously have entitlement to dividends. One of the benefits of the cash sweep is that we have a contractual entitlement to 65% of the cash created by the company. So if the company were to decide that it did not want to pay a dividend, which is at the discretion of the directors, we nevertheless would have a contractual right to 65%, with the ability to convert if we wished to do so.

Q115 Mr Khan: I have one final question I wish to put. I have heard all that. How can you assure us that you have adequate contingency plans to minimise the risks for the taxpayer should things take a dip?

Sir Brian Bender: We have close monitoring, as I have described already.

Q116 Mr Khan: You cannot impact the way the company behaves. You can monitor, yes.