2nd UPDATE: UK Axes GBP80 Mln Sheffield Nuclear Industry Loan

17th Jun 2010 15:38

(Adds details and quotes from business secretary and analyst.) By Selina Williams Of DOW JONES NEWSWIRES LONDON (Dow Jones)--The U.K. government Thursday axed an GBP80 million loan to Sheffield Forgemasters International Ltd. for equipment to make the large forgings for nuclear power stations as part of broader spending cuts. The GBP80 million loan, promised by the previous Labour government, was the final piece of a GBP140 million funding package to enable SFIL to buy and install the country's first 15,000-metric-ton forging press to make the ultra-large components now in big demand in the global nuclear power industry. The announcement is a blow both to the company and the nuclear sector as it would have made SFIL one of only a handful of companies globally with the specialized technology and nuclear licensing and accreditation to manufacture all the forgings required for nuclear power stations. It also comes as big European utilities, including Electricite de France SA (EDF.FR), E.ON AG (EOAN.XE) and Iberdrola SA (IBE.MC), are gearing up to build a new fleet of nuclear reactors in the U.K. as part of a global expansion of nuclear power capacity that has already stretched nuclear supply chains to the limit. The demand for heavy nuclear forgings is set to more than triple by 2020, reaching 70,000 tons with worldwide capacity only able to supply 59,000 tons over the same timescale. SFIL Chief Executive Graham Honeyman said the announcement was a "huge disappointment." "While the [15,000-ton] press would have placed the company at the forefront of civil nuclear manufacture, it is important for us now to focus on other elements of the company's development," he said. It is unclear if SFIL will seek the GBP80 million from other sources, including nuclear power plant manufacturer Toshiba Corp. (6502.TO) unit Westinghouse and the Sheffield office of Lloyds Banking Group PLC (LYG), which had signed up to the original GBP140 million package. The U.K. government--a coalition of Conservative and Liberal Democrats--is canceling 12 projects worth GBP2 billion promised by the previous Labour government and suspending a further 12 schemes with a total cost of GBP8.5 billion as it seeks to pare back the country's deficit. Chief Secretary to the Treasury Danny Alexander said some of the GBP34 billion in spending decisions made by the previous Labour government since Jan. 1 had proven to be poor value for money. Ian Parrett, an analyst at energy consultancy Inenco, said the decision to ax the loan raised real doubts about the government's commitment to the U.K.'s low-carbon future and raised a "warning flag" about the policy impact of the Liberal Democrats, who are against nuclear power, on the coalition government. "The Lib Dems fought the general election on a policy of no new nuclear build and this seems to be setting the tone for policy decisions," Parrett said. However, Business Secretary and Liberal Democrat Vince Cable said the government was only seeking to reduce debt and create growth. "We have to find a balance between reducing the deficit while helping the economy to grow. Against a backdrop of reduced public spending, the government's role is to create the right business environment and the right skills base. The government cannot simply keep writing out checks," he said. Energy Secretary and Conservative Charles Hendry said Wednesday that the government plans to remove regulatory barriers to nuclear power to facilitate the construction of a new fleet of reactors without public subsidy. The U.K. has stringent targets written into law to cut carbon emissions 34% by 2020 and 80% by 2050 from 1990 levels and is facing power shortages over the next decade as its aging fleet of nuclear reactors and coal plants are retired. A report by energy regulator Ofgem this year said about GBP200 billion investment in low-carbon generation and electricity grid infrastructure is required over the next 10 to 15 years if the U.K. is to meet its climate change and energy security targets. -By Selina Williams, Dow Jones Newswires +44 207 842 9262; [email protected] (END) Dow Jones Newswires June 17, 2010 10:38 ET (14:38 GMT)