URENCO: Another Calamity in Prospect?

Felixstowe Port

Britain has a huge goods trading deficit of around £90 billion per year (actually nearly £10 billion in December alone) which has grown steadily over the last thirteen years from an average of £11 billion per year (bad enough) under the Major government (1992-97).

An excess of goods imports over exports of £90 billion corresponds in round terms to at least 800,000 industrial jobs not being carried out in Britain.  At around £230 billion, manufactured goods account for over 60% of all UK exports, more still if directly dependent services like aero-engine maintenance and insurance are counted.

Any first world country with low, if any, natural population growth, must expand its exports if its economy is to grow, particularly when, as now in the UK, there is a severe contraction of domestic demand in prospect in order to eliminate its appalling government deficit (around 11% of GDP or 30% of government income from taxes and duties).

Germany’s Example: Quality and Range of Products

This truth is illustrated by Germany with a static population, but which provides 25% of all the world’s new machinery.  It is the second largest exporter in the world (after China) at £680 billion, of which about £600 billion are goods (i.e. about 2.5 times the UK’s).  With domestic demand static, Germany’s GDP is nonetheless forecast to grow by 2.5% in 2011 (UK 1.0-1.5%).  This is fundamentally because it supplies what the expanding markets in South America, China, Russia, South-East Asia actually need, i.e. those things which they can’t readily supply themselves – machines to make other things, complex finished products like trains, cars and engines, control systems, switch-gears, and so on.

What financial commentators like Ian King (The Times December 23rd 2010) miss is that Germany’s exports are based on a very wide range of products.  Price is rarely the most important factor, or even among the first three factors, which are quality, availability, maintainability.  This is why Britain’s exporters have not on average “benefited much” as King would have it, from the nearly 20% devaluation of the pound sterling against the euro between 2006 and now.  Capacity cannot quickly be added and at present Britain simply does not make a wide enough range of products.  The relative unimportance of the price of well-made up-to-date products can be judged by reflecting that there were 12 deutchemarks to the pound sterling in 1960; 4 in 1980; 2.3 equivalent (1.15€) today.

Besides those manufacturers who are well-known to the public – Rolls Royce, BAe Systems, Weir Pumps, Glaxo Smith Kline, AstraZeneca, we have all too few relatively unknown companies which are genuinely world class, major exporters as well as being vital for the domestic market, medium sized, but set to grow into something much larger.

URENCO: Vital part of Britain’s Nuclear Programme

One of these few is URENCO, whose British factories are at Capenhurst in Cheshire.  URENCO is arguably the world’s leading manufacturer of enriched uranium by the gas centrifuge process, the process technology of choice for all aspiring nuclear fuel suppliers (whence Iran’s intense effort to build such a process).

With sales of £1,100 million, net cash generation of £730 million, net income after tax and depreciation of £340 million and an order book of £19 billion (!), reflecting the huge boom in nuclear power station construction, one would have thought that any British government would have held on to Britain’s one-third share in this major asset at all costs.

But no.  In accordance with discredited free market ideology, the British government is trying to persuade its Dutch and German partners to sell this asset, which is vital to Britain both as an export earner and as guarantee of supply to our own vital new nuclear electricity industry.  Gordon Brown, when Chancellor, tried to sell it in order to raise a few £100 millions in 2006, but the Dutch and Germans did not fancy France or Japan (the likely buyers) as partners in place of Britain.  As it is, in 2006 Brown sold nuclear plant engineers Westinghouse, owned by the then British Nuclear Fuels Ltd to raise a paltry £2.9 billion to enable him to claim that his budget was “balanced”.  This was all of a piece with his selling in 1998 a third of Britain’s gold reserves at 250$ an ounce (1,458$ today, April 8th 2011).

Foreign ownership ultimately exports jobs

As a result of the Westinghouse sale, at least the first ten of Britain’s new nuclear reactors are all likely to be built to foreign designs, either by Mitsubishi-owned Westinghouse or French-owned Areva.  But despite this we have Ian King (The Times, 8th April 2011) wanting to sell Britain’s last remaining strategic nuclear asset – profitable, export markets booming, well-run – almost certainly to a foreign buyer, most likely the French who would dearly love to replace their obsolete thermal diffusion enrichment process by the centrifuge technology in the UK’s plants at Capenhurst in Cheshire.

What is it with financial journalists that they cannot see that selling productive assets to foreign owners is a guarantee that British jobs, brands and exports will, over time, be moved away from Britain (e.g. Cadbury, McIntosh, Terry’s), that any price paid reflects the short-term (less than 5 years) view of profits, not the long-term 10-30 years, so vital for our national economic survival.  If Edward Heath had not insisted on a golden share in the 1972 reconstructed Rolls Royce, does anyone seriously believe it would be in British hands today as the second largest jet engine maker in the world (actually the first in some markets)?

A British Destination for URENCO

Rolls Royce is the design authority for the Royal Navy’s submarine nuclear power plant.  While these submarine nuclear reactors at around 60 MW are much smaller than a typical civil station (1100 MW), smaller nuclear stations should surely be on the agenda as future energy shortages and intrusive pylons sink into the public’s mind.

 Rolls has recently added CANDU civil nuclear reactor technology to its portfolio.  If they were to bid for URENCO as part of their own nuclear programme, that would at one and the same time secure a vital British asset and integrate the fuel-making and the fuel-using parts of Rolls Royce’s nuclear business.

With an after-tax profit of £340 million on sales of £1,100 million (about 10% of Rolls Royce’s sales), URENCO would enhance Rolls’s earnings quality, as it would its order book (about 35% of Rolls Royce’s).  Moreover, the market for URENCO’s fuel sales would not be adversely affected by Rolls’s still quite tiny share of the civilian nuclear reactor market.

So as a shareholder in both Rolls Royce and UK plc, let’s bring it on!

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