Why nuclear sale is potentially explosive

If you were allowed to select your first privatisation account you would probably not choose one that had the word “nuclear” in it. It conjures up images of Chernobyl, radioactive sheep on the Welsh hills and a secretive industry. You can’t realistically use the images of Frank-enstein which were used to sell the electricity companies in the Nineties – they could be misconstrued.

The task has been made slightly easier for Lowe Howard-Spink, which picked up the 5m account (MW last week) to sell the 2.5bn nuclear industry, because it will be advertising the sale of British Energy – the company created last year by merging Scottish Electric and Nuclear Electric to prepare the industry for privatisation. It has the advantage of an ambiguous name, but that may simply confuse potential small investors further.

The industry has been striving to present an image of itself as a clean, technologically-driven business. But that will not change the fact the sell-off, scheduled for the summer, is likely to be one of the most difficult Government privatisations to date. Safety concerns, once the industry passes into the less regulated private sector, will be uppermost in many minds.

No decision has yet been taken on the final strategy or budget but advertising observers believe the programme will have to include an element of education to address the potential public concern about the N-word. Even if the main focus, as with the National Power sell-off, will be institutional investors.

According to a Government source, LH-S’s pitch virtually ignored the N-word, concentrating instead on an approach that appeals to privatisation-friendly consumers rather than attempting to convert doubters. Research is continuing into the best approach. “It is purely Government privatisation work, not corporate,” says a spokeswoman for the Central Office of Information, which handled the appointment for the Department of Trade & Industry.

“There is a tremendous amount of emotional baggage attached to the word ‘nuclear’,” says one inside source. “But that need not be a problem when it comes to privatisation. The view taken is that whether it is privately or publicly-owned does not affect the dangers of nuclear power – it cannot be uninvented.”

But even without the emotional “baggage”, the privatisation, like the Government’s other controversial sell-off Railtrack and the on-off sale of the Royal Mail, has been continually hampered by political embarrassments.

First, the nuclear industry was withdrawn from both the 1990 sale of the Central Electricity Generating Board and the 1995 sell-off of National Power to avoid damaging those sales. Then – last month British Energy scrapped plans to build two new power stations raising speculation that nuclear power has no future in the UK – a point which affects the confidence of potential investors.

Finally in the week before Christmas it was revealed that the nuclear levy to cover for the clean-up of the industry will continue to be paid by the taxpayer even after the sell-off and the bill could be as high as 3bn.

If that were not difficult enough, the sell-off coincides with a period when privatisation has become a dirty word, even for some who previously supported it. Bid fever in the privatised utility market, stories of “fat cat” bosses and water droughts have combined to tarnish the image of the big budget privatisations of gas, electricity and water.

In effect this year’s sell-offs represent the fag-end of the 15 year privatisation crusade and as such have none of the glamour but all of the potential problems of the earlier sales. An imminent General Election could stop the process in its tracks. Advertising budgets have fallen accordingly, making the task for LH-S and WCRS, which won the 5m Railtrack account last August, even more difficult.

Last year saw a 13 per cent fall in Government spending on advertising through the COI, largely due to a fall-off in privatisation campaigns. This year the COI spend is expected to remain constant at 55m.

“All privatisations are complex assignments but they seem to be getting more complex,” says John Farrall, chairman of D’Arcy Masius Benton & Bowles, which pitched for the Railtrack account. “Any agency would be crazy not to look at a piece of business with a 5m budget to be spent in a concentrated period of time that will raise the agency’s profile.

“A privatisation is ultimately a financial transaction and people will want to be provided with information on the financial merits of the entity. But with something like the nuclear case, there should be some educational content also to address the lack of public awareness of the product – reinforcing the commercial attractiveness of the sale.”

Railtrack is scheduled for privatisation in May, British Energy will follow later in the summer and John Major is continuing to hold out the prospect of a Royal Mail sale before the next election. Even without the Post Office, the sales should net the Treasury 4bn.

It is indicative of the present Government’s situation that the nuclear sell-off represents the safest of the three – at least in political terms. LH-S will now have to prove it is also safe in a long-term financial and environmental sense.