Trying not to blink first

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In one of my previous lives, I worked for some years as a project manager on IT projects.  I remember one wise boss saying that “all IT projects run 30% over budget, even when this has been allowed for in the initial estimate”.  I can remember more than one occasion on which every individual sitting around the table discussing a project knew full well that his or her bit of the project was running late, yet all faithfully reported being on target.  It was all about who would blink first and take the blame for being late; once one person had blinked, the others could safely reschedule their work in the hope that the new revised timetable might allow them to recover the situation.

I found myself wondering whether something similar happened last week as the decision about progressing Hinkley C grew ever closer.  I imagine the civil servants briefing the new PM and her team that they didn’t need to worry about the project, or the Chinese involvement, because the French board of EDF would never agree to proceed.  Sir Humphrey probably said something like, “It will all be fine, Minister.  Accept the invitation to the little party to sign contracts, but it will never happen.  The French will let you off the hook”.  Once the French had conveniently sunk the scheme, the UK Government would have someone else to blame.

But the French failed to blink, despite the obvious danger that they might end up sinking the whole company.  Perhaps they’d been similarly briefed not to worry, because the UK Government didn’t really want to proceed either, so they’d never be called on to stump up. 

I can imagine the subsequent panic in some Whitehall bunker when the news came through that EDF had decided to press ahead, placing the onus fairly and squarely back on London.  Ministers were urgently advised not to attend ceremonies or sign anything.  They rapidly found subsequent engagements.

The sensible thing at this stage would be for those concerned to recognise that Hinkley C was always a bad idea and, with as little recrimination as they can get away with, quietly walk away, and adopt a different policy.  After all, we have a new government (even if we didn’t vote for one), and they can easily blame the previous government for getting us into the hole. 

It would be nice to believe that that can and will happen, but I’m not counting on it just yet.  Another lesson from the past is that when so much time and effort has been sunk into a project there’s always a reluctance to simply accept it as a sunk cost, cancel the project, and move on.  Deciding to stop throwing good money after bad requires a level of bravery which I’m not sure that the government is yet ready to display.

A costly 'opportunity'?

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The various Companies Acts, and equivalent legislation in other countries, place statutory responsibilities on directors of companies to act at all times in a way which protects the interests of their companies, and even more so, their shareholders.  This can sometimes be ‘inconvenient’ for those of a more reckless bent, and one of the reasons for some of the more spectacular company failures over the years has been the willingness of directors to either fall in line or allow themselves to be browbeaten into compliance with the will of others rather than raise a challenge at the appropriate time.

When a director holds out against such pressure, it's an event notable for its rarity.  The resignation of the Finance Director at EDF is one such example.  Now I don’t know, nor do I pretend to know, the detail of the financial state of the company, or the extent to which that company would really be jeopardized by a decision to proceed with the construction of a new nuclear plant at Hinkley.  And it’s always possible that his judgement is simply wrong, and that the judgement of others is better.

Nevertheless, it concerns me – and I think it should concern us all – that the reaction of the UK and French governments has been not that his concerns should be examined in more detail, but more a sense of relief that a perceived ‘obstacle’ has been removed.  From the outside, it looks like a case of political will triumphing over financial reality.

At one level, whether a particular company succeeds or fails isn’t the issue; companies fail regularly.  But at another, we are dealing here with a construction project with very long term implications.  I’ve long been sceptical about the reality of the promises that the companies which build and operate nuclear power stations will be around long enough, and have the available reserves put aside from operating profit, to be able to pay the clean-up and decommissioning costs of nuclear power plants. 

If those stations have been built on shaky financial grounds in the first place, it becomes even more likely that we as taxpayers will end up picking up the tab.  For an economy the size of the UK, it will be a substantial cost; for an economy the size of Wales, it would be a crippling cost.  Hinkley, the current example where this issue comes to the fore, isn’t in Wales.  But Wylfa is – and it would be a mistake to assume that the economics of that project are any more likely to stack up than those of Hinkley.  Rather than seeing the resignation of M. Piquemal as an opportunity, governments really should be looking into his concerns rather more thoroughly.