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Financial Statements
30. Provisions
| Decommissioning £m |
Environmental £m |
Emissions £m |
Restructuring £m |
Other £m |
Total provisions £m |
|
|---|---|---|---|---|---|---|
| At 1 April 2005 | 105 | 491 | 4 | 90 | 101 | 791 |
| Exchange adjustments | 9 | 19 | - | - | - | 28 |
| Disposal of subsidiary undertakings | - | (44) | - | - | (22) | (66) |
| Additions | 18 | 3 | 19 | 35 | 70 | 145 |
| Reclassification from working capital | 24 | - | - | - | 5 | 29 |
| Unwinding of discount | 3 | 15 | - | - | - | 18 |
| Utilised | (32) | (55) | - | (50) | (37) | (174) |
| At 31 March 2006 | 127 | 429 | 23 | 75 | 117 | 771 |
| Exchange adjustments | (12) | (27) | - | - | - | (39) |
| Acquisitions of subsidiary undertakings | 1 | 7 | - | - | - | 8 |
| Additions | - | 14 | 13 | 14 | 1 | 42 |
| Unused amounts reversed | (13) | (11) | (23) | (1) | (2) | (50) |
| Reclassification to working capital | - | (4) | - | - | - | (4) |
| Reclassification to assets of businesses held for sale | (12) | - | - | - | (15) | (27) |
| Unwinding of discount | 4 | 15 | - | - | 2 | 21 |
| Utilised | (25) | (51) | (12) | (32) | (8) | (128) |
| At 31 March 2007 | 70 | 372 | 1 | 56 | 95 | 594 |
Provisions have been analysed as current and non-current as follows:
| 2007 £m |
2006 £m |
|
|---|---|---|
| Current | 167 | 235 |
| Non-current | 427 | 536 |
| 594 | 771 |
Decommissioning provision
The decommissioning provision of £70m at 31 March 2007 primarily represented the net present value of the estimated expenditure (discounted at a nominal rate of 5.3%) expected to be incurred in respect of the decommissioning of certain nuclear generating units. It also included £9m relating to other asset retirement obligations. Expenditure is expected to be incurred between financial years 2008 and 2015.
Environmental provision
The environmental provision represents the estimated environmental restoration and remediation costs relating to a number of sites owned and managed by subsidiary undertakings.
At 31 March 2007, £168m (2006: £193m) of the environmental provision represented the net present value of the estimated statutory decontamination costs of old gas manufacturing sites in the UK (discounted using a nominal rate of 5.6%). The anticipated timing of the cash flows for statutory decontamination cannot be predicted with certainty, but they are expected to be incurred over the financial years 2008 to 2058 with some 69% of the spend projected to be spent over the next five years.
There are a number of uncertainties that affect the calculation of the provision for UK gas site decontamination, including the impact of regulation, the accuracy of the site surveys, unexpected contaminants, transportation costs, the impact of alternative technologies and changes in the discount rate. We have made our best estimate of the financial effect of these uncertainties in the calculation of the provision, but future material changes in any of the assumptions could materially impact on the calculation of the provision and hence the income statement.
The undiscounted amount of the provision at 31 March 2007 relating to UK gas site decontamination was £246m (2006: £239m), being the undiscounted best estimate of the liability having regard to the uncertainties referred to above.
The environmental provision at 31 March 2007 also included £200m (2006: £227m) which represents the net present value of estimated remediation expenditure in the US that has been discounted at a nominal rate of 6.0%. This expenditure is expected to be incurred between financial years 2008 and 2047. The uncertainties regarding the calculation of this provision are similar to those considered in respect of UK gas decontamination. However, unlike the UK, with the exception of immaterial amounts of such costs, this expenditure is expected to be recoverable from rate payers under the terms of various rate agreements in the US.
The undiscounted amount of the environmental provision relating to US sites amounted to £296m at 31 March 2007 (2006: £333m). We do not have sufficient information to calculate a range of outcomes, but it is expected that any outcome of the liability would be recovered from rate payers (with the exception of immaterial amounts of site costs).
The remainder of the environmental provision of £4m (2006: £9m) related to the expected cost of remediation of certain other sites in the UK. This is calculated on an undiscounted basis and is expected to be utilised within the next five years.
The undiscounted amount of the total environmental provision at 31 March 2007 is £546m (2006: £581m).
Emissions provision
The provision for emission costs is expected to be settled using emission allowances granted which are reported as an intangible asset.
Restructuring provision
At 31 March 2007, £31m of the total restructuring provision (2006: £34m) consisted of provisions for the disposal of surplus leasehold interests and rates payable on surplus properties. The remainder of the restructuring provision related to business reorganisation costs in the UK, to be paid between financial years 2008 and 2016.
Other provisions
Other provisions at 31 March 2007 included £49m (2006: £51m) of estimated liabilities in respect of past events insured by insurance subsidiary undertakings, including employer liability claims. In accordance with insurance industry practice, these estimates are based on experience from previous years and there is, therefore, no identifiable payment date. Other provisions at 31 March 2007 also included £24m (2006: £28m) in respect of the sales of four UK gas distribution networks relating to property transfer costs; and £11m (2006: £11m) in respect of obligations associated with the impairment of investments in joint ventures.