Nuclear fallout
PAC criticises DTI for its 'complacent' management of the privatisation of AEA. Kathy Greene reports
The Public Accounts Committee this week accused the Department of Trade and Industry of ‘surprising complacency’ over the loss of more than #100m during the 1996 privatisation of AEA Technology.
PAC members said the atomic energy authority sale was one of the most unfortunate instances of the taxpayer being short-changed ever witnessed and accused the DTI of deliberately ignoring advice from the Treasury and the National Audit Office on the case for phasing the sale.
The DTI was criticised for maintaining a share value of 280p, although AEA shares were valued at 323.5p on the first day of trading, rising to 617.5p. DTI permanent secretary Michael Scholar said he considered the sale a success but said the DTI should have considered phasing and overseen the allocation of shares.
‘We acted on advice from our brokers, Cazenove, on the price of shares. The government had a fixed policy to sell the shares and phasing was not explicitly considered but with hindsight we fully acknowledge the benefits of it,’ said Scholar.
David Davis, chairman of the committee, said he was concerned the department had not overseen the allocation of 68 million shares to Cazenove or Schroders, who acted as advisers during the sale.
The PAC criticised Cazenove for making a profit of #24m. Davis was also critical of success fees of #1.8m paid to Schroders, whose profits from the shares were 34 times the success fees.
‘We admit we should have overseen share allocation but did not see it as a conflict of interest for Cazenove or Schroders. We underestimated the value of the company; it certainly exceeded everyone’s expectations,’ said Scholar.
But the committee said there were enough signals for the DTI to avoid undervaluing the company. ‘There was sufficient warning from the Treasury and the NAO, plus there was a rush of interest close to the end of the sale. We are concerned that the advisers set the price, took success fees and allocated shares for themselves,’ said Davis.
‘It’s hardly likely they would have bought such a significant amount of shares in a pessimistic option,’ he added.