British Energy’s restructuring deal

Tom Adams

October 14, 2003

Under the deal, taxpayers take on responsibility for the company’s decommissioning liabilities. According to one report, this avoids the UK government from having to include the nuclear stockpile of debt in the public finances, an amount that might sum to £4 billion (British Energy nuclear stations could go for £1 each, By Michael Harrison, The Independent). (Government keeps its options open as nuclear is kept private By Jeremy Warner) A report in the Times (Business Editor’s Commentary: State aid — on a grand scale, By Patience Wheatcroft) suggests that the government’s reporting treatment for the liabilities it has acquired have not yet been determined.

The structure of the state aid is, in part, that taxpayers will be faced with a bill of up to £200 million a year for a decade, and then an unspecified amount after that. Lossmaking, state-owned British Nuclear Fuels will accept a lower price for reprocessing fuel for BE. In addition, the government has also agreed to take over BE¹s multi-billion pound clean-up liabilities – another hit to the taxpayer. (Scrutineer: Light at the end of the tunnel for BE – if Brussels agrees by Martin Flanagan, City Editor) In return, the government requires BE to surrender 65 per cent of its annual post-tax cash flow to the government’s new Nuclear Liabilities Fund. (Financial Times, LEADER: Tough bargaining on British Energy)

After the deal was announced, British Energy’s bombed-out shares, once on the FTSE 100 index of the UK¹s biggest companies, edged up slightly to close at 5.38p last night, having closed on Tuesday at 5.35p. That puts a £33 million value on the company, which was worth £5 billion at its peak. (British Energy debt swap leaves shareholders fuming By Angela Jameson, Industrial Correspondent)

The Times points to the British Government’s muted response to the French state rescue of Alsthom and suggested that British Energy provides the explanation. The Times called the BE rescue deal “semi-renationalisation” and points out that the company suffer another operating loss, this time of £40 million in the five months to the end of August. (Business Editor’s Commentary: State aid — on a grand scale, By Patience Wheatcroft)

The European Commission launched an investigation into the Government’s aid to the company, which it believes could contravene state-aid regulations. The investigation, which started after British Energy received a £650m state loan last autumn, is due to be completed next summer. If it judges that British Energy was being unfairly supported, the company could yet be re-nationalised. The Government repealed the 1989 Electricity Act earlier this year in case it has to re-nationalise the company. (* Daily Telegraph * “DEAL KEEPS LIGHTS ON AT BRITISH ENERGY” by Edmund Conway)

Under the deal, the government also has the right buy any of BE¹s power stations for £1 if the company decides to begin decommissioning work before previously agreed dates. (British Energy still on uncertain ground, by Iain Dey, Deputy Business Editor)

In commenting on the bailout, groups as disparate as Friends of the Earth and the Financial Times called for the end of spent fuel reprocessing. The Financial Times noted, “(The BE saga) has raised the question of whether the storing of spent fuel at reactor sites rather than expensively reprocessing it might not make cost as well as environmental sense.” (Financial Times LEADER: Tough bargaining on British Energy)

 

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