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BZW warns on early nuclear sale risky

Nuclear Electric's new £2bn power plant on the Suffolk coast is unproven and "it might be difficult to obtain full value for the station in an early privatisation", the investment bank BZW has warned Michael Heseltine, President of the Board of Trade.

In an analysis of privatisation plans placed in the House of Commons library this week, BZW also says: "If Sizewell B were to perform poorly, this could prejudice the privatisation of any company which owned it."

The investment bank's comments, highlighting the importance of Sizewell B's track record by the time of privatisation, are likely to reinforce opposition complaints in the Commons that the privatisation is being pushed through in a hurry.

There will be less than a year from the end of June, when Nuclear Electric has targeted Sizewell B to run at at full power, to the sell-off.

Jack Cunningham, the Labour trade spokesman, claimed on Tuesday that the privatisation was unlikely to raise more for the Government than the cost of Sizewell B.

Nuclear Electric acknowledged yesterday that the station has yet to face a crucial operating test in the run-up to full power.

It must demonstrate three full days of continuous operation at maximum output of 1,188 megawatts to gain a rating certificate that will allow continuous operation on the National Grid.

Currently, the station is running three days at a time at about half power as part of a series of tests of its shut-down mechanisms for the Nuclear Installations Inspectorate, which oversees nuclear safety.

Performance in the coming weeks is likely to be monitored closely by the Government's advisers.

The BZW document says that with the general election due by April 1997 the latest practicable date for privatisation in this parliament is like to be spring or summer next year, after the company's annual results.

The analysis says investor education will be crucial to privatisation because of a "lack of familiarity with the industry".

Institutions would see the company as a utility and their primary focus would be on its ability to produce dividends.

But they are "likely to start from the position that a nuclear generating company will be a riskier investment than other privatised generators and should therefore command a higher divident yield".

The privatised generators currently command a dividend yield of around 4 per cent.

BZW lists the critical path to privatisation as restructuring of the industry, agreeing reprocessing contracts with British Nuclear Fuels - which have in fact just been signed - and clearing restructuring proposals with the European Commission if they are considered to involve state aid.