Government accused of nuclear sale deception
Tuesday 11 June 1996
The allegations came as British Energy, the loss-making nuclear generating company being sold off, revealed in its pathfinder prospectus that shareholders would receive maiden dividends totalling pounds 96m - almost twice as much as the company is expected to make in pre-tax profits in its first year on the stock market.
Up to 700 million shares in the company, representing the Government's entire stake, are being sold.
The first of two instalments for small investors will be at 100p per share, with a minimum investment of pounds 300. So far, more than 750,000 private investors have registered for shares.
John Battle, the shadow energy minister, said the main "Tory lie" was the Government's failure to ensure that there were enough funds to deal with long-term nuclear liabilities. He said: "This sale is subsidised to a quite unpre- cedented degree."
He added: "It is an extraordinarily bad deal for the taxpayers and if it goes ahead under these terms then a Labour government would certainly have to examine the regulatory framework in which British Energy operates."
Mr Battle's accusation related to the storage and fuel reprocessing and decomm- issioning of power plants of the nine old Magnox reactors remaining in state hands. Some liabilities from the eight more modern reactors being privatised would remain in state hands, having been "quietly exempted" by ministers at an estimated cost to the taxpayer of pounds 6.9bn.
But the energy minister, Tim Eggar, hit back, saying the Government was shifting pounds 3.7bn of nuclear liabilities into the private sector. "This is a significant benefit to taxpayers," he said.
British Energy has set up a segregation fund for retired stations endowed with an initial pounds 228m to meet certain de-commissioning liabilities. A further pounds 16m to be paid into the fund annually will be reviewed every five years. British Energy is also extending the life of four reactors by five years each, which will lead to lower depreciation charges and deferred de-commissioning payments.
Mr Eggar went on to attack an independent financial analysis from two industry experts, Mike Sadnicki and Gordon Mackerron, who estimate that British Energy is worth only pounds 400m - up to pounds 1.6bn less than City estimates of the likely privatisation proceeds.
"That's utter garbage," the minister fumed. "It comes from academics who do not appear to understand the fundamentals of the industry." After taking into account all expected operational costs and liabilities, the academics reckon that the seven advanced gas cooler reactors being privatised are worthless, while Sizewell B, the newest station, should fetch pounds 400m.
The prospectus also revealed that total directors' remuneration will increase by 38 per cent to pounds 1.057m in the year to March 1997. The deputy chairman, Robin Jeffrey, will receive a 26 per cent increase in his basic salary to pounds 157,000 when the company is floated on the stock market. The highest-paid director is the chief executive, Robert Hawley, whose basic salary is pounds 207,000. Advisers said the underlying increase for existing board members was 10 per cent.
Mike Kirwan, the finance director, said British Energy expected to pursue a progressive dividend policy, but admitted that payments may be uncovered by profits after tax for a number of years.
Analysts noted that the company's dividend policy depended on several factors, including inflation, which affects the group's financing charges, and prices in the electricity industry's trading `pool' not falling by more than 5 per cent in real terms. "If one were to take the bear case on each of these fronts, it would probably knock this privatisation through the floor," the broker said.
Comment, page 17
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