Bail-out of British Energy could cost up to £3.6bn

The cost to the taxpayer of bailing out British Energy, the beleaguered nuclear power generator, could reach as much as £3.6bn, it was disclosed yesterday.

The increased figure emerged as British Energy unveiled a bigger-than-expected loss of £4.3bn last year after taking £4.2bn in asset write-downs. The biggest write-off was in the value of its eight UK stations, which are now estimated to be worth £3.7bn less because of the sharp decline in wholesale electricity prices.

British Energy also hinted its Scottish headquarters were likely to close as part of a cost-cutting programme linked to the government-backed rescue of the company. The closure of the Peel Park offices at East Kilbride, near Glasgow, could result in 350 job losses from a UK workforce of 5,100.

The announcement of the cost-reduction plan is expected in about a month. Mike Alexander, British Energy's new chief executive, said: "There will be a change in the numbers employed, although it will not be huge. As part of that we are certainly looking at Scotland."

Patricia Hewitt, Secretary of State for Trade and Industry, told the Commons that the European Commission now estimated the total cost of the government bail-out for British Energy at £3.3bn. This includes the £900m in tax which the company will avoid paying on the £2.1bn of spent fuel reprocessing costs that the Government has agreed to shoulder.

But figures contained in British Energy's annual report and accounts show the figure could rise to as much as £3.6bn. This is the difference between the £3.9bn of discounted liabilities on the company's books and the £300m contribution it has so far made to the Government's new nuclear decommissioning fund.

The company has to reach final agreement with its banks and bondholders on the restructuring by 30 September but it will take until next summer before the EC rules on whether to approve the bail-out. Greenpeace and the rival electricity producer AES have lodged appeals with the European Court of First Instance against the EC's approval of the Government's initial £650m rescue last autumn.