British Energy sell-off frozen for two years

Reactor faults lead to U-turn over shares sale

The Government is set to delay the planned multi-billion-pound sale of its stake in British Energy until 2008 at the earliest.

The recent slump in British Energy's share price, caused mainly by problems with its ageing nuclear reactors, has led to the Government's decision to postpone the sale of part of its 65 per cent stake.

The Secretary of State for Trade and Industry, Alistair Darling, announced in July that the sale of up to one-third of the stake, which in total is valued at £7.2bn, would be going ahead.

But since then, cracks have been found in some reactor boiler tubes, causing a quarter of the company's electricity generating capacity to be shut down. Shares have plummeted by 30 per cent. The Government's stake, taken after the generator was saved from administration four years ago, is now worth £5bn.

The Government wants to wait until British Energy shares rise before making a sale. The Shareholder Executive, which administers the shareholding, is also understood to be reluctant to sell any shares before the faulty reactors are properly fixed. If the shares are sold and technical problems resurface, the Government would risk antagonising the City and could face accusations of exploiting inside knowledge for its own gain.

Lakis Athanasiou, an analyst from Collins Stewart, wrote in a report last week: "It is difficult to see any share sales being made before 2008." He said that British Energy's share price would start to regain its losses only if the company could demonstrate over a period of a year that it had resolved the technical problems.

"The market has had a huge shock and needs time to rebuild its confidence in British Energy," he explained. He added that a sale next year was not impossible but would depend on British Energy getting its reactors back to full power earlier than expected and avoiding any other technical problems.

Nine days ago, the company, which generates about one-fifth of the UK's electricity, announced the departure of its chief nuclear officer, Roy Anderson. Chief executive Bill Coley said the four units at Hunterston B and Hinkley Point B that were shut down recently because of cracks in boiler tubes should start operating at 70 per cent capacity by the end of January.

The company stated: "It is prudent to assume this will continue for the period up to the end of March 2008 whilst we develop a long-term boiler management programme."

A spokesman from the DTI said: "We will clearly need to take into account the position of Hinkley Point B and Hunterston B when considering any potential share sale."