Coal miner Billiton poised to launch bid for Drax

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BHP Billiton, the Anglo-Australian mining giant, is likely to put in a last-minute bid this week for Drax, the UK's biggest power station.

The company is a major coal producer and Drax, which is in Yorkshire, is Europe's largest coal-fired power plant. The development could spell bad news for UK Coal, which gets about one-third of its annual revenues from supplying Drax. UK Coal has found it difficult to compete with lower-priced international coal, produced by the likes of BHP.

For BHP Billiton the move is a surprise and represents a change in strategy. Up to now, it has shown no interest in owning power stations, operating as a mining and oil group.

One industry source said: "They [BHP] are thinking about putting in a bid [for Drax]. There's good chance, they'll do it."

It is thought that, if BHP is successful, it will bring in a power industry player to act as the operator of Drax, as it has no experience in this area. BHP will be up against International Power, the UK-listed electricity group, and Goldman Sachs, the US investment bank which put in a bid at the end of last week.

Drax is trying to put together a rescue deal, after the fall in wholesale electricity prices and the loss of a key customer left the plant, owned by AES Corp. of America, unable to service its £1.3bn debt mountain at the end of last year.

AES walked away from the plant earlier this month after banks and bondholders refused to accept its financial restructuring offer. Drax is now under the control of independent directors.

Goldman bid £130m for up to 21 per cent of the senior secured debt of Drax. The bank claimed this represented a 16 per cent premium to the deal that has been put forward by International Power, although the complex nature of Drax's debt structure makes direct comparisons between the two bids difficult. The Goldman and International Power bids give Drax until the end of this week to enter into exclusive talks.

It is possible that more bidders could yet emerge. RWE-owned Innogy, which sold the coal-fired Drax plant to AES for £1.9bn in 1999, has also expressed interest in the plant. Powergen, owned by Germany's Eon, may also enter the contest. Drax supplies some 10 per cent of Britain's electricity and, given the concerns over power shortages in this country - accentuated after last week's blackout in the US - a stable future for the power station is seen as a sensitive and urgent issue.

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