Government seeks board changes at British Energy in return for rescue deal

British Energy, the ailing nuclear generator, will this week step up its pressure on the Government to organise a financial rescue of the company, though the Government is understood to be seeking key management changes in return.

British Energy is only being kept afloat by a £650m loan from the Government but the group wants to cut its costs by renegotiating contracts with British Nuclear Fuels, which reprocesses nuclear waste for the company.

The current contracts commit British Energy to paying BNFL a fixed price for the reprocessing work, regardless of the prevailing electricity price. This means that if the wholesale price of electricity collapses, as has happened, British Energy is left trading at a loss. Instead, it wants to link the prices it pays BNFL to the wholesale electricity price.

However, BNFL denied at the weekend that it is considering legal action over unpaid reprocessing bills which amount to about £70m. "British Energy has indicated they will pay and that is sufficient," a spokeswoman said. "British Energy is a key customer for us and we'd rather be part of the solution than part of the problem."

British Energy would not confirm it is in talks with the Department of Trade and Industry over reprocessing charges. "The contract clearly needs to be addressed, but there are no new initiatives about to take place," the company insisted.

British Energy confirmed that it had appointed the headhunters Heidrick & Struggles to find a new chief executive to succeed Robin Jeffrey, who is executive chairman. The company has said it would like to name a new chief executive before the end of its financial year in March. It played down suggestions the Government was trying to force Mr Jeffrey out, saying he might stay on as non-executive chairman.

But industry sources say any stay of execution might be temporary and Mr Jeffrey might well leave the group within the next few months. Possible candidates for the job include David Gilchrist, the director of generation, Keith Lough, the finance director, and Duncan Hawthorne, who runs the Canadian subsidiary, Bruce Power.

Reports at the weekend suggested British Energy's board has become ridden with factions and a poisonous atmosphere.

British Energy needs to secure annual savings of £280m to survive. It had hoped to cut costs by winning exemption from the climate change levy, which is a cost levied against produces of fuels which are not environmentally friendly. This would save British energy £80m a year but Patricia Hewitt, the Secretary of State for Trade and Industry, has ruled this out.

In theory British Energy could still go into administration or be renationalised but both these outcomes are long-shots. Closing the company now would crystallise huge decommissioning costs while renationalisation would be seen as a retrogade step. British Energy is Britain's largest provider of low-carbon energy giving it an important role in meeting the country's targets to reduce the emission of carbon gases.

British Energy has lost 96 per cent of its market value this year, and the Government has given it a loan until 29 November. The company plans to hold an investor meeting on 4 November to vote on a proposal to boost its borrowing limit to £1.6bn.

Nuclear power is the subject of a Department of Trade and Industry review and a White Paper on the subject was supposed to be published before the end of the year. However, it may now be delayed until the spring.