Ministers used nuclear rescue to 'cripple' British Energy

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The Independent Online

The Government rejected claims yesterday it had imposed a "crippling" financial restructuring on British Energy in order not to rescue the nuclear generator but to bail out its own nuclear company, BNFL, the operator of the Sellafield reprocessing plant.

A spokesman for the Department of Trade and Industry said that the claims were "spurious" and flew in the face of the facts, which were that the Government had intervened to prevent the collapse of British Energy and protect safety and security of supply.

Max King, a former investment manager at Hambros and now an independent financial consultant, said that the so-called "rescue" of British Energy had made the company's short-term crisis much worse.

Writing in today's issue of Utility Week magazine, Mr King says that the DTI could have defused the crisis that broke over British Energy in autumn 2002 by extending it a medium-term loan, with an equity option or repayment premium as a bonus for the Treasury.

In the event, the rescue package ended up in a massive debt-for-equity swap, which left shareholders with just 2.5 per cent of the company and transferred its £4bn of liabilities into a new Nuclear Liabilities Fund on condition that British Energy deposited £275m worth of bonds in the fund and handed over 65 per cent of all future free cash flow.

Mr King argues that the £3.8bn indemnity given to British Energy was no more than a "notional accounting entry", which would in any case be reduced as electricity prices recovered and the lives of the company's eight stations are extended.

He claims that the money going into the NFL would produce a fund of "massive proportions" and far bigger than required by British Energy alone to deal with spent fuel costs.

Mr King says the spare money could be used instead to help decommission BNFL's own Magnox stations and deal with the unwanted spent fuel from Sellafield once it had been reprocessed.

"Instead of the Government rescuing British Energy, British Energy has rescued BNFL and the Government," he writes.

The National Audit Office is about to publish its own report on the rescue of British Energy and the restructuring of its spent fuel contracts with BNFL, which is likely to take the DTI to task.

The DTI spokesman said he was not going to get into a "war of words" with a consultant who had written an opinion piece. But he said: "There is not a mention of safety or security of supply in the article. It was British Energy which came to the Government, not the other way around. With a nuclear company, especially one which has 22 per cent of the market, you cannot just walk in and turn off the switch."

Mr King also criticises the new management of British Energy, led by its chief executive, Mike Alexander, for making "horrendous mistakes". The company sold forward the whole of the current year's output and half of next year's when prices were depressed and paid £316m to get out of onerous contracts with Enron, Teesside Power and TotalFina when it would have been in a much stronger financial position if it had waited for prices to rise.