Nuclear bail-out faces judicial review

Environmental campaigners yesterday won the right to mount a legal challenge over the Government's £650m bail-out of the stricken nuclear electricity generator British Energy.

The move came as the prospects increased of the Government agreeing to extend and increase the loan when it expires next week in order to give more time for a restructuring of the ailing generator.

The High Court ruled that Greenpeace and the renewable energy company Ecotricty could seek a judicial review into the legality of the Government's bail-out decision.

Sources close to the talks between the Government and the company say that although ministers maintain that administration is an option, sufficient progress has been made to buy British Energy more time.

The restructuring would involve selling British Energy's Amergen and Bruce operations in North America, agreeing a debt-for-equity swap with its bankers and new contractual arrangements with British Nuclear Fuels for reprocessing the generator's spent fuel.

The European Commission is preparing to give the loan the all-clear even though the Government was technically in breach of EU rules by not informing Brussels in advance of the granting of the state aid.

However, Greenpeace and Ecotricity said they would still challenge the legality of the aid irrespective of whether it was cleared by Brussels. The groups claim the loan has distorted the energy market and damaged the prospects of renewable energy companies. The judicial review is scheduled to be heard in late January.

Paul Lasok QC, counsel for Greenpeace and Ecotricity, told Mr Justice Maurice Kay that in normal circumstances a company in British Energy's position would have gone to the wall. This did not happen because it was granted state aid. "This cast on to other companies the serious consequences of over-capacity in the market," he said.

"This choice appears to have been made for financial reasons because it was cheaper to engage in unlawful conduct."

Sources close to the talks said the loan might have to be increased but not by a large amount. The modest rise in electricity prices has meant that provided British Energy can negotiate a standstill agreement with creditors, its financial position should not deteriorate further in the next year.

Apart from the banks, the biggest creditor is BNFL, which receives £300m a year for reprocessing British Energy's spent fuel at Sellafield.

EU approval will be conditional on the loan money being paid out at intervals and only when the Government is satisfied that it is necessary to meet British Energy's salaries and operating costs. Most of the current loan is being used to enable British Energy to meet its liquidity requirements in the electricity trading market, although about £5m a week is being put towards working capital.