Nuclear power becomes a rushed sale
Tuesday 13 February 1996
The Labour-chaired committee is talking politics. It is scandalised that the Government is planning to sell British Energy for less than the pounds 2.8bn cost of one of its nine power stations, Sizewell B. As a result, the latest draft of its report recommends keeping Sizewell B out of the initial flotation, rather than selling it at an embarrassing loss.
The advisers, in contrast, talk the language of corporate finance.They do not dispute the fact that British Energy is probably worth less than the cost of Sizewell B alone. But they respond with blank incomprehension to the committee's concern.
Have those daft MPs not heard of sunk costs, ask the advisers? "What you have spent in the past you have spent in the past," BZW told the committee, in a statement of the blindingly obvious. The assets are worth what they will fetch on the market, not what they cost. Furthermore, the idea of selling the other eight elderly power stations by themselves is plainly a nonsense. Sizewell B, a modern power station with a long life remaining, is an essential sweetener, without which nuclear privatisation is a complete no-hoper. British Energy would then be a company with a decent cash flow and the ability to pay steadily rising dividends so - other things being equal - it ought to be marketable as a conventional utility.
Everything has its price and British Energy clearly has one. The problem is that even with Sizewell B, it is so low that it becomes hard to see how the taxpayer and the consumer will gain from this bottom-of-the-barrel privatisation. In terms of efficiency - usually by far the best argument for privatisation - there are very few cost savings to come, because the British Energy workforce is already low. The other standard argument, that privatisation is the only way to bring new investment into British Energy, has been demolished by the decision not to build any more nuclear power stations.
The taxpayer and the economy as a whole would be better off if the Government kept British Energy's strong future cash flow from electricity sales inside the public sector, benefiting the public finances. Instead, we are getting a rushed sale ahead of an election, verging on a forced one. Investors are going to exact a heavy price for it.
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