Lang gags Littlechild ahead of British Energy sale

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The Independent Online
The prospectus for the flotation of British Energy, the nuclear power generator, will include a "gagging" clause to restrict the industry regulator Professor Stephen Littlechild from making statements that could affect the price of the shares in the first three months of trading.

The unprecedented move follows the furore over the pounds 3.6bn sale last year of the Government's remaining shares in National Power and PowerGen when Professor Littlechild prompted a collapse in share prices on the second day of dealing by announcing a review of electricity prices.

The British Energy pathfinder prospectus, due to be published next Monday, will contain a statement from the regulator to the effect that he has agreed with the President of the Board of Trade, Ian Lang, that he does not intend to make any announcement that could influence the share price and will be bound for a period of time.

Professor Littlechild will, however, retain the right to make statements in "exceptional and unforeseen" circumstances. Mr Lang will accept he cannot fetter the regulator's discretion to respond to particular developments within the electricity sector.

Sources close to the flotation yesterday said that the Littlechild clause placed a "moral obligation" on the regulator not to say anything that would seriously undermine or compromise the flotation. Including the period between the publication of the pathfinder prospectus and the full prospectus in July, Professor Littlechild will be bound by the statement for four months.

This is the first time such a restriction has been placed on an independent regulator and reflects the Government's anxiety to ensure there is no repetition of the Gencos 2 fiasco in March last year.

A week before dealings in National Power and PowerGen began Offer advised the Treasury that it was considering making a statement about electricity prices. However, the Treasury and its advisers decided that this was not material or therefore disclosable in the prospectus for the sale.

A day after the new shares began trading Professor Littlechild made his announcement and the price of shares in both companies fell below the offer price. National Power considered suing the Treasury over the debacle and a number of overseas institutions threatened to withhold payment for their shares. The Treasury held a subsequent inquiry that exonerated its officials of any blame, but conceded that lessons had to be learnt.

One of the recommendations was that in future privatisations, the regulator time his decision-making in such a way that he avoid making announcements during a "black-out" period starting before the share offer closed and ending some time after share trading began.

The statement inserted into the British Energy prospectus is based on this recommendation and is being called the Beastall clause by the Government's advisers after John Beastall, the Treasury official who carried out the inquiry.

The pathfinder prospectus for British Energy will include a dividend forecast, confirmation that the interim and final dividend will be paid within the first year and details of extensions granted to the working lives of its four newest stations.

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