British Energy plea for extra time to repay bail-out loan

By Jason Nissé

British Energy is to plea with Patricia Hewitt, the Trade and Industry Secretary, to push back Friday's deadline for repayment of the Government's £410m emergency loan to the ailing group because a long-term rescue deal still cannot be struck.

The Trade Secretary agreed to bail out the group two weeks ago after it said it would go into administration without government aid. However, the emergency loan is due to be repaid on Friday, a move that would force the nuclear energy group into administration.

Attempts by the DTI, which is being advised by investment bank CSFB, and British Energy to strike a deal have run into difficulties. Last week British Energy added Schroder Salomon Smith Barney, which worked with the Government on the restructuring of Railtrack, to its team of advisers, which is being led by Lazards.

British Energy wants a cut in the £300m a year it pays BNFL to deal with its nuclear waste, exemption from its £80m a year climate change levy, a reduction in its business rates and a reform of the electricity trading arrangement known as Neta. It has also sought a £150m-a-year contract to run the six ageing Magnox reactors owned by the state-controlled BNFL. It faces cash calls of up to £450m this year, which it cannot pay.

But opposition to a deal to bail out British Energy has come from sources as diverse as Greenpeace, which went to the European Commission to try to block the deal, and the US group AES, which owns the giant Drax coal-fired station in Yorkshire. AES is meeting with the electricity regulator, Callum McCarthy, this week to put its case for an industry-wide solution to the low electricity prices that have forced British Energy into crisis.

Government sources have indicated they would rather see British Energy go into administration than write a blank cheque for a bail-out.

However, Ms Hewitt does not want to be faced with a large privatised company going into administration, and adding £14bn of nuclear liabilities to the Government's balance sheet, on the eve of next week's Labour Party conference.

The potential collapse of British Energy is also providing a headache for banks exposed to the UK power sector – notably JP Morgan Chase and Barclays.

Morgan, which last week issued a profits warning and had its debt rating lowered by Standard & Poor's, was one of the lead lenders to US groups that bought into the UK energy sector. Its exposure is said to run into hundreds of millions of pounds.

But this is dwarfed by the loan book of Barclays, which led the financing when British Energy bought the Eggborough coal-fired station in 1999 and is one of the main lenders to Drax. Barclays would not comment on suggestions that its loans to UK energy supplies totalled almost £2bn.