Brussels clears £3.4bn nuclear bail-out for British Energy

British Energy won approval from Brussels yesterday for its £3.4bn government-backed bail-out, under the condition that the cash is used exclusively for decommissioning nuclear power plants.

British Energy won approval from Brussels yesterday for its £3.4bn government-backed bail-out, under the condition that the cash is used exclusively for decommissioning nuclear power plants.

The go-ahead for an injection of taxpayers' cash was welcomed by the Government as a vital step forward in the restructuring of Britain's biggest power producer, which came close to collapse in 2002 when electricity prices slumped.

It also strengthens BE's hand in its fight with rebel shareholders, led by the US hedge fund Polygon Investments, who are attempting to block the financial restructuring of the business.

But green groups attacked the decision, arguing it would encourage other European governments to subsidise their nuclear industries.

As a condition of yesterday's approval, the EU Competition Commissioner Mario Monti insisted the state aid must be ring-fenced and must not be used to subsidise other commercial activities. In addition, British Energy will not be allowed to increase its nuclear generating capacity for six years. It will also be banned from extending its fossil fuel operations outside the UK or buying hydroelectric power plants from competitors inside the country.

And the company will not be permitted to undercut prices offered by other energy providers to big business customers for a period of five years.

Mr Monti's spokesman, Tilman Lüder, declined to give an official figure for the size of the government bail-out, arguing that the decommissioning timescale is so long term that estimates are unreliable.

The Commission's decision was welcomed by Patricia Hewitt, the Secretary of State for Trade and Industry.

Green groups were furious, however. Jan Vande Putte of Greenpeace said: "This decision allows for billions of euros of taxpayers' money to be squandered on an unsafe energy system, run by a company which is not capable of making itself viable without a massive financial prop. It is staggering that the Commission has allowed subsidies to British Energy."

The state-aid clearance from Brussels paves the way for BE to put the financial restructuring to a shareholder vote. This is likely to take another six weeks. In the meantime, Polygon is attempting to force an extraordinary meeting before that to throw out the refinancing, which would leave shareholders with just 2.5 per cent of the company. BE has gone to the US courts to seek an injunction against Polygon preventing it from proceeding with its own EGM. A district judge in New York is expected to rule on BE's application in the next two days.