Nuclear fund £80m shortfall adds to British Energy's woes

British Energy, whose financial position has led the Government to consider a bail-out, is facing a provision of up to £80m for its decommissioning fund.

The fund has been set aside to cover the cost of decommissioning the group's nuclear reactors when they start closing, which is expected to begin in about 15 years' time. Last year British Energy paid £18m into the fund, but as most of the money is invested in the stock market, this was more than wiped out by a £27m loss as equities tumbled.

Since the company's year end in March, the performance has deteriorated. The stock market has fallen further and industry watchers believe the fund's value could fall as much as £80m. British Energy's chairman, Robin Jeffrey, will be pressed to increase payments into the scheme when the group announces its half-year figures to the City later this year.

If British Energy has to top up the fund, this will add to its financial worries, with the City expecting it to run out of cash in the next 12 months. The group, which generates a fifth of Britain's electricity, has to pay back more than £450m of loans, the first due in March.

The Independent on Sunday revealed last week that the Department of Trade and Industry was drawing up contingency plans to bail out British Energy. These include backing the sale of six Magnox nuclear reactors to the group from BNFL. The news led to a 46 per cent hike in British Energy's share price.

British Energy's woes have largely been caused by a collapse in the price of electricity after the introduction of the New Electricity Trading arrangement (Neta), to below the group's cost of production. The Government has pledged to review Neta.

British Energy's strategy of putting the majority of its decommissioning fund in equities has been criticised in the nuclear industry. At BNFL, where the liabilities are larger, most of its £4bn nuclear liabilities fund is invested in government securities and only a small amount in shares.