Bailout possibility for British Energy

SPECULATION was mounting yesterday that the British Government will offer an emergency rescue package to struggling nuclear giant British Energy this week.

Details of what the lifeline would involve are not known, but it is thought the Department of Trade and Industry will agree to guarantee credit worth around £450 million for the group.

The move would enable Britain’s biggest electricity producer to continue trading while a long-term solution is found. Other options which may be considered include excluding the company from the climate change levy or having its local authority rates reduced.

The debt-ridden group, which supplies around a quarter of Britain’s power, warned on Thursday that it could face insolvency if it did not receive immediate financial assistance. Shares in the firm were suspended as it entered into talks with the Government in a bid to resolve the crisis.

The DTI yesterday declined to comment on speculation that it would be announcing a rescue package this week, but it said talks with British Energy were still ongoing as it tried to establish the best way forward.

Meanwhile, the City Financial Services Authority has confirmed that it is investigating whether British Energy misled investors in the run-up to Thursday’s announcement.

The regulator would not give details of the scope of the investigation, but it is thought it will include comments made by chairman Robin Jeffrey in August when he reassured City analysts that the company remained financially sound.

British Energy declined to comment on either the rescue package or the FSA’s move, but it rejected rumours that it may have to shut down its Heysham 2 nuclear plant in Lancashire. It had been reported that the plant was facing the same technical problems which led to reactors being shut down at its sister plant at Torness.

But a spokesman said: “We have carried out a series of tests at Heysham 2 as would be expected and we will continue to carry out tests”.

British Energy has been hit by a 40% fall in the price of electricity and the closure of two Scottish reactors, causing its value to drop by £1.5 billion to just £500m over the past year.

However, it is thought Thursday’s crisis was triggered by a breakdown in negotiations between the firm and British Nuclear Fuels. It is understood British Energy was in talks to reduce its annual £300m fuel reprocessing bill.