Drax moves closer to compensation

Europe’s biggest coal-fired power station today moved a step closer to winning compensation for unpaid long-term supply contracts from collapsed energy group TXU Europe.

North Yorkshire-based Drax said it had secured the consent of lenders to approve arrangements relating to the administration in 2002 of TXU, formerly Drax’s biggest customer.

Drax said the consent would allow it to vote in favour of the arrangements at creditors’ meetings towards the end of January.

Approval will mean Drax should receive £211m (€298m) in compensation from TXU by the end of April, with a further two payments by the end of the first quarter of next year.

The payments, which could total up to about £348m (€491.6m), will pave the way for the debt-laden power station group to pay off its banks and possibly to pursue an acquisition strategy.

It was reported last month that the consortium of banks that owns Drax had appointed advisors to examine the potential £800m (€1.1bn) sale of the power station, which has output sufficient to meet 7% of the UK’s electricity needs,

However, other options under consideration included using Drax as an acquisition vehicle to pick up other power assets.

Potential bidders for the station, valued by analysts at between £750m (€1bn) and £800m (€1.1bn), were said to include British Gas owner Centrica, as well as International Power and Scottish Power.

Coal-powered generation has become increasingly attractive following an unprecedented rise in the price of wholesale gas.

Drax, which burns 36,000 tonnes of coal every day and is a major customer for UK mines, has also invested heavily to reduce its emissions.

In early November, Drax reported a sharp improvement in third quarter results and said it was confident about its profit outlook for 2005 and beyond.

Turnover in the three months to the end of September lifted to £107.3m (€151.6m), from £89m (€125.8m) a year earlier, while underlying losses narrowed to £2.3m (€3.3m) from £87.9m (€124.2m) in 2003.

Drax, which employs more than 500 people, has benefited from a pick-up in the selling price of electricity, although the exposure is limited by industry hedging on prices.