5 November 2002 – Shareholders in UK nuclear power company British Energy yesterday approved an increase in the company’s borrowing limits at a meeting in Edinburgh which was required in order to accommodate a government bailout facility of £650m.
British Energy has survived on government money since September after market reforms exposed power generation overcapacity and sent prices below its cost of production.
More than 99 per cent of votes cast favoured setting a new fixed borrowing limit at £1bn ($2.5bn). Previously the loan limit for the Scotland-based company was set through a formula based on share capital and reserves. The company’s financial plight has brought that limit down to just £1.1bn from over £3bn in 1997 and may have put its plans for restructuring in breach of company statutes.
“We believe that there are reasonable prospects for a solvent restructuring, but there can be no guarantees,” British Energy Chairman Robin Jeffrey told shareholders.
Jeffrey confirmed that Cameco Corp, a Canadian uranium producer and its partner in the Bruce Power nuclear project there, had expressed an interest in raising its stake in Bruce last week, but he would not make any comment beyond saying that “all aspects of the business are under review”.
A sale of British Energy’s share in Bruce and other North American interests could raise much needed cash but still leave the core UK business ultimately loss-making.
The government loan runs until November 29. Talks continue about how to deal with the company – and the wider industry questions that its plight raises – in the long term. But industry sources now see an extension of the loan running into next year as the most likely scenario.
Separately, newspaper reports suggest that a rescue package has been proposed by British Energy rivals Innogy, which would could ensure the viability of nuclear powered electricity generation in the UK for the next ten years.
The deal would involve rival generators agreeing to long-term contracts for power from the nuclear group at a small premium to current market prices. Although these prices are close to a record low the arrangements might include an opportunity for British Energy to share in any future profits that arise through a recovery in power prices.
The DTI are reported to have been advised of the proposals from Innogy, the electricity supplier and generator owned by RWE of Germany, three weeks ago. The attraction to Innogy would be security of supply to its retail customers, which it cannot supply from its own generating capacity.
Innogy has said it is prepared to close some of its less economical coal fired power plants as part of the deal – a concession which might appease the green lobby which is campaigning for the end to government assistance and for British Energy to go into administration.
Opposition might come from energy regulator Ofgem, which would see the deal as interfering with the market-based mechanism which are at the heart of the New Electricity Trading Arrangements.