20 November 2002 – With a little over a week away before British Energy (BE) is due to repay a £650m ($1bn) rescue loan to the UK government, some help has arrived in the form of an offer from nuclear reprocessing group BNFL to rework the terms of its contract, currently costing BE à‚£300m a year.
A reworking of the contract could save BE à‚£100m a year and is one of the measures the firm has been looking for in order to stave off the possibility of going into administration.
The offer links the price of reprocessing to the market price for electricity which, in the last year has fallen 25 per cent.
The survival of BE is in the interests of BNFL as it is its largest customer.
BE last week said it was in talks to sell its 82 per cent interest in its profitable Canadian operation Bruce Power. The sale is expected to raise up to à‚£500m.
Another measure which BE is reported to be considering is a debt-for-equity swap, which would include BNFL taking a substantial share.
“A debt-for-equity swap relies on the optimistic notion that creditors still consider BE stock to be worth something. Rather, if BE is to survive, it urgently needs decisive government intervention – such as reducing taxes on nuclear generation,” says Jon Lane, Director of analysis at Datamonitor.
“The government now wants BE to restructure its finances through a debt-for-equity swap, with major creditors such as BNFL receiving shares instead of debt repayments. However, there is no guarantee that this alone will secure the company’s long-term future – and if they are not convinced of BE’s viability as a business, creditors will be unwilling to take shares in the company,” said Lane.
Meanwhile the board of BE is arguing for changes to the UK wholesale electricity market, which it blames for the collapse in prices – a view refuted by the energy regulator. Callum McCarthy, chief executive of Ofgem, the energy regulator which introduced the new arrangements last year said yesterday he blamed “misplaced” market decisions by electricity companies, which invested heavily in new power stations and entered expensive long-term electricity purchase agreements during the 1990s.