Back-door renationalisation of British Energy well under way
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The government has agreed to pick up the multi-billion-pound bill for the company's nuclear clean-up costs, but has forced BE's banks and bondholders to convert their debt into shares and new bonds which will not mature for more than 30 years.
Robin Jeffrey has been sacked as executive chairman and replaced by Adrian Montague, a former merchant banker who helped the government to bring the rail network back into public ownership. City analysts described the deal as renationalisation by stealth, and BE's battered shares immediately lost more than half their remaining value, dropping 9.5p to 7.5p. The government's commitment to underwrite BE's nuclear decommissioning costs is likely to cost taxpayers between (pounds) 150m and (pounds) 200m a year for the next 10 years, but will give the Exchequer 65% of any future income from BE, which produces 20% of all Britain's power.
Mark Durling, energy analyst at Brewin Dolphin, said: "It is the renationalisation of British Energy, but done privately." Brian Wilson, energy minister, described it as "a private sector restructuring". He said: "This is the most pragmatic and responsible way forward. It offers British Energy the opportunity to restructure as a more robust business with fewer historic burdens."
Montague is a key City adviser to chancellor Gordon Brown and has played major roles in setting up Railtrack replacement Network Rail. He has also contributed to the part-privatisation of the London Underground and the shaping of the Treasury's private finance initiative. His appointment has added to City suspicions that the deal has been structured to effectively renationalise the utility, which was sold by the government to private shareholders for (pounds) 1.4bn in 1996.
Under the terms of the restructuring deal, BE will issue new bonds and shares to the value of (pounds) 700m to "significant creditors." These are mostly banks and bondholders who are presently owed more than (pounds) 1.2bn. The company was unable to say how much new stock would be issued as part of the restructuring, but warned it would mean the "significant dilution" of existing shareholders.
BE, which is no longer able to sell electricity from its nuclear power stations for more than the cost of production, will, meanwhile, get help from the government to reduce its fuel reprocessing bills. Its annual payment of (pounds) 300m to state- owned British Nuclear Fuels will be reduced by about (pounds) 120m. The government is also proposing to underwrite most of the estimated (pounds) 2.1bn cost of decommissioning BE's eight nuclear power stations through a newly-created nuclear liability fund. The process of closing down the aged plant could take as long as 80 years. There would be a smaller charge each year after the initial high-cost ten. BE will surrender 65% of its available cash each year to the fund which in turn could end up owning 65% of the com-pany's shares. BE is based in East Kilbride and employs 5200 staff.
