British Energy loan extended to 2004

In a bid to give the near-insolvent private nuclear-power generator more time to sort out its financial woes, the British government extended its emergency loan to British Energy until September 2004, although the existing £650m loan has been cut to £200m.

According to British Energy’s website, Her Majesty’s Government, or HMG, has agreed to extend the loan agreement, entered into on September 26th last year, in order to provide financial stability and security while the company seeks to achieve the restructuring announced on November 28th 2002.

British government to the rescue
On November 28th last year, the Secretary of the Department of Trade and Industry, Patricia Hewitt, announced the government’s support of British Energy’s solvent restructuring plan, which calls for the company to make payments to a Nuclear Liability Fund. This will be used to pay for the costs of decommissioning the company’s power stations. The government extended to March 9th £650m in loans to British Energy.

The loan will now mature on 30 September 30th 2004 or the date on which the company’s restructuring plan becomes effective, although it will be reduced from £650m to £200m to provide working capital for the business and collateral to support its UK trading operations. HMG will be entitled to require immediate prepayment of the loan if British Energy does not obtain formal approvals to the standstill agreements — announced February 14th — by March 25th from its creditors or if in the opinion of the Secretary of State the restructuring cannot be implemented in the timescale envisaged.

But while British Energy had repaid money owed under its existing credit facility ahead of the March 9th deadline imposed by the European Union, the company’s long-term future is still uncertain.

Asset striping
British Energy and Exelon Generation Company LLC announced September last year their intention to sell their interests in AmerGen, which owns and operates three nuclear power stations in the US.

In accordance with the restructuring principles announced on November 28th, British Energy had taken steps to realise its 50% share in AmerGen and to be in a position to execute a sale agreement by June 30th deadline. Apparently, British Energy had been planning to use the cash from the sale of AmerGen to repay the government loan.

But British Energy called a halt to the sale of AmerGen because "none of the proposals received adequately reflected the intrinsic value of AmerGen", although it still aims to meet the June deadline for the sale of AmerGen.

Financial doldrums
British Energy — which owns eight nuclear power plants, employs 5,200 staff and provides 20% of Britain’s total electricity supply — fell into a financial quagmire September last year when company managers appealed for government aid on September 5th. The company has been badly hit by the increased competitiveness of the UK’s wholesale electricity market brought about by energy market liberalisation, which it believes favours non-nuclear producers of electricity. One consequence of energy liberalisation is that energy wholesale prices have fallen by around 40% since 1998. And at the current energy wholesale price British Energy continues to make a loss.

British Energy must pay the carbon tax aimed at reducing CO2 emissions, although nuclear power produces no CO2 emissions and must also pay British Nuclear Fuels Limited £300m a year for spent nuclear fuel to be reprocessed.