EU places limit on aid to British Energy

The European Commission has conditionally approved the UK government’s £650 million loan to troubled nuclear power generator British Energy.

The European Commission has today conditionally approved the UK government’s £650 million loan to troubled nuclear power generator British Energy. The loan, which expires on September 29, 2002 was given to British Energy to keep the company afloat in the short-term.

The nuclear electricity generator group is said to be facing difficulties following the fall in electricity prices in the UK. The loan was warranted on the grounds that there is a risk of disruption in the supply of electricity in the United Kingdom and to ensure nuclear safety. The loan will be strictly limited to the amount necessary to keep the company afloat and is capped to a maximum amount of £899 million. An additional £276m has been identified for contingencies.

British Energy is one of the most important players on the UK electricity market as it contributes around 20% of Britain’s energy. Decrease in electricity wholesale prices which followed the introduction of a new electricity trading system in England and Wales has reduced the cash-flow generated by the group’s nuclear stations.

British Energy originally turned to the UK Government for support in September 2002. On 9 September 2002 the UK Government took the decision to award British Energy two credit facilities. The principal purposes of these were to enable the company to meet its operating costs and to prevent its defaulting on its trading contracts and regulatory requirements for a period of 6 months. The credit facilities may be at some point replaced by State guarantees on loans granted by private banks to British Energy.

The loan amount is limited to the amount necessary to keep the group afloat. In this respect, the United Kingdom Government is said to have put in place a very rigorous mechanism that aims at ensuring that money can only be drawn when and to the amount strictly necessary.

The Commission has assessed the loan under the ‘Community Guidelines on State aid for rescuing and restructuring firms in difficulty’. Under these guidelines, the Commission can approve rescue aid as one-off support to an ailing firm during the period needed to devise a restructuring or a liquidation plan.

The Commission has concluded that the credit facilities at stake fulfil the conditions set out in these guidelines. They are justified by serious social difficulties, such as the risk of disruption of electricity supply in the United Kingdom and, in particular, in Scotland where British Energy is supplying approximately half of the electricity.

Approval of the rescue aid is based on the United Kingdom Government’s undertaking to present to the Commission within six months a comprehensive restructuring plan for British Energy.