BE seeks permission to borrow more

3 November 2002

UNITED KINGDOM British Energy (BE) is to use an extraordinary general meeting on 4 November to ask shareholders for permission to raise the company's borrowing limit by an additional £1.6 billion ($2.5 billion). If shareholders do not agree, BE said, it may have to cease trading.

BE announced that it was facing imminent bankruptcy in September (see story links below). The crisis was averted temporarily by an emergency loan from the UK government of £410 million, which was originally due to expire on 27 September. It was later increased to £650 million ($975 million) and expires on 29 November. The loan is backed by group member cross-guarantees and secured by group assets. But serious opposition to the loan arrangement has been mounted by one of the UK's EU partners and by other UK power station owners.

The company needs to ask shareholders for permission to raise more cash because its articles of association limit its borrowings to twice its adjusted capital and reserves, unless it gets prior approval.

Writing to the shareholders, BE said it had decided to defer publication of its interim results, which were due on 6 November and was adamant that shareholders could not expect to find out any further financial information at the meeting.

The loan has allowed British Energy to continue operating its eight nuclear stations, but has been opposed by other power generating companies and by environmental groups. Greenpeace and wind power generator Ecotricity have asked for a judicial review of the decision to make the loan, saying that it had not been cleared with the European Commission. Belgium has also complained to the European Commission, claiming the loan breaks European competition rules. Belgian energy minister Olivier Deleuze suggested that financial help might distort the market, adding that the measures were "difficult to reconcile with the rules of free competition." The UK government said it agreed to ensure that BE could continue to operate its plants safely. Financially, some have questioned why, in the UK's over-supply situation, so much effort should be put into keeping ageing nuclear stations online.

BE is not the only company suffering in the UK power market, although it has been put under additional pressure because it lacks a retail arm to subsidise its baseload plant. The UK arm of TXU Energy has also been sold, following a decision by its US parent to withdraw subsidies, and Powergen has mothballed plant.

Some have suggested solving the problem of overcapacity by shutting down most of the UK nuclear fleet and allowing BE to go into receivership. But British Energy currently provides around 20% of the UK's power and most agree there is not enough flexibility in the market for it to lose a fifth of its capacity if the company stopped trading.

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