Hewitt tries to end BE crisis

Government presses BNFL to rescue nuclear generator

Patricia Hewitt, the trade and industry secretary, is in urgent discussions with British Energy and British Nuclear Fuels to try to solve the nuclear generator's funding crisis and keep it out of administration.

The government is understood to be putting pressure on BNFL, the state-owned reprocessor, as part of desperate behind the scenes efforts to find a long term solution for BE and keep the business in private hands.

Fears that BE is on the brink of administration led to a dramatic 33% slide in its share price yesterday. The shares, which were first sold to the public at 100p when BE was privatised five years ago, ended the day at just 12p. At their peak three years ago they were changing hands for as much as 700p.

While the government has not ruled out seeing BE collapse into administration, sources close to the talks stressed yesterday that negotiations are continuing around the clock in an effort to find a solution to the financial crisis.

The government was forced to throw BE a temporary £410m financial lifeline earlier this month when the company's directors stunned the City by revealing its precarious financial state.

Financial advisers working for the government are still poring over BE's books; sources were last night playing down suggestions that a decision on the company's future had already been taken. The government loan facility is not due to run out until September 27 and one suggestion is that it could simply be rolled over to allow further time to find a lasting solution.

"The position is that we are in discussions with the company and they are ongoing," said a DTI spokeswoman. "The loan was only a short term measure to guarantee security and safety of supply. The main priority now is to work towards a restructuring - ideally in the private sector."

Ms Hewitt has already stressed that the government is not prepared to write BE a blank cheque to enable it to get out of the crisis. The decision to hand the company a £410m lifeline earlier this month was, she said, primarily about securing energy for Britain, not about securing British Energy. She made it clear at the time that administration could not be ruled out.

BE, which operates eight nuclear plants , providing more than a fifth of the country's electricity, has itself warned shareholders that it might have to file for insolvency if the restructuring talks do not go as it hopes.

The company has been hit hard by tumbling wholesale electricity prices and has been seeking to renegotiate an index linked contract with state owned BNFL which processes spent fuel from the company's nuclear plants. It has also been pressing the government to exempt the business from the climate change levy.

The reprocessing contract with BNFL costs BE around £300m a year. The company is seeking to halve this bill but talks have so far failed to produce an agreement.

It is understood that the government is looking at the details of the reprocessing contract to determine whether BE's warning about the hole in its accounts is credible.

In a reflection of the difficulties facing the government in finding a solution to BE's cash crisis, AEP, a US company that runs power companies in Britain, is also talking to ministers to try to ensure that BE does not receive preferential treatment.