| Statement to Parliament by Patricia Hewitt - 28 November 2002 | | Print | |
|
Mr Speaker with permission I wish to make a statement about British Energy. British Energy operates eight nuclear power stations in the UK, supplies over a fifth of our electricity and employs five thousand two hundred workers in Britain. In May this year the company in its preliminary results announced a pre-tax, pre-exceptionals, profit of £42m in its UK and North American operations, but an overall loss to its UK operations of £41m. Nonetheless the company chose to maintain its dividend, paying out £48m to shareholders. During the summer, British Energy decided to attempt a bond issue in the United States. It was unsuccessful. On the 13th of August, one of the reactors at the company's Torness station was taken out of service due to unforeseen problems - reducing the company's income by £56 million. The next day company executives told investors that there were no immediate cash flow problems. Throughout the summer British Energy engaged in discussions with BNFL to renegotiate the terms of its contracts. These were entirely commercial discussions between the two companies. At the beginning of September, British Energy realised that its financial problems were far greater than it had thought and that any conceivable deal with BNFL would not be enough to meet its requirements. On 4th of September the company wrote to inform me of a significant worsening of the company's financial position and liquidity problems. It said the board would have to decide, on legal advice, whether it could continue to meet its liabilities and therefore trade legally. And it asked for Government help. On the next day I announced that the Government was entering into discussions with the company. On the 9th September I announced a loan facility of £410m to support its trading operations both in the UK and North America. On the 26th September, after a further request from the company, the Government decided to extend the loan facility until the 29th of November and increase it to £650m. This was to give the company sufficient time to clarify its full financial position and to come to a clear view on its future options. Both the initial loan and its extension were notified to the European Commission under State Aid rules, and I can tell the House that the Commission announced yesterday that it has approved the loan. I offered that loan because it was the best way of securing the safety of the nuclear power stations and the security of electricity supply to the grid and consumers. These remain my overriding objectives. The decision Mr Speaker, British Energy has submitted a plan to the Government for the solvent restructuring of the company. We and our financial advisers have assessed its implications and I can announce to the House, that the Government has agreed to play its part in allowing the company to attempt solvent restructuring. Both the company and my department have made statements to the stock exchange today; I have placed copies of both in the Libraries of the House and in the Vote Office. The company has announced that it will: · continue to make payments to a fund which is used to pay for the costs of decommissioning its power stations; · give the fund £275million of bonds in the company; and · surrender to the fund 65% of its available cash each year. The Government will underwrite these arrangements to ensure safety and environmental protection. In addition the Government has recognised that if this restructuring is to work, it must contribute significantly to the company's £2.1 billion of historic nuclear fuel liabilities managed by BNFL which extend to 2086. The cost to the Government will average £150-200 million per annum for the next 10 years and fall thereafter. If the company does very well, surpluses from BE's contribution to the decommissioning funds will help meet these costs. But I also intend to look at how these contracts are managed as part of the creation of the Liabilities Management Authority. In addition BNFL is today announcing that it will agree new contracts with British Energy for fuel supply and for spent fuel services in respect of future nuclear electricity generation Mr Speaker, if the company's proposed restructuring is to succeed, the existing creditors will have to accept a temporary freeze on payments and subsequently a significant write down in the value of what they are owed. Second, the company will have to complete the sale of all its North American operations. And third, the company will have to implement the new trading strategy it has announced today. Agreement to this must be achieved by the middle of February. The Government is prepared to continue to fund BE's operations while the restructuring plan is agreed and implemented. The existing credit facility will be extended to 9 March with the size of the facility remaining unchanged at £650m. Of the existing facility of £650 million, £382m had been drawn down by 27 November. Under the proposal, the money will be progressively repaid as the financial situation improves. And in the event of administration we have taken security to protect the interests of the taxpayer and rank above other creditors. I also intend to bring forward legislation shortly to enable me to carry forward the Government's part of the proposed restructuring or, if it fails, to acquire the companies or their assets. This proposal for solvent restructuring will of course need state aid approval by the European Commission. Once the company has reached agreement with its financial creditors we will notify the plan to the Commission. I said in September that, if possible, we would look to a solvent restructuring. However we did not rule out that the company might decide to go into administration. We have therefore prepared detailed contingency plans for administration in discussion with all the key responsible regulatory bodies to ensure that whatever happened nuclear safety and security of supply would be maintained. Let me stress Mr Speaker that if British Energy were to go into administration all its nuclear liabilities would fall to Government. We cannot just walk away from them; no responsible government would. This is the reason why the situation with British Energy is different from any other generator. Mr Speaker, I would like to take this opportunity to thank the staff at British Energy. Their skill and dedication is essential to ensuring nuclear safety. This has been an unsettling time for them but whatever happens nuclear power stations will continue to generate electricity and will continue to employ staff. Pension entitlements will be met. Trade suppliers will be paid. And customers' lights will stay on. Mr Speaker, I understand that today's news will give little comfort to British Energy's financial stakeholders. But they too must take their share of the pain if the company is to survive. The stakeholders now need to decide whether they are willing to support solvent restructuring - if they are not, the Government is fully prepared if British Energy decides that administration is the only option. Today the company has announced that Robin Jeffrey is stepping down and that Adrian Montague will succeed him as chairman. Mr Montague is an experienced executive who brings key business experience, from both the public and private sector. It is clear there have been management failings and I think it is right for the company to be seeking to strengthen its management team at this critical time. I have set out today the limits of what the Government is willing to do to support solvent restructuring. It is now up to the company, its new management, and its financial stakeholders to determine the future of British Energy. |
| < Prev | Next > |
|---|
