Power Engineering - EU Commission approval British Energy rescue plan

22 September 2004 - The UK Secretary of State for Trade and Industry Patricia Hewitt today welcomed the decision by the European Commission to approve the Government's restructuring aid to British Energy plc, subject to certain compensatory measures.

Ms Hewitt said: "I am pleased the European Commission has approved the Government's restructuring aid to British Energy. Receipt of this approval is a very significant milestone in the implementation of the company's restructuring plan.

"The Commission's approval is subject to compensatory measures which are stringent but workable. We have said from the outset that our aid complied with the Commission's rules and this approval confirms that. I would like to thank all concerned for their hard work in achieving a successful conclusion to this case.

"The Government's main objectives in assisting British Energy remain safety and security of supply. Contingency plans remain in place to secure those objectives if the restructuring plan fails for any reason and the company decides administration is the only option."

A number of conditions of the restructuring remain to be satisfied, including that the Government must not have determined that British Energy will not be viable in all reasonably foreseeable conditions. The condition remains in effect up to the Restructuring Effective Date and the Government will continue to assess the company's viability until then. If the Government makes such a determination at any time up to the Restructuring Effective Date, or if there is a material adverse change in British Energy's position, the Government continues to reserve its right to withdraw its support for the restructuring.

Under the European Commission's rules, rescue aid ceases once the Commission has reached a decision on the restructuring aid. Therefore, with effect from today, no further drawings can be made on the loan facility which the Government has made available to British Energy since September 2002. All drawings on the facility have been repaid with interest by British Energy.

The Government notified the European Commission on 7 March 2003 of the proposed aid to British Energy under the restructuring plan. The Commission announced on 23 July 2003 that it was opening a formal investigation procedure into the Government's restructuring aid to British Energy.

It is usual in restructuring aid cases for the Commission to require compensatory measures from the recipient of the aid. In this case, the Commission has approved the restructuring aid to British Energy subject to the following measures:

• the company's nuclear generation business will be ring-fenced from its fossil fuel, supply and trading businesses to ensure the aid to the nuclear business is not used to cross subsidise any other of the company's businesses. This measure will last indefinitely;

• no nuclear or fossil-fuelled capacity expansion (above British Energy's current capacity) by the company in the European Economic Area for six years, and no hydro-electric capacity expansion in the UK for the same period; and

• a restriction on the company selling to its industrial and commercial customers at prices below the prevailing wholesale market price for six years unless there are exceptional market circumstances as determined by an independent expert.

The Commission has set down an additional requirement that a threshold of £1.629 billion be set for the aid, above which the Commission can request enhanced reporting to satisfy themselves that the aid is being kept to a minimum and is only being used for authorised purposes.

Under the terms of the restructuring, British Energy has 120 days to complete the implementation of its restructuring plan, unless otherwise agreed by the parties.

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