British Energy plc: Loan Facility (Hansard, 2 November 2004)

§ The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville)
My Lords, British Energy's drawings on the facility varied constantly according to the company's needs, and its peak drawing was £499.4 million in January 2003. All drawings on the facility have been repaid with interest by British Energy, which cannot make any further drawings following the decision of the European Commission on 22 September 2004 to approve the Government's restructuring aid to the company.

§ Lord Jenkin of Roding
My Lords, is it not clear that British Energy has repaid all its borrowings and that it now owes the Government nothing? In return for what was a very short-term supportive measure, is it not also clear that the Government have secured the sale of the company's overseas assets at knockdown prices, that they have demanded and secured an indefinite annual payment to the DTI of 65 per cent of the group's cash flow, and that they have also demanded and got the right to buy the company's power stations at £1 each? Does that not amount to expropriation without compensation?

§ Lord Sainsbury of Turville
My Lords, this has been a highly successful operation undertaken to achieve the solvent restructuring of a company which had been in very great difficulty. The aim of the Government was to make certain that, in terms of security of supply, the company could continue to function. That has been very successfully concluded.

§ Lord Peyton of Yeovil
My Lords, how many members of the present Government would be happy to find themselves on the receiving end of the kind of treatment they have meted out to British Energy?

§ Lord Sainsbury of Turville
My Lords, when you run out of cash you are not in a position to demand whatever terms you want. I think that the Government's action in providing restructuring aid was extremely sensible under the circumstances. After all, we have taken from the company £2.185 billion 138 worth of the costs of decommissioning spent fuel. In the circumstances, that represents a very good deal for the company, one that will keep it going.

Lord Berkeley
My Lords, does not my noble friend agree that the Government have made a prudent move in putting by a little money towards the day when these nuclear power stations will have to be decommissioned, the cost of which is not known but could run into billions? Is it not useful to have a piggy bank to turn to when no doubt the day comes on which the Government will have to spend money decommissioning power stations and getting rid of the waste in a suitable manner?

§ Lord Sainsbury of Turville
My Lords, it was a prudent and necessary move to make certain that a solvent restructuring of the company took place, although in an ideal world we would have liked British Energy to have met those costs itself.

§ Lord Ezra
My Lords, does the noble Lord agree that the need for the state-sponsored restructuring plan for British Energy was due to the very low level of wholesale electricity prices, which fell to the exceptional level of 16 pence per kilowatt hour in 2002? However, over the past 12 months the wholesale price of electricity has virtually doubled. In those circumstances, what has been the impact on the restructuring plan?

§ Lord Sainsbury of Turville
My Lords, the increase in wholesale electricity prices has helped the restructuring of the company. Clearly, in circumstances where major companies cannot withstand large changes in energy prices and run out of cash, the Government have to take action. But, obviously, the rise in wholesale prices has eased the restructure now taking place.

§ Lord Tombs
My Lords, does the Minister agree that the rescue or restructuring of British Energy, successful or not—here I have to agree with the noble Lord, Lord Jenkin, that it has been a disaster—arose from a series of government actions and inactions which precipitated the crisis? As to whether those were intentional I would not venture to express a view, but if the noble Lord has any doubts, perhaps I may recommend to him the National Audit Office report on the introduction of NETA. Finally, does he agree that the real casualties of this whole saga—that of creating a crisis and then failing to solve it rationally—have been the company, British Energy, which has been greatly weakened by the sale of its overseas assets, and the shareholders whose shares were acquired for virtually nothing?

§ Lord Sainsbury of Turville
My Lords, the effect of NETA, which was to introduce much more market-oriented prices, did affect the fortunes of British Energy. However, as I have said, the action taken by the Government to deal with the situation was entirely prudent and sensible in the circumstances.

§ Baroness Miller of Hendon
My Lords, does the Minister agree that a large number of employees of 139 British Energy who were also shareholders have been severely disadvantaged by the drop in the company's share value? Not only is that a terrible thing to have happened, but also it is one of the main reasons for the loss of morale among the workforce of the company.

§ Lord Sainsbury of Turville
My Lords, I sympathise a great deal with the employee shareholders of the company. However, it is not the Government's role to ensure that employee shareholders are able to see increases in their shareholdings whatever the fortunes of the company.

§ Baroness O'Cathain
My Lords, the Minister said that he thought the whole process was "a highly successful operation". Will he think it even more successful if the Government are able to acquire the power stations of British Energy for £1 each? Or, given that the loans have been paid up, is that option now likely to be taken away from the Government?

§ Lord Sainsbury of Turville
My Lords, part of the Government's objective is to see the company remain as an independent company, managed by a board of directors, together with all the financial disciplines that go with that. It was never the Government's intention to take over the company, unless as a last resort.

§ Lord Jenkin of Roding
My Lords, given that the company's profits are now recovering strongly in line with the recovery in electricity prices, and given the general view in the market that this recovery is likely to be sustained, is it not right that the Government should now seek a renegotiation of what seemed to be at the time—and even more so now—extraordinarily harsh treatment?

§ Lord Sainsbury of Turville
My Lords, the noble Lord will remember that, as a result of the agreement we have with the company, 65 per cent of its free cash flow will go towards discharging its liabilities. This is very important because the Government are underwriting them. Therefore, if the fortunes of the company go up, the Government will not have to underwrite as much of those liabilities. This is entirely right. I do not see why the current profitability of the company should in any way affect the situation. Two years ago, the company was running out of cash and was insolvent. The Government, by taking over certain liabilities and underwriting the others, have enabled its solvent restructuring. I cannot see why its profitability today is in any way relevant to that original action.