HL Deb 11 October 2004 vol 665 cc7-8WS
Lord Sainsbury of Turville

My right honourable friend the Secretary of State for Trade and Industry (Ms Hewitt) has made the following Ministerial Statement.

On 17 June (Official Report, col. 48WS) I informed the House that I expected the European Commission to take a decision on the Government's proposed restructuring aid to British Energy in the autumn. I am pleased to say that on 22 September, the Commission approved that aid.

This is a very significant milestone in the implementation of British Energy's restructuring plan. We have said from the outset that our aid complied with the Commission's rules and this approval confirms that.

It is usual in restructuring aid cases for the Commission to require the recipient of the aid to implement certain compensatory measures. In this case, the Commission's approval is subject to the following compensatory measures, which are stringent but workable:

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. It is likely that this will be enforced through an undertaking between the DTI and British Energy although we have also discussed with Ofgem, the gas and electricity markets regulator, how this could best be enforced.

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 hydroelectric capacity expansion in the UK for the same period. This will be enforced through an undertaking between the DTI and British Energy.

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. This will be monitored by that expert and enforced by the Government.

In addition, the Commission has required the UK Government to provide more detailed reporting if payments in respect of British Energy's decommissioning and uncontracted liabilities and any incremental historic spent fuel liabilities exceed £1.629 billion. This enhanced reporting is so the Commission can satisfy itself that the aid is being kept to a minimum and is only being used for authorised purposes. £1.629 billion is the net present value of the total of these liabilities as at December 2002 calculated using the Commission's discount rate of 5.4 per cent nominal. Owing to the very long timescale over which these liabilities will be discharged, they are the most uncertain in terms of their value. The £1.629 billion does not include the aid we are giving in respect of British Energy's historic spent fuel costs valued by the Commission at £2.185 billion, which are fixed, except for inflation. The estimate of the cost to government (£150 million to £200 million a year on average for the next 10 years falling thereafter) given in my Statement of 28 November 2002 remains unchanged.

To minimise Government's contribution and financial exposure to the company's liabilities, a number of measures have been put in place in the restructuring agreements. In particular, British Energy will contribute 65 per cent of its annual free cash flow towards discharging its liabilities and, if there are material increases in British Energy's liabilities, the Nuclear Decommissioning Authority will determine if the additional cost should fall to the company or to government. British Energy's creditors have taken similar measures to protect their own exposures. Subject to these measures, many of which only apply when the company is cash constrained, British Energy has the freedom to run its business, in terms of corporate, operational and financial policies. It continues as a public limited company managed by its board of directors and subject to the normal private sector disciplines and requirements. The agreements strike a balance between protecting taxpayers' interests and ensuring these private sector disciplines maximise the company's contributions to its liabilities.

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

The Government's main objectives in assisting British Energy remain safety and security of supply. 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 circumstances. 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 make 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 continue to reserve their right to withdraw their support for the restructuring. Therefore, contingency plans remain in place to secure our objectives if the restructuring plan fails for any reason and British Energy decides administration is the only option.