British Energy to benefit from nuclear revival

Friday, March 7, 2008

As the government makes ever more enthusiastic pronouncements about new nuclear reactors for the UK, the outlook is brightening for British Energy, which owns the bulk of the country’s nuclear plants.

On Thursday, John Hutton, the business secretary, revealed in the Financial Times that the government would pull out all the stops to maximise expansion of nuclear power and would drop its previous commitment to holding a minimum 29.9 per cent stake in British Energy.

Five years ago, however, the company was on the brink of collapse and had to be bailed out by the government. The £5bn ($10bn) rescue package led to the state owning more than two-thirds of its shares.

As power prices have risen over the past few years, British Energy has edged back into the black. Its operational performance has improved under Bill Coley, its chief executive, a veteran of the US nuclear industry who took over in 2005, though the group’s ageing advanced gas-cooled reactors are still prone to serious unplanned outages.

British Energy’s share price has been rising steadily from about 4p five years ago. The group is now in the FTSE 100 index and is worth £5.7bn.

Last year the government took advantage of this and sold a 28 per cent stake, raising £2.34bn to help to pay for nuclear decommissioning and waste disposal.

So far the government has placed its British Energy shares in the market rather than sell them to a particular buyer. But the revival of interest in the UK nuclear industry means many investors now want exposure to the company.

British Energy owns what are generally accepted to be some of the most suitable sites for new nuclear reactors, including Dungeness in Kent and Sizewell in Suffolk, so there should be plenty of interest in buying the stake, possibly as a prelude to a full takeover.

There has been speculation that Electricité de France, the French state-owned nuclear group, is keen to buy. But people close to the situation doubt the government would want to be seen to favour any one potential developer of new nuclear reactors by selling them its stake.

A person close to British Energy said: “They would prefer to do a capital markets transaction, rather than hand over a large proportion of the UK nuclear industry to the French or anybody else.”

The news that the government was looking at selling its shares helped to push British Energy stock up 2.6 per cent to 561p on Thursday.

However, the government could take its time to sell and does not appear to be driven primarily by market movements. “We keep our stake under review,” said the Department for Business, Enterprise and Regulatory Reform.

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