The European Commission is investigating the UK government's restructuring plan for British Energy, and looks likely to reject it on the grounds that it violates European Union restrictions on state aid to the private sector.
Under EU state aid rules, governments are barred from giving preferential treatment to help struggling companies because it would give them an unfair advantage over competitors. In contrast, the Euratom treaty permits countries to make investments in nuclear power after consulting with Brussels, but they need no permission. A dispute about which law to apply to this assessment had delayed the EU's ruling. European energy commissioner Loyola de Palacio had wanted to use Euratom, while competition commissioner Mario Monti wanted to apply normal competition rules.
The EC cleared a first aid package in 2002, to keep BE afloat, but it demanded that Britain send it a comprehensive restructuring plan within six months. The notified restructuring plan entails the UK government in assuming the funding of BE's nuclear liabilities, in particular with respect to the management of fuel loaded prior to the restructuring and to the decommissioning of BE's nuclear plants at the end of their commercial lives. The plan also includes the renegotiation of fuel supply and spent fuel management contracts between BE and BNFL, as well as a standstill agreement and a number of financial restructuring agreements with BE's major creditors.
The EC has sent a confidential report to the Department of Trade and Industry that is reported to assert that the subsidies are excessive and undermine competition and free trade in the EU. It also concludes that the subsidies are "incompatible with the requirement that BE faces the market with its own forces after the restructuring is over", and it doubts "whether the plan will result in the restoration of BE's viability in a reasonable timeframe." The EC warns the UK government that past aid may have to be repaid, future aid stopped and the rest of the industry compensated. The effect of the EC's ruling would almost certainly be to throw BE into administration, probably resulting in a renationalisation of the industry.
A spokesman for the DTI said that the government would prefer BE to carry on as it is, but insisted that administration had always been an option.
The EC outlined a number of instances of aid bing extended to BE, including relieving the company of its liabilities for processing nuclear waste, estimated to be worth £3.3 billion; state-owned BNFL's offer to cut the cost of BE's nuclear fuel by £140 million, and cutting the cost of reprocessing spent nuclear fuel by $589 million; transfer of ownership of BE's spent fuel to BNFL, benefiting BE by £148 million; and BNFL's waiving interest of £397 million. In addition five local authorities agreed to postpone payments of business rates owed by BE without charging interest, saving it more than £4.3 million plus interest from November 2002 to February 2003.
EC guidelines say that 'improvement in viability' must derive mainly from internal resources. The EC noted that the proposed measures could not be considered as internal and that relieving BE of its waste and decommissioning liabilities seemed to relieve the company from its obligations under the "polluter pays" principle.
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