Under EU state aid rules, governments are barred from giving preferential treatment to help struggling companies in case that gives 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 use for the 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 tranche of aid 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 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 comprises 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 sent a confidential report to the Department of Trade and Industry (DTI). It is reported that this report says that the subsidies are excessive and undermine competition and free trade in the EU. The EC report 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, resulting in a renationalisation of the industry.
A spokesman for the DTI said that the government would prefer BE to carry on in its current state, but insisted that administration had always been an option.
The EC outlined a number of types of aid that had been extended to BE.
* The government relieving BE of its liabilities for processing nuclear waste, estimated to be worth £3.3 billion.
* BNFL offering to cut the cost of BE's nuclear fuel by £140 million.
* BNFL cutting the cost of reprocessing spent nuclear fuel by $589 million.
* BNFL waiving interest of £397 million.
* Five local authorities agreed to postpone payments of business rates owed by BE without charging interest, saving BE more than £4.3 million plus interest from November 2002 to February 2003.
These measures would boost BE's financial viability by removing otherwise non-avoidable long-term costs from BE's books. The 1999 EC guidelines say improvement in viability must derive mainly from internal resources. The EC noted that the proposed measures could not be considered as internal. It also noted that relieving BE of its waste and decommissioning liabilities seemed to relieve BE from its obligations under the "polluter pays" principle.
The EC doubted the UK government's claim that the restructuring aid did not distort competition, and suggested examining the need for compensatory measures "to mitigate as far as possible any adverse effect of the aid on competitors."
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