Despite lending British Energy £410 million of emergency funding as a short term rescue package the UK government has not ruled out putting the crisis hit nuclear giant into administration. It has ruled out shutting down BE’s nuclear plants, which together account for 25 per cent of the UK’s supply.

British Energy has been trading at a loss since the NETA trading arrangements took effect and pushed wholesale electricity prices down by 40 per cent. The high fixed costs of operating nuclear power plants ensure that working plants must be kept running even when loss-making. BE has been further hit by the enforced shutdown of two of its reactors.

The loan follows the breakdown of negotiations over an earlier rescue formula that involved BE’s taking on the management of six of the Magnox stations operated by BNFL (state owned British Nuclear Fuels Ltd), and additionally, a reduction in the fees it pays BNFL for fuel reprocessing.

The support package was due to run until September 27, pending ‘clarification of the company’s full financial position’. BE said that talks on the long term restructuring of the business would start soon.

Labour unions welcomed the move, believing that it would protect the jobs of the 5200 people workingfor BE in the UK. But they see it only as a short term solution. Long term, says GMB leader John Edmonds, the country ‘needs a complete rethink of the role of the private sector in major UK utilities”.

An alternative solution being considered by energy minister Brian Wilson is to reform the NETA pricing system put in place last year. Other options would be to exclude the company from the climate change levy, which would save BE £80 million per year, and reduce its business rates to a level consistent with conventional stations. BE could sell some of its N American nuclear generation assets, worth between $1.5bn and $2.3bn.

Meanwhile the company warned investors that although it had reasonable grounds for believing that talks would succeed there was no guarantee that that outcome would preserve value for investors. The market took this advice to heart; shares dropped 65 per cent to 28 pence, then to 20p when the BNFL talks failed. At time of writing they had fallen to 5p. Now the Financial Services Authority has launched an investigation into the company’s financial management. It is concerned that BE may not have kept investors properly informed of its worsening financial position.