Monday, August 04, 2008

British Energy and EDF: A Fractious Romance?

pepe-le-pew

The British government, wanting to divest itself of its share of British Energy, had many suitors coming by with flowers and blandishments before it finally succumbed to the Boyer-inflected Pepe LePew of energy companies, Electricite de France. However, we now learn that the rain has washed the white stripe from British Energy’s back and it just looks like a cat:

Reports said the proposed deal - the subject of discussions lasting several months - broke down after two of the UK company's biggest shareholders requested EDF put more money on the table.

British Energy is a key part of plans to boost Britain's nuclear energy production. It is part-owned by the Government which had hoped to sell its stake.

EDF hasn’t left the table and may well end up finding terms agreeable to it.

You may wonder why the government would want to sell its share. Here’s a stab at an explanation from Sky News:

However, the years following its privatisation saw sharp falls in wholesale electricity prices, resulting in losses of nearly £500m in 2002.

In September of that year, the firm faced going to the wall and was only rescued by a £650m public loan.

Banks and bondholders wrote off around £1.3bn in debt in return for control of the group - leaving shareholders with just 2.5% of a newly-created company.

It left the Government holding a 65% share in a business taken out of public ownership less than 10 years earlier.

That’s more than enough to lose me, but it sounds as though the government got itself into a privatization fix this sale will get it out of.

It’d be a real shame if British Energy had to start the bidding process over – assuming it could, given that virtually every European energy outlet has had a look at it – as the United Kingdom has come out fully supporting an expansion of nuclear energy. The new part owner  would likely want a say in how that expansion went forward and which vendors to use for plant design and components.

Of course, the expansion can still happen even if the government fails to sell its share – it’s the waiting game that can hold things up, not the capabilities of one player or another.

Stay tuned.

Pepe and cat. We do not mean to imply that EDF has skunk-like qualities, since it does not, or that it is playing hard to get, which it also is not doing (and which Pepe never did, unless he got spattered in black paint and the cat went after him). We just like Pepe Le Pew and he’s conveniently French.

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