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The Government has got quite enough problems at the moment without wishing for it to have any more, but the move to sell its 30% stake in the nuclear electricity generator British Energy has a calm about it that could be deceptive. There are several issues that could blow up in its face.
For example, once the Government sells its shares, the transaction goes to the Office of Fair Trading to see whether there are any competition issues. This is the first elephant trap.
Though few realise it, some 40% of electricity generation in the UK is in the hands of independent producers rather than the big six international utilities and British Energy accounts for roughly one-third of that.
If the company is sold to one of the big international firms, the amount of independent power generation will fall dramatically and the liquidity in that market will be greatly reduced. This, in turn, will increase the volatility of the price and the riskiness of independent power generation which will affect the creditworthiness of the independent sector. If the generators' credit dries up, competition could be significantly affected.
A second issue is the mooted requirement that the new owner should sell off two of British Energy's sites so that there will be scope for more than one company to have sites on which to build the next generation of nuclear reactors.
However, all the mooted new reactors are almost three times as powerful as those they will replace and the existing National Grid pylons could not cope with that extra power - they would melt.
Therefore, hundreds of miles of new pylons will have to go up over areas of natural beauty such as the South Downs if Dungeness were one of the sites, or rural Suffolk if it was Sizewell, and so on for most of the others. Getting permission for major new pylons is hugely difficult and creates the risk that you could build a new power station and not be able to connect it - as happened in Germany. Who is going to take that risk?
Any potential buyer would presumably require an escape clause to deal with issues like these. But the last thing the Government wants is to do a deal, then six months later find that its stake has been handed back. So it will want a sale with no strings.
That, however, will be a sale at a substantially lower price, and that raises issues for the board because while the Government might be happy with such an arrangement, the other shareholders might not be. So does the board accept a low offer because it gets the Government off the hook or a higher offer from a rival which would leave the Government potentially back on the hook?
Rothschild, which is handling the sale, is going to earn its fees on this one.
Brown's MPC manoeuvrings
In my naivety, I had thought that appointments to the Bank of England's monetary policy committee, while being in the gift of the Chancellor, were conducted in a fairly open way without any hidden agenda. Not so, it seems.
Writing in the Financial Times, London School of Economics director Sir Howard Davies cites research by one of his colleagues, Professor Simon Hix, who looked at the voting records of MPC members and whether there was a link between the way they voted on interest rates and their chances of getting reappointed.
Apparently, there is. When he was Chancellor, Gordon Brown chose between hawks and doves - those favouring higher rates or lower rates - in a way that would compensate for his fiscal policy. Thus when Government spending was constrained, as in the run-up to the 2001 election, he selected doves, in the hope no doubt that lower interest rates would offset his spending restraint.
Then, as he loosened the purse strings after the 2001 general election, he tended to appoint hawks, presumably in the belief they would be needed to help dampen things down.
Well, Prime Minister Brown does have a reputation as a control freak...
Reader views (1)
As usual, a thoughtful and highly intelligent take on the British Energy issue from Anthony Hilton. It was disingenuous of Brown to 'order' the building of a new UK nuclear fleet, when all the UK's capability in nuclear energy has been sold off to the Japanese, Americans and French for £8bn (what did Gordon do with that windfall, I wonder). And why don't any journalists mention that EDF, in line to build our new nukes and probably to buy the 30% of BE, have a certain Mr Brown - Gordon's brother - heading their PR and lobbying?
- B.N.Effell, Cumbria, UK, 30/05/2008 16:37
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