Alan Duncan, MP for Rutland & Melton and Shadow Secretary of State for Trade & Industry, looks at the issues surrounding the sale of British Energy and urges the Government to clarify its position on the potential buyers.
British Energy is up for grabs. Who should be allowed to grab it? Rumours, speculation and briefings have excited the market this week, as the net continues tighten around the UK’s remaining bastion of nuclear power. From being a basket case only a few years ago, British Energy is now a flagship company running nine ageing nuclear power stations.
Initially the French champion EDF appeared to be the firm favourite when it was reported that they were seeking to acquire the entire company. RWE nPower, the German giant, has since emerged as a powerful bidder.
In the middle, just looking at buying out the Government’s 35 per cent stake, are Centrica. The British firm play a weaker hand, with less cash and less experience in the nuclear market; but, critically, their national status strengthens their role as possible kingmakers in shaping UK nuclear power. An alliance between Centrica and BE would maximise British control, maximise competition in the energy sector and maximise the flexibility Britain would enjoy in optimising the structure of its nuclear power sector for the future.
What happens now will determine the shape of electricity generation in the UK for the next 50 to 100 years. This is not just any old corporate race. British Energy is the core of our nuclear industry, and is a ready-made launchpad for a whole new fleet of power stations. Whoever gets it gets a head start. Issues of strategic national importance, such as security, affordability and carbon emissions all follow from who owns BE.
What then is the Government’s approach to a policy issue of such enormity? We’ve heard a whole range of different opinions being voiced. On 8 April, a spokeswoman from the Department for Business, Enterprise and Regulatory Reform (DBERR) said that the Government was ‘relaxed’ about foreign ownership and was not in the business of promoting ‘national champions’.
Just a day later, Malcolm Wicks, the Minister for Energy, declared in an interview that he ‘wouldn't be happy’ for ‘just one company to have a monopoly of nuclear in Britain’, a clear warning shot to European energy companies that single ownership is not on the table.
But with RWE lining up a bid at 700p a share – which could net the Government around £4 billion to bail out an increasingly expensive nuclear clean-up operation – will the Government hold by Wicks’ line?
Given the other public sales in which Gordon Brown has played a part over the last decade – most notoriously, the criminally undervalued disposal of the nation’s gold in 1999 – can anyone have confidence that this Government is able to see the deeper, longer-term advantages over the immediate, short-term gain?
All the signs indicate that Downing Street will simply accept the highest bid, regardless of consequences. Since January’s Nuclear White Paper, the Business Secretary John Hutton has been on a high profile campaign to promote nuclear energy – calling for a huge expansion of nuclear’s presence in our energy mix and then extolling the economic benefits of bringing the industry to the UK. It’s a powerful message: clean and secure energy with less dependence of imported gas. As Mr Hutton’s rhetoric has soared, so has BE’s share price. At the same time his talk of a possible windfall tax had the opposite effect on Centrica and depressed its stock.
Selling all or part of BE is no ordinary commercial deal. There are three conundrums at the heart of this sale, each reflecting three challenging dilemmas.
The first is a conflict between foreign ownership and national competition. If EDF buy BE, the nuclear sector would be dominated by the French, and its nuclear power stations would be built only with French technology. The UK's competition regime would force them to part with some of BE's sites, but the danger is that this would only be a cosmetic adjustment to satisfy the minimum requirements of a supposedly competitive energy sector. If RWE were to succeed, then the structure of competition would be confused by their existing strong presence in the UK's electricity generation. Although the advantages of off-the-shelf technology and the prospect of a quantum leap in our skills base should not be underestimated, the problems of reduced competition would remain.
The second dilemma is whether it is in Britain's interests to go for short-term cash or for long-term value. The perversity of the Government's 'best value' policy is that you end up getting the housing estate but losing the playing fields. Centrica is unlikely to be able to pay as much as EDF or RWE yet its combination with British Energy could create a unique platform for the future of Britain which in terms of long-term value could offer a significant multiple on the £4 billion cash they might today receive for their stake.
But this rubs against the third – and most delicate – problem which the UK faces. Our refusal to encourage our own national champions to fly the flag for Britain does not appear to rule out encouraging other countries’ national champions to plant their own flag in the UK. It would mean that others’ national champions and illiberal markets are able to prosecute an advantage over ones which are open and liberal.
The Government must make their position clear and not leave these conundrums to be addressed during a messy post-mortem. This is not a straightforward issue of commercial acquisition – it’s a matter of public policy which requires a clear public statement of their principles. New alliances in the battle for BE might yet emerge but these three conundrums remain and the Government must make its position clear now rather than let a bid go forward which then requires a messy mopping up operation to satisfy the demands of competition.
