`Sweetheart' Energy sales under threat

A new cloud appeared above today's publication of the prospectus for the pounds 1.5bn-pounds 2bn flotation of British Energy after it emerged that Labour was ready to reform what it claimed were "sweetheart" arrangements under which it sells most of its electricity.

The news came as the state-owned nuclear electricity generator prepared to reveal that shareholders would receive an initial dividend yield comparable to the 19 per cent available to investors in the recent Railtrack flotation.

John Battle, Labour spokesman, called for the flotation to be abandoned, describing it as a bad deal for shareholders and taxpayers. He gave notice that a Labour government would look again at the operation of the electricity price pool, which sets marginal prices, given the guarantee it makes to ensure British Energy receives the best available price for its output.

The terms under which the pool operates ensure that all British Energy's eight power stations are always connected to the National Grid as part of the so-called "base load supply". The price it receives fluctuates with the pool price.

Mr Battle said: "I think it's not working and most people believe it's not working. It is a sweetheart deal for nuclear and I see no reason why that should continue."

He claimed the Government was desperate to sell the business to finance tax cuts. It was being sold for less than the cost of Sizewell B, the Suffolk nuclear power station commissioned earlier this year, and yet it was generating large amounts of cash. Meanwhile, the Government is keeping responsibility for the older Magnox power stations.

"By and large, the liabilities are being left with the taxpayer for 135 years so they are keeping back the real liabilities and selling off the cash-generating assets," Mr Battle said.

But advisers to British Energy said Labour's criticism of the Pool "sounded muddled" as all participants shared in the risks and benefits of the system equally. The prospectus will, however, include a section devoted to Labour policy pronouncements on British Energy, most of which have been hostile.

As with Railtrack, investors are set to achieve a high initial yield on the shares after the flotation. The first two dividends will be payable in January and July of next year, well before the second instalment is due on the shares in September. Sources yesterday suggested the yield, putting the two payments together, would be similar to the 18.8 per cent achieved by Railtrack investors, equivalent to a rate of 25 per cent on an annualised basis. Analysts expect the trading yield to settle at between 7.5 and 8 per cent.

Today's document will reveal the size of the first instalment to be paid on the shares, with small investors receiving a discount, although the size will not be set until 26 June.