A tale of two meltdowns

THE ignominious restart of dealings in British Energy is not going to warm the cockles of the hearts its army of shareholders. BE is being described as the 'nuclear Railtrack'. But events at the doomed generator have moved in almost the opposite direction.

At Railtrack, the hapless Stephen Byers withdrew financial support and put Railtrack into administration. At BE, it was the board, pushed by the non-executives, who forced out the 'insolvency' warning and the Government which has come galloping to the rescue with support.

Unfortunately for the 250,000 or so shareholders, the position is weaker, too. There is no pot of cash sitting in BE's accounts. Rather, the opposite is true. Whereas at Railtrack the trains were running almost to schedule at the time it went into administration, at BE there seem to be as many reactors out of operation as there are actually generating electricity. Shares worth 331p at the start of the year were trading at less than one-tenth of that last night at 28p. The only claim investors have against the company is that the management of Robin Jeffrey has been less than frank.

Brokers' summaries of the August 15 meeting with analysts appeared to make it clear that the company has sufficient lines of credit to meet all its foreseeable requirements.

The Financial Services Authority listing department is now crawling over the transcript of this session with a fine-tooth comb and comparing it with what was said on Thursday 5 September, when BE shocked the market with its insolvency warning and the regulator ordered suspension of its shares.

The FSA was, by all accounts, stunned at BE's statement. The City regulator found with Railtrack that it is sometimes difficult to apportion blame when there are ongoing confidential negotiations with Government. But there is a determination in the BE case to throw the book if it finds any evidence of the directors hiding the true state of the company from investors.

Is there a hidden pot of gold at BE as there was with the Channel Tunnel Rail Link and property assets at Railtrack? Most experts think this unlikely. The much trumpeted North American nuclear plants need (according to brokers) £700m spent on them by 2004 to be worth £1bn. Given that the Government loan of £410m will keep BE operating only until the end of this month, the value of the American assets looks like a drop in the ocean.

Energy Minister Brian Wilson may not be smart enough to have grasped the political importance of keeping BE out of the hands of the receivers. But Trade Secretary Patricia Hewitt is far too savvy to let a 'nuclear Railtrack' happen.

The reality is that BE is almost certainly a far less worthy case for a bail-out (on financial terms alone) than Railtrack. But after the buffeting Labour took at the hands of the investment community over Railtrack, it can ill afford a fresh confrontation at present. No one wants even to contemplate the costs or the environmental and safety consequences of mothballing Britain's gas-cooled reactors. So a rescue is essential. But this time the compensation culture is unlikely to be extended to shareholders.

Upbeat Eddie

WITH his cameo appearances as he emerges from the monthly meeting of the central bankers club in Basle, Sir Eddie George is in danger of being mistaken for the eternally chirpy Cheerybles in Nicholas Nickleby.

Earlier in the year the Bank of England Governor promised that the world recovery would be in the second quarter of this year. Now that it has failed to take hold he says we will have to wait until 2003.

Nobody in Basle was talking 'double dip', George assures us. Although 'we are talking slower growth' as a result of developments (by which he means collapse) of financial markets. This, the Governor says, is 'having an effect on wealth, spending and sentiment'.

Still, we don't have to worry about the oil price (even though it has broken through the $30-a-barrel level) because George and his fellow bankers have been assured that OPEC will hold it in the $22-$28 a barrel range. Maybe, but as Iraq war fever builds up, with the risk of Gulf oil fields going up in flames, this is a prediction which looks thinly based.

As far as Britain is concerned, latest economic data showing retail sales flatter than last year, factory prices falling and the trade deficit narrowing would appear to offer no obstacles to future rate cutting.

But it could be necessary if he is to save the British economy from the fate of the unfortunate Smike, who came to a tragic end.