Rescue deal should be renegotiated

NUCLEAR energy has been controversial from day one. So it is not surprising a head of steam has built up over the future of generator British Energy.

Last year BE was brought to its knees by low power prices and high debts. Now it has the happier blend of rising prices and falling debts. The issue is how much of the happiness shareholders will receive.

With its back to the wall last year, the board agreed to a restructuring, surrendering 65% of future cash flow to the Government for future liabilities and 97.5% of the shares to creditors, mainly bondholders.

BE fell to 3 1/4p. They were tipped here in November at 5.1p. Now they are 20p and new investors - US hedge fund players Polygon, with 5.6% and Brian Stark, with 6.9%, clearly think they could go much higher.

You can see why. Power prices have almost doubled from £14 to £26 per megawatt hour. Every £1 rise adds more than £60m to BE's profits.

Polygon is backing a website, BE-fair.org, to ask the 330,000 shareholders to urge a renegotiation of the rescue. If support tops 10%, it could call an extraordinary general meeting.

BE chairman Adrian Montague argues that the rescue was the only option. Bondholders did take the risk, but their reward is huge. Bonds issued at £100 now fetch £170.

The rebels might try to delay the restructuring. It needs European Union approval, first due in July, now by October. The EU may set conditions restricting BE's use of State aid. BE will then call two shareholder votes. The first needs more than 75% approval, the second 50%. If the process drags on, the creditor agreement runs out in January.

The board warns that if rejected, it will have to delist the shares, leaving investors with nothing. Such delistings anger big City funds.

If the rescue terms could be changed, the upside could be large. BE's market value is £130m. Brokers reckon operating profits will be £180m this year, soaring to £580m next year. If that went to present investors, the shares could be worth £4. As things stand, they get just 2.5% of the benefit, rising to 7.5% later if they pay in £28m.

That probably makes the shares worth 17p, rising to 25p in a year. The real excitement only starts if the rebels can prise open the rescue terms without triggering meltdown.

Montague knows key sharehold are unhappy. If all else fails, may I suggest a second-best solution?

As energy prices soar, arguments for new nuclear stations strengthen. BE is the obvious candidate. At least it could reinvest and extend the life of its eight plants.

Why not do this through a new company and offer present investors, say, 15%? Bondholders might buy this as the price of peace. How about it, Mr Montague?

Virotec to unveil new power play

THINGS are bubbling at water treatment specialist Virotec. The word is that it has settled its long-standing libel row with an Australian newspaper, which unkindly likened its Bauxsol technology to snake oil.

The US Environmental Protection Agency's acceptance of Bauxsol's benefits appears to be have been key to a settlement. Some say Virotec could collect £2m.

Hopes are rising for Hydrodec, a new technology that Virotec obtained from a Commonwealth research body.

It destroys chlorinated hydrocarbons, which can cause cancer and accumulate in oil used to cool electricity transformers.

Virotec is seeking to 'maximise shareholder value' from Hydrodec. One way would be to inject it into Vert-Eco, a new shell company run by former moneybroker John Gunn.

Though it is early days, that could be worth 5p a share to Virotec, currently 26p or nearly three times its level when first tipped.

The libel settlement is the icing on the cake.