LONDON — Sizable losses by one of Britain’s largest nuclear power companies have reopened debate here over the limits of privatization, according to the New York Times.
The company, British Energy, is the latest example of the problems Britain has had with its privatization program. Facing declining energy prices and tough regulations, British Energy has lost millions in the last two years.
Last October, the Railtrack Group, which owns the nation’s railroad tracks, signals and stations, was declared insolvent and effectively renationalized through a public-private partnership. In addition, the former air traffic control monopoly has struggled since it was privatized last year.
In the 1980’s, under Prime Minister Margaret Thatcher, Britain started turning state-owned entities into private companies, often by selling shares to the public. Private business, the thinking went, would be more efficient than the government at running businesses and providing services, and opening industries to competition seemed like the ideal way to pass savings on to consumers.
Analysts say that for the most part, that thinking holds true. They maintain that most of Britain’s privatized industries — ranging from telecommunications to coal and steel — have worked.
But they also say that the recent trouble underscores important lessons that will serve as a bellwether not just for Britain, but for other European countries in the process of privatizing their industries.
“We’ve learned that not everything is right for privatization,” said Philip Collins, director of the Social Market Foundation, a research institute here.
For British Energy, which was privatized in 1996 and produces 20 percent of the country’s electricity, the limits came largely in the form of regulation that put nuclear generating companies at a disadvantage to other energy producers. Nuclear plant owners are required to pay a share of a climate control tax intended to limit carbon dioxide emissions, even though they do not produce the gas. And they also pay higher rates on property leases than fossil-fuel plants do.
British Energy has been lobbying for exemption from the tax and for revised property rates, which if changed could result in savings of £100 million (about $154 million) a year, analysts said.
Partly as a result of these restrictions, British Energy is losing money at its eight plants in Britain. Over all, the company lost £39 million ($59.9 million) in the most recent fiscal year, after losses of £23 million the year before.
The financial situation took on fresh urgency this week, when the company shut down two reactors in Scotland after problems with gas circulators were discovered. Two other plants in England are closed for scheduled maintenance. The total cost of the shutdowns could approach £80 million, the company said, though insurance will probably pay some of it.
Such losses are unsustainable, analysts said, especially if British Energy is to put away enough money to shoulder the cost, estimated at £14 billion over the next 15 years, of taking older plants off line.
The problems at British Energy come amid a broad review of the nation’s energy policy.
Although electricity prices initially fell sharply, recent results have been mixed. A report by Credit Suisse First Boston estimates that since 2000, wholesale electricity prices, the prices at which British Energy sells its power, have dropped 36 percent, yet domestic retail prices remain flat — a poor scorecard for a free-market system that is supposed to benefit consumers.
Advocates of privatization said there was typically a lag between changes in wholesale and retail prices. But even free-market advocates agreed that the government would probably have to act if British Energy was to remain solvent.
Analysts said renationalizing the company would be an embarrassment, particularly after the Railtrack debacle. But there are less direct ways the government can help. One option is to transfer some reactor contracts from another company, British Nuclear Fuels, to British Energy, bolstering its revenue. The two companies said they were discussing such a proposal. But if wholesale electricity prices remain low, additional steps may be needed.
“It’s almost inconceivable that the government would let British Energy go into receivership,” Roger Reynolds of Credit Suisse First Boston said.
Eamonn Butler, director of the Adam Smith Institute, said that for free-market advocates, the solution is to limit politicians’ involvement. But for others, issues of free markets are inextricable from matters of social justice.
“Whose responsibility is it when a commercial company doesn’t provide for things that are socially necessary in the public realm?” Mr. Collins of the Social Market Foundation asked. “Where there are public goods at stake, a private market on its own hasn’t delivered.”
He and others suggest that the solution lies in public-private partnerships, like the model being tested with the railway system. In such a case, the company remains private, but the money it earns is put back into the services it provides. The Railtrack model is being scrutinized, analysts said, by Germany and the Netherlands, both of which are restructuring their rail systems.
Still, there is no guarantee that joint ownership will work, Mr. Collins said, mainly because it removes a pillar of free-market efficiency — “the threat of bankruptcy.”