EARLY last Saturday a group of government officials and merchant bankers waited nervously at the City office of NM Rothschild for the arrival of three envelopes.

They contained final bids for Westinghouse, an American nuclear-engineering company owned by the British government. The sale had attracted little public attention — it had been overshadowed by the controversial float of Qinetiq, the defence agency — but it was about to bring a thumping windfall for the British taxpayer.

Fierce competition between the final three bidders had pushed the price close to $5 billion (£2.8 billion), twice the original estimate and the biggest single receipt from a government asset sale since the auction of 3G mobile-phone licences in 2000.

The winner turned out to be the dark horse in the competition, Toshiba, which, advised by KPMG, beat fellow Japanese group Mitsubishi and the American industrial and financial giant GE. Better known in Britain for its consumer electronics, Toshiba has a tradition in nuclear engineering but was regarded as an also-ran behind GE and Mitsubishi.

However, Westinghouse was a must-win deal for the Japanese company. Speaking exclusively to The Sunday Times, Masao Niwano, chief executive of Toshiba’s infrastructure systems group, said: “We needed to assure the future of our nuclear business, and that is what we have done. The price was a lot more than we first expected but Westinghouse is a key asset.”

Japan has a well-developed nuclear industry but there is little opportunity for new construction. “There will not be any replacement required for 15 years,” said Niwano.

Nuclear power has been out of favour internationally for more than a decade, after the accidents at the Chernobyl and Three Mile Island plants, and uncertainty over the final cost of dealing with radioactive waste. But growing concerns about climate change and fears of being held to ransom by foreign energy suppliers have brought it back to the top of the political agenda.

The big prize for nuclear companies is China, where the government wants many new reactors. Westinghouse is considered a strong contender. The jewel in its crown is the AP1000, a pressurised-water reactor approved for service by American safety regulators. China is thought to favour a pressurised-water design, and France’s Framatome is the only nuclear group apart from Westinghouse to offer one.

To date Toshiba’s plants have been of a different type, known as boiling-water reactors. “It (the AP1000) is a very good design, and we think we will be able to provide Westinghouse with the resources to develop it further,” said Niwano.

It was the prospect of big business in China that hastened the British decision to sell. The Chinese will require power-plant builders to sign indemnities that could lead to “virtually limitless” liabilities in the case of future accidents, according to a senior source at the Department of Trade and Industry. “The government could not sign up to that kind of arrangement. It would be irresponsible.”

Nuclear-industry sources suggested the Japanese government would, in contrast, support Toshiba. One soruce said: “I think this fits well with the overall Japanese industrial plan to move into higher value-added industry. China, India and other Asian countries can compete well on things like electronics, but it’s difficult to catch up in a field like nuclear engineering.”

Westinghouse came onto the government’s books in 1998 when it was bought by BNFL, the state-owned nuclear agency, from the American conglomerate CBS. The deal was worth $1.2 billion, with BNFL assuming Westinghouse’s hefty debts.

BNFL is now being broken up after a rethink of the government’s nuclear strategy. The responsibility for managing Britain’s nuclear-waste legacy has been passed to a new agency, the Nuclear Decommissioning Authority, and BNFL’s remaining businesses, British Nuclear Group and Nexia, are also expected to be sold.

Last week the British government opened the door to the construction of new nuclear-power plants in Britain. It said in a consultation on energy policy that nuclear should be considered as part of a range of measures to ensure diversity of supply. President George Bush may hint at a return to nuclear power in America in his State of the Union address this week.