THE British business community is openly critical of the government’s limp attempts to come up with a workable energy policy. Our leading businessmen say the country is walking into an energy crisis – and unless the matter is addressed urgently it will be too late.

Last week the business secretary, John Hutton, attempted to put some clarity into the situation. He could not have been more emphatic in his support for a new generation of nuclear power stations moving Britain to a low-carbon economy less dependent on gas and coal.

As soon as he had said this, however, there was a collapse in the auction to sell British Energy, which operates more than 90% of our nuclear capacity and has the best sites for new reactors. British Energy’s board, chaired by Sir Adrian Montague, said the last bidder in the auction – EDF, the French energy giant – had not offered enough.

EDF says it is not prepared to increase its bid, and Montague is not buckling. He has listened to his big investors, who say there is still a huge gulf between what they will sell at and today’s share price.

All this leaves Montague with a potential impasse. However, he has a neat solution. He is not ruling out EDF returning with a higher offer, but he does have an alternative plan.

The auction flushed out various big continental energy groups that wanted to play a part in Britain’s nuclear future. For various reasons, principally the difficulty of raising capital, they withdrew from the auction.

One way of attracting these parties back is for British Energy to enter into a series of joint ventures with groups like Iberdrola, RWE and Britain’s Centrica. That way the financial risk is spread, allowing different companies to build power stations around the country. This approach also ensures Britain maintains a role in what will be our most important future energy source; it will also provide comfort to those who would be deeply disturbed if Britain had no stake in one of its most important strategic assets.

So far the government, which is being advised by UBS, has played its hand very well. It owns 35.2% of the company and has not attempted to exert its influence on British Energy’s board. If it departs from this supportive strategy and sells its stake separately, this would be a recipe for disaster and set the government on a collision course with some of the City’s biggest investors. It should have learnt from the Northern Rock debacle that investors have a voice – particularly if a company is highly valuable and solvent, like British Energy.

Montague is playing it well. His job is to get the best deal for his investors and ensure the group’s full value is recognised. For his part, Vincent de Rivaz, EDF Energy’s chief executive, believes investors are too optimistic about British Energy’s future value and are basing it on today’s energy prices. Nor does he believe investors understand the huge building costs of new nuclear plants, which have jumped on the back of soaring commodity prices.

De Rivaz has spent 18 months working on this auction and been a regular at No 10 Downing Street. His firm insists it is not going to overpay, but unless he tweaks his price this prize could run away. The French firm has other options to pursue, but the opportunity to acquire British Energy in its entirety will not come round again.

Rebuilding Barratt

BOB LAWSON’s first job as chairman of the beleaguered housebuilder Barratt is to sack his chief executive Mark Clare and then his finance director Mark Pain.

The duo have lost all credibility in the marketplace after presiding over a 90% collapse in the share price. As we describe on the opposite page, the market value of the group, which last year paid hard cash for Wilson Bowden, a rival builder, has shrivelled from more than £4 billion to £300m.

Lawson will see that beneath Clare and Pain there is a strong operational team. That team now needs to take charge and nurse this company back to health. For this layer of management, housebuilding is in their blood – the same cannot be said of Clare.

I accept Clare has had a rough ride. Without doubt he was encouraged to buy Wilson Bowden by his former chairman Charles Toner. Clare was recruited to push through an acquisition drive and he did what he was asked to do – but the strategy has backfired spectacularly.

However, Barratt is not bust and, by renegotiating bank covenants and putting a freeze on new land acquisitions, it will recover. At some point it will need a rights issue, but that is not round the corner.

For Clare, who was poached from Centrica, the energy group, it is the end of the road in housebuilding. He had his turn, there was a disaster on his watch and he has to go. Business can be a very rough game.

Short, sharp shock

THERE has been much carping since the Financial Services Authority (FSA) rushed out a new rule last Friday to stop the manipulation of share prices by “short sellers” when companies are in the middle of a rights issue. Banks, including HBOS and Bradford & Bingley, have seen huge downward swings in share prices while they are trying to raise new equity.

From this Friday, investors who have borrowed more than 0.25% of a company’s stock for the purpose of short selling during a rights-issue process will have to disclose their holding.

Critics say it is a sweeping change to address a short-term problem. They are wrong. What the FSA has done is make the first step to a more comprehensive policy to control rogue short sellers who have made sophisticated stock markets around the world look like little more than casinos.

The way that short sellers have ambushed recent rights issues gives the impression that the City is unregulated. Short selling is now as prevalent as traditional share buying. When you look at the rules that govern the latter, they must be matched by the former. Short selling has led to wild moves in share prices around the world, and global regulators must start to work together to tackle the problem.

Stock markets must protect their integrity and the growing uncontrolled abuse of shorting has without question undermined it.

Varley’s opportunity

THE game of bluff and double bluff is over at Barclays. The bank is close to raising £4 billion from investors. Unlike some of its peers, though, this proposed placing is about growth and taking advantage of opportunities.

The bank’s profits are powering ahead, its dividend is not under threat and with additional capital this is a time to have your door open for business rather than closed. For John Varley, the bank’s chief executive, this is not about shoring up the balance sheet, it is about growing it.

Whether we have reached the bottom of this cycle remains to be seen, but in a year’s time it is possible that we will look back and see it as close to that point. Barclays is trading on a p/e of five times and has a dividend yield of 10%.

john.waples@sunday-times.co.uk

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