Drax on the brink

American owners AES are set to abandon the debt-laden plant on Wednesday, leaving it in the hands of its creditors.

AES bought the station in 1999 for £1.87 billion, borrowing more than £1 billion from 53 banks and bondholders to secure the UK's largest coal-fired station.

Now the U.S.-based company is set to walk away with nothing.

AES entered into negotiations with its creditors last November after the collapse of TXU Europe, one of Drax's biggest customers.

The banks and bondholders, which were owed about £1.2 billion, agreed not to force Drax into administration, provided that AES entered restructuring talks.

But after nine months of negotiations - during which AES has lost millions running Drax - the talks have ended in deadlock and the situation is now at crisis point.

A source close to the talks said that AES believed it had brokered a reasonable, workable compromise with its creditors that would see the operation of the station continue seamlessly.

But just as the deal was about to be signed, International Power (IP) offered to buy a proportion of Drax's debt, giving it a stake in the plant's equity.

This put a "spanner in the works" and derailed the agreement at the 11th hour.

AES has told its creditors it still wants the deal to be tied up by today, as agreed, or it will transfer the operation of the station to the creditors.

Ominously, so far there has been no word from the banks or bondholders.

The fear is that if management of the plant is taken over by "outsiders", the confidence of customers and suppliers could be affected.

Garry Levesley, manager of the 500-man station, said today: "AES Corporation has required that the banks decide on its offer by today.

"If they decide not to pursue the offer, then AES will be asking the creditors to appoint their own management team.

"Clearly, during any transition period, there is the heightened risk of difficulties in operation of the business."

Updated: 14:11 Tuesday, August 05, 2003