Taxpayers face further Bulb losses due to government hedging block


The taxpayer losses on rescuing energy company Bulb, currently running at over half a billion pounds, could increase further because the government prevented the company from hedging the cost of fuel, officials have said.

In November, ministers stepped in to rescue Bulb, Britain’s seventh-largest supplier, to enable the continued supply of energy to its 1.7mn customers through to April after the company collapsed.

Since last summer, 30 suppliers have gone under amid spiraling wholesale energy prices but Bulb was the first to require temporary nationalization rather than rescue by a bigger rivals.

The government made £ 1.7bn in capital funding available to keep Bulb going with an “envelope” of cash designed to last at least until the end of next month.

So far, about £ 600mn has been spent on keeping the company afloat, according to people close to the matter.

But the rate at which the company is burning through taxpayer money is expected to accelerate due to a further spike in energy prices as a result of the Ukraine invasion which began three weeks ago, and Bulb was not hedged against further rises.

As a result taxpayers could be required to stump up a second “envelope” in the coming months, in the absence of a private rescue bid.

Darren Jones, head of the business and energy select committee, on Thursday wrote to Kwasi Kwarteng, business secretary, asking if the government ignored expert advice that would have allowed the company to hedge further rises in the cost of fuel.

Jones said that hedging, paying for financial protection against further price fluctuations, was an “industry standard practice” which could have reduced the company’s exposure to energy price spikes.

“We understand that ministers refused to allow the administrators of Bulb to re-hedge prior to the Russian invasion of Ukraine,” he wrote. “This has resulted in a much higher cost exposure to the taxpayer.”

Jones asked Kwarteng whether the decision to prevent Bulb from hedging its costs was taken by the Department for Business, Energy and Industrial Strategy or Treasury ministers.

But officials pointed out that guidance from the Treasury deters the use of “insurance” in the public sector on the basis that the public sector has a “wide and diverse asset portfolio” and an ability to “either raise revenue through taxation or borrowed access. funds more cheaply than the private sector ”.

“In the private sector risk is often managed by taking out insurance. In general government it is generally not good value for money to do so, ”read a Treasury document, Managing Public Money, from May 2021.

“The public purse is uniquely able to finance the restitution of damaged assets or deal with other risks, even very large ones. If the government insured risk, public services would cost more, ”it read.

The guidance describes the use of any financial instruments, including hedging, as “automatically novel and contentious” with the need for Treasury clearance.

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“The Treasury will normally be skeptical because, like insurance, financial hedging incurs costs in circumstances where the government may in principle be able to bear the risks and could usually do so more cheaply.”

Jones said it was right that the government had special administrative measures for energy companies that have gone bust, while adding: “But what does the government plan to do if another large energy company needs to be essentially nationalized?” he asked.

The business department said: “The special administrator of Bulb is obligated to keep the costs of the administration process as low as possible, and we continue to engage closely with them throughout to ensure maximum value for money for taxpayers.”

Bulb declined to comment.



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