The government is reported to be considering taking a majority stake in British Energy to save it from bankruptcy.

According to the Observer newspaper, the scheme is being viewed with favour by ministers because it would mean they could avoid renationalising the nuclear power firm.

The scheme would mean the government and other lenders would swap debt for shares in British Energy.

The company generates a quarter of the UK's power but has been hit by a drop in the wholesale price of electricity and by a shutdown at one of its power stations.

Unfair advantage

Last week the government gave it an emergency loan of �410m ($636m) so that it could stave off insolvency.

The loan will expire on 27 September and the two sides must agree a longer-term package by that date if British Energy is to survive.

British Energy's UK Nuclear Power Stations

Hinkley Point B Hunterston B Dungeness B Hartlepool Heysham 1 Heysham 2 Torness Sizewell B

Even if the government is considering taking a majority stake, administration is also still a possibility.

Last week Jim Godfrey, an adviser to the trade & industry secretary, said that the government was not ruling out administration.

British Energy's competitors are applying their own pressure to the government.

They are worried that if the nuclear generator is bailed out then the rest of the industry might suffer.

Financial investigation

A spokeswoman for British Energy said the company had yet to finalise further funding plans.

She said the group was considering "all the best possible options" at the moment.

There is speculation that the company could be the subject of a takeover, and billionaire Warren Buffet is reported to be among those interested in making a bid.

The UK's financial watchdog is conducting an investigation into British Energy's finances.

The Financial Services Authority (FSA) is concerned that the company might not have kept investors properly informed of its worsening financial position.

It is expected to publish its conclusions next month.