A controversial �650m lifeline to struggling nuclear power firm British Energy is to be approved by European regulators, a report has said.

The European Commission is poised to reveal that the UK government did not break EU rules by offering the bail-out, the Financial Times newspaper said.

The government may even be allowed to lend more than the �650m granted to far, the newspaper added.

But the commission is to impose tough conditions on the rescue package.

The report comes as environmental group Greenpeace, which is strongly anti-nuclear power, launches its own legal battle against the cash injection.

Price drop

British Energy operates eight plants in the UK, and produces more than a fifth of the of the UK's power.

It was hit hard by a steep drop in electricity prices since the wholesale power market was reformed last year.

When the extent of the crisis at British Energy became apparent in September, the UK government granted the company an emergency loan facility of �410m.

This was then increased to �650m, with the loan due for repayment on 29 November.

Strings attached

However, observers raised questions over whether the loan broke EU regulations on government support for companies.

And the commission earlier this month said that the UK had technically broken EU law by failing to inform Brussels ahead of the loan being made.

But the commission may approve the bail-out early next week, with conditions designed to ensure the cash is used only to stave off bankruptcy and not gain competitive advantage, the FT said.

The cash will have to be repaid within a year, giving British Energy a limited window of opportunity for implementing a restructuring which is likely to include disposals and a debt for equity swap, a process used in the rebuilding of firms such as NTL.

'Unlawful' loan

Greenpeace, seeking a judicial review of the aid package, said its action was set for a court hearing on Friday.

"We believe the loan is unlawful," Greenpeace campaigner Rick Le Coyte said.

"The European Commission has registered it as unlawful, the government's own guidance suggests it is unlawful, and we hope the UK court declares it so."

But the government loan has upset competitors and environmental groups.

The environmental lobby Greenpeace is attempting to have the aid blocked in the High Court.

The struggling nuclear power firm British Energy has said it is thinking of selling all or part of its Canadian subsidiary, Bruce Power.

It said it would use the money raised to repay a �650m loan from the UK government.

British Energy got the emergency loan in September after it warned it was facing insolvency.

But the assistance has proved controversial, with opponents arguing that it goes against European regulations.

Canadian interest

British Energy holds an 82% stake in Bruce Power which analysts say could be worth between �600m and �800m.

It is thought that Canadian uranium producer Cameco, which is British Energy's partner in Bruce Power, is interested in buying the holding.

"British Energy confirms that it is in discussions which may, or may not, result in the sale of all or part of its stake in Bruce Power," British Energy said in a statement on Friday.

"If there were to be a sale, the proceeds would first be applied to repay funding from the UK Government under its credit facility."

Loan controversy

British Energy operates eight plants in the UK and produces more than a fifth of the of the UK's power.

It was hit hard by a steep drop in electricity prices since the wholesale power market was reformed last year.

When the extent of the crisis at British Energy became apparent in September, the UK government granted the company an emergency loan facility of �410m.

This was then increased to �650m, with the loan due for repayment on 29 November.

But the government loan has upset competitors and environmental groups.

The environmental lobby Greenpeace is attempting to have the aid blocked in the High Court.