British Energy is the UK's biggest generator

Ministers have been forced to act after the stricken generator's plan to sell its 50% stake in US nuclear power company AmerGen ran into the sand.

British Energy had been planning to use the cash from the sale to repay the loan.

The company supplies one-fifth of the UK's electricity needs but it is struggling to stay afloat amid falling power prices and rising debt levels.

Insolvency threat

In a statement on Friday, British Energy said the government's existing loan would be reduced to �200m pounds and extended until September 2004.

But the company said it is still far from certain it can avoid going into administration.

Its financial future hinges on the government being able to persuade its creditors to formally back off.

Ministers are due to hand a restructuring plan to the EU by Sunday, 9 March.

Increased competitiveness

British Energy said it had called a halt to the sale of AmerGen because "none of the proposals received adequately reflected the intrinsic value of AmerGen".

The generator said it still aimed to meet the June deadline for the sale of AmerGen, set out in its last restructuring plan.

British Energy has been badly hit by the increased competitiveness of the UK's wholesale electricity market.

More players has forced down prices and exposed the fact that many plants were being run inefficiently.

However, while many operators also have a retail arm allowing them to make up profits, BE has not.