The government may be prepared to allow the embattled nuclear power firm, British Energy, to be put into administration, according to a press report.

"The full extent of the company's debts, now emerging, has persuaded the government to contemplate allowing it to go under," according to the Financial Times.

The threat of administration is now "very much an option", a senior government official told the newspaper on Monday night.

The government's threat has come despite a warning from British Energy that allowing the firm to sink would be extremely costly for the state.

This is because its power stations would have to be kept running while the government would reconsider its nuclear energy strategy.

Cost efficiency

Ministers have found that "it could cost the taxpayer less to put the company into administration than to keep the company limping along in the private sector with state support", the FT said.

In addition, moves to ease British Energy's financial burden have drawn strong criticism from its competitors.

So allowing the firm to sink could help the government avoid getting embroiled in an embarrassing rescue operation.

The FT said ministers are "frustrated and angered" by British Energy's slow progress in drawing up a true financial picture.

"This is not a complicated business," an official told the paper.

"This week, we are still trying to get to the bottom of the [extent of British Energy's debts]."

Serious crunch

British Energy, which provides a fifth of the UK's power, has been hit by lower electricity prices since the wholesale power market was liberalised last year, and by a shutdown at one of its facilities.

Other power firms have been able to offset the weak wholesale market by maintaining higher retail prices, but this strategy is not available to British Energy, which does not have a retail arm.

The firm, which was privatised in 1996, is thought to need about �300m this year to pay off debts and cover losses.

The affair, which comes less than a year after the Railtrack bail-out, has proved a further embarrassment for the government.