British Energy was today in talks with the Government over its financial crisis which is threatening the collapse of the nuclear energy group.

The company is warning that it may have to take insolvency proceedings if discussions are not successful.

British Energy is the UK's largest generator and produces one-fifth of its electricity.

The group, which was privatised in 1996, employs 5,200 staff in the UK, where it has eight nuclear power stations, Torness and Hunterston in Scotland, Heysham, near Blackpool, Dungeness in Kent, Hartlepool on Teesside, Sizewell in Suffolk, Hinkley Point in Somerset and Eggborough in Yorkshire.

Earlier this year, the group reported full-year losses of nearly £500 million.

Its figures had been hit by uncommercial long-term electricity contracts and writing down the value of one of its plants.

Last month, the group's shares plunged after it disclosed problems at its Torness plant caused a shutdown of the station.

About £160 million was wiped from its value in one day as it said costs of additional work on Torness and its Heysham plant were estimated to run up a bill of £25 million, while generation would be lower than expected this year.

There were recent reports the Government was considering helping rescue the group from financial difficulties.

Energy minister Brian Wilson denied a secret plan was under way to turn the company into another Railtrack by stepping in and effectively re-nationalising it.

But options under consideration included charging the consumer more for electricity from nuclear energy, as with other clean renewable energy sources.

On August 27, the company's shares surged nearly 30 per cent when it confirmed it was in talks with British Nuclear Fuels to take over running the firm's Magnox reactors.

Reports said the Government was pinning its hopes on such a deal, which it thought could be very beneficial to British Energy.

A management contract could provide valuable fees and give the company some breathing space.