British Nuclear Fuels said on Thursday it was scrapping an important atomic fuel development programme because of escalating costs and regulatory uncertainties about its approval.

The decision means that its two most cash-generative power stations, Wylfa in North Wales and Oldbury in South Gloucestershire, may have to close years earlier than planned, dealing a further commercial blow to the company.

BNFL last year suffered record losses of GBP337m ($491m) and admitted its liabilities had increased by GBP7bn. It is also having to fight to win back the confidence of its customers after a quality control falsification scandal last year.

MagRox was conceived as a way of extending the life of Wylfa and Oldbury, BNFL's most modern Magnox reactors, up until 2021 and 2013 respectively.

The remaining six Magnox reactors, which are among the oldest nuclear power stations in the world, are having to close earlier to allow the Magnox reprocessing plant at Sellafield to cease operations by 2012.

A BNFL official said the company had decided to abandon the MagRox plans because of uncertainty about future electricity prices, mounting development costs and concerns over the length of time they would take to gain regulatory approval.

Introducing the fuel would have cost around GBP100m, meaning that the power stations would not have broken even until 2009 at the earliest.

"When all the sums were done it was decided that it wasn't a risk the company was prepared to take," he said.

The Magnox reprocessing plant has been heavily criticised by Scandinavian and Irish authorities for continuing to discharge radioactive material into the North Sea. MagRox fuel uses uranium oxide pellets contained in stainless steel cases which would have been compatible with the cleaner Thorp reprocessing plant.

BNFL will now carry out a study to see if Thorp could be converted to deal with Magnox fuel in its current form. However, any such move would also be costly and could disrupt operations at the plant, which reprocesses spent fuel for British Energy and customers in Germany and Japan.

If no reasonable solution can be found, Wylfa power station will have to close by 2009 at the latest and Oldbury by 2008. The official admitted that this would be economically damaging for the company.

"They are important for our cashflow and the longer we are able to run them the more money we can raise to help pay for our decommissioning liabilities," he said.

Wylfa has already been hit with problems this year after defects were found in pipework carrying steam from its boilers. The plant has been closed for modifications since last April and is not expected to re-open before the summer.