Critics Razz Plan for British Gas Sell-Off

SEVEN years after it privatized British Gas - until then a state-owned monopoly - the government is being urged to split it up and provide consumers with a free market in gas supply.

If it does so, it will be admitting that the campaign of industrial privatization spearheaded by Margaret Thatcher in the 1980s created distortions in Britain's energy market and in some cases benefited shareholders more than consumers.

Proposals published Aug. 17 by the influential Monopolies and Mergers Commission (MMC) would reduce British Gas to the role of a pipeline and storage operator by stripping it of its marketing arm, and allow independent companies to supply up to 18 million households by early next century. Paradox of breaking the monopoly

The MMC recommendations, however, if implemented, would have the paradoxical effect of raising gas prices for domestic users while the monopoly was dismantled and the industry restructured. This is because British Gas would be allowed to increase its prices to domestic users to pay for decommissioning large chunks of its current operations.

This aspect of the commission's plan has drawn the ire of Labour and Liberal Democrat opposition spokesmen who say it offers nothing to the consumer in its present form.

The plan has also been heavily criticized by trade unions. British Gas has forecast that it will have to cut its current labor force of 60,000 by one-third. A gas industry union leader said a further 20,000 jobs would go in companies which currently supply British Gas with equipment and services.

Michael Heseltine, the trade and industry secretary, will have to decide later this year whether to implement the MMC proposals or let British Gas retain its much criticized monopoly.

Ofgas, a government-appointed watchdog body, has accused British Gas of overmanning, and tardiness in passing on price reductions to consumers. Ofgas spokesman Greg MacGregor welcomed the proposals and forecast a 10 percent fall in the price of gas to domestic users when they had been implemented. Contention over eight year transition period

More than 30 companies have already expressed an interest in selling gas to domestic users. But some companies have criticized the MMC for proposing an eight year transition to an open market. Roger Turner, managing director of Utilicorp, which hopes to gain from the break-up, said domestic users would probably not start to see benefits for at least five years.

Under the MMC timetable, British Gas would create a separate arm for transportation and storage next year, but it would not stop selling gas to consumers until 2002.

Cedric Brown, British Gas's chief executive, gave a guarded welcome to the MMC proposals: "We now have a framework for the next 10 years in which we can develop and plan our business."

Mr. Heseltine's task in deciding whether or not to accept the MMC report will be politically sensitive. The government is already under criticism for deciding to charge value added tax on domestic gas consumption from next spring.

Since privatization, British Gas has turned itself into a highly profitable business. Last year it made an operating profit of British pounds989 million ($1.46 billion) on UK gas supplies and a further British pounds360 million on overseas sales and exploration.

The MMC's Odgers said that in the interests of competition British Gas's ownership of "vital transportation facilities" had to be divided off from its current trading activities.

Gas industry sources say Heseltine is likely to welcome this aspect of the proposals. But he is already under pressure to ensure consumers receive efficient, relatively cheap service from private operators.

The National Consumer Council noted last week that the government had not so far made a detailed cost-benefit study of the changes as they would impact on consumers. "This does not bode well for prices and standards of service in the long term," said John Ward, a council director.

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