British Fuels prepares assault on gas market

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The Independent Online

Industrial Correspondent

British Fuels, one of the largest UK fuel distributions businesses, is to enter the domestic gas market in competition with British Gas and new rivals such as Amerada Hess and Total.

The company is expected to announce tomorrow that it will take part in the imminent trial covering 500,000 homes in the South-west with a view to going nationwide later.

The company - a management buyout from British Coal at the end of last year - has a turnover of pounds 400m and 1,400 staff. It already has industrial and commercial gas customers as well as an existing customer base in the South-west for its oil and gas products.

The announcement comes as the industry braces itself for a fundamental change at the end of this week with the introduction of the Network Code - a key element of the competitive marketplace. Under the code, all gas suppliers will have to balance their customers' demand against their offshore supplier instead of relying on British Gas. If they fall short, they will have to turn to Transco, the British Gas pipeline company, to balance the system in return for a penalty payment.

The Network Code starts on Friday, but with a "soft landing" period for the companies before the penalties are introduced later in the year.

The start of competition was supposed to follow one month later on 1 April but is now likely to be delayed for several weeks under pressure from British Gas. Richard Giordano, chairman, said last week that Ofgas had agreed to postpone the start date until 29 April but the watchdog denies that any decision has yet been made.

Ofgas is expected to take a view on when competition should start at a meeting tomorrow with its advisers and with the industry.

More than 60,000 families in the South-west have signed up to abandon British Gas when the pilot scheme begins.

Rivals to British Gas are planning to undercut the company by 15 per cent and more are expected to eat rapidly into the company's market share. Some City analysts believe that at least 12 per cent of customers will desert British Gas.

The company is not expected to respond by price-cutting for fear of angering the regulator and the Government. The Gas Consumers Council has also warned that if customers see lower prices in the South-west, others around the country must not suffer as a result.

The GCC is also concerned, however, that people should not change supplier without careful consideration. It has already attacked the gas supply arm of South-Western Electricity for aggressive doorstep selling techniques and has asked for an investigation by the trading standards authority in the area.

Although only 500,000 families in Devon, Cornwall and Somerset will be allowed a choice of supplier in the pilot scheme, competition will be extended to a further 1.5 million householders in southern England in April 1997.

Under the Gas Act, passed last year, nationwide competition is required by 1 January 1999.