British Gas puts blame for high losses on Ofgas: Price cuts and competition seen as causes of pounds 225m third-quarter deficit

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The Independent Online
BRITISH Gas yesterday blamed price cuts imposed by Ofgas, the industry regulator, and rising competition from new independent gas suppliers for higher-than-expected third-quarter losses of pounds 225m.

Robert Evans, chairman, coupled the bad news with a call for a quick decision from the Government on the Monopolies and Mergers Commission's recommendation that British Gas should be broken up.

'Until that decision is announced it will become increasingly difficult to make the decisions and the investments to enable the company to succeed in the future,' he said.

Despite colder weather so far this year, operating profits in UK gas supply have fallen by almost 30 per cent. This has offset higher profits from exploration and production, overseas gas supply and gas marketing, leaving British Gas net income down from pounds 447m to pounds 409m in the nine months to 30 September.

British Gas shares fell 3.5p to 325p. Stephen Turner of Nomura cut his full-year forecast of net income from pounds 945m to pounds 925m before any charges to reflect British Gas's restructuring plans, which may shed 20,000 jobs.

British Gas tariffs in the domestic market have been held five percentage points below the rate of inflation since April 1992. At the same time it has been forced to give a substantial portion of its market in supplying gas under contract to independent suppliers.

Its share of the contract market has fallen from almost 90 per cent in 1992 to 34 per cent currently and revenues from this source were down by more than 30 per cent in the third quarter.

The company said that this loss of market share explained an increase in seasonal losses in gas supply from pounds 217m to pounds 227m despite a 10 per cent increase in gas sales volume in the third quarter.

Profits were also hit by a pounds 50m loss in exploration and production, compared with a pounds 19m deficit in 1992.

The MMC recommended in July that British Gas be broken up into separate trading and pipeline companies. The Department of Trade and Industry is nearing the end of its consultations with interested parties.

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