Centrica wins pounds 250m auction of PowerGen gas businesses

CENTRICA, the gas trading and supply arm of the old British Gas, has agreed to buy PowerGen's upstream gas businesses for around pounds 250m. The deal should be confirmed this week.

Centrica won the auction for the assets, which include stakes in the Liverpool Bay field and half a dozen gasfields in the southern North Sea, by outbidding US and French rivals. The deal expands Centrica's gas producing capacity and extends the scale and life of its reserves of gas.

The Liverpool Bay assets are in production and lie close to Centrica's existing two major gasfields in the North and South Morecambe fields, which at peak times provide up to 15 per cent of UK gas consumption. The assets in the southern part of the North Sea include producing and potential fields.

The deal takes Centrica into the North Sea for the first time and gives it the ability to export gas to continental Europe through the continental inter-connector link which opened last month. The undeveloped Chiswick field, which lies close to the Dutch sector of the North Sea, will also supply gas to continental markets.

PowerGen is selling the assets to help finance its proposed takeover of East Midlands Electricity.

Meanwhile, Centrica could also bid for the coal-fired power stations that PowerGen and its rival, National Power, will be obliged to sell off to meet the demands of the regulator as the generators diversify into distribution. PowerGen is expected to sell at least two stations with up to 3,500 megawatts capacity, and National Power may also be forced to sell at least two more stations.

Centrica has already signed up half a million households to buy electricity as the supply side of the industry is opened to competition. It has medium- term plans to sign 2.5 million customers, or 10 per cent of the market, making it roughly the same size as a regional electricity distribution company.

Although it is able to buy the electricity it needs to supply its customers from the electricity pool, it would make strategic sense for Centrica to acquire generating capacity of its own.

Last week's government review of electricity generating capacity promised to preserve a place for coal-fired stations and removed some of the uncertainty over the future of the existing stations.