City & Business: The last word on gas. Definitely. Maybe
Sunday 25 August 1996
British Gas cannot afford to take the chance that when Ms Spottiswoode said at last week's announcement of her revised price controls "We won't change anything of substance" she didn't really mean "let's sit down and talk some more". It is not beyond the realms of possibility.
Assuming, however, that the diviners and interpreters can conclude that there is no more room for negotiation, then British Gas will be faced with the simple choice of whether or not to take its dispute with Ofgas to the Monopolies and Mergers Commission.
It is a simple choice. Indeed, it can be argued that British Gas has no choice. It must seek a reference to the MMC.
Although Ofgas made great play of the fact that it had softened its original proposals, a closer examination of the new price controls reveals that very few concessions have been made in the key areas that have caused British Gas most concern.
In order, then, to act in shareholders' best interests, the company is obliged to seek a reference. So great is the damage that will be inflicted on them by these proposals that the risks associated with an MMC investigation are outweighed significantly by the potential benefits.
There are two MMC risks. First there is a chance that the MMC will impose an even tougher regime than the regulator. That is unlikely in the extreme and were it to happen it would throw the entire regulatory regime not just of gas but of all regulated companies into disarray. Second there is a concern that the inquiry will be disruptive and effectively put the business on hold for up to a year. That concern is unfounded. An MMC reference will not affect the important process of demerger, which will continue apace. The inquiry will suck up a 20-strong team, take up a lot of deputy chairman Philip Rogerson's time, and provide nice fees for consultants and lawyers. It will not, however, be life-threatening.
The shares may be put on hold for the duration but they are underpinned by the certainty of the Ofgas position. After the battering they have taken recently, even stability would be a welcome relief.
On the upside, there is a good chance that British Gas will receive a better deal from the MMC. With pounds 350m-a-year of cash flow at stake, the prize is almost glittering.
If fat lady really has sung and the Ofgas show is over, then British Gas must go to the MMC.
In the days when Emu was Rod Hull's right hand, the only people who had anything to worry about were those like Michael Parkinson who was once terrorised on his own chat show by the intemperate bird. Today everyone in the City needs to be concerned about Emu. Unfortunately nobody is.
Last week, the Foreign Banks and Securities Houses Association warned the Government that uncertainty over whether the UK was going to participate in a single currency was damaging the City. The association argued that its members were unable to plan and that the City's preparation for European Monetary Union was being hampered by political indecision.
The thought has now been echoed by Michael Cassidy, the Corporation of London's policy chairman. He has been a great ambassador for the City and has an instinct for recognising when London's competitive position is under threat.
His concerns are not about Emu itself but rather how the financial community is positioning itself for a single currency with or without the UK's participation. He has detected what he describes as a vacuum of leadership. With the Bank of England and the Treasury taking an understandably discreet line, there is no overt focus for the issues which need to be addressed.
Mr Cassidy is concerned that rival financial centres such as Paris and Frankfurt are taking a much more co-ordinated approach to the challenges and opportunities that Emu presents, thus allowing them to improve their competitive position.
In particular, Mr Cassidy points to the question of Eurobank primary issues, which would effectively be EC bonds. His concern is that London could be excluded from primary issues and thus be deprived of access to a multi-billion pound industry.
He has now secured a budget that will allow the Corporation to not only demonstrate London's merits to our European colleagues but also to take some sounding on how those on the Continent intend to play in the post Emu era. If they play by the rules, in theory London has nothing to fear. That cannot be taken for granted.
Mr Cassidy is right to raise the issue, but it will take some firmer leadership from the Bank of England to ensure that the current drift towards the single currency age becomes a more certain and confident march.
Time, gentlemen please
For those who are confused or bored by Fantasy Football I am pleased to unveil our financial version, which we will call "Daydream Dealmaking". Entrants will be invited to select their dream daydream team of merchant banker, stockbroker, lawyer, accountant and public relations adviser.
Points will be awarded not just for their involvement in the season's bid and deals, but also for the skills they demonstrate on the level playing field.
To illustrate the scoring system, several hundred points would have been deducted from all advisers (several thousand in the case of the lawyers) involved in the sale of Carlsberg Tetley by Allied Lyons to Bass.
The advisers will now be condemned by the rules committee to spend every Friday evening buying a round in the Dog and Duck. Waiting to get a drink there will remind them what this deal has been like for the rest of us. You know exactly what it is you will be getting, you know that it is on its way but it takes so long to arrive that by the time it does you have lost your thirst.
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