Michael Harrison's Outlook: A good idea to sell Royal Mail to its staff? Answers on a postcard to Sir George Bain

ScottishPower's long, hot summer; C&W closes on Energis

This is a long way short of the full-blown inquiry into the future of Royal Mail, chaired by an independent business figure, that we had been led to expect. There was no formal statement from the department about Sir George's appointment and no information about how precisely he would support Mr Johnson, much less anything resembling his terms of reference.

But Mr Johnson did say one thing of significance, which is that while privatisation of Royal Mail has been ruled out, employee share ownership most certainly has not. The 100-odd Labour backbenchers who have signed an early-day motion demanding that Royal Mail remains 100 per cent publicly owned fear that an employee share trust would be the thin end of a very fat wedge, leading inexorably to privatisation by the back door and part ownership of the organisation by external investors. Mr Johnson expressed surprise that his fellow Labour MPs should have jumped to such a rash conclusion.

What Royal Mail will be interested to discover are the conclusions at which Sir George will arrive as he endeavours to "support" Mr Johnson. The important thing to remember about Sir George, a Canadian who once ran the London Business School, is that he is a safe pair of hands. As chairman of the Low Pay Commission, he came up with a rate for the national minimum wage which kept the unions reasonably happy without scaring the pants off business. As a reward, he was given the chairmanship of another DTI taskforce looking into how companies could devise more family-friendly working hours for employees with children. Now his services have been hired for a third time.

It would be unfair to suggest that Sir George has been told what the solution for Royal Mail is and then asked to work his way back to the problem. But with full postal competition due to arrive in less than six months, a £2.5bn pension deficit around its neck and the regulator, Postcomm, proposing a tough new set of price caps for Royal Mail, the organisation could do with a workforce motivated to the maximum degree. What better way than by giving each of the 160,000 staff a share in the business? Other suggestions on a postcard to Sir George.

ScottishPower's long, hot summer

With a heatwave afflicting America and the air conditioning turned on full blast everywhere, it might seem an odd time to be selling an electricity company. But that is what ScottishPower decided to do with its West Coast utility, PacifiCorp, two months ago, and the die is cast. Indeed, it has already promised to return half the $9bn proceeds from the sale to its shareholders in some shape or form so the management would be strung up if they attempted to renege on that.

The intriguing question is whether ScottishPower will survive long enough as an independent company to complete the return of capital. Shorn of PacifiCorp, the company becomes an obvious bid target and already the vultures are circling. Eon, the giant German utility which owns Powergen and an electricity business of its own in the US, has said it could be interested in picking over the bones of ScottishPower. Eon is throwing off cash at such a prodigious rate that it could swallow ScottishPower - or any other UK utility for that matter - without pausing for breath.

But if the Germans were to bid, then it would almost certainly signal open season on ScottishPower. Could Scottish & Southern Energy resist the temptation to throw caution to the wind at last and propose a marriage with its fellow utility north of the border? And what of Centrica, which would see a serious rival emerge to challenge its dominance of the retail energy market if either Eon or S&SE bought ScottishPower. Centrica has another reason to be interested in ScottishPower, which is that it is long on customers but short on generation capacity and buying a business which is both a substantial producer of electricity as well as retailer would help address that.

There is also a school of thought which says that, if Centrica were to enter the auction for ScottishPower, then it would expose its own soft underbelly by making itself vulnerable to a bid. It is probably too early for Gaz de France, the newly privatised kid on the block, to begin stretching its wings. But there are other well-capitalised European utilities with the clout to have a go. There are even some in the City who suggest that a merger of Centrica's 18 million customers with British Energy's nuclear reactors, which produce some 20 per cent share of the country's electricity, would have logic.

How the regulator, Ofgem, would react if any of this came to pass remains to be seen. Electricity distribution, which is a natural local monopoly, is still price-controlled. Electricity generation and supply, on the other hand, are now fully competitive markets so the need for regulatory intervention disappears in theory. But there are now only six big energy suppliers in the country and a domestic merger would reduce that to five. As a thoughtful paper from the former electricity regulator Professor Stephen Littlechild pointed out recently, the tighter the stranglehold of the big players, the harder it is for small independent suppliers to enter the market and the higher, therefore, prices tend to be.

So far Ofgem has taken a relaxed view of mergers of electricity distribution companies, so much so that the 14 separate networks which existed at the time of privatisation are now owned by just seven companies. If either Eon or S&SE bid for ScottishPower, which owns the distribution networks in southern Scotland and the Manweb region, then the number of players would fall to six for the purposes of comparing relative performance and efficiency. By comparison, the water regulator Ofwat does not feel comfortable with fewer than 22 comparator companies.

If a bidding frenzy does break out in the style of the takeover battle two years ago for Safeway, then the simplest option may be to refer the lot to the Competition Commission. Fevered speculation caused by too much exposure to the sun? Watch this space.

C&W closes on Energis

A month after The Independent first disclosed that Cable & Wireless was in talks to buy Energis, a puff of white smoke at last from the chairman, Richard Lapthorne, who confirms that negotiations are indeed taking place although there is no certainty that a transaction will result. If a deal is done, then it seems the price will indeed be a racy £700m.

Energis is plainly worth more to C&W than many others so there is industrial logic in it. But it sounds a lot to pay for a company whose revenues are shrinking. Moreover a merger would only increase C&W's share of the business telecoms market from 10 to 15 per cent, which makes the price seem excessive. Perhaps someone else has had too much sun.

m.harrison@independent.co.uk

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