Fears grow of Gas dividend cut

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The Independent Online

Industrial Correspondent

Fears are growing in the financial community that British Gas may cut its 1996 interim dividend because of costly long-term contracts with North Sea producers which are forcing the company to buy billions of pounds worth of gas it cannot sell.

Producers are resisting attempts by British Gas to renegotiate the contracts in spite of calls from the Government to resolve the issue. British Gas is also considering a range of controversial solutions, such as the offloading of some expensive contracts to new suppliers in the domestic market, or massive bank loans which would be partly repaid by the rest of the industry. But it stresses that nothing like this could be done without the support of ministers.

One City analyst said: ''If they fail to make progress on the long-term contracts during the spring, I think they will cut the interim dividend. I know this fear is shared by several institutional investors and I see no willingness on the part of producers to help sort things out."

According to another analyst: ''Institutions are dead scared they will cut the dividend. Other than the dividend, why would they be in British Gas at the moment?"

In November British Gas announced an historic loss of pounds 181m in the third quarter after pounds 83m in provisions related to the long-term contracts. The company also said it would be forced to make a pounds 520m pre-payment in the final quarter for gas not used.

Richard Giordano, the chairman, called on the Government to help the company renegotiate these "take or pay" contracts, the effect of which was impossible to quantify. He said that the situation would be exacerbated by the introduction of domestic competition in April.

The row escalated this week when the Government confirmed it may consider a levy on British Gas's rivals to help offset the cost of the "take or pay" deals. British Gas has argued that the contracts were signed when it was a monopoly and could be sure of selling the gas. It believes that because the Government decided to end the monopoly it should help to find a solution to the problem.

The Department of Trade and Industry may allow for the levy through a provision in new licences for rival suppliers which need to use British Gas pipes. But a spokeswoman said that no decision had been taken. Should it be included, it would be as "an insurance policy" in case the industry failed to solve its own problems and would not necessarily mean that a levy would be introduced.

The Gas Consumers' Council has attacked proposals for a levy on the grounds that the consumer would ultimately pay. Ian Powe, GCC director, said: ''There are public issues at stake here. Whoever is responsible for the situation it is not the consumer and at this stage we must resist attempts to make customers pay." The council also wants the Government to forgo pounds 170m in North Sea levies which British Gas pays each year.