'Greedy' British Gas stirs anger
Sunday 29 October 1995
The so-called "take-or-pay" contracts were highlighted last week by Ofgas regulator Clare Spottiswoode, who warned in a remarkable intervention that they threatened the entire future of British Gas.
Suppliers are now incensed that British Gas has diverted blame to the Government by saying the contracts are a hangover from pre-privatisation days and had full state backing.
This has been seen as a thinly veiled effort to force the state to intervene and pressurise it into renegotiating more favourable terms. One North Sea producer scoffed at the suggestion. "The producers are sitting there stony-faced, and saying: 'Why should we write a cheque from our shareholders' funds to your [British Gas'] shareholder funds? A contract is a contract.' "
Another supplier said British Gas had been far too slow in tackling the problem. It had snapped up all the gas that was going to squeeze rivals out and had been signing "take-or-pay" contracts on new fields since privatisation in 1986.
Because of several factors, including the warm weather, the gas spot price has fallen to 10p a therm, well below the level at which many of the contracts are priced - between 12p and 20p. And if British Gas does not take the gas it still has to pay for it.
A number of long-term solutions are being proposed by the industry, including:
q an embargo on further development of North Sea gas fields until the market returns to equilibrium;
q removal of the Gas Levy, the equivalent of Petroleum Revenue Tax for British Gas, of 4p a therm.
One City analyst said the problem reflected "poorly on British Gas management's understanding of their business. They seem to have grossly underestimated the current collapse in their market share".
British Gas now has only 35 per cent of the market for industrial and commercial users.
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