Industry threatens action over British Gas bail-out

Click to follow

Industrial Correspondent

A grouping of big companies has warned the Government against the introduction of a proposed levy to help bail British Gas out of problems with expensive contracts with North Sea producers, threatening to take the matter to the European Court.

Ministers could announce as early as today whether they will impose a levy on British Gas's rivals to help cover the company's liabilities related to the contracts, which could amount to more than pounds 1bn.

The levy would be on those using the British Gas pipelines but consumers would end up footing the bill by paying higher prices than would otherwise be the case. Provisions for any levy would be enshrined in the licences of public gas suppliers, including electricity companies and offshore firms.

The Intensive Energy Users' group, which represents large industries including steel, ceramics and chemicals, is believed to have written to Tim Eggar, Minister for Energy and Industry, attacking any levy as state aid. The group said it was "appalled" at the notion and claimed that it would at the very least need approval by the European Union.

British Gas has called on the Government to help resolve the problem with the contracts, which are forcing it to buy much more gas than it can sell. The contracts are long-term and are generally at prices far above those available on the open market today. British Gas argues that they were entered into before the Government abolished its monopoly and that its shareholders should not bear all the pain.

Clare Spottiswoode, the industry watchdog, has warned that the contracts could threaten British Gas's financial security. Some City analysts fear that the problem will cause the company to cut the 1996 interim dividend.

The Gas Consumers Council has warned that consumers must not be left to shoulder the problem and has called in vain for an inquiry into the matter by the House of Commons Trade and Industry Committee.

Mr Eggar is hoping that the company and the producers will resolve the issue themselves by renegotiating the contracts. But it has confirmed that a provision for the levy may be made as an "insurance" measure.