British Gas has cut 5,000 jobs this year as part of its previously announced 25,000 losses and is expected to raise its target for redundancies by thousands more.
The company is dogged by increasing competition in the gas supply market and by costly long-term contracts with North Sea producers. These contracts, most of them agreed when British Gas was the sole supplier, mean the company is being forced into buying hundreds of millions of pounds worth of gas which it cannot then sell.
British Gas denied rumours that it is poised to announce 5,000 fresh job cuts, which would bring the total to 30,000. A spokeswoman said that the company, whose interim results will be announced on Thursday, is unable to comment further. Some City analysts expected provisions this year in the region of pounds 100m related to the "gas bubble" dilemma.
According to one observer, British Gas is at present locked into buying pounds 300m to pounds 400m worth of "excess" gas over the next few years. The company's share of the commercial and industrial gas market, where competition is allowed, has been whittled away by rivals.
It is concerned that the public gas supply business,which will be gradually opened to competition from early next year, will suffer a similar fate. The problems have been exacerbated by falling gas prices. British Gas is thought to be buying at about 19p a therm under its long-term deals while gas is available on the spot market for about 9p. The high price paid by British Gas could also accelerate the rate at which it loses market share.
British Gas not been helped by the mild weather in recent months, and by delays with some new gas-fired power stations. Longer term, there are hopes that the export market will open up with the completion of a pipeline to the rest of Europe in 1998. But analysts point out that this coincides with the Government's target date for a complete opening of the UK public gas supply market.
There are attempts to renegotiate some of the long-term contracts with offshore companies, some of which have strongly resisted the move. But some progress may be made if British Gas agrees not to offload contracts to existing or future gas supply subsidiaries. Such a move, which has been considerd by British Gas, would open up producers to considerable risk.
There is a view that the future for the company's supply operations is far from secure and could ultimately fail or be sold. Investors will be watching on Thursday for positive news on the dividend.
In September, British Gas said that it would seek to increase the divident as soon as possible. But some analysts now expect the payout at half time to be flat at 6.4p.Reuse content