National Grid float delayed as talks flounder
The 12 regional electricity companies which own the grid have yet to agree with the Government on several issues including the amount of tax to be paid and the rebate which the companies should pay to customers to share the benefits.
Work on the prospectus for a sale has yet to begin despite months of intense negotiations. There remains a chance that the NGC will not be floated as the regional companies become increasingly concerned about securing value for shareholders.
The Government is expected to hold out for a rebate of at least £20 per customer - twice that suggested by the 12 firms - which would cost the industry about £500m. Some consumer groups have said that the rebate should be £50 or more if it is to be meaningful, but Government advisors regard this as unachievable.
It was originally expected that the 12 regional companies would pay up to £1.2bn in capital gains tax. However, most of the companies intend to distribute their grid holding to their existing shareholders, which could result in clawback of tax by institutions and much less revenue for the Government. This is also thought to be adding to the stand-off between the industry and the Treasury.
The one issue on which there is some agreement is that the NGC should pay a special dividend of about £750m to the regional companies before any flotation goes ahead.
One source close to the negotiations said: "The Government wants this to happen. It is unfinished business from 1990/91 [when the industry was privatised]." There is also a view that the Government and its advisors, Morgan Stanley, are becoming increasingly aware of the problems posed by the flotation - not least getting the 12 companies to agree between themselves.
Plans for the flotation of the grid company could run into further problems if Trafalgar House's £1.2bn hostile bid for Northern Electric is referred to the Monopolies and Mergers Commission. It is thought that Michael Heseltine, President of the Board of Trade, could decide on whether a reference is needed by the end of this week.
The issue of the grid and how the benefits of a flotation would be passed through to shareholders has become one of the key issues in the battle for Northern, which is the first regional electricity company to become a bid target. Northern has said that it will pass through its share of any special dividend paid by the NGC prior to flotation. This could be up to £50m for Northern's shareholders.
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