National Power forecasts sharp fall in prices

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Electricity prices could fall sharply when the market is thrown open to competition in 1998 and coal-backed contracts between the generators and regional electricity companies expire, National Power forecast yesterday.

Keith Henry, chief executive of the generator, rejected suggestions that prices would "collapse" but he did concede that domestic consumers would see significant real reductions. Some analysts believe it could cut National Power's earnings by pounds 200m but the company says the impact will be much less severe.

Mr Henry said that the end of the coal contracts, under which National Power, PowerGen and Eastern are obliged to buy British coal supplies at 15-20 per cent above world prices, would allow the generators to enter new lower-priced fuel deals.

Speaking at a one-day presentation for investors in London, Mr Henry said that prices would also be forced down by suppliers seeking keener deals with the generators and competition between suppliers themselves.

At present, the generators are contracted to buy 30 million tonnes of domestic coal a year, mainly from Richard Budge's RJB Mining which took over the English coalfields last year.

National Power is paying around pounds 1.40 a gigajoule against a world spot price of about pounds 1.20. A spokesman said: "It is in our interests and those of RJB to do a sensible deal." He added that since world prices were edging closer to those paid to RJB, the gap between the two might only be a narrow one when they came to negotiate new contracts, probably next year.

Mr Henry also forecast that National Power's profits from its overseas operations would more than double from pounds 70m this year to pounds 145m next year before financing costs. Profit after tax would rise from pounds 30m to pounds 95m, producing an increase in earnings per share from 2.5p to 8p.

The generator estimates that 40 per cent of its assets worth pounds 2bn would be overseas by the turn of the century compared with just 6 per cent at March, 1996. Since then, however, it has completed three power station deals in the US, Australia and Pakistan, increasing its overseas operations substantially.

National Power has invested pounds 800m in 7,000 megawatts of overseas generating plant. Total output from these stations is forecast to double to 50 billion units of electricity by 2000.

The company also confirmed that earnings in the first half of the current financial year would be "somewhat less" than in the same period in 1995. This, it said, was largely accounted for by the extra week in its first half last year which affected profits by pounds 20m-pounds 30m.

The impact of new entrants on its market share would be offset by the closure of older coal-fired plant and Magnox nuclear reactors, Mr Henry said.