New pressure on British Gas to sell £17bn `jewel'

Pressure is mounting for Transco, the Britsh Gas pipeline arm, to be hived off as a separate subsidiary within the group.

The company's pipeline and storage assets are thought to be worth about £17bn and forms the heart of British Gas.

Groups such as Hanson see it as the jewel in the crown of the gas sell- off.

The Conservative backbencher, Alan Duncan, has tabled an amendment to the Gas Bill, currently in committee stage in the House of Commons, demanding that any gas transporter should have separate accounts and management from any public gas supplier.

Mr Duncan's amendment proposes that any gas transporter should be a separate legal entity from any gas supplier and should "confine his activities to the transportation of gas". It does not preclude the transporter from being wholly-owned by a gas supply group. The Gas Consumers Council has also called for Transco to be split off as a wholly-owned subsidiary,a prospect British Gas views with alarm.

British Gas is already dividing its core British gas business into several units in preparation for competition in the domestic gas market next year. Under the new system, Transco will operate at arm's length from gas supply and have separate accounts.

However, rival suppliers to British Gas, including electricity firms and North Sea producers that need to use the pipes, are worried that they will still be at a disadvantage to Britsh Gas's own supply operations. The Gas Consumers Council plans to write to MPs across the House, urging them to support Mr Duncan's "critical" amendment.

Ian Powe, director of the GCC, said that unless Transco was completely separated, there would be a question over the ability of Ofgas, the regulator, to control transportation charges. These account for 40 per cent of the price paid by consumers. Mr Powe said that unless the Government bit the bullet and agreed that Transco should be a separate subsidary, British Gas rivals would never believe they were being treated as equals.

He argues that continued corporate control of the pipelines could allow true asset values and rates of return to be to be hidden. The result is that faith in the regulatory system could be undermined, he said.

A spokesman for Ofgas said that the regulator was happy with the existing arm's length arrangement for Transco but said: "We keep the matter under review."

Separately, Transco has run into problems with its invoicing system, making it difficult for rivals to get the information they need to accurately charge their industrial and commercial gas customers. The problem is being looked at by Ofgas and could result in British Gas paying compensation. It is thought that the computer system is unable to properly keep track of customers who switch suppliers.

There is concern that the problem could be repeated on a magnified scale when the domestic market is opened to competition. British Gas has warned of the complexities involved in coping with the switch from a monopoly to a multiple suppliers.

Competition starts with a pilot phase next year but, by the end of 1998, 18 million customers now supplied and billed by British Gas could have a choice.

The computer system will have to ensure the bills from gas suppliers go to the right person. Before competition can begin, a "network code" will need to be in place, agreed by the industry, to make sure the amount of gas going into the national pipe network daily matches demand.