DTI tells Centrica: you're on your own

Government will not intervene if Russia's state-controlled Gazprom bids for owner of British Gas
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Centrica, the company which supplies gas to 13 million UK homes, has been told by the Government that it will not receive any special protection if the state-controlled Russian group Gazprom makes a bid for the business.

Shares in Centrica soared yesterday after Gazprom was quoted on the Russian news agency Interfax as saying it was considering a bid for the owner of British Gas, which controls almost 60 per cent of the domestic market. Fortunes were made and lost in a matter of minutes on the London stock market as five times the normal daily volume of Centrica shares changed hands. At first the shares rose25 per cent only to fall to 7 per cent above their opening price, before closing 11 per cent higher at 300p. At that price, Centrica is valued at £11bn.

Interfax reported Alexander Shkuta, the deputy head of Gazprom's export arm, as telling an investor conference call that the issue of a bid for Centrica "is being analysed and under consideration. A decision has yet to be reached." But the agency later reported Gazprom as saying that Mr Shkuta's comments had been misinterpreted. "His answer was not about Centrica. He was talking about any possible energy asset in Britain."

Industry sources pointed out that Alexander Medvedev, Gazprom's deputy chief executive, had made similar comments about Centrica last August, saying the company was considering "all options" regarding the possibility of a bid. Last month, he said Gazprom would like to supply 20 per cent of the UK market, reigniting speculation of a bid either for Centrica or ScottishPower.

A spokesman for Centrica said: "We have seen the quotes but we have not received a bid or had any talks with Gazprom." Privately, the company believes the Russian gas producer is testing the water to gauge political and market reaction. After Gazprom cut off gas supplies to Ukraine, the prospect of it controlling 60 per cent of the UK market may cause alarm in some circles.

The Department of Trade and Industry and Centrica deny talks have taken place about how the Government would respond in the event that Gazprom decided to bid. The 2003 Enterprise Act allows ministers to intervene in mergers if there is an "exceptional public interest".

But a spokeswoman for the DTI said: "This would only apply if there was an issue of national security. A takeover or merger involving Centrica would be a matter for the independent competition regulators, Ofgem and the Office of Fair Trading."

Gazprom is the biggest producer of gas in the world, Russia's largest company, and is seen by many analysts as one of the Kremlin's most powerful modern-day instruments of influence. Indeed the Russian President, Vladimir Putin, was recently asked whether post-Cold War his country's fabulous reserves of oil and gas have replaced his nuclear arsenal as Russia's main "weapon". He smiled before saying "we still have lots of rockets".

Gazprom generates 20 per cent of Russia's tax revenues, supplies 90 per cent of its gas, exports gas to 27 countries including the UK, and employs 330,000 people. Most of the former Soviet Union, Eastern Europe and increasingly large swaths of Western Europe are dependent on its reserves.

Only this week Mr Putin said he wanted to see Gazprom assume its rightful place and become one of the world's most powerful multinationals.

The Kremlin controls 38 per cent of Gazprom but made a concession to the markets and allowed foreigners to buy shares in the company on an equal footing with Russian investors.