Grid's £5.8bn disposal breaks gas distribution monopoly

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The Independent Online

Britain's gas distribution monopoly was broken up yesterday when National Grid Transco (NGT) announced the sale of four regional networks for £5.8bn, delivering £2bn to shareholders but prompting an immediate backlash from consumer groups and unions.

Britain's gas distribution monopoly was broken up yesterday when National Grid Transco (NGT) announced the sale of four regional networks for £5.8bn, delivering £2bn to shareholders but prompting an immediate backlash from consumer groups and unions.

Four companies will now distribute gas around the country under price controls set by Ofgem, the industry regulator, which are designed to force the new operators to achieve substantial cost savings.

Roger Urwin, NGT's chief executive, said: "We believe the benefits will flow back to consumers who are totally protected by the price controls in place, which require us to decrease charges for local delivery of gas by 1.5 per cent a year in real terms." Shareholders will receive an immediate £2bn return of cash worth 65p a share, a 20 per cent increase in the ordinary dividend this year plus a target of 7 per cent dividend growth thereafter until 2008.

But Energywatch, the consumer watchdog, expressed astonishment at the deals and the £5.8bn price tag, which is 20 per cent higher than the networks' asset value calculated in March by Ofgem, the industry regulator. A spokesman said: "We want to make sure whatever the difference is between the two figures it has no detrimental consequences for consumers."

Ofgem warned that it could still stop the sales if it found customers' interests were not be best served by the proposals. A spokesman said: "The evidence is that there is potential for customers to benefit from the proposed sales. We are going through the arrangements with a fine tooth comb ... We can still stop the sales going ahead if we feel we can't adequately protect customers' interests."

NGT said it would sell its gas pipeline networks in the north of England, Wales and the West, Scotland and the south of England. It will keep the gas distribution businesses in the North-west, West Midlands and east of England which it believes will make it the industries most efficient operator.

The north of England network is being bought by Cheung Kong Infrastructure and United Utilities for £1.4bn, while the Wales and the West is being bought by a consortium led by Macquarie European Infrastructure fund for £1.2bn.

The distribution networks for the South and Scotland are being bought by a group led by Scottish and Southern Energy for £3.2bn. Ian Marchant, SSE's chief executive, said: "We think we can achieve better savings than NGT. Although there are no benefits to customers on day one, in 10 years' time you will look back and say 'yes, this was a good deal'."

Ofgem has wanted separate ownership of gas distribution in the UK for some time. It will set its pricing regime with reference to the most efficient operator.

Unions reacted angrily to the proposed dismantling of distribution network. The GMB said that if safeguards about job security, pay and pensions were not given, it would consider strike action. A spokesman for NGT said all rights, including pensions and pension deficits, would be transferred to the new companies.

Fraser McLaren, a utilities analyst at ING, said: "We believe that there is still fundamental value in National Grid and that the shares have further to run in the short term."

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