National Grid investors get bulk of cash in gas sell-off

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The financial benefit to gas customers from the sale of four of National Grid Transco's local gas networks will be dwarfed by a £2bn payback to shareholders planned by the company.

Ofgem, the industry regulator, yesterday estimated that the benefit to the country's 21 million gas households would amount to about £225m spread over an 18-year period - equivalent to 60p per household per year. The £2bn National Grid intends to hand back to its 1.4 million shareholders through an issue of B shares works out at an average payout of £1,430.

The regulator said that the £225m figure was a conservative one and could go as high as £500m. The benefit will start to feed through to consumer bills when a new price control formula takes effect in 2008.

The sale of the four local networks will raise £5.8bn. National Grid plans to use £2.3bn of that to pay down debt and estimates that once the sell-off is complete its total indebtedness will have fallen to about £10bn.

Credit rating agencies calculate that will give the company the firepower to make an acquisition worth about £3bn - the same as it paid for the US electricity transmission and distribution business Niagara Mohawk.

The US, where National Grid also owns the larger New England-based transmission company NEES, will account for about 40 per cent of group operating profits once the sale of the UK local networks is complete. Roger Urwin, the chief executive of National Grid, refused to be drawn on whether the company was currently looking at potential US takeover targets. But he added: "Inevitably, it remains of interest. It is a big market, there will be further consolidation and we are well positioned to take part in it. We look at the scene all the time."

Mr Urwin also forecast a big expansion in the group's radio mast business following the £1.1bn takeover earlier this year of Crown Castle as more mobile operators roll out their third generation networks and the switchover from analogue to digital television nears.

Mr Urwin said that 3G networks needed twice the number of masts as the 2G networks they are replacing. Meanwhile, all of its 1,154 towers would need upgrading when the national switchover to digital television takes place in 2012. At present, only 80 masts are being used to broadcast the BBC's digital service Freeview.

Underlying pre-tax profits for the first six months were up 6 per cent at £394m and the dividend was lifted by 7 per cent. National Grid confirmed it plans to raise the full-year dividend by 20 per cent subject to completion of the local network sales.