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PowerGen expands overseas

PowerGen, Britain's second biggest electricity generator, yesterday expanded its international base by taking stakes in two overseas power station projects worth pounds 1.3bn but said it was still interested in buying a regional electricity company.

Its larger rival, National Power, has also redoubled efforts to expand internationally after the two generators were blocked last year from bidding for RECs by the Monopolies and Mergers Commission.

National Power last week signalled it had no interest in renewing its interest in a REC by selling its stake in Southern Electric, built during last year's abortive bid. But Ed Wallis, PowerGen's chairman, said: "If a REC comes up and the window of opportunity to buy it without regulatory interference is there we would consider it seriously.

He stressed, however, that PowerGen's strategy of tapping into the electricity supply market in readiness for the opening up of the domestic market in 1998 was progressing well without the need to buy a REC.

Deryk King, managing director, said that PowerGen had signed heads of agreement to enter long-term supply arrangements with several RECs and planned to sign contracts with several of them in the next few months.

He also said that PowerGen was negotiating a new set of coal contracts with RJB Mining, the owner of the English coalfields, at significantly lower prices than those in its current contracts, which also end next year. He said that about one-third of PowerGen's output would be covered through partnership deals with RECs.

He was speaking as PowerGen announced a modest rise in pre-tax profits last year to pounds 575m but warned that increased competition in the UK electricity market would put greater pressure on margins this year.

PowerGen is taking a 40 per cent stake in a pounds 400m coal-fired plant to be built in Indonesia and a 30 per cent stake in a pounds 875m coal-fired station in Thailand. The two projects will increase PowerGen's investment in overseas power stations to pounds 700m and give it interests in 7,700 megawatts of generating capacity.

Mr King said that within five years, total output from overseas power stations in which PowerGen has an interest would be the same as its UK generating capacity.

Mr Wallis refused to comment on Labour's windfall tax other than to confirm that PowerGen had passed a submission to the Treasury setting out its case to be excluded. Mr Wallis is expected to meet John Battle, the new Energy Minister, in the next few weeks.