Pressure on to sell power plants

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The biggest issue to be tackled by the prospectus for the £4bn sale of shares in the electricity generators, National Power and PowerGen, will be the threat facing the companies if they fail to sell power plants to increase competition in generati on.

The prospectus is expected to make it clear that the companies are under pressure from Stephen Littlechild, the director-general of electricity supply, to sell the plants or risk being referred to the Monopolies and Mergers Commission.

The key section on competition will highlight how much importance Professor Littlechild attaches to plant disposals. Although the watchdog will not write a report for the prospectus, the relevant passage will have to be approved by him.

The regulator has been increasingly irritated by the lack of progress on the part of the companies in selling power plants, which he demanded last year. The companies argue that they have duty to get maximum value for shareholders, but some industry sources say that they are demanding unrealistic prices for plant and are extremely unwilling to sell.

Professor Littlechild has already delivered a blow to the share sale by threatening to hold an inquiry into wholesale electricity prices. A statement last Friday on recent price increases forced the Government to postpone the publication of the pathfinder prospectus, which had been due today. The prospectus is now scheduled to be launched next Monday The Government's advisers stress that the setback will not delay the sale of shares, which is due for completion early in March.

Professor Littlechild's concern follows surges in the unit price of electricity over recent weeks, which particularly affected companies, such as ICI, which buy direct from the electricity trading pool. He said he would examine the problem at the end of the financial year to see if his cap on wholesale electricity prices has been breached.

The companies blame the price increases on problems with two nuclear power plants that the state-owned Nuclear Electric has withdrawn because of welds problems. This has closed the gap between available plant and potential demand for power, which has significant influence on special capacity payments made to National Power and PowerGen.

The sale suffers a further blow today with allegations by Greenpeace, the lobby group, that the companies' profits would be obliterated if they met their environmental obligations in full. Greenpeace says that the companies cause £2.9bn worth of environmental damage each year, compared with 1993 pre-tax profits of £1.15bn.

Matthew Spencer of Greenpeace said: "Both National Power and PowerGen pollute the environment. People should not buy the profits of pollution. Anyone who cares about the environment should not buy these shares."

Greenpeace said that the UK is the second-largest producer in Europe of emissions that cause acid rain, adding: "National Power and PowerGen were privatised with the promise that they would spend money to tackle acid rain - less than half the promised technology has been fitted."