British Gas yesterday confirmed the existence of the plans, drawn up in anticipation of the report from the MMC, due by the end of July. 'The company is looking at a lot of options. It would be wrong if we didn't,' a spokesman said.
The contingency plan is understood to anticipate a break-up of British Gas into regional companies along the lines of the electricity industry, and the removal of its domestic monopoly. Under this 'worst case scenario' British Gas, which last year employed 79,000 people, could lose more than 35,000 jobs over the next two years. But more than 70,000 jobs could be lost in all because of redundancies in the gas equipment supply industry, heavily dependent on British Gas.
Such large redundancies would embarrass the Government, which has been claiming success in reducing unemployment. Michael Heseltine, President of the Board of Trade, will decide on British Gas's future after he receives the MMC report.
Earlier this year, British Gas put forward proposals for restructuring its business into five separate units, as an alternative to the more radical break- up favoured by Sir James McKinnon, the Ofgas regulator. It is also arguing for retention of the tariff threshold, which gives it a monopoly on customers using 2,500 therms of gas or less. The threshold was reduced from 25,000 therms last August, and the independent gas companies want it removed altogether.
Under British Gas's proposals to the MMC, it would run its transportation and storage business as an arm's length operation, offering services to its own trading units on the same terms as to outside shippers. It would create separate units to cover its industrial and domestic business, retailing and global gas.
The company's proposals are unlikely to be accepted in full. It will certainly have to agree to the separation of its pipeline operation, which comprises nearly three quarters of the group's assets. It will also be unable to revise the RPI-minus-five price formula, to which it has already agreed.
In a recent meeting with analysts, Cedric Brown, chief executive, confirmed speculation that British Gas's own restructuring plans would lead to some 15,000 job losses. But if the MMC came out with a different model, the figures 'would be very different'.
Job losses elsewhere in the energy sector suggest they would be much higher. Jonathan Stern, an industry expert at Gas Strategies, said: 'The key guide to staffing at British Gas is what is happening at the electricity companies.' He points out that the regional electricity firms have downsized by about 30 per cent, while at the power generators, job cuts have more than halved the workforce.
Last month, National Power announced it was to shed another 1,000 jobs, on top of the 10,000 that have already gone since privatisation in 1989, a total drop of 63 per cent. PowerGen recently reported staffing levels were down some 70 per cent.
The comparison has clearly not been lost on British Gas. If it is broken up along the lines of the electricity industry, it will inevitably be forced to contract on a similar scale, putting as many as 35,000 to 40,000 jobs at risk.
However, indirect job losses could push the overall industry figure much higher. The Society of British Gas Industries (SBGI), which represents 200 gas equipment suppliers, estimates 5,000 jobs have already been lost on the service side. An increasing proportion, says John Crathorne, the SBGI president, have gone because of cutbacks in investment while British Gas awaits the outcome of the MMC review.
He fears any delay in implementing the findings of the review, already put back from its April due date, will worsen the impact on gas equipment suppliers. 'I think we'll see redundancies gaining pace over the summer and, if there are further postponements, whether politically inspired or otherwise, that figure could reach as much as 30,000,' he said, adding that 15,000 more jobs were at risk in components and service suppliers to the gas equipment industry.
The Gas Consumers' Council (GCC) believes the company should be broken up only if the benefits can be proved. So far, it feels, they have not. It is also concerned about the implications of a substantial downsizing. 'If British Gas has to cut down dramatically on numbers, how much time will it be able to devote to customers' queries and problems?,' said a GCC spokeswoman. 'A lot of showrooms have already been closed down, causing considerable hardship to people living in the less populated regions.'
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