Thousands more Gas jobs at risk

Utility cost crisis: British Gas introduces fresh cutbacks and expects dispute with Ofgas to end at MMC 8 Chief's tax arrangements spark `fat cat' row
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The Independent Online
Thousands more jobs could go at British Gas in addition to the 25,000 already announced as the company fights to reduce its costs. The continued cutbacks emerged as British Gas announced a pounds 250m fall in historic pre- tax profits last year to pounds 986m and warned that it is likely to end up at the Monopolies and Mergers Commission because of disagreements with the watchdog, Ofgas.

Cedric Brown, who is to stand down as chief executive in April, said: "I don't think there is any doubt that [the job losses] will exceed 25,000 but by how many it is impossible to say." He said the original figure, announced in 1993, was "indicative" and that the company will also beat its aim of cutting pounds 600m from its annual costs. About 22,000 of the total have already left and the remainder are likely to go within months.

Richard Giordano, chairman, said profits in 1995 were hit both by fierce competition in the industrial and commercial market and by low gas prices and that losses in that part of the supply operation could quadruple to pounds 400m this year. He warned: "If low prices persist, as we believe they will, 1996 will see further profit deterioration in the industrial and commercial business."

Shares in British Gas fell by 3.5p to 236.5p. The 1995 results include charges of pounds 394m related to environmental obligations and property write- downs. The dividend is maintained at 14.5p but Mr Giordano said dividends after the planned split of British Gas in 1997 would depend on the regulatory regime.

He heralded a protracted investigation by the Monopolies and Mergers Commission over the current review of controls on its pipeline business, Transco, by Clare Spottiswoode, the director general of Ofgas. "I think we will have a substantial difference of opinion with Ofgas on some fundamental issues.

"We may be able to reach a satisfactory solution but the current opinion within British Gas - and I think in Ofgas - is that it may well go to the MMC," he said.

Mr Giordano also called on the Government to help bail it out of its problems with pounds 40bn of long-term contracts with North Sea producers, which are forcing the company to buy more gas than it can sell. He said that at the very least ministers should abolish the levy on some older offshore fields, which cost British Gas about pounds 170m a year, and could also in other ways "bring pressure to bear".

Mr Giordano said that if British Gas failed to renegotiate the contracts with producers that issue may also end up at the MMC. He said the system of contracts in the North Sea was like an "accidental cartel". Last year British Gas paid more than pounds 500m related to these "take-or-pay" contracts and made a provision of pounds 83m but the payments and provisions this year are expected to be less.

Mr Giordano said British Gas entered into the contracts as a monopoly in order to meet its supply obligations and that the Government had then changed the rules by introducing competition. "The Government is entitled to change its mind. It signed a prospectus 25 years ago with a monopoly of 25 years. These contracts are a legacy of a monopolistic era and we need to find some resolution," he said. The situation will be exacerbated by the start of domestic competition which is due in the South-west from 1 April.