View from City Road: British Gas appears to have lost its nerve

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The Independent Online
British Gas's threat to stop supplying gas to domestic customers - you and me - should be taken with a large pinch of salt. It is barely credible to think it would give up such a large chunk of its existing business or that it should become so unprofitable that it would be forced, as a private sector company, to do so.

It is not only that the company is wedded to the domestic market and has gas supplies to match, but also that the Government would be reluctant to allow it to withdraw from the domestic market. After the fiasco over pit closures and this week's narrow Commons majority on the imposition of VAT on home heating, the Government must be sensitive to the risk of headlines about the poor and needy having their supplies cut off.

It looks as if British Gas, which only two months ago seemed hopeful of a favourable outcome, has lost its nerve while waiting for the outcome of the Monopolies and Mergers Commission report. Its threat of withdrawal seems to suggest it now fears the worst - a break-up into 12 regional companies - which it says would add to costs without introducing competition, except to gas purchasing. The structure would be similar to that adopted by the electricity and water companies.

If its apparent loss of confidence in the outcome proves justified, shareholders wil be glad they did not fall for its earlier optimism, signalled by a 6 per cent increase in last year's dividend. The shares at 295.5p - which yield more than 6 per cent - look set to stay depressed by MMC worries for a while longer.

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