View from City Road: British Gas opts for Chinese walls

BRITISH GAS is changing its spots. Fed up with being on the defensive it now wants to take the initiative. But is it prepared to make changes that are more than skin-deep?

The question arises because the company is preparing its submission to the Monopolies and Mergers Commission, chaired by Sir Sydney Lipworth. British Gas needs to decide how radical it is prepared to be.

It has clearly signalled a break with the past in its decision to split the roles of chairman and chief executive. Robert Evans, whose relationship with Sir James McKinnon of Ofgas had virtually broken down, took the chair, while Cedric Brown, who has a more placatory style, was promoted to chief executive.

The company reckons its decision to call for an MMC inquiry gives it a psychological advantage. Now it will have to show whether it can exploit it.

It has already considered a complete break-up, along the lines of the electricity industry. The very fact that British Gas, which has in the past argued in favour of an integrated business, was even prepared to do its sums on this possible outcome shows a far more open mind than it has ever been credited with in the past.

No one however should get carried away. Having looked at the break-up option, British Gas is, not unnaturally, inclined to reject it. It is likely to opt instead for a more modest plan, relying heavily on Chinese walls between its constituent parts.

Insiders reject any comparison with ICI. While a demerger of the chemicals giant, planned for next year, could bring benefits, partly through cutting head office costs, breaking up British Gas into 12 or more parts could have the reverse effect. This is because each new company would have to have its own finance, personnel and accounting departments, as well as the usual raft of highly paid directors.

British Gas will suggest that it should remain a single entity but that it should be structured so that its working parts are visible from the outside. This would allow regulators to monitor the performance of its various operations, including the main pipeline. It wants its obligations as a public gas supplier to be taken into account.

Initially at least the company hopes to hold on to 100 per cent of each of its constituent parts. Whether it will hold out the prospect of a phased and partial break-up remains to be seen. And even that may not satisfy the MMC.

(Photograph omitted)