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LETTER : Contracts crucial to competitive gas

Sir: Lord Gillford (Letters, 27 February) is swift to attack British Gas over "take or pay" contracts. Ninety-eight per cent of contracts were signed before the Government decided to accelerate the development of domestic competition in December 1993. Indeed, 55 per cent of these contracts were actually signed before British Gas was privatised in 1986.

Furthermore, it was not until we had seen our market share in the commercial and industrial market eroded by 65 per cent - against an MMC target of 45 per cent - that we were allowed to compete on a fair and equal basis.

These long-term contracts are a legacy of the monopoly era when British Gas, as the licensed monopoly supplier, was legally obliged to purchase gas to meet the most demanding weather conditions. The potential liabilities arising from these long-term purchase contracts are the result of restructuring the industry in order to create a fully competitive market. British Gas has not called for an MMC inquiry into this.

If the introduction of competition into the domestic gas industry is to be a success, the issue of the long-term monopoly contracts must be addressed by the industry as a whole. It would be iniquitous for this burden to fall solely on British Gas's shareholders.

Yours faithfully,

Peter Sanguinetti

Director of Corporate Affairs

British Gas

London, SW1