Pressure was mounting last night for a full-scale review of the Government's competition policy after it emerged that Ian Lang, the Trade and Industry Secretary, blocked the National Power and PowerGen takeovers without fully consulting other Cabinet ministers and against the advice of colleagues.
Ed Wallis, PowerGen's chairman, wrote to Mr Lang saying he was "dismayed" at the "incomprehensible" decision and warning that it might not now go through with the pounds 450m sale of two power stations to the Hanson-owned power group Eastern.
This would almost certainly prompt a Monopolies and Mergers Commission inquiry into PowerGen and the rest of the electricity generating industry, casting doubt over the planned sale of the nuclear generator British Energy this summer.
PowerGen also confirmed that it was seeking legal opinion on whether to seek a judicial review of Mr Lang's decision to block its takeover of Midlands Electricity after the MMC had given the deal the go-ahead along with National Power's pounds 2.5bn bid for Southern Electric.
Whitehall sources denied reports that Mr Lang had blocked the takeovers after being angered at National Power's apparent pre-empting of his decision by launching a renewed conditional bid for Southern Electric. They also rejected suggestions that the mergers had been overruled to deter Southern Compny of the US, which already owns a REC, from mounting a hostile bid for National Power.
It was being stressed that Mr Lang had reached the decision in a quasi- judicial capacity after weighing all the evidence from the MMC report and assessing the impact of the two deals on competition.
But it was also made plain that his deputy, Energy Minister Tim Eggar, had broadly supported the two mergers going ahead while other senior ministers, thought to include the Deputy Prime Minister Michael Heseltine, were not directly consulted.
Whitehall sources described Mr Wallis's letter and the threat of a judicial review as "pram-rattling" by PowerGen. National Power meanwhile made it clear that it would neither seek a judicial review nor halt the pounds 1.7bn sale of its generating capacity, also to Eastern Group.
But there was general bemusement at how the Government and regulators could have blocked the two deals on the grounds of the detriments they posed to competition while supporting the creation of a large vertically- integrated generator and electricity distribution company in the shape of Eastern.
There was also criticism from outside the power industry. Sir Bryan Carsberg, who resigned as Director General of Fair Trading last year after several policy disagreements with ministers, said: "My feeling is that this is another episode that re-inforces the case for a review of the way our competition policy and institutions operate."
Sir Bryan repeated his call for the MMC to be condensed into a smaller, professional competition body with just half a dozen full-time commissioners. He also aid the MMC should be amalgamated with the Office of Fair Trading.
At present the MMC has just one full-time chairman, Graeme Odgers, three part-time chairmen and 28 other members who put in about half a day a week.
It can only investigate when called on to do so by the ministers, the OFT or regulators of the privatised utilities.
Another senior competition official was much more critical of Mr Lang's decision, saying: "This seems to have been a rather unfortunate episode. It leaves the impression that the MMC was working on a different set of criteria to the DTI. Either that or it was a piece of blatant politicking which is hardly desireable, either."
PowerGen had agreed to sell its High Marnham station in Nottinghamshire and the Drakelow plant in Derbyshire to Eastern but included a get-out clause in the contract in the event that its takeover of Midlands was blocked.
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