McKinnon calls for British Gas to be broken up

OFGAS, the gas industry watchdog, has called for the break-up of British Gas, with the pipelines sold off as a separate company.

Sir James McKinnon, the director- general of Ofgas, has told the Monopolies and Mergers Commission that, without such a break-up, competition in the gas supply market will never flourish.

In a new low in his relationship with British Gas, Sir James casts serious doubt on the company's ability to treat fairly other gas supply firms, including North Sea producers, that want to use the company's pipes.

He warned: 'There will be a major conflict between access by competitors to the transportation and storage system on fair terms and British Gas's main aim of retaining its dominant position as a supplier in the gas market.' Sir James was commenting on his evidence to the MMC, which is investigating the gas business in the UK. His remarks drew a sharp response from Robert Evans, the chairman of British Gas. 'While the gas business is under review by the MMC it is totally inappropriate for a public statement of this nature to be made,' he said.

Last year the Office of Fair Trading expressed concern that competition in gas supply had been too slow to emerge. The OFT agreed to accept undertakings from British Gas that it would operate the pipeline and storage system at arm's length from the rest of the business, but conceded that it could be kept as an integral part of the group.

Ofgas, however, concludes that this does not go far enough. Sir James believes British Gas will feel under pressure, because of its shareholders, to favour its own gas supply business over others. The watchdog believes British Gas may use the power of owning the pipelines to discriminate against rivals.

Sir James also fears that investments in the network will be made to serve best British Gas's own trading needs. Ofgas highlights the risk that, whatever Chinese walls are established, its management could gain access to information about competitors using the pipes.

An Ofgas report says: 'These are not theoretical difficulties. These problems are faced every day by shippers using the pipeline system and manifest themselves in a wide variety of complaints to Ofgas of discriminatory behaviour by British Gas against competitors in defence of its dominant market position.'

The report also questions whether British Gas managers in an integrated pipeline company would fear for their promotion prospects if they treated rival suppliers on equal terms to British Gas's trading arm.

A consortium led by British Gas bought the biggest gas distribution company in Argentina yesterday. Its bid of dollars 300m was the highest in a privatisation tender for the Buenos Aires metropolitan network.

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