Outlook: Power giant needs a spark of strategy

EVER SINCE privatisation, National Power has been the lumbering giant of the electricity industry, regularly outsmarted and outmanoeuvred by its smaller and nimbler rival, PowerGen. When it lurches into action, however, it pays to get out of the way. Keith Henry, until yesterday its chief executive, failed to jump quickly enough and was duly crushed under its weight.

Mr Henry has paid the price for a miserable 12 months which began with the first of several profit warnings and culminated in the debacle of National Power's aborted merger talks with United Utilities.

His successor will be inheriting an equally warm seat. National Power's market share has been in gentle and sometimes not so gentle decline for many years now. This autumn it will lose a further big chunk with the sale of the Drax power station.

To add to the heat, the trading rules of the power market are being rejigged to curb the profits of the price-setting producers like National Power. The Drax sale will yield about pounds 2bn, but there seem to few ideas about how to spend the proceeds in a way that will plug the earnings gap.

The chairman and acting chief executive, Sir John Collins, has spent the last four years sorting out the Vestey empire, so he's used to basket cases. Going on an overseas spending spree to add to the 21,000 megawatts of generating capacity National Power already has abroad is one option. But first he has to clear up after Mr Henry's mess in Pakistan, where the new regime is punishing National Power for the deal it struck with Benazir Bhutto's government.

Buying another UK electricity supply business to add to the customers National Power has acquired from Midlands Electricity is another possibility, as is buying into more of the gas market.

But neither of these would make much of a dent in pounds 2 billion. In the absence of a bold plan to become a multi-utility, a small mercy for which shareholders should perhaps be thankful, the best option might be to return the cash. Unless, of course, a predator steps in to do the job first.

Yesterday's share price rise had more to do with bid hopes than the belief that National Power has put its troubles behind it. Rudderless and without a convincing strategy, National Power looks more vulnerable now than ever, nor can it rely on the Government's golden share for protection.