British Gas won't share price cuts

INDUSTRIAL gas users, including the UK arm of soft-drinks giant Pepsi, are dem- anding a share of any price cuts that British Gas is able to wring out of North Sea producers. But the giant utility is refusing to negotiate with them.

British Gas is planning to break itself up over pounds 40bn of crippling "take or pay contracts", under which it is paying for gas it cannot use at prices well above current market levels.

The company's attitude to its customers, though, is the exact opposite of its stance to the producers, which it insists have no choice but to sit down to discuss rewriting legally binding deals.

At least a dozen medium and large gas users have written to British Gas recently, pointing out that they are paying over the current spot market price on their medium-term, take-or-pay contracts. "As a result of the contracts we entered into when they were the monopoly supplier, we're being penalised," said Maureen Williamson, who handles gas purchases at Walker Snack Foods, the UK crisp-making arm of Pepsi.

Walker is paying 19.98p per therm, almost exactly the same price that British Gas is complaining about paying to producers. "And we're on an inter- ruptible contract," said Ms Will- iamson "There are contracts around now for supplies at 12p a therm."

The firm is particularly upset because when it first entered into medium- term contracts 12 years ago it thought it was getting a good deal for helping the utility by agreeing to interruptions when demand was high.

It renewed them three years ago, after already committing itself by investing in back-up oil facilities for when its gas supply was interrupted. The company uses 20 million therms of gas a year, and is only allowed to get 30 per cent of that on the open market.

Ms Williamson wrote to Brtiish Gas on 24 November, asking them to renegotiate, but Colin MacMillan, British Gas Supply's director of sales, refused her request on 18 December.

Walker's problem is that its contract price is tied to the cost of heavy fuel oil, which has risen largely because of taxes. Some of the other companies that have requested a better deal are in even worse shape.

Walker was one of 12 large users to gather at the Energy Information Centre in Newmarket, Suffolk, in November to discuss their problems. "Our contract ends in 1997, but some have 10 years to go," said Ms Williamson.

Joy King, director of public relations for British Gas Supply, admitted it had some 10-year contracts with large customers but said they were all signed after the industrial and commercial market was deregulated. "You need to divorce the contracts on the supply side from those on the producer side," she said. "I don't see there's any legitimate link."

British Gas argues that almost all of the pounds 1.8bn of surplus gas it will be forced to buy this year was contracted when it had to ensure the UK market was adequately supplied.

It blames low spot prices and accelerated domestic deregulation. Further details of the cost will be announced with full-year profits, expected to come in at pounds 850m-920m, this Thursday.

The demands from industrial and commercial users are the first sign that predictions by the producers about the consequences of British Gas's attempt to strike better deals are starting to come true. The producers have argued that if British Gas reneges on its obligations, a wave of similar moves would put the entire market in jeopardy.

However, there is no evidence that the gas users will succeed. Another buyer for a large commercial gas user said most of his colleagues have been going back to the utility in search of a better deal, to no avail. "Professional people understand and accept that, 'yes, I have a contract,' but when you're talking about really large numbers it's not easy to be gentlemanly."