Watchdog storm on gas contracts
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Industrial Correspondent
Clare Spottiswoode, the gas industry watchdog, has clashed with the Government over long-term contracts between British Gas and North Sea producers, which are forcing the company to buy much more gas than it can sell.
Ms Spottiswoode has angered ministers and sent the company's shares plummeting by warning publicly that British Gas's financial position is "not obviously secure".
A senior Whitehall source accused the regulator of "dramatising the problem in a way which will not help the industry". He said: "There is absolutely nothing new in the issue of the contracts. What she has done is to give it a prominence that makes it appear to come out of the blue. I do not think it will do the reputation of the regulator any good."
Tim Eggar, Minister for Energy and Industry, said last night: "We have known about the importance of this issue for many months. In my view it is in the interests of both British Gas and the producers to renegotiate. I have already made it clear it is better for this to be settled commercially, but if I, or the Department of Trade and Industry, can help as a facilitator we will be happy to do so."
He declined to comment on Ms Spottiswoode's warning, saying that the independence of the watchdog must not be compromised. Although Ofgas has no formal jurisdiction over the contracts, she has a duty to be concerned about the financial standing of the company.
British Gas shares fell by 11p to 236.5p after the comments by the watchdog. But the company, which declined to comment, is privately pleased for the problem to be aired. Cedric Brown, chief executive, recently called for more government support in renegotiating the contracts in the face of tough resistance from the producers. But the DTI insists that "direct" intervention is out of the question.
The contracts - largely entered into when British Gas was still a monopoly - will by the end of this year have forced the company to buy about pounds 700m worth of gas it cannot yet sell. One City analyst said the sum could reach pounds 1.3bn within four years.
The price paid by British Gas under the contracts is about twice that which rivals can achieve on the spot market, which has enabled competitors to win market share in the industrial and commercial market.
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