Newspaper article The Christian Science Monitor

British Gas Becomes Latest Big Firm to Split

Newspaper article The Christian Science Monitor

British Gas Becomes Latest Big Firm to Split

Article excerpt

PRIVATIZED does not automatically mean competitive.

British Gas is learning that lesson the hard way. This week, the utility - privatized almost a decade ago amid enthusiasm from small private investors - announced it would split in two, representing the biggest restructuring of any British privatized company.

The move is an effort to overcome costly financial miscalculations.

British Gas faces potential losses of 1.5 billion ($2.3 billion) on fixed-price gas contracts signed years ago. The company now faces increasing free-market competition on the retail gas-service market.

By breaking up, the company hopes to serve both investors and customers better.

Britain's seventh-largest company will split into British Gas Energy, which will sell gas to 19 million customers, and TransCo International, which will handle transportation and gas storage.

The Gas Consumer Council has welcomed the decision. Its director, Ian Powe, said the move would lead to price cuts for gas users and "a return to customer-care standards of which the company was once rightly proud."

While many industries in developed nations are seeing mergers and consolidation, strategic breakups such as this have become a strong undercurrent. America's AT&T Corp. and ITT Corp. are two recent examples, while the huge British conglomerate Hanson PLC announced a split-up of its own just a few days before the Feb. 6 announcement by British Gas.

In the early years of privatization, the company signed fixed-price contracts to purchase gas from North Sea suppliers in the belief that it would retain a monopoly of sales to consumers. Last year, however, the government began implementing plans to introduce competition into the household gas market. The plans, which will take full effect in 1998, mean that competing companies will be able to sell gas to household users at prices lower than those British Gas planned to charge. …

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