British Gas Becomes Latest Big Firm to Split
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.
Financial analyst David Lascelles, writing in the Financial Times, said, ''British Gas executives were slow to adapt to the more demanding ways of the private sector.'' He says that in hindsight, it was unwise to sell off British Gas as ''an unwieldy monopoly,'' rather than break it up at the outset.
When the gas utility was privatized, Prime Minister Margaret Thatcher saw it as her greatest achievement in the policy of selling state-owned utilities to private investors. But British Gas in the last two or three years has taken on the aspect of a large company in growing trouble.
Now, even with the restructuring plans, some analysts wonder how successful British Gas will be. Other observers say the split-up will insulate the lucrative TransCo pipeline business from the retail troubles at British Energy.
For current Prime Minister John Major, renewed controversy about privatization comes at an awkward moment. Plans to privatize the nation's railways were jolted recently when one of several commercial companies designated to take over from state-owned British Rail became the subject of an official fraud inquiry.
British Gas has controversies of its own.
As part of the shake-up, chief executive Cedric Brown will retire five years ahead of schedule following publicity of his allegedly ''fat cat'' salary and a personal pension scheme reported to be worth 4 million. Further, his ouster is seen as confirmation that under his tenure British Gas was poorly managed and annoyed millions of consumers who complained of bad service and high prices. The opposition Labour Party has called for full disclosure of Mr. Brown's termination package and demanded that pension terms for other British Gas executives be made public.