SHAREHOLDERS in British Gas voted yesterday to break up the company to fight increased competition in the liberalised gas market.
The demerger, which will take effect on Monday, sees the hiving off of the gas supply business, along with the Morecambe Bay gas fields, into a new firm called Centrica.
The remainder of British Gas, which will include the TransCo transport and storage business and the group's exploration and production interests, is to be renamed BG.
''We believe that we should take the initiative in separating the competitive trading business from the monopoly transportation system, rather than wait until we are forced to do so (by industry regulator Ofgas),'' chairman Richard Giordano told shareholders at a special meeting.
''One of the major reasons for the demerger is to improve service to our customers,'' Mr Giordano added.
British Gas was swamped last year by customer complaints over inaccurate bills due to problems with new computer software.
The group, privatised in 1986, announced its demerger plan a year ago after whirlwind changes to its business environment.
Its monopoly of industrial users, roughly half of the UK gas market, was the first to be dismantled in 1991 and British Gas saw its share drop to below 35% last year.
Competition is now being extended to the domestic market, which should be wholly opened up by 1998.
Increased competition has left British Gas struggling with its so-called ''take-or-pay'' contracts, mostly signed before privatisation.
These long-term deals with North Sea gas producers oblige it to buy fixed amounts of gas at set prices, which are often higher than those in the spot market.
But as competitors have moved in, British Gas has been left with more gas than it can sell on. Several contracts have been renegotiated and Centrica will continue to try to strike more settlements this year.
''We still have a volume problem and a significant price problem. So we have to do more deals,'' Centrica's chief executive Roy Gardner said after the shareholders' meeting.
Centrica has been regarded by market watchers as a takeover target for firms who want to expand in the UK gas and electricity markets. Its share price traded upwards on the grey market yesterday.
But Mr Giordano, who will be chairman of both BG and Centrica, said no merger talks were being held. ''We are not talking to anybody about anything,'' he said.
Meanwhile, BG - now protected from the take-or-pay burden - is awaiting the outcome of an inquiry by the Monopolies and Mergers Commission into a tough pricing policy for its TransCo unit proposed by industry regulator Ofgas.
The proposals, if the MMC accepts them, would seriously dent BG's profits. The MMC is due to report in April at the earliest.- Reuter.
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