Cost of shake-up to British Gas estimated at pounds 80m

PROPOSALS by the industry regulator, Ofgas, for radical changes in the structure of British Gas are likely to cost it about pounds 80m.

The company would not comment on the figure but Ian Taylor, British Gas manager for competition and regulatory policy, said the proposals were an important plank in government plans for more competition in the industry and the cost to British Gas would be 'pretty horrendous'.

Under the proposals British Gas must separate its transport arm from its gas trading business in a completely transparent and tightly regulated way. The aim is to ensure fair play for other gas suppliers, including electricity companies and North Sea producers, which need to use British Gas pipes.

The company is thought to be angered at Ofgas's decision that none of the cost of the change can be passed to customers.

The proposals, set out in an Ofgas consultation document issued yesterday, involve separating physically thousands of people who have until now worked in an integrated gas business.

British Gas has already embarked on much of the change in anticipation of the document.

It will also mean restrictions in the movement of staff between different business units and may prevent the company from training staff from the trading and pipeline arms on the same courses.

Mr Taylor said the restrictions on staff were harsher than expected and must not be allowed to hinder the development of the company and its employees as a force in the gas market worldwide.

Ofgas also said that the pipeline business, Transco, must be managed in such a way as to prevent unjustified interference or control from other parts of British Gas.

The regulator said 'Chinese walls' must operate at all levels between the trading and pipeline arms and staff must be issued with a strict code of conduct to ensure information did not flow in a way that could disadvantage competitors.

The plans include tougher than expected rules on accounting for different parts of the business. The company had been expecting to have to give separate accounts for Transco. Now, however, Ofgas also wants separate accounts for the pipes and for gas storage.

In addition, Ofgas has ruled that separate accounts will be needed for any British Gas central services that will still be serving Transco, such as property management and vehicle fleet operations.

Mr Taylor said that the proposals would give other people confidence in the competitive market. The company's head of compliance, Margaret MacKinlay, would report regularly to Ofgas.

Cedric Brown, British Gas chief executive, said: 'Overall this is a tough but realistic package of measures and we will work closely with Ofgas to implement them. The enormity of the task should not be underestimated.

'We have embarked on a massive restructuring programme for all our UK business activities.

A spokesman for Utilicorp, one of the largest independent gas suppliers, said: 'We are very pleased that Ofgas has finally got its act together and issued this document.

'Everyone in the industry has been waiting to see what separating out British Gas business would really mean.'