Concern grows over Kremlin interest in UK gas supplier

Persistent speculation that the Russians are interested in bidding looked to have been confirmed on Thursday when a news agency quoted Gazprom as saying it was mulling a bid. That sent Centrica shares soaring and temperatures rising in the corridors of power.

Centrica, the owner of British Gas, supplies 13 million UK homes, and the Energy Minister, Malcolm Wicks, is understood to harbour deep political reservations about such a company falling into foreign hands.

Gazprom's controversial decision to cut off supply to Ukraine for a brief period last month amid a dispute over pricing fuelled concerns over the prospect of it controlling 60 per cent of the British gas market.

Martin Brough, a sector analyst at Dresdner Kleinwort Wasserstein, said: "There would seem to be few votes for UK politicians in supporting the acquisition of the largest UK gas retailer by a state-owned Russian gas producer."

The 2003 Enterprise Act allows ministers to intervene in mergers if there is an "exceptional public interest". However, officials at the Department of Trade and Industry are thought most reluctant to invoke this option, which is intended to apply only in cases affecting national security.

They worry that to block a takeover of Centrica in this way would set a precedent that would spark a wave of petitions from other companies subject to unwelcome bids. Instead, officials want to leave scrutiny of any Gazprom bid to the usual competition judges - the Office of Fair Trading and, if necessary, the Competition Commission. They would assess whether any offer should be blocked solely on competition grounds, without political consideration. The Government also recognises the difficulties any intervention would be likely to bring, not least a diplomatic spat with Russia.

This week, the Russian President Vladimir Putin said he would not stand in the way of plans by BP to increase already sizeable hydrocarbon reserves in his country. Mr Putin also said he wanted to see Gazprom become one of the world's most powerful multinationals.

Should the Russians bid, the OFT would begin scrutiny almost immediately, and would be likely to report its findings between six and eight weeks later.

The Government would have several weeks from any initial bid to decide whether to intervene. A spokesman for the DTI said: "Any bid would initially be looked at through the usual competition channels.... We are not saying it is, or is not, a matter of national security."