Guardian Unlimited Business | Business latest | Russia's Gazprom considers bid for British Gas owner Centrica

Move by state-owned outfit alarms government
· Takeover would give it 12m British gas customers

Terry Macalister, Nick Paton Walsh and Mark Milner
Friday February 3, 2006
The Guardian


Russian plans to seize control of a major part of Britain's gas supply industry hardened last night when Gazprom revealed that a bid for British Gas's parent group Centrica was "possible".

Alexander Shkuta, deputy chairman of Gazprom's export business, Gazexport, said a takeover of Centrica, which has 12 million gas customers, was being "analysed and investigated".

The statement triggered alarm in government circles, but in the City it sent shares in Centrica racing 25% at one stage before they closed 11% higher at 300p, adding nearly £1bn to its market capitalisation - it is now valued at nearly £11bn.

The Russian state-owned Gazprom has recently tarnished its image by cutting off gas supplies to the Ukraine over a pay row; it was seen by some as a move by the Kremlin to punish a former ally that had drifted towards Washington.

The Department of Trade and Industry said last night that any new ownership at Centrica would face robust scrutiny and that "security of energy supply to the UK's consumers is paramount".

The prospects of a merger were first raised in the Guardian last month when the deputy chairman of Gazprom, Alexander Medvedev, told this paper that he was looking closely at various UK firms with an eye to acquisition.

Yesterday Mr Shkuta went further when he was quoted by Reuters as saying: "As far as acquisitions go, the acquisition of the company Centrica in Britain is possible. This question is currently being analysed and investigated. A decision has not been taken."

A spokeswoman for Gazprom initially said the comments, carried by both the local Interfax and Reuters, were made during a conference call with investors. She later claimed Mr Shkuta had been misquoted but declined to say what he had really said.

Last night Centrica denied it had held any merger talks with Gazprom, which is the largest gas company in the world and sits on massive reserves in Siberia.

"We have had no approach, this is just speculation and we don't comment on speculation," said a Centrica spokesman.

Through British Gas, Centrica is the biggest supplier of energy to UK homes with 12 million gas customers and six million electricity customers. This puts it ahead of other utilities, many of which are already owned by foreign firms such as Germany's E.ON and RWE, and France's EDF Energy.

Centrica employs almost 30,000 people in Britain and operates seven gas-fired power stations generating 6% of the UK's electricity. It is currently considering the construction of an eighth, in Devon. It also owns the offshore Rough field, which accounts for 80% of Britain's gas storage capacity, and is developing a number of wind farms. Outside Britain, Centrica has interests in North America, where it has five million customers, and Belgium and has exploration interests in Nigeria.

The DTI said it was aware of all the bid speculation. "Any new ownership would face robust scrutiny by the regulatory regime before entering that market. The energy market regulator Ofgem and the competition authorities would have to be satisfied that consumers' interests were assured," said a spokesman.

Gazprom previously told the Guardian it wanted to deliver up to 20% of Britain's wholesale gas supplies by 2015 and mentioned ailing Scottish Power, a rival of Centrica, as a potential acquisition target.

Mr Medvedev accused western critics of trying to use Cold War rhetoric and insisted it was a normal commercial argument. A source close to Gazprom told Interfax the acquisition had been studied for two years.