Generators in price battle on sale of plant: No sign of deals ordered by regulator

NATIONAL Power and PowerGen risk being accused of dragging their heels over the introduction of more competition into the generating market.

Despite being told six months ago by Offer, the electricity regulator, to dispose of up to six large power plants to encourage competition, the generators have failed to make any progress on the sales. Potential buyers say the prices being demanded are too high.

A meeting with Offer is due within the next few weeks to discuss the issue - a progress report is expected at the end of this month - but sales of plant are nowhere in sight. The deadline for selling the plants is the end of 1995, but the issue has become urgent because the Government plans to dispose of its remaining 40 per cent of the shares in the two companies, probably early next year.

The requirement to sell power plants raises regulatory uncertainties which would have to be spelt out in the prospectus and could threaten the Government's divestment, which it hopes could raise more than pounds 4bn.

There are some fears in the industry that Offer may extend a two-year price cap, imposed on the companies in February, if they fail to secure the desired plant sales.

An industry source said that talks with potential buyers of electricity generating plant are progressing slowly because no one is prepared to pay the price demanded. National Power and PowerGen have said that they will sell only if they can get a fair return for shareholders.

The source said: 'We are selling market share. We cannot accept peanuts for a plant and then watch it take our market and our revenue.'

Professor Stephen Littlechild, the director-general of Offer, wants the companies to sell plant with a total capacity of about 6,000 megawatts. Although neither generator will comment on price, a plant with a capacity of 1,000 megawatts might be expected to fetch between pounds 200m and pounds 300m.

Another problem is the prospect of electricity firms having to invest hundreds of millions of pounds to meet stricter environmental regulations. The industry is supposed to bring all power plants up to the standard of new generating stations by the year 2001, drastically cutting emissions of sulphur and nitrogen oxides.

Equipment for cleaning up emissions from coal-fired stations can cost as much as the power plant itself, and this could deter potential buyers. Many of the plants under discussion are ageing and would not justify the investment.

PowerGen said that talks with potential buyers were proceeding. National Power is believed to be talking to two groups, one British and one overseas.