The British Gas market 10 years after privatisation: a model or a warning for the rest of Europe?

Abstract

The tenth anniversary of the privatisation of British Gas (BG) and the demerger of the company make this an appropriate time to review the development of the British gas market. A casual observer would hail the first decade of the privatised British gas industry as a tremendous success: fierce competition in the industrial and commercial gas market will be extended to the entire residential sector in a bold and unique experiment due to be concluded by Spring 1998. Prices have fallen sharply to all classes of customer over the past decade. On the face of it, the gas industry appears to be a triumphant example of the liberalisation and competition experiments which followed the privatisation of utility industries in Britain. The reality is somewhat more complex. The principal problems concern the progressive difficulties with all aspects of the regulatory framework. In addition, a large number of uncertainties remain as to how liberalisation and competition in the residential sector will operate in practice, particularly in terms of public service obligations and security of supply. Concentration on short-term issues has overwhelmed any long-term strategic perspective. For these reasons, it is uncertain whether Continental European governments will show great enthusiasm for following ‘the British experiment’.