ANALYSIS: Lobbyists get a dose of shock treatment

The Government’s decision to block the take-over of two electricity companies by power generators took the comp-anies and their lobbyists by surprise. So what went wrong?

The Government’s decision to block the take-over of two electricity

companies by power generators took the comp-anies and their lobbyists by

surprise. So what went wrong?



At the beginning of last week it seemed that the electricity lobbyists

had done their job exceptionally well. Despite industry regulator

concern and a referral to the Monopolies and Mergers Commission, the

‘friendly’ take-overs of Southern Electric and Midlands Electricity by

National Power and PowerGen respectively looked likely to be waved

through.



A veritable army of lobbyists has been working to ensure just that for

weeks: Lowe Bell Political for National Power; Ian Greer Associates for

PowerGen; Rowland Sallingbury Casey for Southern Electric; and GJW for

Midlands Electricity.



It is likely the cost of their services - preparing submissions to the

MMC; winning friends among MPs; and applying pressure at local and

national level - has run into many hundreds of thousands of pounds. But

was it worth it?



The signs were good. Confidence was high. Then on Wednesday, the

President of the Board of Trade Ian Lang decided not to allow the

mergers saying they would be ‘detrimental to competition, given the

current state of the electricity market’s development.’



The announcement marked a turning point after a year of take-over fever

in the electricity industry, which saw half the distribution companies

come under new ownership. Vertical integration - where companies are

involved in both the generation and distribution of electricity to

customers - was always going to be a contentious issue, going against

the grain of the Government’s original competition policy.



But what incenses the lobbyists is that vertical integration had been

allowed to take place on two previous occasions. Southern Electric’s

lobbyist RSC had worked for north west electricity distributor ManWeb in

its successful merger with generator Scottish Power last year and fully

expected the precedent to be followed.



‘We always thought that the latest proposals would be referred to the

MMC but were very surprised at the final outcome,’ says David Hughes,

managing director of RSC.



Lang’s statement on the day of the decision was that ‘vertical

integration is not inherently objectionable’ but he judged it to

adversely affect competition in this instance.



Some national media believed that Lang’s decision was made at the 11th

hour under pressure from right wing MPs like John Redwood and Norman

Lamont who favour stronger competition. If true, the leak of an MMC

document to the Economist two weeks earlier may well have been

significant. And there is speculation among lobbyists that moles within

the DTI might have deliberately created a media outcry to coerce Lang

into blocking the deal.



There is also talk of pressure from industry regulator Professor Stephen

Littlechild who has been consistently outspoken about encouraging new

players, such as Hanson, and restricting the market shares of National

Power and PowerGen. Hanson gained a significant market share in both

generation and distribution via its purchase of selective power stations

from both generators and its take-over of Eastern electricity.



More significant is evidence of a shift in the ground on which merger

battles are fought. Until now the onus has been on the MMC to prove that

a merger would be against the public interest but a forthcoming General

Election and years of private utility ‘fat cat’ stories in the media,

have made all political parties keen to position themselves as the

consumer’s friend. Hence Government concern that any high-profile take-

over is proved to be indisputably in the consumer’s interest.



Whatever the reasons behind the decision, the Office of Electricity

Regulation and the Government now have a new battle to fight. PowerGen

has gone on the PR offensive and on Thursday highlighted its right to

refuse the handover of generating capacity to Hanson, due to a

contractual clause which allowed for a negative outcome. This indicates

a change in strategy from discreet lobbying of Government and Opposition

to high-profile statements by PowerGen chief executive Ed Wallis.



If PowerGen carries out its threat, it will be forced under the scrutiny

of the regulator along with the rest of the industry with potentially

damaging implications for the Government’s planned privatisation of

nuclear energy later this year.



Meanwhile the UK industry is bracing itself for more foreign take-overs

- notably from Southern Company of Atlanta which already owns South

Western Electricity. The US giant’s representatives are rumoured to have

been undertaking low-profile UK lobbying for weeks and are reported to

be considering a bid for National Power.



Lang’s decision has given it valuable breathing space - if National

Power’s bid had been approved, Southern Co would have been forced into

buying the UK generator before the Southern Electric take-over could go

through.



Opinion is split on whether the Government has sent a strong enough

message to ward off such take-overs, or pulled the rug from under the

big UK generators, making them more vulnerable to acquisition from

abroad.



As the dust settles, the four companies involved in the merger attempts

will be keener than ever to maintain friends in government and while the

electricity firms manoeuvre, lobbyists will need equally clever footwork

to avoid client conflict. GJW, which undertook work for Midlands during

the merger attempt is now understood to be political adviser to the

Southern Company. And Lowe Bell, currently retained by National Power,

also works for Hanson.



Moreover, the whole issue demonstrates that there is no magic formula

for political lobbying in the area of bids and mergers. Charles Miller,

whose Public Policy Unit recently produced a guide to bid lobbying,

points out that ‘parliamentary noise can influence staff morale or move

a share price but it rarely influences Ministers or officials.’



And at this politically-sensitive time, Government competition policy

seems more unpredictable than ever.



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