UPDATE 2-Scottish referendum plan ups investment risk -SSE

Fri Feb 24, 2012 11:47am EST

By Oleg Vukmanovic and Adveith Nair

LONDON Feb 24 (Reuters) - Energy firm SSE warned that plans for a referendum on Scotland's independence from England have increased investment risk, calling into question nearly 1 billion pounds of potential energy investment from the second-biggest Scottish company.

SSE, one of Britain's big six energy suppliers, said on Friday existing projects in Scotland would continue as planned, though referendum plans had increased risks surrounding new investments.

Scotland's nationalist government, which already controls some spending from its own parliament in Edinburgh, wants to hold a referendum in late 2014 on full independence, which could spell an end to a 300-year-old union with England.

"The additional risk of regulatory and legislative change does not mean that SSE will not invest in projects in Scotland while its future is being determined," SSE said.

"The development of SSE's existing projects in Scotland will continue as planned," the company said, but warned additional uncertainty would increase investment risk.

The integration of the electricity and gas networks and markets in Scotland, England and Wales should continue regardless of the outcome of the referendum, it said.

Under existing arrangements set out by regulator Ofgem, however, a split would endanger further investments, because companies currently recoup costs from bills paid by electricity and gas customers throughout Great Britain, it said.

"New arrangements would have to be established in the event of Scotland deciding it would no longer be part of the United Kingdom and becoming independent," SSE said.

Perth-based SSE, which expects to spend close to 900 million pounds ($1.4 billion) in Scotland in the year to March 31, 2012, employs more than 5,000 people in the country. It said it had no plans to move its headquarters out of Scotland.

In the event of an independent Scotland, relations with the European Union, which has a major influence over energy networks in member states, would need to be urgently clarified.

The potential break-up with England casts a shadow over several projects proposed by SSE in recent months, including an 800 million pound hydroelectric scheme in Loch Lochy.

A final investment decision on that project coincides with the planned Scottish independence vote in 2014. SSE said earlier this month its decision would depend upon "a satisfactory public policy and regulatory framework".

It is the first company to voice concerns over the commercial consequences of a split, while stressing that it is not seeking to influence any final decision, which rests with voters.

Responding to SSE's concerns, Scottish Secretary Michael Moore said the referendum should be brought forward by one year to 2013 as it would shorten the period of investor uncertainty.

"SSE's submission adds considerable weight to the case for having the referendum sooner rather than later," Moore said in a statement.

Hastening the referendum avoids a protracted period of uncertainty harmfull to capital inflows and gives voters a chance to decide whether to cut ties with the UK, he added.

Scotland already has its own legal system and devolved responsibility for health, education and emergency services.

Polls suggest between 30 and 40 percent of Scots support independence. The SNP hopes it can increase that by 2014, when national pride may be boosted by the 700th anniversary of the Battle of Bannockburn, a famous victory over the English.

Shares in SSE were down 1 percent to 1274.5 pence at 1415 GMT.

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