Gas privatisation in pipeline as France prepares for free market

Date: 05/09/02

By Maria Kielmas

FRANCE'S new centre-right government expects to implement the 2000 Gas Directive by the end of this year in a move which heralds the opening of the national energy market.

The government will also draft a bill early next year to change the statutes of state electricity and gas companies, Electricité de France (EDF) and Gaz de France (GDF) ahead of a part privatisation, the secretary of state for industry Nicole Fontaine declared in late July.

EDF controls 90 of the French power market and GDF controls 98 of the country's gas market.

Fontaine, a former president of the European Parliament, refuted suggestions that the new government's initiative was the result of pressure from outside.

But the opposite could be the case, contends Jean-Marie Chevalier, Paris-based director of European Gas and Power at consultants Cambridge Energy Research Association. 'Most political parties are opposed to the opening,' he says. 'There was pressure from all EU countries.'

EDF-GDF trade unions also oppose even part-privatisation and the government faces an uphill struggle to review employee pensions and other entitlements in the two companies. When the government refused to allow EDF to raise its tariffs by 4.9 in 2002 the CGT union called for a review of the company's 2001-2003 contract with the state.

The union also called for EDF to be free of its obligation to pay higher tariffs for electricity from renewable sources and an end to providing low tariffs to large corporate clients.

EDF raised its tariffs by 1 last year, when the group reported €900 million of extraordinary expenses - mainly from acquisitions of wind and solar power.

Chevalier thinks that in practice there will not be any full energy market liberalisation in France before 2008.

But at the Barcelona summit in March, France did agree to permit all non-domestic users to choose their own gas suppliers after 2004.

A gas bill to implement this opening has been opposed consistently in the French parliament by a combination of broad left parties and trade unions. If the gas bill is passed later this year, it could result in thousands of new supply deals in the country for outside suppliers and compares very favourably with the current rigid situation in Germany's energy market, thinks Chevalier.

But sellers into the French market will still face constraints on the country's borders unless interconnector capacity is increased.

Rumours about the future of part-privatised EDF and GDF have been circulating around the capital markets for over a decade. So far most analysts rule out a merger between the two to create what would be a French version of E.on-Ruhrgas.

However, the two companies do work in a joint venture which is about to acquire a 45 stake in two Polish power plants.

EDF has been proposed as a potential buyer of the eastern German gas distributor, Verbundnetz Gas (VNG). The German government has made it a condition of its approval of the E.on-Ruhrgas merger that the new company dispose of its interests in VNG.

A longer-lasting speculative scenario among investment analysts is a merger between oil company TotalFinaElf and GDF.

France's new centre-right government expects to implement the 2000 Gas Directive by the end of 2002 in a move which heralds the opening of the national energy market. Article is part of a European Voice survey on energy.