State aid: European Commission takes action against Electricité de France, October 2002

The European Commission launched an investigation into the state-owned French energy group, Electricité de France (EdF), on 16 October 2002 amid fears that it has benefited from illegal state aid to the value of almost 900 million euros.

The move by the EU's competition authority follows a year long inquiry into a possible series of state aid measures in favour of EdF, which operates in highly competitive markets. The European Commission investigated three measures in particular:

• the unlimited State guarantee that EdF enjoys on all its liabilities under the legal status of EPIC (Etablissement public à caractère industriel et commercial), a status which grants exemption from insolvency law

• the premium-free explicit guarantees granted by the French authorities on EdF bonds

• the tax-free provisions created by EdF over the period 1986-1997 for the renewal of the French high-voltage transmission network (Réseau d'Alimentation Générale RAG)

It concluded that all three measures constitute state aid in favour of EdF that is incompatible with EU rules and ordered France to inform the Commission, within one month, of how it intends to abolish them. Since the measures resulting from EdF's status of EPIC and the guarantees granted by the French authorities on the EdF bonds were adopted more than ten years ago, the European Commission is not seeking to recover them.

In addition, the European Commission has opened a formal investigation into an accounting arrangement established in 1997 under which EdF qualifies for unusually generous tax relief.

The state aid measures granted to EdF are believed by the European Commission to have helped the energy group to pursue a number of takeovers in other European countries, including Britain, Germany, Italy and Spain, and to have consolidated EdF's position as one of the leading global multi-energy groups.

The European Commission's investigation comes at a sensitive time both for EdF, which is due to be privatised in 2004, and for relations between France and the European Union following criticism in Brussels of the French government for delaying the liberalisation of the EU's gas and electricity markets. According to the French newspaper, Le Monde, the French finance minister, Francis Mer, had already warned the European Commissioner for Competition, Mario Monti, that such a decision would be 'unfortunate' and both French Commissioners, Pascal Lamy and Michel Barnier, and the European Commissioner for Energy, Spaniard Loyola de Palacio, have been angered by Monti's timing. They fear the investigation could delay EdF's privatisation and prevent ministers from finalising the liberalisation of the EU's energy markets at a Council meeting on 25 November 2002.

Meanwhile, EdF could benefit from legal action taken by the European Commission's competition authority against Italy and Spain over laws that prevent the French company from taking over privatised utilities.

European Commission:
	16.10.02:	Press release: State aids: Commission seeks end to some advantages enjoyed by EdF [IP/02/1485]
	DG Energy: The Internal Market for Electricity
	DG Energy: The Internal Market for Gas
French Ministry of the Economy, Finance and Industry:
	Homepage
	16.10.02:	Decision of the European Commission concerning EdF [in French]
Electricité de France:
	Homepage
BBC News Online:
	16.10.02:	Brussels probes French power aid
	18.06.02:	French energy giant snaps up UK firm
	12.06.01:	French energy under EU spotlight
European Sources Online: Financial Times:
	17.10.02:	Commission orders EdF to repay 900m Euros in state aid
	17.10.02:	EU set for probe into EdF 'aid'
European Sources Online: In Focus
	Gas and electricity: mixed report on liberalisation, October 2002
	Barcelona European Council agrees compromise deal on the liberalisation of electricity and gas markets
	European Commission launch new proposals to complete by 2005 the internal electricity and gas markets

Helen Bower
Compiled: Thursday, 17 October 2002

The European Commission launched an investigation into the state-owned French energy group, Electricité de France (EdF), on 16 October 2002 amid fears that it has benefited from illegal state aid to the value of almost 900 million euros.