Cablegate: French Electricity Utility Giant Edf Gets "Green

This record is a partial extract of the original cable. The full text of the original cable is not available.

271729Z Oct 05

UNCLAS SECTION 01 OF 02 PARIS 007373

SIPDIS

SENSITIVE

STATE FOR EUR/WE; OES; NP; EB/ESC, AND EB/CBA
USDOC FOR 4212/MAC/EUR/OEURA
DOE FOR ROBERT PRICE PI-32 AND KP LAU NE-80

E.O. 12958: N/A
TAGS: ENRG EPET EIND EINV PREL PGOV FR
SUBJECT: FRENCH ELECTRICITY UTILITY GIANT EDF GETS "GREEN
LIGHT" FOR PARTIAL PRIVATIZATION

NOT FOR INTERNET DISTRIBUTION

Ref: Paris 7334

1. (SBU) Summary: After months of delays, French Prime
Minister Dominique de Villepin confirmed on October 24 that
France's state-owned power company Electricite de France
(EDF) is to be partially privatized. To limit protests from
trade unions, the GOF has pledged to maintain 85 percent
ownership and to plough all the proceeds from the upcoming
share issue back into EDF. The company has in turn agreed
to invest 40 billion Euros (USD 48 billion) over the next
five years as well as to keep any potential electricity
prices rises below inflation. Anti-privatization unions,
who want EDF to remain 100 percent in public hands, are
gearing up for more industrial action with the support of
the Socialist Party, which appears to be leaning further
left on the issue of privatizations (particularly EDF's) in
preparation for the 2007 presidential elections. End
Summary.

The initial public offering
---------------------------
2. (SBU) On October 24, Paris newspapers widely reported
Prime Minister de Villepin's decision to clear the way for
the sale of 15 percent of EDF, Europe's biggest power
utility and, counting its international holdings, arguably
the largest in the world. The partial privatization is less
than what the GOF had originally intended. The previous
Raffarin Government made a first concession to French energy
unions by passing a law on August 9, 2004, which requires
the State to maintain 70 percent of EDF's capital. The
Villepin Government has conceded further by agreeing to half
the legal capital opening. The sale will address EDF's
substantial funding needs to implement capital investments
in time for the EU deadline of January 1, 2007, when
residential customers will be free to choose their
electricity suppliers.

3. (U) French Economy, Finance and Industry Minister Thierry
Breton announced separately that the share offer would be
launched on October 28, with the new shares to begin trading
by November 21 at the latest. (Reftel details the modalities
of the share offering.) He added that at least seven billion
Euros (USD 8.4 billion) would be raised, thus making the EDF
partial privatization the largest sell off in recent years.
(Note: 2002 to 2005 privatizations: France Telecom 5.1
billion Euros; Snecma 2.2 billion Euros; Credit Lyonnais 2.2
billion Euros; privatizations since June 2005: France
Telecom 2.4 billion Euros and Gaz de France 2.5 billion
Euros).

4. (U) As the initial public offering is to be "carried out
in the interests of France, of the company and of its
employees," the French utility's 160,000 employees will have
the opportunity to buy an additional one billion Euros worth
of shares, or 15 percent of the offering, which could
contribute a significant amount to total value of the
operation, Breton explained.

Laying out special "public sector" conditions
---------------------------------------------
5. (SBU) To tackle stiff opposition from EDF unions and
staff, Villepin signed a "public service" agreement with EDF
Chairman and CEO Pierre Gadonneix. He said the contract
would ensure that the utility abide by three rules: that
rates do not soar, that the same pricing policy be
maintained throughout the country and that electricity be
provided for the poor.

6. (SBU) In addition, EDF has pledged that tariff increases
would not exceed inflation for the same period. One of the
unions' major arguments against partial privatization has
been that prices would rise. The issue of tariffs became
potentially embarrassing for the government as recently
privatized gas utility Gaz de France announced a 12 percent
increase in gas prices starting November 1. At the same
time, EDF has vowed to invest 40 billion Euros (USD 48
billion) over the next five years to boost electricity
production and improve its distribution network. GOF
officials have indicated to us that much of the proceeds
will go toward financing the planned European Pressurized
Reactor (EPR) at Flamanville in Normandy, whose cost may
well top early estimates of 3.75 billion Euros. Other plans
include developing renewable energies (solar wind and
geothermal power plants) as well as constructing a new
hydroelectric power plant in Gavet, in the Alpine department
of Isere further down the road, in 2013.
Opposition continues
--------------------
7. (SBU) France's leading energy unions, Communist-led CGT
and Socialist-led CFDT, continue to oppose the government
plans as they have done since 2002, when the previous
Raffarin government first announced its intention to proceed
with the capital opening of France's electricity and gas
utilities. The opposition has never exceeded a "symbolic"
level, although it has been disruptive. In the summer of
2004, EDF unions and staff staged a number of protests,
ranging from a general blackout in selected areas to
targeted cutting of power in the homes and offices of the
prime minister and other government ministers.

8. (SBU) The unions have not won the battle of public
opinion. However, they have urged EDF workers to go on
strike starting November 8 and have taken a petition to the
Prime Minister's office signed by over 100,000 people, who
want 100 percent of EDF to remain in the government's hands.
The more liberal wing of the Socialist Party has joined the
radical left in protesting against the upcoming partial
privatization. Former Prime Minister and Socialist
Presidential contender Laurent Fabius has even called for
the re-nationalization of EDF if the socialists regain power
in 2007.

9. (SBU) To contain social disruption over energy issues as
much as possible, de Villepin announced on October 28 that
state-owned nuclear group AREVA would not be partially
privatized, as planned last year by then-Economy and Finance
Minister Nicolas Sarkozy. Areva should have been the last
state sell-off brokered by Sarkozy, who also sealed the
privatizations of engine maker SNECMA and utilities EDF and
GDF. However, this privatization, which had been the center
of angry environmental protests, has been abandoned for the
time being to prevent an alliance of political forces
opposing the current government.

Comment
-------
10. (SBU) We have been told that the CGT and CFDT are likely
to adopt very combative attitudes on this and other "social"
fronts in preparation for their annual congresses next year,
as a growing number of militants in both unions question
their respective leaderships. To reaffirm their leadership,
the heads of France's two largest trade unions have upped
the ante in bitter and overdrawn recent conflicts, which
included a 24-day strike at Corsican ferry company SNCM over
the firm's privatization plans, and a three-week strike at
France's largest oil refinery, Total's Gonfreville plant,
over wages. Transportation workers have also been on strike
in Marseille and Nancy.

11. (SBU) These waves of protests have not yet succeeded in
challenging Villepin's policies. Despite government fears,
which were fuelled by the failure of the EU Constitution
referendum, the partial privatization should be as
successful as the recent partial sell-off of gas utility
company GDF, which took place against a backdrop of similar
union and employee opposition. Previous difficult
privatizations at Air France and France Telecom prove that
stiff resistance melts away in the end, through what an
industrial analyst described to us as a "typically French
war of attrition." End Comment.
Hofmann

© Scoop Media