France steers EDF closer to privatisation

24th November 2004, Comments 0 comments

PARIS, Nov 24 (AFP) - The French finance ministry announced plans Wednesday for a capital increase of EUR 8-11 billion (USD 10.5-14.5 billion) for Electricite de France, paving the way for a partial privatisation of the state-owned power giant.

PARIS, Nov 24 (AFP) - The French finance ministry announced plans Wednesday for a capital increase of EUR 8-11 billion (USD 10.5-14.5 billion) for Electricite de France, paving the way for a partial privatisation of the state-owned power giant.

"The government has set a goal for EDF chairman Pierre Gadonneix to prepare a capital increase of between EUR 8 and 11 billion in 2005," the ministry said in a statement.

A more limited increase for the state-owned gas group Gaz de France was also planned for next year.

No technical details were given about the operation but it would be difficult for the cash-strapped French state, which has not provided funds to EDF for more than 20 years, to provide the financing directly in a capital increase.

The announcement comes after a high-level commission found last week that the heavily indebted EDF needs to reinforce its shareholders' equity with EUR 8 to 11 billion to fund development in Europe.

The company's shareholder equity is due to come under heavy strains as soon as the beginning of next year and yet it has big ambitions to be a big player in Europe's increasingly liberalised electricity market.

On top of its EUR 24.3 billion in debt, the company will have to start making major provisions next year for retirement charges, which are expected to amputate EUR 14 billion from EDF's shareholder equity starting on January 1, 2005.

EDF also faces heavy costs for decommissioning nuclear plants in the coming years.

And yet, the company has ambitions as big as it liabilities.

A spokeswoman said the capital increase would "allow the company to finance its development within the framework of a European industrial project, of which the chairman Pierre Gadonneix will present the main details in the coming weeks."

The announcement of the capital increases comes as the government prepares to sell off stakes in EDF and GDF to private investors.

On Monday Prime Minister Jean-Pierre Raffarin had said he hoped to see the capital of EDF and GDF opened up to new shareholders before the end of 2005.

Selling of a stake in a state-owned company is a highly controversial move in France where anything suggesting part-privatisation of such public service utilities is anathema to trades unions which are powerful in the public sector.

However, the two French public utilities were legally transformed into private, limited liability companies on Friday.

The government has promised to hold on to 70 percent of EDF's capital. Although EDF's capital increase had already been widely expected, GDF's capital hike had not been previously signalled by the government.

Gaz de France chief Jean-Francois Cirelli presented Sarkozy with a strategic plan on Thursday showing that the business needed to accelerate its development in Europe through alliances or industrial partnerships and takeovers, the finance ministry said.

However the company's finances are strong and its capital increase would only be "limited".

Trade unions and opposition left-wing and Socialist parties are opposed to changes in the status of the two groups which, they say, opens the way to privatisation.

© AFP

Subject: French News

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