France Ending Support for State Power Monopoly

Energy, Frontier Centre, Uncategorized, Worth A Look

BRUSSELS, Dec 16 (AFP) – The European Commission ruled Tuesday that French state-owned power giant Electricite de France must repay a record 889 million euros (1.1 billion dollars) plus interest in unfair state aid.

The aid, in the form of tax breaks, to be repaid, including interest since 1997, would approach 1.2 billion euros, the largest fine imposed on a single entity by the Commission, Competition Commissioner Mario Monti said at a news conference at the European Parliament in Strasbourg, France.

French authorities have two months to inform the Commission of the manner in which the EDF reimbursement will be made, Monti added.

The Commission found the French tax breaks gave EDF an unfair competitive edge.

“After an in-depth analysis, the Commission came to the conclusion that this tax concession granted to EDF constituted unjustified operating aid, which had the effect of strengthening its competitive position in relation to its competitors, and consequently found it incompatible with the common market,” the Commission said in a statement.

The French finance ministry said it had “taken note” of the decision and that it would weigh its options “including recourse to the European Court of Justice.”

The European Union’s executive arm also ordered the French government to end an unlimited state guarantee for the company by the end of 2004.

Speaking about the decision on guarantees, Monti said in the statement, “I welcome the favourable outcome reached in this highly sensitive case, in which the French authorities have also been cooperative.” “A competitive situation has for the first time been created for EDF, without distortions due to state aid,” he said.

State-owned companies often obtain lower interest rates on bond markets than privately owned firms because they are considered to bear less risk.

The Commission said it “has no objection to the public ownership of EDF’s capital or the public enterprise status itself, but requires the unlimited state guarantee enjoyed by EDF to be brought to an end as it distorts competition”.

Analysts said that the end of EDF’s state guarantees could prompt a credit rating downgrade.

“With the end of this guarantee, investor confidence about the group’s debt will be hit and credit rating agencies will lower their rating,” said an analyst at a brokerage in Paris, who asked not to be named.

EDF has long come under fire from other EU governments for benefitting from a near-monopoly in France, while buying assets in deregulated markets elsewhere in the European Union.

Earlier this month EDF said it planned to hold on to 80 percent of its customers as the French market is opened up and also aimed to account for 15 percent of the European market.

The Commission also ruled that pensions for the energy sector in France should no longer be managed by EDF but by an independent pension fund called the National Fund for the Electricity and Gas Industries.

The Commission said this would be financially neutral and did not involve any state aid.

Source: The Tocqueville Connection is a leading source of French news, see www.ttc.org