The deregulation effect: a tale of two utilities3 April 2002
……while its neighbour Electricité de France has a home market advantage. By David Appleyard, editor, Power Economics
European colossus Electricité de France (EdF) has secured its dominant position in the power sector with flat statements from French prime minister Lionel Jospin and president Jacques Chirac that competition in the domestic retail power market will not be forthcoming, despite EU Directives mandating a fully competitive power market by 2003-4.
The move came ahead of an EU summit meeting in Barcelona to discuss market liberalisation and at which the French once again won considerable concessions from the European Commission over its distinctly tardy efforts at opening its home market. The country will now see industrial and commercial consumers free to choose supplier, most likely by 2004, but the retail market looks set to remain the exclusive preserve of EdF after politicians cited recent events in California and elsewhere to argue that, for social reasons, the retail domestic market should remain in the tightly controlled hands of the state power giant. The move secures EdF's enormous cash-flow and bolsters its position against competitors in France where EdF supplies 90% of the market. It is also Europe's largest exporter of electricity.
Towards world domination
Mounting criticism from the 14 other EU members has done little to assuage EdF's aggressive acquisitions spree that has seen the group extend its reach throughout Europe into North and South America, Africa and Asia. The 100% state-owned company has inaugurated an auction system through which it sells off some 6000MW of capacity to rival traders, but in a market of more than 103GW and with 31 million customers EdF will still take some beating. Having recently sold its interest in the Pechiney aluminium manufacturer, the group raised a further E370 million for its war chest that may be used to fund its plans to take over assets in Eastern Europe. The group expressed an interest in the Czech Republic's recently withdrawn CEZ sale and the stakes of three distribution companies up for sale in neighbouring Slovakia. This acquisitive streak first became apparent in 1999, when EdF strengthened its presence in a deregulating Europe where it now supplies around 40 million customers. It has already invested nearly E11 billion in some twenty countries in Europe, Latin America, Africa and Asia representing a generation capacity of 32,700MW under construction or in operation and, furthermore, nearly 10 million customers outside Europe.
A geographical breakdown of generation investments gives 74% in Europe, 12% in Asia, 8% in South America, 2% in Africa and 4% in the Maghreb region and Middle East. Similarly, in distribution the breakdown gives 44% in Europe, 49% in Latin America, 4% in Africa and 3% in the Maghreb and Middle East.
In 1998 London Electricity was sold by Entergy to EdF and, together with SWEB and the TXU distribution business that delivers electricity through a 90,000km network in East Anglia and south-east England, EdF-owned assets make it the largest distribution company in the UK. Aside from its UK asset base, a quick slice through some of EdF's subsidiaries and partners in Europe include, in Hungary Demasz, Austria's Steweag, a subsidiary of Estag, EnBW in Germany and Graninge in Sweden. It is the second largest power supplier in Italy through the Edipower venture with Fiat that recently closed its acquisition of Eurogen, formerly owned by ENEL. The group also holds assets in South America such as Argentina's Edenor and in Asia - Vietnam power utility Phu My II for example. One third of the company's revenues currently stem from activities outside France and the group intends to increase this to 50% by 2005.
The company's 31 million customers in France generate a sales revenue of more than E25 billion for a power output of nearly 470TWh, although advocates of the status quo point out that EdF has lost some 13% of those industrial and commercial customers eligible to change suppliers.
As Europe's largest power exporter, EdF grew its income to E34.4 billion in 2000, up more than 7% on the previous year, and generated profits of E9.7 billion, down slightly on the year before, largely due to its acquisitions programme and a falling home electricity price. Valued at some E13.5 billion, the group, first founded in 1946, will continue to act as a major force in Europe and elsewhere. And to back up its generation activities, EdF has also created a trading arm in partnership with the Louis Dreyfus Group. Although nominally independent of EdF - it is a shareholder - since launching in late November the Paris-based Powernext exchange highlights France as a key location for European energy trade.
Ratings agencies have expressed concern that the credit status of the group may be changed for the worse either through a full privatisation or an alternative structure that would remove it from state financial protection. However, even a full privatisation scenario would still see it generate significant cash-flow from the home market.
But, both rivals for the presidency have publicly stated opposition to privatisation of EdF, while approving the idea of using the capital markets to finance projects and acquisitions. Chirac noted that the company, at its own suggestion, may be allowed to open its capital in order to consolidate its position in Europe but has ruled out any possibility of the company being delivered blows that may weaken it. In addition, both candidates suggest that capital investments in EdF would be excluded from foreign entities. The statements come as industrial action among French power workers cuts some 6000MW of capacity in protest at market liberalisation. The action serves as a poignant reminder that in the current political climate, liberalisation for EdF refers to other nations opening their power markets to the forces of competition, not the other way around.
Related ArticlesEP votes to restructure fund management