US embassy cable - 05PARIS7373

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