The French state should reform its own bad habits when it comes to EDF
Macron appears particularly keen on wielding the energy group’s resources for political effect
Marcel Boiteux, the former boss of French nuclear power operator EDF, once famously damned the French state — at the time the company’s only shareholder — as “dishonest and unreliable”.
In fact, he was wrong. The French government is most reliable when it comes to exploiting its state-controlled companies for political expediency — even if they are partially privatised, as EDF has been since 2005.
President Emmanuel Macron, gearing up for expected re-election this year, appears particularly keen on wielding EDF’s resources for best political effect. Last month his government ordered the company to step up significantly the power it sells (at a loss) to rivals under a competition-boosting tariff scheme.
The order allows Macron to keep a promise that household energy prices would not rise by more than 4 per cent. No matter that EDF predicts this will cost €8bn, that it cuts the group’s credit rating a notch and puts yet more pressure on a debt-laden balance sheet. Or that EDF has to find €50bn over the next decade to refurbish its ageing reactors.
Now, adding insult to injury, EDF will have to stump up to buy a steam turbine business from General Electric of the US that it does not want. The deal, to be announced on Thursday, will secure jobs and the future of the gigantic Arabelle steam turbines used in French nuclear reactors. But it is clearly beyond the remit of a power generation utility to become a turbine maker.
Macron is expected to announce the rescue of the turbine unit himself, and it is not difficult to guess why. In 2014, as economy and industry minister in a Socialist government, Macron backed the politically controversial sale of Alstom’s turbine business to GE. The US group, in the throes of its own restructuring, now wants to sell and Macron needs to bury the politically inconvenient memory of his support for the sale. So EDF has to foot the bill.
To be fair, this is not the first time EDF has been called on to sort out political problems. The group was once required to buy dollars it did not need to help resolve a balance of payments problem for the state, according to Boiteux.
But the scale of the government’s recent demands has stoked a ferocious debate about whether EDF should ever have been floated. Perhaps it should have been left in the state’s complete control, sheltered from the volatility of markets, with a mission only to serve its public masters.
But what would that have achieved? Back in 2005, before its initial public offering and under full state ownership, EDF suffered from the same problems of debt, fleet renewal and competition that it faces now. It was less diversified and, according to one customer, less responsive. And without external shareholders to hold management to account, it was much less transparent.
Most importantly, the listing has helped to align the interests of private shareholders and EDF’s famously well-treated employees, who now own 1.3 per cent of the company.
One of the ironies of the recent outcry is that, back in 2005, the government had to promise not to raise household electricity prices above inflation to win public and union support for an IPO. Today, employee shareholders are outraged that EDF is being forced to help keep household energy prices low.
The debate has also drawn attention to the country’s flawed pricing regime, which leaves EDF exposed to the volatility of gas prices even though the group generates mainly nuclear and hydro power. Setting a regulatory regime that enables more visibility and stability on pricing would transform EDF’s credit rating and its ability to raise funds, insiders say.
So the problem is not with EDF’s listing. It is instead with the state’s schizophrenic approach to what it requires from the energy group. It wanted a listing to help drive reform of the quasi-civil servant culture. But the state still insists on treating EDF as it always has. That makes reform nigh-impossible.
When Macron unveils the turbine deal on Thursday, reports suggest he will also announce a long-mooted order for new power stations, and perhaps even a capital increase to fund them.
That will be welcome news for EDF. But a bolder and longer-term strategy would be to devise a better regulatory framework and then step back. If the state were to cut its stake from the current 84 per cent to 51 per cent, France would still control its strategic energy provider. Yet it would be harder to ignore the voices of other stakeholders who want a more stable and consistent partner in EDF.
