FRANCE: ENERGY SECTOR UPDATE

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SUBJECT: FRANCE: ENERGY SECTOR UPDATE

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Paris 3654


1. (U) This is the third in a series of occasional
updates on the French energy sector. Feedback is welcome
to help us make this product as useful as possible for
our inter-agency USG audience.

Contents:
-- Labor unrest threatens production at French refineries
(para 2)
-- GOF response to high fuel prices favors farmers (para
3)
-- Finance Minister promotes nuclear power at IMF meeting
(para 4)
-- Areva and Constellation Energy announce nuclear
partnership (para 5)
-- EDF prepares for initial public offering (para 6)


2. (U) Labor unrest threatens production at French
refineries: On September 27, Total said that its
Gonfreville refinery, France's largest, continued to
produce at reduced capacity as a strike over pay extended
into its third day. Other reports said that striking
workers had effectively closed the refinery. Based in
France's northwest region of Normandy, Gonfreville is one
of six operated by Total in France, but most notably is
France's largest refinery, with a capacity of 343,000
barrels per day or about 15 percent of France's total
refining capacity. In southern France, French shipping
workers protesting the planned privatization of ferry
company SNCM temporarily blockaded the Lavera-Fos port
near Marseille that feeds refineries with a total 570,000
bpd of capacity, although as of September 28 oil firms
said operations have not yet been affected.


3. (SBU) GOF response to high fuel prices favors farmers:
Fearing a repeat of 2000 protests by farmers and
truckers, the French Government responded to the post-
Katrina spike in fuel prices by providing fuel tax
rebates for farmers. At an agriculture fair on September
13, Prime Minister Dominique de Villepin unveiled a 30
million euro aid package for farmers hit by the recent
surge in fuel prices. Most of the aid comes in the form
of fuel tax rebates of 20-50% for heating oil, natural
gas, and heavy fuel oil. Taxes account for nearly 75% if
the retail pump price of gasoline and diesel in France.
De Villepin also announced that he would accelerate plans
to promote the use of biofuels. The GOF will soon call
for bids to build a 300 megawatt biofuel electricity
plant and set a new goal for biofuels to satisfy 5.75
percent of total French energy consumption by 2008, two
years ahead of the target set by the European Commission.
The GOF also raised the tax credit for "clean vehicles"
(most of which run on natural gas or electricity) from
1,500 to 2,000 euros.


4. (SBU) Finance Minister promotes nuclear power at IMF
meeting: French Finance Minister Thierry Breton urged
the U.S. and other leading oil-consuming nations to
invest in nuclear and other alternative energies, and
criticized countries that subsidize oil consumption or
don't tax it enough. "We must reduce oil subsidies where
they exist, encourage through taxation a development
model which is more respectful of fossil fuel resources,"
Breton said in a September 24 speech before the
International Monetary Fund in Washington. "Developing
alternative energies, nuclear energy in particular," is
essential to prepare for "post-oil" times, he said.
France has an important stake in the future of nuclear
power, particularly since the GOF owns nuclear powerhouse
Areva, the world's largest nuclear engineering and
services company. (For more on Areva, see also 04 Paris
8615.)


5. (SBU) Areva and Constellation Energy announce nuclear
partnership: French nuclear services giant Areva
recently announced a strategic partnership with U.S.
power company Constellation Energy to form a joint
venture, called Unistar Nuclear, in an effort to gain a
head start in the race to build the first nuclear power
reactor in the U.S. in almost 30 years. Unistar Nuclear
will promote the European Pressurized Reactor (marketed
in the U.S. as the Evolutionary Pressurized Reactor),
which was jointly developed by Areva and Siemens. As
currently envisioned, Constellation Energy would operate
the proposed fleet of new U.S. nuclear power plants and
expects to hold the operating licenses. Constellation
Energy submitted a license application for the EPR to the
Nuclear Regulatory in May 2004 and Areva claims to have
dedicated over 200 engineers and $200 million to adapt
the EPR technology to American requirements.


6. (SBU) EDF prepares for initial public offering: In
anticipation of long-awaited partial privatization within
the next several weeks, GOF auditors estimated the total
value of Electricite de France (EDF) at 60 billion euros,
which was at the low end of the anticipated range of 50
to 100 billion euros. GOF officials have also been
meeting with banks to select which ones will manage what
will likely be one of France's largest initial public
offerings. According to our contacts in the Industry
Ministry, EDF hopes to earn up to nine billion euros
through an offering of new shares, which would dilute the
GOF stake to between 80 and 85 percent. The additional
capital raised could be used for new investments, such as
plans to build a new nuclear reactor in Flamanville,
Normandy, which is expected to cost three billion euros.
However, the IPO will not occur before next week, when
France's leading unions, which oppose any form of
privatization fearing layoffs, have called for power cuts
as part of a nationwide strike on October 4.

Stapleton