Identifier
Created
Classification
Origin
06PARIS1138
2006-02-24 10:58:00
UNCLASSIFIED
Embassy Paris
Cable title:  

FRANCE: ENERGY SECTOR UPDATE

Tags:  ENRG EPET EIND EINV PREL PGOV FR 
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This record is a partial extract of the original cable. The full text of the original cable is not available.

241058Z Feb 06
UNCLAS SECTION 01 OF 04 PARIS 001138 

SIPDIS

STATE FOR EUR/WE; OES; STAS; ISN; 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: FRANCE: ENERGY SECTOR UPDATE

Ref: Paris 169 and previous

UNCLAS SECTION 01 OF 04 PARIS 001138

SIPDIS

STATE FOR EUR/WE; OES; STAS; ISN; 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: FRANCE: ENERGY SECTOR UPDATE

Ref: Paris 169 and previous


1. This is another 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:
-- EDF's appetite for takeovers grows as profits double
(para 2)
-- Italians again eyeing Electrabel, this time via Suez
(para 3)
-- French media reacts to new focus on U.S. "addition to
oil" (para 4)
-- Gaz de France faces French courts (para 5)
-- Peugeot-Citroen unveils diesel-hybrid technology (para 6)
-- Hummer sales contradict the French stereotype of
themselves as low energy users (para 7)
-- Who will succeed Jean Syrota at French energy regulator?
(para 8)
-- PSA and Renault adopt energy efficiency ratings (para 9)
-- Total reports strong performance (para 10)
-- France and India hope to expand nuclear power cooperation
(and sales) (para 11)
-- Franco-German-Benelux talk of common electricity market
(para 12)


2. EDF's appetite for takeovers grows as profits double: On
February 23, French utility Electricite de France (EDF) said
that its net income doubled during 2005 and that the company
was looking for further acquisitions to increase its
foothold across Europe. Reaching well beyond its target of
2.6 billion euros for 2005, net income of 1.6 billion euros
for 2004 jumped to 3.24 billion euros for 2005, as EDF
benefited from higher electricity prices across Europe. In
an interview with French business daily Les Echos, EDF's
chief executive Pierre Gaddoneix said that the company was
prepared to consider major European acquisitions,
particularly in places, such as Spain and the Benelux
countries, where EDF did not already have a foothold.


3. Italians again eyeing Electrabel, this time via Suez: In
another sign that France will be a major participant in the
energy sector consolidation movement that was most recently
seen in Eon's controversial bid for Spain's Endesa, French

energy group Suez is reportedly a target of a hostile
takeover bid from Italy's Enel. Enel is reportedly seeking
a partner to jointly launch a bid for Suez and the company
is believed to have contacted German energy group RWE. A
bid for Suez could cost up to 38 billion euros, but Enel
only has resources of 15 billion euros, so the need for a
partner is clear. However, an Enel-RWE partnership would
face the challenging task of sorting out how they would
share the spoils of a Suez acquisition, in particular the
Suez-controlled Belgian utility Electrabel. Enel recently
publicly expressed its interest in Electrabel and did not
rule out launching a bid for Suez in order to get a hold of
it. Even more recently, Gaz de France and Suez are
reportedly considering an alliance in a GOF-backed bid to
fend off a hostile approach from Enel. According to reports
on February 24, a possible GDF-Suez alliance, such as a
share swap or joint venture, could be a prelude to an
eventual merger.

Some industry observers have a sense of deja vu. The
history of Suez's acquisition of Electrabel more than a
decade ago may hold lessons for Enel. In the 90s, Italian
business tycoon Carlo De Benedetti attempted one of Europe's
first cross-border hostile raids, namely for Societe General
de Belgique, which included control of Electrabel. The
Franco-Belgian business establishment responded with fierce
resistance, a precursor to the economic nationalism we are
currently seeing in western Europe. The result was a rescue
of Electrabel by Suez, which has since refocused from a
French financial holding company to a European energy and
water utility, including full ownership of Electrabel.


4. French media reacts to new focus on U.S. "addition to
oil": A weekly column of center-right daily Le Figaro,
entitled "America Prepares the Post-Oil Era," commented that
President Bush's State of the Union address could be a major
turning point, as far as the President's stance on new
energies. "His speech is nothing less that an open
declaration of war against OPEC... The geo-strategic
consequences are immense: oil monarchies will lose much of
their income... The U.S. car industry will be a big loser,
so will the Anglo-American oil lobby in Washington... But
there will be three other winners in this redistribution of
the cards: Russia is the most obvious, China is the second
winner and finally... the third winner is simply France,
thanks to its electro-nuclear program. And Areva is the best
positioned company, as well as the most effective, as proven
by the numerous contracts its has been landing in the U.S."
An op-ed in left-leaning paper Liberation commented on
President Bush's new energy policy by saying "At first
glance the President's stance was saluted... But upon
looking more closely, it is clear that his policy is nothing
more than a conjuring act. in which the method of how to
reach the goal was ignored." and concludes that "American
(And European) oil companies can continue to bank on healthy
results for the next twenty to thirty years." Overall, the
French seem to be skeptical, but content with the boost they
perceive this gives to nuclear power, where France is
clearly a world leader and French industry and scientific
community stands to benefit greatly.


5. Gaz de France faces French courts: The French power
group Gaz de France (GDF) went on trial February 20 accused
of manslaughter. The trial follows an explosion, due to a
crack in a main pipe, in Dijon in 1999, which killed 11
people. The company is accused of failing to maintain the
pipe in line with regulations. In a separate case, a
French court has annulled a ruling overturning a gross
negligence finding against GDF, the national power group,
which exposed one of its employees to asbestos. In June
2004, the Pau appeals court found that GDF had not been
guilty of gross negligence by exposing one of its employees,
Lucien Barbason, who was maintaining gas distribution
points, to asbestos-contaminated areas. The recent court
ruling said that GDF had been aware of the risks associated
with asbestos since 1977 and that it had been aware, or
should have been aware, of the danger to Mr. Barbason. The
case will be re-examined by the Toulouse appeals court.


6. Peugeot-Citroen unveils diesel-hybrid technology: PSA
Peugeot-Citroen is developing new fuel-efficient technology
utilizing diesel and electricity. Based on automobile
models, Peugeot 307 and Citron C4, PSA and the GOF Agency
for Industrial Innovation will have four years to develop
diesel hybrid vehicles ready for sale by 2010. At the
present time, there are only two types of fuel-efficient
vehicles: the diesel car, and the gasoline-hybrid. Although
Toyota's gasoline-hybrid Prius is currently one of the
world's least polluting models, PSA believes that utilizing
diesel-electric technology would be far more efficient than
Toyota's gas-electric technology. The diesel-hybrid system
can start and drive using the HDi diesel engine, even when
the high-voltage battery pack is totally empty. Other gas-
hybrid vehicles would be completely immobilized in the same
situation. Diesel-hybrid vehicles consume an average of 3.4
liters per 100 kilometers, with only 90 grams of carbon
dioxide emitted per kilometer, saving almost 30% more than
traditional diesel engines. Obstacles to adopting hybrid
cars in Europe are the continuously rising prices of fuel,
changing public opinion, and the fact that many consumers
aren't ready to spend several thousands of euros to acquire
a cleaner running car.


7. Hummer sales contradict the French stereotype of
themselves as low energy users: According to findings by
Capgemini, more than 50 percent of French consumers surveyed
planned to buy/lease a used vehicle, while at least a
quarter claimed that their primary vehicle was at least ten
years old and would only consider purchasing another vehicle
if its repair costs got too high. Furthermore, French
companies such as Renault are launching modest, bare
essential vehicles, like the Logan, built in Romania by
subsidiary Dacia, with a starting price of around $6,400.
Yet, despite a competitive trend for thrifty automobiles,
sales for the Hummer have been on the rise of late,
according to Paul Chedid, a Hummer salesman in Paris.
Despite the Hummer's enormous size, its price tag of as much
as 200,000 euros, and its massive gasoline consumption in a
country where gas costs at least $5 a gallon, Chedid expects
to sell at least 500 Hummers this year. What sells the
Hummer is its distinctiveness and "wow factor." The first
European customers in the 1990s were celebrity figures and
included French rock icon Johnny Hallyday and fashion
designer Karl Lagerfield. Nowadays, customers include
sports stars, corporate executives, and those lured by
extravagance and Americana. Newer models will feature more
economical diesel engines, which are popular in France.


8. Who will succeed Jean Syrota at French energy regulator?:
The tenure for the president of the Energy Regulatory
Commission in France will end March 24. There are at least
half a dozen potential successors with Andre-Claude Lacoste
leading as the favorite. Lacoste is the current director of
nuclear security and radioprotection, at the Nuclear Safety
Authority (ASN),which is getting ready to transform itself
into an independent administrative authority and
redistribute its responsibilities. Some have speculated
that if Lacoste moves to CRE, he might be replaced at ASN by
Syrota. Syrota has an honorable record at the difficult
task of setting up a regulatory body to enforce new
competition rules as well as access to the electricity grid
and gas pipeline network in the historically monopolistic
electricity and natural gas markets. The sector has been
busily preparing itself for the daunting prospect of full
competition in all market segments beginning in July 2007.
The other top potential candidate to replace Syrota is
Philippe de Ladoucette, president of the French Coal Board.
He reportedly has the support of Finance Minister Breton,
but Ladoucette's ties to the president of EDF, Pierre
Gadonneix, is perceived to kill his chances of getting the
CRE presidency.


9. PSA and Renault adopt energy efficiency ratings: In
January, French Ecology Minister Nelly Olin introduced an
energy conservation rating system to encourage French
consumers to buy cleaner, more efficient vehicles. The
system is also designed to inform consumers about CO2
emissions, which contribute to the greenhouse effect. These
ratings, similar to the ratings on energy efficient
household appliances, will be mandatory for all new vehicles
sold as of May 10, 2006, although French automotive
companies PSA and Renault have already begun applying these
ratings on current car sales. All French and foreign
automobile companies support the energy efficiency ratings,
which will also become mandatory for homes beginning July 1,
2006, for all real estate sales (and for all rentals
beginning July 1, 2007). The GOF hopes to apply the rating
to all products that consume energy. Recalling the GOF's
2004-2012 Climate Plan, where energy ratings were among the
key topics, French Prime Minister Dominique de Villepin
added that tax credits would be also offered and the
reimbursable amount would be increased to encourage
purchases of cleaner, more energy efficient products.


10. Total reports strong performance: Total's stock
benefited from a 16% increase in profit during the fourth
quarter of 2005 due to near record crude oil prices and
outlasting competitors after suffering less damage after
Hurricane Rita. Though sales in the fourth quarter
increased by 18%, production fell by 6.5% or approximately
2.6 million barrels a day. Fourth quarter earnings slowed
as production decreased due to the hurricane damage along
the U.S. Gulf Coast. Total also recently announced its
plans to sell its 24.5% share of Gaz de Strasbourg and its
16% share of Gaz de Bordeaux gas distribution networks.
Total's primary objective is to supply gas to small and
medium sized companies and industries rather than
residential customers in order to gain at least 15% share of
the French gas market by 2010. Furthermore, in May during
the upcoming General Assembly, Total's administrative
counsel will propose splitting each share of Total stock
into four. Their intention to put forward this proposal was
recently confirmed by the president of Total, Thierry
Desmarest. He explained that if the shareholders adopt this
proposition during the General Assembly, then a shareholder
who held 10 shares would then hold 40 shares. If approved,
the share split would take effect on May 18.


11. France and India hope to expand nuclear power
cooperation (and sales): During the weekend of February 18-
19, French President Jacques Chirac, along with several
French businessmen and government officials met with India's
Prime Minister, Manmohan Singh in New Delhi. The local
media took Chirac's announcement of France's support for
India's position for a place on the United Nations Security
Council as an effort, at least in part, to emphasize his
judgment that India is a responsible nuclear power. France
reaffirmed its September 2005 agreement to help New Delhi
acquire civilian nuclear power technology. France is eager
to enter the nuclear power market in India, but a final
agreement cannot be made until India clarifies its positions
regarding the separation of civilian and military nuclear
research and development as previously outlined.


12. Franco-German-Benelux talk of common electricity market:
France, Germany and the Benelux countries have begun talks
to set up a single electricity market in a move towards a
unified EU energy policy (see Paris 762). So far,
discussions have concentrated on the technical details of
joining up national electricity grids. Although currently
limited to these five countries, this new "electricity club"
is reportedly open to new members.
Hofmann