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Lucia A Keegan  07/21/2006 03:15:58 PM  From  DB/Inbox:  Lucia A Keegan

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DRAFTED: ECON:NMCFARLAND/VBEL
CLEARED: ECON:MMOTLEY

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UNCLAS SECTION 01 OF 02 PARIS 004960 
 
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: FRANCE: ENERGY SECTOR UPDATE 
 
 
¶1. (U) 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: 
 
-- Finance Minister pushes privatization of Gaz de France (para 2) 
-- France is feeling the heat (para 3) 
-- France may allow return to regulated electricity prices (para 4) 
-- Areva CEO in India eyeing future nuclear power deals (para 5) 
-- Michelin highlights future of transportation and energy 
challenges (para 6) 
 
¶2. (SBU) Finance Minister pushes privatization of Gaz de France: 
Amid criticism from the left as well as from his own majority party, 
French Finance Minister Thierry Breton recently reaffirmed his 
intention to proceed with legislation that would allow for the 
partial privatization of Gaz de France (GDF).  The controversy has 
its roots in the proposed merger of GDF, currently 80 percent 
State-owned, with the private Franco-Belgian utility giant Suez. 
Under existing law, which Breton aimed to have modified, the French 
government must control at least 70 percent of GDF.  Many GOF 
officials called the prospect of a merger "dead" as recently as 
June, but Breton has rekindled hopes, arguing that GDF's 
privatization is necessary for its very survival.  "The question," 
he remarked in an interview, "is whether... we are ready to give GDF 
the means to carry out its mission (to provide public services) in a 
time of unprecedented rapid change." In an energy sector dominated 
by consolidating firms with ever larger economies of scale, the 
medium-sized GDF will need to find partners in order to meet the 
many challenges on the horizon, including record high oil and gas 
prices, a doubling of demand within 20 to 25 years, and an 
infrastructure that will require 1.7 trillion euros worth of 
investment over the coming years.  In French political circles, the 
Socialist Party has been violently opposed to the GOF-proposed 
measure which would reduce the state's stake in the company to 34 
percent (albeit with "golden shares").  However, many in the GOF's 
own UMP party are also hostile to the idea.  French National 
Assembly deputies called July 19 hearings on the merger a 
"mascarade" and a campaign of "disinformation". Meanwhile, many UMP 
parliamentarians continued to show reticence toward the deal. 
Popular daily newspaper Le Parisien labeled the issue a "thorny 
case" for the prime minister's office.  Opponents have vowed to kill 
Breton's energy proposal during the legislative process with the 
addition of 50,000 amendments.  The Finance Minister condemned the 
threat as undemocratic, but pointed out that similar situations had 
occurred in the past and promised that his allies in the majority 
would defeat any such effort.  The bill goes before the National 
Assembly on September 7. 
 
¶3. (U) France is feeling the heat:  During a heat wave over several 
days in mid-July, French electricity company, EDF, was compelled to 
reduce electricity generation at some of its nuclear power stations. 
 As a result, the company asked clients to conserve energy.  The 
weather is being compared to a similar heat wave in the summer of 
2003 that claimed the lives of several thousand, particularly many 
among France's elderly.  French health minister Xavier Bertrand 
attributed nine recent deaths to the heat.  Normally a large 
electricity exporter, EDF has had to urge firms to use less 
electricity as the heat wave across Europe triggered high demand for 
power supplies.  France is the largest net exporter of electricity 
in the EU, sending 103.6 Bkwh to its neighbors in 2003.  Rarely an 
importer, EDF actually had to purchase 2,000 megawatt hours of 
electricity from abroad during a short period in mid-July to make up 
for its shortfall.  Increased use of air conditioners and 
refrigerators, coupled with lower power output at hydro-electric and 
nuclear power stations in France, contributed to the stain on 
demand.  The 2,000 MWh France was forced to import was the 
equivalent capacity of two large nuclear stations.  Analysts 
speculated that the power had come from Germany.  EDF Chairman, 
Pierre Gadonneix, said that the heat wave underlined the need for 
EDF to invest to ensure energy security.  The firm plans to invest 
20 billion euros in distribution, transport and production, 
including a new generation European Pressurized Reactor in Normandy 
on which construction will begin in late 2006 or early 2007.  For 
other future production investments, EDF said it was concentrating 
on coastal plants, which cope better with high temperatures than 
inland plants. 
 
¶4. (U) France may allow return to regulated electricity prices:  On 
July 19, Electricite de France (EDF) Chairman Pierre Gadonneix told 
a parliamentary committee that he was ready to discuss allowing 
business customers to switch back to government regulated tariffs 
from, currently higher, unregulated power prices.  However, 
Gadonneix said that he hoped to minimize the hit on EdF's balance 
sheet at a time when the company has to finance hefty investment in 
new power plants.  "It's important to find a balance between 
preserving our capacity to invest in plants and the concerns of 
small and medium sized businesses, which have opted for deregulation 
and are faced with strong increases in prices," Gadonneix said an 
economic affairs committee hearing.  The debate over France's 
two-tier power prices system is heating up because some lawmakers 
have threatened to reject the proposed privatization of GDF unless 
the government and EDF help lower the electricity bill of French 
businesses.  Earlier in July, Finance Minister Thierry Breton said 
he was ready to explore ways to allow business customers to return 
to regulated prices but insisted any amendment to current rules 
would have to be sanctioned by European Union antitrust authorities. 
 Large industrial customers won the right to choose their power 
supplier in 2000.  At the time, many of them exercised options to 
rescind their long-term contracts with EDF because market prices 
were at 17 euros a megawatt-hour, or about half the level of 
government-regulated prices.  But market prices have climbed 
steadily because of shrinking spare capacity in Europe and since 
2003 have been consistently above regulated prices, leaving some 
energy-intensive industries heavily pressured by costs.  Prices rose 
further in 2005 with the introduction of greenhouse gas emission 
surcharges in France and across Europe. 
 
¶5. (U) Areva CEO in India eyeing future nuclear power deals:  French 
state-owned company Areva, the world's biggest manufacturer of 
nuclear reactors and provider of nuclear fuel-cycle services, said 
it would make energy-hungry India one of its "first priorities" once 
the Indo-US nuclear deal is finalized.  India currently produces 
about 3,360 megawatts or 2.7 percent of its total electricity 
generation from nuclear power.  "As soon as the international 
framework will allow it, the Indian market will be one of our first 
priorities," Areva CEO Anne Lauvergeon told a business audience in 
New Delhi on July 20.  Her statement comes in the wake of an accord 
on technology-sharing to develop civil nuclear energy signed between 
India and France during a visit here in February 2006 by President 
Chirac.  Areva already has a presence in India through power 
transmission maker Areva T&D India Ltd., which has said it is hoping 
to reap the benefits of U.S.-India civilian nuclear cooperation 
pact.  India clearly wishes to promote its own home-grown technical 
expertise, so as part of Areva's pitch to India, Lauvergeon said 
Areva's strategy involves "fully recognizing the existing competence 
and know-how of Indian industry."  Moreover, she said that "We 
expect that a significant share of an 'EPR reactor' will be 
manufactured here. And there is a potential to source in India some 
components to other international markets," referring to Areva's 
next-generation European Pressurised Reactor.  Lauvergeon denied 
that any deals had already been sewn up before the conclusion of the 
India-US agreement.  "We have no agreement in the nuclear (field) 
with India or Indian companies ... because we are not allowed to ... 
we are waiting for the international green light," she said. 
 
¶6. (U) Michelin highlights future of transportation and energy 
challenges:  A conference on sustainable mobility, the 2006 
Challenge Bibendum, concluded on June 12 in Paris on an optimistic 
note for the future of road mobility.  Sponsored by Michelin, the 
five-day event involved some 2,500 participants, who discussed the 
challenges of road mobility, its impact on the environment and 
technological advances to improve safety.  It also addressed energy 
supply security and diversification, as well as environmental 
protection and road safety in view of the expected doubling of the 
world's vehicle population in the next 25 years.  The 2006 Challenge 
Bibendum brought together every form of automotive energy, every 
type of technology and every kind of vehicle - whether on two, 
three, four or more wheels.  Challenge Bibendum Director, Dr. 
Patrick Oliva, said that most of the vehicles using alternative 
fuels that participated in the past Bibendums have demonstrated big 
improvements in terms of performance and actual road use this year. 
According to conference organizers, the more than 100 vehicles 
running on clean energy that participated in the rally survived more 
than 200 kilometers of varying road and traffic conditions in Paris 
without problems.  Oliva said, "These are the cars that families or 
individuals can use as everyday rides in the near future. They have 
improved a lot in terms of speed, range and safety."  When French 
Ecology Minister Nelly Olin visited the conference, she commented 
that "All credit should be given to the Michelin initiative as it 
truly helps to reduce automobile pollution. Obviously, things take 
time but knowing that a multitude of solutions exists is rather 
reassuring." 
 
Stapleton