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RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHFR #3336/01 2191626
ZNR UUUUU ZZH
R 071626Z AUG 07
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 9375
INFO RUCPDOC/USDOC WASHDC
RHEBAAA/USDOE WASHDC
RUCNMEM/EU MEMBER STATES
RUEANFA/NRC WASHDC

UNCLAS SECTION 01 OF 03 PARIS 003336 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
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 
 
NOT FOR INTERNET DISTRIBUTION 
 
¶1. (U) This is the latest in a series of periodic 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: 
 
-- Areva wins 5 billion USD contract in China, but agreement 
postponed (para. 2) 
-- EDF partners with Constellation Energy in the U.S. 
 (para. 3) 
-- Areva to provide civil reactor to Libya (para. 4) 
-- France looking to sign nuclear cooperation deal with India (para. 
5) 
-- France to help the United Arab Emirates launch a nuclear power 
program; begins discussions on nuclear cooperation with Algeria 
(para. 6) 
-- Total signs gas deal in Russia (para. 7) 
-- Liberalization of the French energy market - modest results so 
far (para. 8) 
-- EU Commission opens new procedures against EDF, GDF, and 
Electrabel (para.9) 
-- France warns EU against energy unbundling (para. 10) 
-- Draft amendment on regulated rates in the works (para. 11) 
 
AREVA WINS 5 BILLION USD CONTRACT IN CHINA, BUT AGREEMENT POSTPONED 
 
¶2.  (U)  On July 26, French nuclear giant Areva confirmed the 
preliminary conclusion of an agreement with China Guangdong Nuclear 
Power Corporation (CGNPC) to build two European Pressurized Reactors 
(EPR), each with a 1,600 megawatt capacity.  By far the biggest and 
most important contract signed in Areva's history, the agreement was 
also hailed in the press as a "consolation" for the loss in December 
2006 of a sought-after contract for four reactors in China, valued 
at 4.6 billion euros and given to Westinghouse.  The conclusion of 
the agreement, which should have taken place on July 31 in Beijing, 
has been postponed for "technical" reasons.  Although both Areva and 
CGNPC have indicated that a formal letter of intent will be signed 
soon, no date has been set.  Under the terms of the agreement, Areva 
would provide the reactors, the fuel, and the necessary services for 
two third-generation reactors in Guangdong for 5 billion USD (3.6 
billion euros).  Areva is building the first version of its 
third-generation EPR in Finland (to go into service in 2010-2011), 
with a second under construction in Flamanville, Normandy (to become 
operational in 2012).  Last June, the French group filed for design 
approval in the UK where EDF wants to build as many as four similar 
reactors.  The next stage is the United States. 
 
EDF PARTNERS WITH CONSTELLATION ENERGY IN THE U.S. 
 
¶3.  (U) Pierre Gadonneix, CEO of Electricite de France, announced 
July 12 that EDF had partnered with American firm Constellation 
Energy to construct third-generation EPR reactors in the United 
States.  The American energy market is a "formidable growth 
opportunity" for EDF, he said, particularly as the United States 
looks to augment its productive capacity and explore renewable 
sources of energy.  EDF purchased a 9.9% stake in Constellation, and 
agreed to invest 350 million USD initially, with the possibility of 
another 275 million USD investment after the project is reviewed by 
the Nuclear Regulatory Commission.  Constellation submitted 
environmental plans July 13 to the NRC for a single 1,600 megawatt 
reactor in Calvert Cliffs, Maryland, which could cost close to 4 
billion USD to complete.  Gadonneix noted a degree of renewed 
interest in nuclear energy in the United States, as private and 
government actors seek to reduce dependency on oil and gas. He cited 
EDF's "unparalleled experience and expertise" in the production of 
nuclear energy as a way to calm public fears about the risks 
associated with nuclear power. 
 
AREVA TO PROVIDE CIVIL REACTOR TO LIBYA 
 
¶4. (U) During his July 25 visit to Tripoli, French President 
Nicholas Sarkozy signed a memorandum of understanding under which 
French nuclear giant Areva would provide Libya with a civil reactor 
to desalinate water.  Areva confirmed that Libyan authorities had 
approached them in 2006, and that negotiations for the project - 
which could take years to complete - were still in the preliminary 
stages.  France's offer of nuclear cooperation with the 
oil-exporting North African state has angered some German officials, 
who see it as yet another example of Sarkozy's "go-it-alone" 
approach to foreign policy.  The French press reported that Deputy 
Foreign Minister Gernot Erler had called the deal "politically 
problematic" and noted that German interests were directly affected, 
since Germany's Siemens group owns 34% of Areva's nuclear power 
 
PARIS 00003336  002 OF 003 
 
 
division. 
 
FRANCE LOOKING TO SIGN NUCLEAR COOPERATION DEAL WITH INDIA 
 
¶5. (U) France is working hard with India towards a nuclear energy 
cooperation deal, following the agreement of a draft deal between 
the United States and India.  France has also offered to help the 
United Arab Emirates launch a nuclear power program.  Senior 
advisers to the French president and the Indian prime minister met 
in New Delhi on July 30 for a consultation session on the 
Indo-French strategic partnership.  According to a statement from 
the French Embassy in New Delhi, the parties "stressed their common 
endeavor to develop nuclear energy for peaceful purposes," and 
"agreed to conclude expeditiously a bilateral cooperation agreement 
thereof."  Jean-David Levitte, diplomatic adviser to the French 
president, invited India's Prime Minister Manmohan Singh to visit 
France in 2008, and Singh has invited President Sarkozy to visit 
India "at an early date." 
 
FRANCE TO HELP THE UNITED ARAB EMIRATES LAUNCH A NUCLEAR POWER 
PROGRAM; BEGINS DISCUSSIONS ON NUCLEAR COOPERATION WITH ALGERIA 
 
¶6.  (U) Talks on July 20 in Paris between Sarkozy and President of 
the United Arab Emirates Shaikh Khalifa bin Zayed Al Nahyan 
concluded with the two countries agreeing to put into effect a 1980 
agreement to help the UAE launch its own nuclear power program.  The 
UAE is a member of the Gulf Cooperation Council, which has expressed 
interest in developing a shared nuclear program for the region.  In 
a visit to Algiers a week earlier, designed to launch his initiative 
for a Mediterranean regional union, Sarkozy also announced that 
future sharing of civilian nuclear expertise between France and 
Algeria had been a key topic of discussion. 
 
TOTAL SIGNS GAS DEAL IN RUSSIA 
 
¶7.  (U) It took ten years to negotiate and a phone call between 
Nicolas Sarkozy and Vladimir Putin, but the announcement finally 
came on July 12: Total has been chosen over its two competitors, 
ConocoPhillips and Norsk Hydro to develop the Shtokman natural gas 
field, one of the largest in the world.  The Shtokman gas deposit, 
situated 340 miles offshore in the Russian Arctic, holds 3.7 
trillion cubic meters of natural gas, enough to supply the European 
Union for seven years.  Total's offshore expertise proved an 
effective bargaining chip, as the site is reported to be one of the 
most technically challenging in the world.  Initial estimates place 
the cost of infrastructure development around 15 billion USD.  The 
field is expected to begin producing in 2013.  Total will have a 25% 
stake in the operating company, an additional 24% possibly going to 
another foreign group, while Gazprom will control at least 51% of 
the operating company and, significantly, 100% of the underlying 
reserves.  Total will have no say over where the gas produced is 
sold.  Total's CEO, Christophe de Margerie, noted that being 
partnered with Gazprom could serve as protection from the "forced 
nationalization" that Royal Dutch Shell and BP were recently hit 
with in December and June.  De Margerie also emphasized the 
importance of the deal as a first step toward other projects in 
Russia, where Total has not previously been very active. 
 
LIBERALIZATION OF THE FRENCH ENERGY MARKET - MODEST RESULTS SO FAR 
 
¶8.  (U) On July 1 the French energy market, the exclusive domain of 
Electricite de France and Gaz de France since 1946, opened to 
competition.  Eight new energy providers entered the market.  As of 
the end of July, however, only 309 French household customers have 
switched to suppliers selling power at liberalized prices, according 
to Patricia de Suzzoni, Director of Markets at the Energy Regulation 
Commission (CRE).  Speaking at a recent debate held by oil and 
energy publisher BIP-Enerpresse, she said the number of calls to 
CRE's information helpline had risen to 1,200 per day in the past 
ten days from 1,200 per month previously.  The fact customers cannot 
switch back to regulated prices again is something that seems to 
pose a problem to consumer associations, she explained.  France's 
leading consumer advocate group UFC-Que Choisir raised the 
possibility that consumers risked significant increases in their 
energy bills in leaving former electricity and gas monopolies EDF 
and GDF.  Complaints of skyrocketing prices from industrial energy 
consumers, who have had a choice of provider since 2000 and have 
seen their energy expenses increase by 75 percent in some cases, 
fueled such fears. EDF's regulated rates are approximately 20 euros 
below market price for a megawatt hour, the lowest in Europe, and 
overall satisfaction with EDF and GDF remains high.  Both providers 
have reassured consumers that prices will not increase in the near 
future; GDF promised not to raise its rates over "the next few 
months," while EDF's contract with the French government stipulates 
that its prices can only be raised to keep pace with inflation until 
 
PARIS 00003336  003 OF 003 
 
 
¶2010.  Once consumers opt for one of the new electricity or gas 
providers, they cannot return to EDF or GDF and their regulated 
rates.  Thus, consumers have a strong incentive to remain with the 
historical providers for the time being. 
 
FRANCE WARNS EU AGAINST ENERGY UNBUNDLING 
 
¶9.  (U) France and eight other European countries have written to 
the EU Commission warning against a proposal to break-up utilities. 
French Ecology, Sustainable Development and Planning Minister 
Jean-Louis Borloo, whose responsibilities include energy issues, 
drafted the letter, arguing that "the ownership unbundling between 
network grids and commercial activities has not been successful." 
He added that break-up brought no guarantee of low prices or 
sufficient investment.  Supported by Germany, Austria, Bulgaria, 
Slovakia, Cyprus, Greece, Luxembourg and Latvia, the letter was 
timed to sway the EU Commission in the final phase of drafting 
legislation to implement a new energy and climate change strategy 
agreed by EU leaders in March.  Borloo's letter is designed to 
counter a June letter by Britain, the Netherlands, Denmark and 
Sweden urging the Commission to stick to the idea of the break-up of 
the EU's energy giants.  France is particularly concerned that EDF, 
which controls both the production and supply networks, would be 
seriously weakened by such a move, and prefers an approach which 
would maintain the company intact, but regulate power distribution 
grids from separately from other activities. 
 
EU COMMISSION OPENS NEW PROCEDURES AGAINST EDF, GDF, AND ELECTRABEL 
 
¶10. (U) The EU Commissioner for Competition announced July 27 that 
Electricite de France and Electrabel, the Belgian subsidiary of 
French-owned Suez, were under investigation for possible abuse of 
their dominant positions in their respective markets.  EDF and 
Electrabel have for years signed "atypical" contracts with 
industrial customers who consume the most energy, such as paper, 
aluminum, and chemical manufacturers.  In exchange for signing 
long-term (15-20 years) agreements, the consumer receives a lower 
price.  The EU Commission believes such contracts block the entrance 
of new providers and should therefore be reviewed. The Commission 
also referenced "understandings" between EDF and Electrabel, but it 
was unclear if this referred explicitly to collaboration between the 
two firms to protect their market shares.  EDF and Electrabel 
declared themselves ready to cooperate with the investigation, which 
could take a year or more.  Similarly, the EU Commission opened 
formal procedures against GDF and German gas company E.ON, suspected 
of collaborating to protect their shares of the French and German 
gas markets.  Under the alleged agreement, the two companies 
promised to keep out of each other's national markets, and may have 
illegally fixed the division of Russian gas coming to southern 
Germany and France via the only pipeline that transports Russian gas 
to France. 
 
DRAFT AMENDMENT ON REGULATED RATES IN THE WORKS 
 
¶11.  (U) French Senator Ladislas Ponitowski of the center-right UMP 
Party has introduced a draft bill in late July, with the approval of 
the government, to modify the current law on regulated energy 
tariffs tying contracts to places of residence rather than to 
individuals.  Since the full liberalization of the French energy 
market, residential customers have had the option of switching from 
EDF and GDF's regulated rates to market-based prices.  However, 
under the existing law, the decision to abandon regulated rates is 
tied to the place of residence, so that subsequent owners or 
occupiers are forced to accept the market-based contract chosen by 
the previous residents.  The Senate hopes that these changes can be 
implemented some time this fall. 
 
 
Pekala