Privatisation of EDF

Group 3 Euro 200

Laura Bond-Powell

Mark Clayton

Tom Surgeon

Pierre Emmanuel Leng

Catherine Wood

A bit of History

• EDF was founded and nationalised in 1946

• 1960’s: consumption of electricity doubled in a decade.

• 1963: “Universal” tariff is applied in the “service public”

• 1970’s and 1980’s: Oil crises resulted in a move towards nuclear power for France, which is a success for EDF

• 1990’s: Deregulation of European electricity markets

• The energy market is now open to competition

• 19th of November 2004, EDF became officially “société anonyme”

A bit of History cont’

Who is EDF today?

• EDF stands for « Eléctricité De France »

• Provider N°1 of electricity in France

• EDF has 42,6 million clients in the world (36,2 million in Europe)

• Turnover of €46,9 billions which is equivalent to £31,9 billions…

• Finally, EDF has 161 310 employees…

• Already present in the UK market for 5 years with « EDF Energy »

• Claim to be «one of the largest energy companies in the UK » 

• They employ « over 11,000 people, supply gas and electricity to over five million customer accounts, and are a major generator »

• It is a vertically integrated company in the UK

EDF in the UK

What is Privatisation?

• It is the process of transferring property, from public ownership to private ownership and/or transferring the management of a service or activity from the government to the private sector

• Nationalisation is the act of taking assets into state ownership. Usually it refers to private assets being nationalized, but sometimes it may be assets owned by other levels of government, such as municipalities.

Beginnings of Privatisation• The first company to be privatised in

France was France Telecom in 1986

• It is under François Mitterrand (Président de la République Française 1981-1995) that Nationalisation and Privatisation really took place

• This lead to a re-nationalisation today

EDF: From state ownership to partial privatisation Pre-October 2005, EDF was 100% state owned.

28-10-05, State sell off of 15% through an Initial Public Offering (IPO)

Shares in EDF at €29.50 to €34.10 for institutional investors, individual investors at a €1 discount, and a share offering to staff employees at 20% discount.

This is one of the largest public offerings in the last decade. Follows the 22% state stake sell off of Gaz de France (GDF) in July 2005, raising €2.5billion.

Response: The Privatisation of utilities in France is a difficult and sensitive

political matter in France and, “the electricity company is a potent symbol for the State sector”. (Sage and Jameson, The Times, 6-02-05)

Privatisations branded as another example of “Anglo-Saxon liberalism”. In the forth coming elections in 2007, Laurent Fabius, has promised to renationalise EDF if elected President.

Protests and strikes planned for November today (8) and 19

Purpose of the partial privatisation: To become more efficient

European competition law - opening up of the energy market by 2007 €40 million reinvestment. The company also has a deficit of nearly €20 billion.

The company also has a deficit of nearly €20 billion.

Although the EU does not stipulate a preference for privatised companies or nationalised, pursuing a policy of deregulation, competition and liberalization, create a particular environment.

Product diversification - EDF can sell gas and GDF can market electricity.

Alleviate public deficit

Whilst the state owned company has enjoyed a monopoly at home, it has pursued an aggressive international programme

abroad

21st Century EDF – The largest electricity company in Europe

Generates 85% of the electricity consumed in France

Supplies 22 percent of the European Union's energy needs

The group is responsible for the provision of energy and services to 42.1 million people worldwide, 35.6 million of whom are in Europe

Worldwide provision: Austria, Argentina, Brazil, China, Germany, Hungary, Italy, Mexico, Poland, South Africa, Slovakia, Switzerland, the UK and more..

Electricity generation: 125.4 GWe – Nuclear 74% - Fossil Fired 17% - Renewable energy 9%

Competition:

• Liberalisation represents a threat to the French national market.

• EDF has already lost 20% of its market share in the industrial sector,

and is faced with competition from Electrobel of Belgium, HEW of Germany and Snet a private French utility

• In 2007, France will be faced with EU cross-border competition from other powerful firms such as Germany’s E.ON and RWE.

• In the European internal energy market, competitive pricing will make EDF’s strength at home weaken, unless it is in a strong financial position.

What were the advantages of Privatisation to Electricite de

France

How is Privatisation an advantage to EDF and the EU

• Opens up Markets to competition

• Allows EDF and other French countries from conflicting with EU when it’s anti-competition legislation becomes law

• Helps EDF become more accommodating to business in the EU and the wider world

Privatisation an advantage to the EDF

• Private investment is now necessary because state can no longer cope with all the expenses

• Sales of shares expected to raise 7 billion pounds for the company

• Expected to sell a maximum of 206.6 million shares with a further over-allotment of 31 million share

Privatisation, EDF and the French economy

• French economy to benefit through sales of shares, which will help with ailing public finances

• EDF privatisation seen as an advantage to them and the economy due to previous success of privatisation of the Gaz de France (GDF)

• “Sustainable development presents a challenge for the 21st century, and aims to reconcile economic growth, respect for the environment an social progress

Problems Posed By Privatisation

• Privatisation removes state control of capital by transferring property from the state to the private sector. In the case of the EDF 30% of its shares were sold to the private sector, whilst the French Government retained 70% ~ this is not an ideal solution!

Why not?

• Potential slackening of standards~ election incentive is removed, standards may worsen

• Should private entrepeneurs own public enterprises?~ consider the ethics

• Profiteering~ money buys votes on the market, majority may be overlooked

(Problems continued)

• Inefficiency~ a centralised enterprise is more cost effective than multiple smaller ones

Implications of privatisation problem for EDF

• Higher prices and a lower quality service• Prices may rise by 15-20%• Immediate resistance from investors at

price range of €29.5 to €34.1 per share• Strike called from opposing unions• Fund managers believe EDF price range

to be ‘unrealistically expensive in current climate.’

• Foreign investors may be reluctant buyers• In current negotiations with PSI, who state

‘this policy [share listing of EDF] may be mistaken.’

• Encourage EDF to look at where privatising electricity has failed e.g. USA, Brazil, Korea etc.

EDF- What next?

• Privatisation- a necessary evil, if the company wants to continue to be successful.

• Will cause both short- and long-term consequences for EDF and the energy market as a whole.

EDF- what next?Potential consequences of privatisation:• Positive:

– prevent EDF from running into problems with the EU’s anti-competition legislation

– increased rate of economic growth– opens market– enables them to sell electricity in other countries

• Negative:– downsizing– privatising energy systems has lead to financial instability and

reduced the reliability of energy provision in other countries (USA, Korea, Uruguay and Brazil)

– generally, privatisation of public utilities doesn’t work in the long run

Response of EDF

• Diversification- now offers gas as well as electricity

• In competition with GDF (Gaz De France), who now offer electricity as well as gas

• Expending in the international market- competing in other countries