Why a French plan to take full control of EDF is no cure-all



By Silvia Aloisi and Forrest Crellin

PARIS, July 13 (Reuters) - The French state will announce details by July 19 about its plan to fully nationalise EDF, the debt-laden utility that runs the nation's nuclear power plants.

The government is expected to launch a voluntary offer to buy out minority shareholders on the market. Sources said the state was ready to pay up to 10 billion euros ($10.03 billion), suggesting it would offer a premium to the market price.

But nationalising EDF doesn't guarantee a fix for the company's mountain of debt or its corroding reactors and it won't reduce the cost of shielding consumers from sky-high energy prices.

SO WHY DOES THE GOVERNMENT WANT TO NATIONALISE EDF?

Prime Minister Elisabeth Borne said a full nationalisation of EDF, in which the state already has an 84% stake, would help France manage a transition away from fossil fuels and deal with an energy crisis that has been exacerbated by a war in Ukraine.

Analysts say the government's main goal may be to secure a freehand in running a business that has a roughly 80% share of the French electricity market, once it is delisted and the state no longer has to answer to any other shareholders.

A finance ministry source said taking full control of EDF would "accelerate decision-making and facilitate financing".

EDF was listed in 2005 at 33 euros ($34) per share, with the aim of bringing more transparency to its finances and operations. Its shares traded below 8 euros before the nationalisation plan was announced, rising 30% afterwards to 10.2250 euros. Trading was suspended on Wednesday.

A 10 billion euro buyout of minorities, including the purchase of convertible bonds and a premium, would imply a price tag of 12.7 euros per share, JPMorgan said.

President Emmanuel Macron, who was re-elected to office in April but who lost control of parliament in a June vote, scrapped an overhaul of EDF last year amid opposition from unions and the European Commission to his plan to split EDF's profitable renewables business from debt-laden nuclear assets.

WHAT'S GONE WRONG AT EDF?

About half of EDF's 56 nuclear reactors in France are now offline, due to maintenance and, in some cases, corrosion. EDF has repeatedly cut its planned nuclear output for 2022, just as Europe is seeking alternative energy sources to cope with dwindling Russian gas supplies.

As well as problems with old reactors, it is running years late and billions of euros above budget in building new-generation reactors in France and Britain, raising questions about whether it has to fix fundamental design faults.

EDF has also been hobbled by a regulated tariff system, known as Arenh, that forces it to sell electricity at below market prices.

Under the scheme, it must sell 100 terawatt/hours (TWh) of nuclear generation to power retailers and large consumers at 42 euros/MWh, while the French baseload 2023 contract was 462.50 euros/MWh on Tuesday.

This year, the government also raised the amount of power EDF had to sell to competitors at a low price as it seeks to shield consumers from surging energy prices. That has added to EDF's costs.

The group sells forward its estimated nuclear output. If it does not produce enough electricity, it has to buy it back on the market, with prices now at historic highs.

EDF expects a hit of 18.5 billion euros to its core earnings in 2022 from production losses, on top of a loss of 10.2 billion euro due to the energy price cap.

WILL BEING UNDER FULL STATE CONTROL FIX EDF'S WOES?

Probably not.

A fully nationalised EDF may be able to reduce borrowing costs on its debt, which rating agency S&P says could rise to almost 100 billion euros this year. Yet, the group's financing needs could also rise.

Macron has announced plans to build at least six new-generation nuclear reactors but he has not said where the 50 billion euros of investment required will come from.

With little end in sight to soaring European power prices, the French government is likely to extend electricity price caps to protect households in the winter, deepening EDF's losses.

Meanwhile, opposition to any shake-up plans is unlikely to melt away just because the state is in full control.

Unions, which worry that the government wants to break the company up, are unlikely to find restructuring any more palatable when the state has full control and the European Commission will still closely scrutinise any government plan.

A key element of the previous restructuring plan was to reform the mechanism for regulating prices at which EDF sold nuclear power.

The European Commission needs to approve any tariff changes and also any break-up to ensure EDF's more profitable businesses do not subsidise loss-making parts.

($1 = 0.9968 euros)



EDF shares take a rollercoaster ride over the past year Link
BREAKINGVIEWS-France Inc could turn a profit from EDF takeover

UPDATE 3-France to detail EDF nationalisation plan by July 19,
shares suspended



Writing by Silvia Aloisi; Editing by Richard Lough and Edmund Blair

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