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France to Nationalize Debt-Laden EDF as Energy Crisis Mounts

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·4 min read
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(Bloomberg) -- The French government will nationalize its financially struggling nuclear giant Electricite de France SA to help it ride out Europe’s worst energy crisis in a generation and invest in new atomic plants.

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“The climate emergency requires strong, radical decisions,” Prime Minister Elisabeth Borne said during a policy speech in parliament in Paris on Wednesday. “We need to have full control of the production and our energy future. We must ensure our sovereignty faced with the consequences of the war and the colossal challenges ahead.”

Borne didn’t provide specific details of the government’s plans, beyond saying the state will raise its stake in EDF to 100% from 84% currently. No decision has been made at this stage on the modalities of the operation, a spokesman for the finance ministry said.

EDF shares jumped on Borne’s announcement and closed 15% higher in Paris after having been down sharply prior to her comments. The utility’s debt also gained.

President Emmanuel Macron said during his re-election campaign in March that part of the company should be nationalized to bolster French energy independence and its net-zero ambition by building new atomic plants. The plan is also a sign that European governments may increasingly be forced to protect their energy companies from the turmoil Russia’s war has caused.

On Tuesday, Germany’s cabinet rushed through legislation allowing it to rescue struggling utilities such as Uniper SE as Moscow’s squeeze on gas supplies rips through the industry and threatens the wider economy.

EDF has been grappling in recent years with various issues at its aging fleet of reactors and cost overruns when building new ones. Its problems are being exacerbated by a government-imposed cap on electricity prices and Russia’s invasion of Ukraine, which is making it more expensive for the company to cover its own electricity-output shortfall.

A positive exit catalyst for minority shareholders in EDF, Europe’s largest nuclear power producer, comes with confirmation that France will acquire the 16% stake not already owned and nationalize the company. This suggests state intervention may increasingly feature elsewhere in the EU, given the worsening energy crisis, to ensure market continuity, mitigate cost inflation and drive the region’s energy-security plans. Specific details of EDF’s case are pending.

-- Patricio Alvarez, BI utilities analyst

Nationalizing EDF would be a largely consensual move in French politics, one that is likely to see a divided lower house rally round Macron who lost his outright majority in elections last month. However, some opposition lawmakers including Republican Party leader at the National Assembly Olivier Marleix cautioned against “dismantling” the company after its nationalization.

The CGT and FO labor unions welcomed the plan for nationalization, but also expressed concern that the government could subsequently revive a plan to “dismantle” the utility.

Read more: The Great European Energy Market Bailout Is Only Getting Started

Macron said earlier this year that EDF will need a broad reorganization and tens of billions of euros of public financing to help it build six to 14 new nuclear plants by 2050. The new power stations, along with swathes of new wind and solar projects and very ambitious energy-savings targets, are part of France’s plan to become carbon-neutral by 2050.

A nationalization of EDF may reassure creditors that are concerned about the utility’s net financial debt, which stood at 43 billion euros at the end of last year and is set to climb even higher despite a 3.2-billion euro capital increase in April.

Credit-rating firms, which downgraded the utility in February, warned of further potential cuts as the company is grappling with repairs at some of its atomic power stations and cost overruns at nuclear plants under construction in France and the UK.

Price Cap

In 2019, the French government was considering buying out minority shareholders as part of a restructuring to help fund the lifetime extension of EDF’s aging nuclear plants -- which produced 69% of the country’s electricity last year -- and invest more in renewables.

The plan stalled in 2021 after more than a year of discussions as the European Commission, which vets proposals that could be considered state aid to a company, asked for deeper separation of EDF’s various entities in exchange for higher regulated prices for its nuclear power.

Macron has asked the Commission to consider an overhaul of Europe’s electricity market to make it less dependent on surging gas prices, but the EU’s executive arm has yet to come up with solutions. In the meantime, Spain and Portugal were given the green light to temporarily cap prices.

“France must also prepare for all scenarios regarding Russian gas supply, even the toughest,” Borne said. “We can hold up, but everyone will have to take action.” The government will increase home-renovation subsidies to cover 700,000 households per year, she said.

(Updates with comments from finance ministry, labor unions and opposition lawmaker. A previous version of this story was corrected to show number of households covered by renovation subsidies.)

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