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France should open hydropower to competition-audit court

By Muriel Boselli and Marion Douet

PARIS (Reuters) - France's audit court urged the government to pursue a much delayed plan to open part of its hydropower sector to competition in order to provide a source of state revenue.

Many utilities and big electricity consumers have expressed an interest in France's hydroelectric sector, which is dominated by former state monopoly EDF (PAR:EDF), given that the cost of facilities that can run for decades has mostly been recouped.

But while bidding for the rights to operate capacity totalling 5,300 megawatts, the equivalent of five small nuclear reactors, was supposed to take place between 2010 and 2013 and contracts awarded between 2013 and 2015, none of the tenders has yet been launched.

Many voices in the Socialist government, in office since May 2012, oppose opening up the sector, arguing that the French populace, who financed hydropower stations through their taxes, should continue to benefit from the cheap electricity.

But the court said in a note to the finance, energy and budget ministers on June 21, which was released on Monday, that "delays and hesitation" from the government were causing an increasing loss in potential earnings for state coffers.

The court said that with the 2006 financing law that set up a royalty system for renewed concessions, the state should have earned more from those than it had.

"Generally speaking, out of the 520 million euros ($685.7 million) of theoretical revenue from concessions, the state only received, in 2012, 180 million euros, which were paid by the Compagnie Nationale du Rhone (a GDF Suez (PAR:GSZ) subsidiary)," the court said in the note.

"The court can only but observe that those delays and hesitations in the competition procedure, despite legislative texts adopted in 1993, 2000, 2004, 2006 and 2008, generate an increasing loss in earnings for public finances," it said.

A new revenue stream for France may be more than welcome for French President Francois Hollande, who has been battling to guide Europe's second-biggest economy out of its slump while stemming the high public spending and borrowing that fed into the euro zone crisis.


"The delays disrupt and discourage potential candidates for the concessions, which are up for renewal. They criticise the lack of clear strategy from the state," the court said.

In response, the ministers said opening up France's hydropower concessions was the most solid option and that the first tenders could be held next year.

"Withough prejudging the conclusions of the parliamentary investigation, it seems that at this point opening up to competition seems to be the most robust judicial solution to maximse returns on the national hydropower estate," the ministers said in a letter published on Monday.

Several sources close to the matter said the government now had little choice but to hold the tenders.

A senior industry source said there was no question that competition would have a place, but that EDF was well placed to win the tenders.

Some 80 percent of state-owned concessions are now managed by EDF and 12 percent indirectly by GDF Suez.

In 2010, over 400 hydroelectric concessions accounted for 24,300 MW, nearly half the capacity of France's 58 nuclear power plants and 20 percent of France's electricity capacity.

"EDF, the current franchise holder, is a great asset when there is a tender, because it already has a good relationship with all parties involved," the industry source said.

Swedish energy firm Vattenfall, which had formed a consortium with French train operator SNCF, has closed its Paris office, which had dedicated a team of 10 people to prepare for a competitive opening of hydropower concessions.

This has left, among others, German utility E.ON (GER:EOAN) and Hydrocop Concessions, a group of eight energy distributors in France, to bid for contracts if the government does liberalise the sector.

($1 = 0.7584 euros)

(Editing by Mark Heinrich and Jane Baird)