New Energy Giant Gaz de France-Suez to Become Leader in European Market, International Experts

Business Materials 23 July 2008 10:40 (UTC +04:00)
New Energy Giant Gaz de France-Suez to Become Leader in European Market, International Experts

Azerbaijan, Baku, 22 July/ Trend , corr A. Badalova, V. Zhavoronkova/ The French government hopes to turn energy giant, founded as a result of merger of Gaz de France and private company Suez, into a leader in the international arena, said Bertrand Lemennicier , director of the Public Economy Laboratory of Pantheon Assas University of Paris.

Last week, the French Gas de France and private French-Belgium Suez merged which resulted in the establishment of the one of the largest energy companies of Europe in the sphere of gas, energy and water supply. GDF-Suez will become third largest energy company of Europe and largest seller of liquefied natural gas all over the region. The share of the company in the European market will exceed 25%.

"If the merger brings economy of scales and diminishes costs (what is expected by those implementing the merger) the European and other consumers from the rest of the world could enjoy lower prices if the competition between these giants is fierce. Otherwise shareholders will be the real winners of this merger," Lemennicier said to Trend by-e-mail on 22 July.

According to expert, this merger is one way to privatize GDF. The government held 79.8% of shares in GDF.

"The French state will hold 35.7 percent of the capital. Suez shareholders will hold 55 percent of the new entity while those from GDF will have 45 percent," Lemennicier said.

According to Lemennicier, one opposition is due to the European Union, fearing the tie-up could hinder competition in the EU, and prefer cross-border collaboration driven by market rather than nationalist forces.

"The commission has objected to a number of moves in the energy sector in Europe in the last two years, complaining that they were driven by national interests rather than by single market principles. However, the EU's executive commission, following an investigation, approved the merger in November 2006," Lemennicier said.

According to expert, The second and strong opposition was coming from the French left and consternation on the part of unions as GDF will be privatized in the merger.

The deal originally demanded the privatization of GDF which was opposed by the trade unions and consumer organizations. Trade unions feared reductions within the company and consumer organizations - price rise.

According to Carlo Stagnaro, director of the Energy Department of Bruno Leoni University of Italy, the new company was conceived by politics, with little economic convenience.

"It is no surprise that it took two years to define the details," Stagnaro said to Trend by e-mail.

The plans about the merger of two companies were announced in February 2006; however, various coordination works took more than two years. On 4 June 2008, the Board of Directors of Gaz de France approved the deal on merger on GDF with Suez. The Board of Directors of Suez approved it later.

According to Stagnaro, even though the French government's share has decreased, the company will be mostly driven by politics.

"It will on the one hand reinforce the public monopoly in gas & electricity sector in France, on the other hand will behave in the rest of Europe as a "national champion" Stagnaro said.

"It is almost certain that the merger was aimed at preventing a bid on Suez from the Italian utility Enel," he said.

"It was early 2006, when then French Prime Minister, Dominique De Villepin, publicly announced the merger. Even though he never explicitly mentioned the real reason behind it, it is almost certain that it was aimed at preventing a bid on Suez from the Italian utility Enel," Stagnaro said.

In 2006, the Italian energy company Enel announced that it in interested in purchasing the Belgium shares in the French Suez and the latter should disown them after merger with Gaz de France. Suez gave consent to give two companies 30% of the Belgium energy market to intensify competition after deal with DDF ends.

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