EDF Chief's Gambit Suggests Will Get Backing for Hinkley Point

 

In a letter to staff last Friday, Chief Executive Jean-Bernard Levy warned he would not go ahead with the 18 billion pound ($25 billion) Hinkley Point project in southwest England without more help from the state.

 

His comments came just days after the shock resignation of his chief financial officer over the project, which places additional strain on a company with net debt of 37 billion euros ($41 billion).

 

Sources familiar with the company's thinking say the letter should be read as an attempt to mollify French unions who are resisting the Hinkley Point project, and also a sign that the government, which owns an 85 percent stake in EDF, has already agreed in principle to give this support.

 

Levy, who has spent years working with ministers and in state-owned firms, is seen as too politically astute to make such public statements without government clearance.

 

"Levy is playing his last card," a source close to EDF management said.

 

Asked whether the letter would have been cleared by the French presidency, he said: "That is very likely". Two other people with knowledge of the situation said they expected more state support for EDF that would allow Hinkley Point to go ahead.

 

EDF and President Francois Hollande's office declined to comment on whether the letter had been cleared.

 

Hinkley Point, scheduled to start producing energy in the middle of the next decade, will help keep the lights on in Britain by accounting for seven percent of power generation.

 

It is also vital for ensuring the survival of a French nuclear industry which employs around 220,000 people and the government has repeatedly said the project should go ahead.

 

EDF will have to start replacing its ageing nuclear plants in about 15 years. Meanwhile it has no domestic market for new nuclear and few other takers for new reactors abroad following the 2011 Fukushima nuclear disaster.

 

EDF has another powerful incentive -- the British government has guaranteed it will be able to sell electricity generated for around three times the current market price.

 

Several sources close to EDF expect a final investment decision will be made before the EDF shareholders meeting on May 12, and possibly at its March 30 board meeting.

 

Levy did not specify what form state support could take, but insiders say one option would be for the state to take future dividends in shares rather than cash. Such a move last month bolstered EDF's coffers by 1.8 billion euros.

 

"I have the impression this will be the solution," the source close to EDF management told Reuters.

 

A share dividend, which could be repeated for several years, is less politically sensitive than a capital increase for the state, which has already been forced to inject 5 billion euros into nuclear reactor builder Areva -- its equity wiped out by years of losses.

 

Les Echos newspaper nevertheless wrote that BNP Paribas is already preparing a capital increase as a second option.

 

Two sources familiar with the situation said they were not aware of BNP preparing an operation. BNP declined to comment.

 

A third option would be for state-owned bank Caisse des Depots et Consignations (CDC) to take a minority stake in Hinkley Point.

 

EDF was forced to shoulder two thirds of the project itself because the only co-investor it could find was Chinese utility CGN for a one-third stake.

 

But the government has already suggested CDC could support EDF in another way -- potentially buying half of EDF's grid unit RTE to free up cash for Hinkley Point.

 

One source said a fourth option -- which would require European Commission approval -- would be to give EDF's French nuclear activities power price support similar to the UK Contract for Difference subsidy scheme for Hinkley Point, possibly by putting these activities in a separate legal unit.

 

But while Hinkley Point is a contract for new nuclear, EDF's nuclear fleet was built decades ago and accounts for a massive 75 percent of French power use. A fixed price for such a powerful player could raise the ire of EU antitrust authorities.

 

An EDF spokeswoman denied EDF is studying such an option.