Suez: Belgian government could not block Pinault’s offer but impose tougher conditions on the energy business15 January 2007

The Belgian government could not block an offer by Pinault for Franco-Belgian group Suez but could impose tougher conditions on the energy business, according to sources.
French entrepreneur Francois Pinault is mulling over an offer for Suez where he would keep the company’s environment division and sell the energy part to Gaz de France (GDF), in which the French government still has a majority stake. Belgian finance minister Didier Reynders recently warned France against a “nationalisation” of Suez whereby the company or its energy business Electrabel, which has 80% of the Belgian electricity market, would become a state-owned company. Such a move would interfere with Belgian plans concerning opening competition in the national gas and electricity markets, he added.
A spokesperson for Reynders said the Pinault scenario would mean that the Belgian finance minister and his French counterpart, Thierry Breton, would have to negotiate. “If a new offer was concluded, the energy part of the deal would have to be renegotiated.”
Since the announcement of the merger between Suez and GDF, the Belgian government has been particularly active in defending its interests and pursuing its goal of boosting competition on national energy markets. It obtained a golden share in the merged entity and, to the fuss of the European Commission, negotiated a series of concessions with Suez. According to these, Electrabel would open the electricity production market to allow second operator Societe de Production d’Electricite and a third company to acquire 15% of the market each, in exchange of which the government would ensure fiscal and regulatory stability.
So far, negotiations with Suez had been mainly the onus of Belgian Prime Minister, Guy Verhofstdat. A spokesperson for the Belgian premier said comments from Reynders reflected the position of the Belgian government as a whole. “This means that measures agreed following the negotiations with Suez would be jeopardised.”
A Brussels-based analyst noted that the negotiations had taken place exclusively between Suez and the Belgian government, while GDF had been upset for not being more involved. “[if there was a new scenario with GDF], these would not hold anymore.” The analyst added that the current legislation did not prevent such an offer from happening but noted it was always important for companies to have good relationships with governments where they operate. “Electrabel has huge market shares in Belgium,” he said. "The message is a warning that if there is a plan, they’d better involve the Belgian government.”
A person close to Suez said that although the government could not require that the company be run only by Belgians, the regulatory and fiscal stability could be reviewed and various measures could be possible such as the creation a new tax.
“Negotiations would have to be started again. It may be that the company would have to allow not 15% of the market anymore but 30%”. He added that the government would not invent things nor compromise its relation with France but would want “a system of guarantees or veto rights”.
A second Brussels analyst agreed the implicit agreement between the Belgian government and Suez could be jeopardised but not to the point where necessary investments or security of supply would be put at risk. “It’s always a give and take with utilities. The government could be harsher but would not come with inconceivable measures,” he said. “This could come in the form of a tax on the nuclear rent for example.”
The first analyst also believed developments regarding the closure of nuclear plants could be affected. Belgium has set to shut existing nuclear plants in two waves the first one starting in 2015 and the second in 2025. Although there has been no decision on the matter yet, this could be extended by 10 or 20 years and is expected to be one of the topics in the Belgian general election this year. Electrabel is counting on prolongations but issues could be different if the owner had other interests, said the analyst. Another aspect could relate to CO2 emissions and credit allocated by the Belgian government to Electrabel could be less if its ownership changes hands, he added.
The second analyst agreed that more and more voices were in favour of delaying the deadlines for the roll out of nuclear plants but did not believe the government would refuse the extension because it was its own interest to grant them. “You have to know how far you can go without shooting your own feet,” he said. “You can not jeopardise the long-term impact and increase risks related to security of supply problem or the Kyoto protocol.”
The first analyst added that from a legal point of view, there were precedents where national governments had set limits to acquisitions by state-owned companies. He referred specifically to the Edison/EDF deal where the Italian government stated that a state-owned company could not hold a majority stake in Edison and to Spain’s reluctance to have big national companies controlled by foreign state-owned entities. “But Pinault would first have to convince the French government that this is good for GDF and France,” he said “[French President Jacques]Chirac seems to back up the merger for the time being.”

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