France will completely nationalize EDF (EDF.PA), Prime Minister Elisabeth Borne said on Wednesday, giving the government additional influence over the debt-laden group’s reconstruction while dealing with a European energy crisis.

EDF, in which the government already controls 84 percent, is one of Europe’s largest utilities and is essential to France’s nuclear plan, which the government is relying on to mitigate the effect of skyrocketing energy costs compounded by the threat of a sudden stop in Russian gas supplies.

However, rather than being an ace in the government’s hand, it has become a significant issue due to years of delays on new nuclear reactors in France and the United Kingdom, with budget overruns in the billions of euros.

“I confirm to you today that the state intends to control 100% of EDF’s capital”, Borne said in her policy speech in the lower house of parliament as she set out her minority’s government priorities.

“We need to ensure our sovereignty in the face of the war (in Ukraine) and the looming colossal challenges.”

At current market pricing, buying out the government’s remaining interest would cost roughly 5 billion euros ($5.09 billion).

This year, EDF has encountered a slew of issues. Half of its older reactors in France are presently offline, owing to corrosion issues, requiring it to reduce nuclear production on a regular basis at a time when Europe is rushing to find alternatives to Russian gas supply.

The utility has also been harmed by government actions requiring it to sell electricity at a discount to competitors as part of measures to protect French customers from a steep spike in the cost of living.

This puts a significant burden on EDF’s finances since the company sells forward its expected nuclear production before the end of the fiscal year and must repurchase sold power in a volatile market with prices at record highs.

According to the corporation, production losses will cut its core earnings by 18.5 billion euros this year, and discounted power sales will cost it an additional 10.2 billion euros. Its debt is expected to increase by 40% this year to more than 61 billion euros. Meanwhile, new-generation nuclear reactors are expected to cost more than 50 billion euros.

President Emmanuel Macron floated the idea of entirely nationalizing EDF early this year, but the situation has since gotten more problematic since he has lost his absolute majority in parliament.

He had to abandon an EDF revamp last year due to union resistance and concerns raised by the European Commission.

That idea called for relocating EDF’s thriving renewables division to a new firm free of debt-ridden nuclear assets.

Borne did not clarify whether the nationalization would be accomplished by special legislation or through a public tender to buy out minority shareholders, nor did he indicate a time period.

According to the CGT union, nationalizing EDF would not solve its problems and may be used to break it apart if there is no significant change in the way nuclear power prices are established.

EDF debuted on the Paris stock exchange in 2005, with a share price of 33 euros. Its shares finished Wednesday at slightly under 9 euros, up 14.5 percent following Borne’s statement.

According to analysts and bankers, moving directly to the market to squeeze out minority and delist EDF would be a faster procedure, while any legislation risks being held up in parliament.

Source: Reuters


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