EC orders EdF to repay 1 bn euro in tax breaks

Dec 17, 2003 01:00 AM

The European Commission ordered the French energy company Electricite de France to repay more than 1 bn euro in tax breaks granted by the French government, the biggest recovery of state aid the commission has ever demanded. The commission also made France promise to scrap the state guarantees that allow EdF an unfair advantage in the financial markets. The conclusion of the case brings the EU competition commissioner, Mario Monti, a step closer to his goal of resolving all French state-aid cases by the time he leaves office next autumn.
France has proved the slowest member of the EU to put aside its state interventionist instincts. While other countries have largely abandoned their former state-run companies to market forces, France has not hesitated to bail out its companies. The commission is pursuing France in the European Court of Justice for bailing out Bull, the French computer maker.

The commission is investigating state aid to Alstom, the French industrial group, and it is also examining a 9 bn, or $ 11 bn, credit line offered to France Telecom, the former public phone monopoly. EdF will have to repay 889 mm it received in 1997 in the form of a tax concession. Including interest since 1997, EdF must hand over about 1.2 bn to the French state. It's a lot of money, but it is the right amount of money, Monti said. A competitive situation has for the first time been created for EdF, without distortions due to state aid.
Francis Mer, the finance minister of France, and Nicole Fontaine, the industry minister, said they would study the decision and examine their options, which include a court challenge, the Associated Press reported. As a publicly owned company, EdF is not subject to the French law on bankruptcy. This means that it enjoys a state guarantee, which is unlimited in both value and duration. Under these conditions, the risk of EdF becoming insolvent is almost nil, which enables it to borrow on more favourable terms.

The main rating agencies all regard the state guaranteeas a key factor in assessing EdF's risk of insolvency, the commission said, referring to companies like Standard & Poor's and Moody's Investor Services, whose bond ratings have a big influence on borrowing costs.
EdF has used its advantageous position to finance acquisitions in neighbouring markets, including Germany, Britain, Italy and Spain. Meanwhile, the company continues to benefit from its public monopoly position in France.

The commission also decided to take action against Italy for passing a law in 2001 designed to prevent EdF from taking control of Italian energy companies. The law restricted voting rights of any state-owned entity, like EdF, if they acquired a stake of more the 2 % in an Italian energy firm.
The commission said countries in the Union must not adopt unilateral measures designed to defend their national interests.

Source: International Herald Tribune
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