The French-Belgium utility company Suez and the French energy company Gaz de France have announced this morning they want to merge and have reached a principal agreement on this. Â They will merge into one company known as GDF Suez.
Last night it became clear that the board of directors of both companies would announce this today. Â Is this good news?
This depends especially on the conditions that will be asked to allow such a merger and who are the shareholders afterwards. Â The first has been already public info for quit some time and I will repeat some of the important consequences;
-For Belgium Distrigas will have to sold to third parties, Suez/Electrabel would than stay customer of Distrigas for the first five years.Â The fifth year they would reduce their off take to 20% of their needs (about 70TWh).Â This means that the value of Distigas is digressing and one could argue if this on the long term will add anything to the liberalization.
- For Belgium their share in Fluxys will have to be reduced towards a minority interest without blocking rights, important to notice here is that the company would be split in two parts, one being the network owner and one being the owner of the storage and trading capacities. Â This last activity would not become part of the terms set by the Commission. Â Consequence is that little will change as the dominant position on for example storage (and as such flexibility) will remain in the same hands.Â We can regard this as a real mist opportunity to create more competition on the wholesale and retail market.
- Also in France GDF will have to dispose of a number of activities.
-GDF also has to sell their minority interest in SPE(25%) and probably Centrica will use its rights to buy these, looking at the relative small and vulnerable position of SPE in Belgium with its mainly gas fired plants the departure of GDF is bad news for them.Â Their competitive position will even further weaken as their former shareholder marries their biggest competitor.Â On top of that they will leave with all inside knowledge on the future strategy of SPE/Centrica and if necessary adapt to this.
Furthermore also the resigning Belgium government has â€œforcedâ€ a number of conditions, if they will be realized is doubtful when looking at the track record of the last eight years with mostly inactivity. Â The promises of the dominant market party to make capacity available towards two competitors do not convince me, they actually make sure that everything stays the same namely a closed wholesale market.Â Monopoly, duopoly or oligopoly all end to the same: no competition.
Letâ€™s wait and see that the new government can do its work within time so they can use this merger to demand extra conditions and are not satisfied with petty cash.Â The recently announced ideas consist of some good elements to assist the liberalization process but need to be worked out in detail.
The other question, who will be the shareholders is also discomforting, after the largest European energy company EDF they will be in number two place.Â Both are fully dominated by state decisions of the French government.
All important decisions will be made in the cabinet of the president and nowhere else. This development seems to be the opposite of the ambition of the European Commission to liberalize the energy market, liberalization means also privatization, and make the former incumbents smaller so that new competitors are born.Â The Commission has done to little in this case and the consequences for France and Belgium will be noticeable.Â France can bury its ambitions to create a liberalized market.Â The market will be totally dominated by one controlling shareholder; it looks like the French president has found his inspiration with Poetin.