EDF considers selling UK distribution network

Sunday, May 03, 2009

EDF, France’s state-controlled utility, is considering the benefits of selling its regulated electricity distribution business in the UK as it seeks disposals to help it cut the debt built after a year of costly foreign acquisitions.

The question of whether EDF, which will spearhead Britain’s nuclear revival after its recent €15bn ($20bn) takeover of British Energy, should sell the UK’s largest distribution network was raised at a recent board meeting.

No decision has been taken. However, the reflection is part of a wider strategic review of the nuclear power operator’s industrial future as it faces unprecedented investment requirements in France and abroad to meet the challenges of the nuclear revival.

People close to EDF’s board said management was considering whether to focus purely on power generation internationally.

The recent acquisitions of British Energy and of 50 per cent of the nuclear assets of US partner Constellation for $4.5bn have strained group finances and EDF is already planning €5bn in disposals. Net debt was almost €25bn last year, nudging the record €27bn from 2002, and compared with equity of €23.1bn.

In addition, EDF has said it wants to build 10 new generation reactors, the first of which is already 20 per cent over budget at €4bn. Though it will be able to share costs with partners – rival GDF Suez will have a third of France’s second so-called EPR reactor – returns take years to materialise.

One person close to the group said: “They are having a real internal debate. It is driven by capital constraints because they have bitten off more than they can chew.”

Politically it would be much easier for EDF to consider selling UK distribution as this might allay concerns at home that its international expansion could harm French investment.

But EDF’s UK management is strongly opposed to selling the network, which transports power from high voltage lines to 7.8m homes and businesses in the southeast and east of England.

The division contributed 75 per cent of the UK arm’s €1.2bn earnings last year and its assets are estimated to be worth about £3bn.

It is also unlikely that such an important decision would be taken before the government decides whether to keep Pierre Gadonneix, chief executive, beyond his November retirement date.

Analysts suggested, however, that quitting the regulated UK businesses would make sense and could help to damp fears over the need for another capital increase.

Adam Dickens, utilities analyst at HSBC said: “RWE has never invested in UK regulated activities and it has still achieved consistent profits”.

The problem would be to find a buyer, he said, with utilities around Europe looking to shed non-core activities.

This story was featured on the Financial Times Website.

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