The merger of "Gaz de France" and "Suez" ignites competition on the French market for energy

After months of difficult negotiations, which took place under the blessing of the Elysee, Gaz de France (GDF), which mostly belongs to the French state, and the private group of energy "Suez" announced last Monday their agreement on their merger into an entity that will be the largest gas supplier and second largest producer of electricity in France.

But the birth of that entity, which will be named "GDF SUEZ", ignites competition in the energy market, which began to be liberalized, especially in the field of electricity controlled by Electricity de France (EDF).

According to observers, the competition between "GDF SUEZ" and "EDF" on the French market will be more fierce than on the European market for a simple reason : energy prices on the European market has been liberalized since the beginning of July, while the French government continues to control pricing.

This competition is fierce due to the importance of the two entities. Both are among the giants of energy supply in the world. The value of "EDF" in the market amounted to 131 billion euros and its turnover reached 59 billion euros. For "GDF SUEZ", the value is 85 billion euros and the turnover reached 72 billion dollars.

Despite the superiority of "EDF" in the production of electricity (100,000 megawatts against only five miles to GDF SUEZ), the real competition will be in the field of gas, which depends on import. The two companies are not regarded as real producers.

It seems that "GDF SUEZ", supported by the French presidency, will be privileged in this area. In a statement to the Algerian daily "Al Watan" and "al-Akhbar" during his recent visit to Algiers, Nicolas Sarkozy has expressed the hope for achieving a reconciliation between "GDF" and the Algerian "Sonatrach" in order to ensure the needs of France in gas supply in the future.

To face competition in this area, "EDF" announced the investment of 20 billion euros in France between 2005 and 2010 and provides for the expansion of its activities in the field of liquefied natural gas as an alternative to oil. In this context, it will install a unit for the production of methane in "Dankerk" and have tankers of gas.

However, "GDF SUEZ" has three units for the production of methane in France and many tankers.

For Collette Lewiner, an analyst at "Cap Gemini", the merger of "GDF" and "Suez" realize the ambitions of both parties. "GDF" will be able to use nuclear reactors belonging to "Suez" in Belgium, while "Suez" will have access to "GDF"'s customers whose number amounts to 11 million people.

But analysts at "Société Générale" believe that this merger will force the new entity to abandon the Belgian "Distrigas", a gas producer owned by Suez, in order to have the approval of the European competition authoriyies about the merger.

But despite the many aspects of competition between "GDF SUEZ" and "EDF", there is always a space for cooperation between the two sides, particularly after that the president of "Suez", who will be the CEO of "GDF SUEZ", Gerard Mestrallet, has stated that "Distrigas" will not be sold, but would be exchanged against other activities.

Analysts at of "Société Générale" see that these statements may be relevant for "EDF" because if it holds "Distrigas" This will enable it to enter the field of gaz and access to the Belgian market in which it was interested since long time as an access to the large European market.

At the same time, "GDF SUEZ" can get from "EDF" complementary activities to its own activities.

In this context, the chairman of EDF, Pierre Gadonneix, has expressed his interest in "Distrigas".

"EDF" and "GDF are already partners in the company "EDF-GDF Distribution" which employs 46.000 people. Its fate is not yet known.