Partial privatisation of Gaz de France

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Despite repeated union protest action, the French government has proceeded with the partial privatisation of the gas production and distribution company, Gaz de France (GDF). In July 2005, 22% of shares in GDF were floated on the stock exchange with small shareholders and company employees being offered first refusal. Other partial privatisations have also been announced.

The sale of Gaz de France (GDF) shares coincided with the government decision to increase gas prices for household customers by 4% from 1 July 2005, prior to another increase in the autumn. Contrary to the wishes of GDF management and the Energy Regulation Commission (Commission de régulation de l’énergie, CRE), which had been seeking a more rapid increase, the government preferred to spread this increase over a longer period so as not to upset consumers too much. Gas prices will be index-linked to oil products and the euro-dollar exchange rate. If these do not fall, the rise is set to reach 14% between now and 1 April 2006.

In July 2005, the government floated 22% of GDF’s shares to private investors. This operation entailed the sale of some state-held shares plus a new share issue. The sale was worth a total of EUR 3.8 billion and yielded EUR 2.5 billion for the state. This money will be used to:

  • pay off state borrowings;
  • contribute to funding requirements of other state-run companies and the newly-created Industrial Innovation Agency (Agence pour l’innovation industrielle, AII) (FR0508106F).

Some 78% of GDF shares will be retained by the state, as it is legally prohibited from letting its stake in GDF fall below 70%.

Resurgence in shareholder demand

The government gave special preference to small shareholders and offered private investors a highly advantageous price. Moreover, private investors who retain their shares for a minimum 18-month period will receive one free share per 10 held, up to a ceiling of an original investment of EUR 4,575. Over 3.15 million French people decided to become GDF shareholders. This seems to indicate a resurgence in 'popular capitalism' after the darker days of the dotcom downturn. Indeed, it is the fourth biggest 'popular shareholding' transaction in France after the partial privatisation of France Telecom (1997) (FR9709162F), and the privatisations of the Paribas and Crédit Lyon nais banks, in 1987 and 1999 respectively. It also represents the biggest stock flotation in the world in the last three years.

20% of the transaction was reserved for institutional investors. A further 15% of the total share offer was set aside for GDF employees, who were allowed a 20% discount, i.e. EUR 18.56 per share instead of EUR 23.20 for other private investors and EUR 23.40 for institutional investors. According to an initial estimate, one in every two GDF employees bought shares in the company, and staff now own 3% of GDF shares.

Analysts have concluded that buyers received a good deal. On the first day of listing, the share price rose by 23% to reach EUR 28.50 per share. With a total market value of EUR 28 billion, GDF has emerged as the tenth largest firm listed on the Paris stock exchange and has moved into the CAC 40 index.

Long-term plans

The government and GDF management attributed the privatisation to a need to 'deal with its (European) partners and (foreign) suppliers on equal terms and to generate extra capital'. As a result of this share offer, the company now commands financial resources in excess of those required for the EUR 17.5 billion investment programme, due to end in 2008.

GDF is the world’s fourth largest gas purchaser, but owns the equivalent of only 8% of the product it distributes. In the long term, the company aims to generate 15% of its own gas sales, by growing its exploration-production business and buying up liquefaction plants.

In addition, GDF has begun to diversify into the area of electricity, which places it in competition with its old partner, the national electricity company EDF. Among other things, and together with a British firm, it plans to take over SPE, the second largest Belgian electricity producer.

Trade union response

Like the other unions, the CGT Mines-Energie section, which has the majority of support in workplace elections (FR0401101N), has challenged the need for privatisation. According to its calculations, with shareholders’ funds of EUR 10.6 billion against net debts of EUR 4.4 billion, GDF would not have had difficulty in generating funds for its increasing investments through self-financing and borrowing. According to the General Confederation of Labour (Confédération générale du travail, CGT), the money collected by the state from this sale will primarily be used to fund a new plan for lowering social security contributions. The unions have also criticised the decision to increase gas price tariffs to improve GDF’s profit margins. Moreover, they are concerned that GDF’s industrial strategy will lead to even more substantial staff cuts than previously seen at the company.

On several occasions, the General Confederation of Labour - Force ouvrière (Confédération générale du travail - Force ouvrière, CGT-FO), the French Democratic Confederation of Labour (Confédération française démocratique du travail, CFDT), and the French Christian Workers’ Confederation (Confédération française des travailleurs chrétiens, CFTC) called on employees to protest against the privatisation process, which commenced in 2004 with the transformation of the state-owned EDF and GDF into limited companies (FR0406104F). In February 2005, for instance, the CGT called for a week of action across the energy industry. On 20 June 2005, three days before the launch of GDF’s partial privatisation, all the unions called for a joint day of action involving stoppages, rallies in front of government buildings, and power cuts targeted at particular industrial sites. Although not initially opposed the principle of partial privatisation, the French Confederation of Professional and Managerial Staff - General Confederation of Professional and Managerial Staff (Confédération française de l’encadrement - Confédération générale des cadres, CFE-CGC), the National Federation of Independent Unions (Union nationale des syndicats autonomes, UNSA) and SUD-Energie Trade Union (Solidaire, Unitaire, Démocratique, SUD) also responded to this call for action.

According to management, 10% of the employees took part in the strikes, although the unions place this figure at between 20% and 40% (depending on the site). In Marseille, homes were sometimes affected by power cuts, the official number of which is disputed by the unions. Only the CGT called on GDF staff to continue strike action along with public and private sector workers, as part of a national CGT-organised day of action. The CGT has not given up the struggle even after the sale of shares, and has since launched a petition against privatisation.

The CFDT allowed its members to choose whether or not they wanted to become shareholders. One of its former activists took the initiative of setting up the Association of GDF Employee and Citizen Shareholders (Association des agents et citoyens actionnaires de GDF), to act as a 'countervailing force' and to ensure that GDF 'remains as far as possible a public service, operating in the public interest'.

Commentary

In spite of government fears, which were fuelled by the failure of the EU Constitution referendum, the partial privatisation was largely successful. A large number of private investors, including GDF employees, purchased shares, although it must be said that the prices were highly favourable, especially those offered to employees. Thus, the mobilisation of employees was not enough to prevent partial privatisation, despite the unions’ unanimous opposition. Nevertheless, the unions’ influence on employees is significant and they will continue exerting themselves to ensure the maintenance of public service principles and conditions of employment. As for the government, it feels encouraged by the success of the GDF flotation and has already announced other privatisations, including those in relation to the motorways (FR0509105F) and EDF. (Udo Rehfeldt, IRES)

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