Division of EDF: a political choice, not a legal obligation

Division of EDF: a political choice, not a legal obligation

Since the government announced its intention to hold 100% of EDF’s capital, politicians, trade unionists and others have feared the return to favor of the “Project Hercules”. However, nothing in European law imposes such an operation assures EURACTIV France, Maître Renaud Christol, associate lawyer in competition law at August Debouzy.

The tension has been palpable for several weeks. The government’s announcement to recapitalize EDF is on everyone’s lips, as is the “Hercules project” to divide the company’s activities.

Moreover, how can we be certain that, in the name of European competition rules, the implementation of this project would not be inevitable following the recapitalization of EDF by the State?

Would it be necessary for that that the European Union (EU) finds, in the operation of the French authorities, an anti-competitive practice, and that it then imposes, as a sanction, a change of status.

In the name of merger control?

There are three types of procedures that could control this recapitalization operation in the name of competition law.

First, merger control. The European Union ensures, upstream of any operation of merger, acquisition or creation of a joint venture, that it will not confer on the company an excessively strong, even monopolistic, position on the market.

EDF became a public limited company in 2004, with an obligation for the State to hold at least 70% of its capital. Today, the state owns 84%, which has not been a problem in the name of merger control.

Thus, for the State to increase from 84% to 100% of the capital will not lead to no change, assures Maître Christol.

Consequently, the State could not justify a transfer of assets, or even a demerger of EDF, in the name of an infringement of merger control.

In the name of state aid?

Secondly, could it be considered that the State, which wishes to invest in a new nuclear programme, is seeking to subsidize EDF?

There would then be a risk that these subsidies trickle down to the group’s other activities and that they thus constitute state aid, prohibited by the European Union – subject to exceptions.

However, the control of State aid is also carried out a priori. Therefore, the State must provide guarantees before the European Commission authorizes aid.

Furthermore, the penalty for unlawful State aid is the reimbursement of this aid. And as for the rules of concentration, the government could not justify, following a breach of the state aid regime, the need to divide its activities.

In the name of abuse of a dominant position?

Thirdly, European law controls abuses of a dominant position. But itThis time, the control is carried out a posteriori. This means that the authorities find, after an infringement, that a company has adopted behavior aimed at eliminating, constraining or deterring the establishment of competition on a market, with the sole aim of maintaining or imposing its dominant position.

In this sense, the increase in the State’s participation in the capital of EDF does not constitute, as such, an abuse of a dominant position, insofar as this situation will not automatically lead to a modification of the positions of market held by EDF.

It will therefore not have the consequence of creating abuses that did not exist before this increase.

Moreover, it is particularly rare for abuses of a dominant position to be sanctioned by structural company modification measures.

For all these reasons, it would therefore be “pulled by the hair” assumes Master Christol, that the French State seeks to hold 100% of the capital of EDF, to contravene the rules of competition, with the sole aim of justifying the implementation of the “Hercules project”.

Maître Christol starts from the observation that today, “It’s not like thirty years ago, competition law is well known to companies who are now doing everything they can to comply with it”.

Competition only controls behaviors, not statuses

Thereby, “in competition law, we do not look at the status of a company, but its behavior on the market”, explains the lawyer.

In short, nothing in European law would oblige the State to divide EDF’s activities if it acquired 100% of its capital. Therefore, the dismantling project would only be a political choice. Because if the law does not oblige, it does not prohibit either.

Therefore, if “the European Commission cannot specifically ask the French State to divide EDF” comments the lawyer, nothing prevents France from acting in a way that the European Commission would approve politically.

The French authorities could thus fully justify the privatization of part of EDF’s activities for political and economic reasons: stimulate research, liquidate debts, promote employment and lower prices.

The operation as it is set up could therefore well be a “deception” as communist deputy Sébastien Jumel told EURACTIV France. But to say that European law is at the origin “would be another unfortunate instrumentalization of the procedures and concepts of competition lawe “, concludes Master Christol.

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