Power couple

EDF's new boss

Power couple

Sep 28th 2009
From Economist.com

Nicolas Sarkozy appoints a friend to run EDF, one of the world’s biggest energy companies

AFP

 

 

BEFORE inking his name to the French presidential decree that confers the top job at EDF, Nicolas Sarkozy would have wanted to secure a candidate of note and ability for one of the world’s biggest electricity companies. As it turned out he looked no further than the guest list for a banquet held to celebrate his winning the presidency in 2007. Of the 50 or so rich and powerful friends in attendance that night he has opted not for Johnny Hallyday, an ageing rock star with impressive staying power, but for Henri Proglio, the boss of Veolia Environnement. The prime minister’s office made the announcement on Sunday September 27th.

 

Critics may not carp at the fact that Mr Sarkozy has appointed a friend so much as at Mr Proglio’s lack of experience in the power industry and his chequered record at the French waste-disposal and water company. Clearly Mr Sarkozy wanted a big name to run a French national champion and Mr Proglio provides that. Veolia is a huge company but it is one that makes money by managing infrastructure.

 

And in this rather different pursuit to generating electricity Mr Proglio has hardly shone. A €4 billion ($5.9 billion) buying spree since 2006 led Veolia to mounting debts, a plummeting share price and a halving of profits in 2008, as the credit crisis and foundering world economy took their toll. In his defence Mr Proglio said that the business was fundamentally sound but that profit warnings might have been better presented to investors.

 

By coincidence, Mr Proglio got his chance to run EDF in part as a result of poor communications. The fate of Pierre Gadonneix, EDF’s departing boss, had hung in the balance for many months. But he is reckoned to have blown his slender chances of another term in the job in July when he suggested to the press that power tariffs, set by the state, might have to rise by 20% over the coming years to counter EDF’s own hefty debts. With high unemployment and a fragile economy to contend with that was not a message that Mr Sarkozy wanted anyone to hear.

 

Now Mr Proglio will have to steer EDF, the former state electricity monopoly that is still 85% owned by the government, as it seeks to promote French nuclear know-how around the world. Mr Sarkozy wants the company in the vanguard of his efforts to promote France, where most electricity is generated by splitting atoms, as a model of nuclear-powered greenery. So EDF will have to convince a sometimes-sceptical public to embrace nuclear power plants. EDF will also have to pick its way through a thicket of regulations to build reactors at home, as well as in Britain, Italy and America. This too will require a deft touch with public relations.

 

Mr Proglio’s recent experience at Veolia will help with another priority at EDF—asset disposals. Veolia has to offload some parts of its business to pay off debts and EDF will have to do likewise if Mr Proglio is to avoid price rises. But at least he will no longer face the “creeping control” of shareholders, whom he blamed for looking only to the short term as they saw the value of their investments dwindling under his tenure.

 

Veolia’s investors, however, may not have seen the back of Mr Proglio. Rumours suggest that he wants to strengthen the bonds between Veolia and EDF and that he may get his way. He has apparently insisted on keeping a role at Veolia after he steps down as chief executive, such as chairman of the supervisory board. He also wants EDF to swap its minority stake in Dalkia, a firm jointly owned with Veolia, for shares in Veolia, as part of a plan to boost EDF’s 3.9% holding in Veolia to 15%.

 

Once he has control of EDF Mr Proglio will have to work out how to satisfy Mr Sarkozy and his vision of EDF as a green beacon for the world’s power companies while also preparing for further liberalisation of French power markets. Private shareholders' attitudes may have proved problematic for Mr Proglio in the past, but the commercial and political demands of EDF's big shareholder, the state, may turn out to be more trying yet.

 

 

http://www.economist.com/businessfinance/displayStory.cfm?story_id=14535268&source=features_box1