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Last updated: September 10, 2007 8:07 am

Spain plans defences against Suez-GdF

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The Spanish government fears that the proposed merger between Suez and Gaz de France could lead to aggressive expansion by the new French energy group into southern Europe and it is already preparing its defences against such a threat.

According to confidential documents seen by the Financial Times, the Madrid government plans to argue that the high electricity and gas tariffs set by the French state allow GdF to notch up huge profits which could then be used to finance takeover bids. Spain, which sets comparatively low tariffs, will argue that this constitutes an indirect form of state subsidy, deemed illegal under European Union competition rules.

This will be a new line of objection. In the past, Spain has tried to block takeovers by foreign companies on the basis that they are still state-owned, but the EU has not accepted this argument.

The policy reflects the determination of the government of José Luis Rodríguez Zapatero to avoid a rerun of what happened last year, when it was caught off-guard by a surprise bid from Eon, a German utility, for Endesa, a Spanish electricity company.

“The state-sponsored French merger has clearly been designed so that a combined Suez-Gaz de France can expand southward in Europe,” David Táguas, chief economic adviser to Mr Zapatero, told the FT.

The combined Suez-GdF will create one of the biggest energy companies in the world, with sales of more than €60bn (£40bn, $80bn), rivalling those of Germany’s Eon and RWE and EdF of France. The combined group would be the biggest purchaser and supplier of natural gas in Europe and the fifth largest electricity
supplier.

The Spanish government has tried, and failed, to sponsor a merger between Gas Natural, a privatised gas company, and an electricity group in Spain. As a result, it lacks a “national energy champion”.

Mr Táguas said Spain was “concerned” about the effect of the French energy merger on competition and liberalisation within Europe. Mr Zapatero’s team has reason to be concerned. Suez has been a long-term partner of La Caixa, a Spanish savings bank, in Aguas de Barcelona, a water services company. More recently, Suez built up a stake in Gas Natural , and is seeking Madrid’s approval to raise its shareholding above 10 per cent.

A takeover of Gas Natural was widely seen as Suez’s “plan B” if the tie-up with GdF had unravelled. Analysts continue to view Gas Natural as a target. Suez last week said it would not sell its Spanish holdings as part of the merger agreement with GdF, so a question mark still hangs over the long-term intentions in Spain of Albert Frère, the Belgian billionaire who is the biggest shareholder in Suez.

Madrid’s attempts to block Eon’s bid fell foul of EU takeover rules. It also strained relations between Mr Zapatero and Angela Merkel, German chancellor.

Mr Zapatero’s relations with President Nicolas Sarkozy of France have not got off to a good start. Mr Sarkozy’s team embarrassed the Spanish premier by leaking details of a private tête-à-tête between the two leaders concerning Mr Zapatero’s regrets about giving an am-nesty to hundreds of thousands of illegal immigrants at the start of his tenure.

Nevertheless, the two governments co-operate closely in the fight against Basque separatists and Islamist terrorism, and it is unlikely that Mr Zapatero would risk jeopardising such a valuable relationship.

Even so, the Spanish premier has made the defence of Spanish energy companies one of the key planks of his industrial policy. After the Eon fiasco, the Madrid government thinks it is better prepared to fend off foreign intruders.

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