Mekong Utility Watch

ElectricitÉ de France in Asia

Asian Power
April 1, 1998

EDF International, a wholly-owned subsidiary of Electricité de France, was established at the end of 1992 to uphold EDF’s participation abroad and make a complete distinction between its international investments and its commitment to public services in France.

NOTE: EDF is now the lead investor in the proposed Nam Theun 2 dam in Laos
Pierre Moriette, Managing Director of Electricité de France, Singapore Representative Office for Southeast Asia, talks to Melissa Riley-Jones, Regional Editor, about EDF’s success in the international marketplace.

Asian Power: How has EDF International grown since 1992?

Pierre Moriette: After having started with an initial investment of US$100 million to fund our activities in South America, Africa, and Europe, by the end of ’97 we had close to more than US$2 billion invested worldwide. This is very fast growth within a few years, and it has been possible because we are a vertically integrated company, involved in all aspects of the electricity industry – generation, transmission and distribution. We look for so-called greenfield projects, like independent power production and are also interested in acquiring stakes in existing companies, for instance, distribution companies. This process is much faster than construction from scratch. That is why we have been able to increase our international investment within such a short time.

Asian Power: What are EDF’s activities in Asia?

Pierre Moriette: In Asia, progress has not been as fast as we expected, but this is changing. Last year, we closed the Laibin-B deal in China for a 700MW coal-fired power plant. There is also the Shandong joint-venture for which we have paid our first share of capital. Other projects have yet to be closed and we need to make a special effort in the coming years in order to move towards that goal.

In the next two to three years, Asia will be more of a priority than before because we were late starters, so to speak. The high level of electrification in the Western European market is such that the market will now grow very slowly, and we identified the main growth areas as being South America and Asia – where the demand for electricity is very high. We had Asia in our sights from the beginning, but in 1992 the framework for independent power production was more developed in South America. Since then, Asia has been catching up fast. We have seen the big IPP development in the Philippines, Thailand, and China – and now also in India. So the time is right to make up for this slow start, and invest in the region.

In India, we are developing a 1,000MW coal-fired plant in Bhadravati near Nagpur in the state of Maharashtra. It will be fed by coal from nearby mines. EDF is in this with the Indian industrial group Ispat, and GEC Alsthom. The PPA was signed in 1996 and we hope to get financial closing this year. This is one of the eight fast-track projects supported by the Indian authorities. We are also looking at distribution companies in India.

In Southeast Asia, we have several projects at development stage. For instance, there is the Nam Theun 2 project in Laos, for a 680MW hydroelectric plant that will export electricity to Thailand as part of the Thai-Laos agreement. EDF is very much committed to the project. If we get agreement from EGAT, it should be ready by 2004.

We also have qualified for the Phu My 2 Phase 2 project in Vietnam. This is the first BOT to be developed in Vietnam and final proposals are due by 2 April. This project is for a 450-600MW combined-cycle plant using gas from an offshore production site.

In addition, EDF has also been pre-qualified to buy a share in EGCO in Thailand. EGCO is Thailand’s largest single producer of electricity, after EGAT. EGAT is selling 15 per cent in open tenders, and the winner will have the option to buy a further five per cent. This would make EGAT and the strategic partner equal partners in managing EGCO, because the other investors are mostly financial institutions with much smaller stakes. Competition is fierce, but we very much hope to win.

We are also looking at other opportunities in Thailand, and at buying into other existing projects. Malaysia is now more inclined to accept foreign capital, so there may also be opportunities there.

Asian Power: What is EDF’s investment policy?

Pierre Moriette: EDF wants a significant share – to have sufficient control to be able to take part in the management of the company and if possible, be operator of the plant during the concession period. This is where most of our expertise lies. We have experience of a large number of plants using various fuels, and have efficient management and operation methods that we think we could put to good use in this part of the world.

Another characteristic of our investment policy is to always look for a strong local partner. This may vary from country to country, and sometimes we may work with the same partner in different countries. Usually, we look for the best local industrial companies in order to achieve a better `fit’ with the country’s requirements.

Asian Power: Is EDF happy with its partners?

Pierre Moriette: As we have investments in various parts of the world, the appropriate partners vary. At certain points, we considered having strategic partners that would be good for investing together around the world. We have some good partners in some specific investments and we try to invest with them elsewhere, but we don’t have a partner that we can say is the same everywhere; it depends on the country. Each time we consider moving into a new project the first question we ask is who would be an appropriate partner. As far as finance is concerned, we have good relationships with a number of banks, but there is no single partner.

Asian Power: What impact will the Kyoto conference have on EDF’s activities?

Pierre Moriette: EDF’s position before the Kyoto conference was not so much in favour of reduction, but rather in favour of targets for per capita emission levels. Among the industrial nations, France is among the countries that produce the least amount of greenhouse gases per capita. In part, the reason for this is that EDF produces nearly 80 per cent of its electricity in France from nuclear plants and the rest is mostly hydro. The Kyoto conference has recommended some reductions, which differed from country to country. I don’t think this will have much impact on EDF’s day-to-day activities as we have already taken measures to reduce greenhouse gases. We have also embarked on a plan to modernise, where necessary, to comply with the most stringent standards of the EU.

Outside France, in our joint-ventures abroad, we are very much in favour of clean coal technologies. EDF is also supporting efforts to bring solar energy plants to remote areas, but you cannot do everything with solar or wind energy. Hydropower is certainly a source of electricity that should not be overlooked.

EDF has met the standards already; there is not much more we can do. However, in other countries that rely heavily on coal-fired power plants, there might be a need to resort to some far-ranging changes in order to reduce greenhouse gas emissions.

Asian Power: How does EDF, as a state-owned company in France, successfully compete in international markets that are privatised and deregulated?

Pierre Moriette: We are a large company and we have a very good balance sheet so when we come to consortium to secure financing for a project, this is a very positive thing. We are also a utility and are perceived as having some of the qualities of a utility, which is looking at the long term and not changing direction. We are also viewed as a financially strong, stable and reliable partner. Being integrated, we have a large in-house engineering capability so we are able to tackle a wide variety of technical problems, and this can also reassure partners.

China was our first large-scale project in Asia. We have also been doing some consultancy services in Indonesia, on and off for nearly twenty years. These two early experiences gave us a feeling for what was required to do business in Asia, and was useful when we decided to embark on investing. We have twenty representative offices worldwide and in Asia we have offices in Beijing, which now acts as a decision centre for China; Hong Kong; Singapore, representing Southeast Asia; Jarkarta; the Philippines; and India. If we are successful in Thailand, we will probably open an office there.

Asian Power: What is the future of the China market and what direction do you see EDF’s activities in China taking over the next five years?

Pierre Moriette: China is a huge market, with very large power requirements, and it is a very important country for EDF. We have investments in coal-fired generating stations in Laibin-B; the Shandong project with China Light and Power of Hong Kong, and Chinese partners. The Shandong project involves the generation of 2400MW of power in the Shandong Province and some of these are under various stages of construction. The Chinese are bringing a 600MW existing plant as their part of the investment. We believe the China market will continue to develop because electricity requirements will increase as the economic activity grows.

We are contractors in the nuclear plants of Daya Bay and Ling’ao and we have an assistance contract with the Chinese to help operate Daya Bay. EDF, Framatome and GEC Alsthom have made proposals to the Chinese to continue participating in the development of nuclear energy in China. We very much hope to be involved in the future of Chinese nuclear power development.

At the same time, EDF must also diversify. China is one of our primary markets, but we are also investing in India and Southeast Asia and will continue to look for new projects in the ASEAN region – the idea being to have a good geographical distribution.

Asian Power: What impact will the Asian financial crisis have on EDF’s activities – both in Southeast Asia and outside the region?

Pierre Moriette: The economic crisis has had an impact but we believe it will be short-lived, at least for most of the countries in the region. We did not have much exposure in Asia, and this has created opportunities to participate in deals that we thought were closed. For instance, in Thailand, the IPP programme was very successful and seven projects have been approved. All these projects were developed by consortia with a large percentage of Thai-owned shares and with the crisis, it became difficult to close these projects. Therefore, this is creating new opportunities for those companies that missed the first round. It may be advantageous to move in at this time – there is no development period and as soon as finance is secured, construction can begin. This may also be happening in Malaysia. We have seen official statements saying that they would welcome foreign investments, so the Southeast Asian crisis is creating lots of interesting opportunities for us.

Asian Power: What was the reasoning behind the restructuring of EDF’s balance sheet?

Pierre Moriette: Although EDF is state-owned, it is what you might call a corporatised company – it has all the characteristics of a privately owned company. Since 1983, we have not received any cash contributions from the state and the Government does not intervene in our operations.

The European directive which opens up the electricity market in France, ruled that by 2006, 33 per cent of the French electricity market will be contestable, so EDF had to judged and evaluated like any other private company. The restructuring of EDF’s balance sheet was one more step towards corporatisation. Looking at the balance sheet, EDF’s shareholders’ equity was relatively small in comparison with its assets. The reason for this was that there was an ambiguity in EDF’s charter of 1946, as to whether EDF was the owner of the high-voltage transmission system, or whether the agreement was merely concessionary. The High Court ruled that EDF was actually the owner. This meant provisions made by EDF in case it had to transfer back to the State the transmission network in perfect working order, could now be re-classified as shareholders’ equity. This better reflects EDF’s financial position.

Asian Power: What impact will the closure of the Superphenix Fast Breeder Reactor have on the way EDF does business?

Pierre Moriette: The process of closing down Superphenix will be long and complicated. We have to make provisions for that and the dismantling work will be staged over the next few years. Since EDF was not relying on its full power all the time, its closure will not create any imbalance in the generating pattern of electricity in France. Certainly its closure involves settling what has to be settled with its partners and the financial burden will be a constraint. The total expenses relating to the shutdown amount to FF16.5 billion. This is not negligible, but it is not such a large amount that it will have significant consequences for EDF’s business plan. In our ’97 accounts, we have already set aside FF4.5 billion.

Asian Power: Where will EDF be in the international arena over the next five years?

Pierre Moriette: To be a truly international company, something like 30 per cent of sales must be abroad. To achieve that, we anticipate that by the middle of the next decade, we should have shared stakes in about 30,000MW of generation, and 20 million customers. The size of our investment abroad will enable us to achieve the desired percentage of international sales, versus domestic sales. As far as the geographical location of those investments is concerned, by the middle of the next decade one half should be in Europe, one quarter in Asia, and one quarter in the rest of the world.

With this goal in mind, we have signed a new performance contract with the French Government for the period 1997-2000, and for the first time it has been agreed that we should be able to invest in the region of US$700 million per year internationally. In 1997, we met that target – we have invested US$690 million. It is a tough assignment because although there are many projects available, not all of them are good; not all will give a sufficient return on investment and meet EDF’s criteria.

During the next five years, our goal is to invest in Asia in such a way that we make up for our initial `slow start’. We aim to be one of the major international players in the electricity industry.

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