Hercules tested as France battles Brussels over power giant EDF

European Commission regulators are reviewing the plans, codenamed "Project Hercules", under which the Paris wants EDF's nuclear power arm ring-fenced, but without an outright split. The differences are clear in a document seen by Reuters which was dated May 6 and carried the letterhead of the APE, which oversees French holdings in state companies including EDF.

French plans to ring-fence EDF's nuclear arm from the rest of the power giant have triggered differences between Paris and Brussels over how it should be structured, a source close to the discussions told Reuters. European Commission regulators are reviewing the plans, codenamed "Project Hercules", under which the Paris wants EDF's nuclear power arm ring-fenced, but without an outright split.

The differences are clear in a document seen by Reuters which was dated May 6 and carried the letterhead of the APE, which oversees French holdings in state companies including EDF. The document makes clear that the stance adopted by Brussels was not final. Reuters was unable to establish independently if the commission had modified its position since May. The source said this week the differences remained.

EDF, the European Commission and APE declined to comment on the document. Nuclear reactors require huge investment and are a drag on EDF's more commercially-attractive businesses, such as renewable energy and power distribution.

While EDF's owners want to ring-fence the nuclear entity from the other parts of the business, French President Emmanuel Macron and France's powerful trade unions have said they want EDF to remain as one group. Paris objects to Commission proposals for a strict separation between the units that emerge from EDF's restructuring, the document shows, and the source confirmed.

The Commission believes separation is necessary to reduce the risks of state aid or unfair competition, while French officials say that if too strict it jeopardises the aim of keeping EDF operating as a single concern, the document shows. The source, who spoke on condition of anonymity, told Reuters that discussions were still going on and differences remained over the extent of the separation.

The Commission is focussed on risks of unfair competition while for Paris "keeping an integrated group is imperative", the source confirmed this week. HURDLES TO HERCULES

The document detailed previously undisclosed measures that Brussels has proposed to mitigate the risk of "Project Hercules" violating the EU's state aid and competition rules. One proposal was for EDF to create a holding company which would have no operational role and no influence on its subsidiaries, the document shows.

Any dividends from the subsidiaries would go directly to the holding company's shareholders, by-passing the holding company itself, according to the document. Among the other suggested remedies, executives would not be able to move directly between the holding company and its subsidiaries, EDF entities could not have a centralised pool of cash and would need clear separation of their respective IT infrastructures as well as limits on information-sharing. 

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