French utilities tackle merger obstacles

The plan to create Europe's second-largest energy utility through the merger of Gaz de France and Suez still faces significant hurdles, despite the two French energy giants unveiling a proposal to demerge certain assets to overcome regulatory opposition to the deal.

The Belgian government has suggested that the remedies proposed do not go far enough to appease its concerns over market dominance in the country, while Centrica, the UK energy company, said it too will push for further amendments to the plan.

A Centrica spokesman said: "There are some steps in the right direction but overall, this does not go far enough."

He said that the company will definitely submit documentation to the European Union over the coming weeks to ask for further revisions.

The spokesman said that Centrica was considering mechanisms to provide competitors with access to nuclear capacity in Belgium.

The controversial plan to merge the two French energy companies could be scuppered by an EU competition investigation, as well as opposition from the French Socialist Party, which has threatened to block the privatisation of Gaz de France.

The French Prime Minister, Dominique de Villepin, has thrown a great deal of support behind the proposed merger, which would thwart attempts by the Italian utility Enel to take over Suez.

To appease potential EU regulatory concerns, the companies plan to sell Gaz de France's 25.5 per cent stake in the Belgian gas and power company Societe de Production Electrique, as well as splitting off various assets in Belgium and France into a newly formed company. The new company would gain control of a number of contracts with industrial companies in the two countries, as well as other lucrative gas supply contracts.

The new company would be established with a view to a sale to a third party.

Enel said it would assess whether it wants to buy any of the assets that would be split off as a result of the merger.