Electricité de France (EdF) has announced that it has frozen all spending that is not related to safety, security or public service in the face of a cash crunch, according to reports published in the French media.
Nevertheless, EdF has said that it is still planning to invest E5 billion in the natural gas sector by 2005, in order to become an integrated utility. Reports that the French government had put EdF "under surveillance" because of EdF's poor financial results have not been confirmed.
The combination of EdF's expansion in the last decade and a government freeze on electricity prices has led to a "serious" financial problem, according to EdF's chief financial officer Jacques Chauvin. According to Le Monde, he said that EdF could only break even if the financial situation in Brazil and Argentina, where EdF has invested heavily, did not get any worse.
The French government has recently removed the chairmen of two state-owned firms, France Telecom and La Poste. Agence France Presse reported that the French Ministry of Finance had decided to monitor EdF's finances more closely.
EdF's debt stood at E22 billion at the end of 2001. The contract EdF signed with the previous government covering 2001-2005 called for EdF to seek an alliance with a major gas player in the European market.
EdF chairman and CEO Francois Roussely has pushed an external acquisition drive - the company spent E11 billion of a planned E19 billion to buy European utilities - and repeatedly evoked the need for EdF to raise capital - a clear call for the government to proceed with the planned sale of EdF shares.
However, although the present government is in favour of the partial privatisation of EdF, it has indicated that steps must be preceded by a dialogue with labour unions, and the restructuring of the utility and its books according to international corporate standards.