Jan. 27 (Bloomberg) -- Jean-Philippe Bucher has put the French government on notice.
The chairman of FerroPem delivered his ultimatum this month, saying the silicon-metals producer in the Alpine valley town of Chambery will be forced to shutter its six French factories without guaranteed cheap power prices. The company’s special contract with state-owned utility Electricite de France SA is under threat as the European Commission seeks to pry open France’s electricity market.
“We are a company with a comfortable balance sheet that’s heading toward the edge of a cliff,” the mustachioed Bucher told a parliamentary commission in Paris January 16. “This is about our very survival.”
FerroPem, which employs almost 1,000 people in France, illustrates the plight of local manufacturers caught in the downward spiral of the French struggle to compete. As France fights near-record unemployment and industrial decline, low electricity prices -- thanks to nuclear and hydro energy -- are among its few competitive edges, and companies are hankering to keep it that way.
The pleas from companies such as FerroPem come as a report published Jan. 22 by the commission concluded that Europe’s industry pays more than double the price for power than the U.S., and that the price gap “will continue to increase.”
With cheap energy from a shale oil and gas boom, the U.S. has a “a great competitive edge,” Christophe de Margerie, the chief executive officer of Total SA, France’s largest oil company, said in a France 24 TV interview on Jan. 24.
“My real concern is we’ll be faced with new products coming from the U.S., especially plastics that will come into our market at a cheaper price,” he said. “We cannot compete against this.”
FerroPem, whose industrial sites -- some of them more than a century old -- were mostly set up in Alpine and Pyrenean valleys near hydropower dams producing cheap power, says without low prices, it may move production to Canada -- a possibility that puts pressure on EDF to cap rates.
For EDF Chief Executive Officer Henri Proglio, the utility -- with 55 billion euros ($74.5 billion) of spending through 2025 to maintain and render safer its aging reactors -- has to charge rates that reflect its costs and enable investments.
“In EDF’s eyes we’re a bad client because we don’t pay enough for our energy,” Bucher told the hearing. From his point of view, FerroPem pays what is needed to allow its factories to compete with plants in North America, the Middle East and Asia.
President Francois Hollande, acknowledging France’s eroding competitiveness, this month said his government will slash corporate social charges by 30 billion euros. Bucher’s comments show that companies face challenges on other fronts.
The special contracts companies like FerroPem have may disappear at the end of next year when some of EDF’s regulated tariffs are set to be eliminated under pressure from the commission. The push to boost competition in the French market, which may keep rate increases in check, are still unlikely to give the likes of FerroPem the low power prices they now pay.
The terms of EDF’s power-supply agreements with Ferropem include price reductions in exchange for extensive winter factory halts to coincide with periods when EDF needs extra output to meet home-heating demand, according to Bucher.
Now owned by closely-held Spanish company Grupo Villar Mir, FerroPem “pays less than 30 euros a megawatt hour,” he said in a phone interview, declining to give the precise price.
That’s lower than what other French industries pay.
About 100 of France’s biggest power-consuming sites have a deal with EDF known as Exeltium. They pay about 48 euros a megawatt hour not including related costs, the group has said.
Under another agreement, EDF sells nuclear output to rival distributors at 42 euros a megawatt hour. This is destined to be resold to end users like factories. Both of these deals are set to be renegotiated in the coming weeks, although they will likely remain above FerroPem’s rate.
A spokeswoman for EDF could not provide immediate comment.
With 10.9 percent of the French workforce out of a job and headline-grabbing factory closures, EDF has found itself under pressure to lower power rates for troubled companies or, in some cases, to rescue them in other ways.
After months of negotiations, the utility acquired a minority stake in Rio Tinto Alcan aluminum plants in Saint-Jean-de-Maurienne and Castelsarrasin, according to a statement last month from the main shareholder Trimet Aluminium SE. These were threatened with closure if a deal wasn’t found.
It was also involved in the financial talks surrounding the takeover of struggling PVC producer Kem One SAS by buyout firm OpenGate Capital and Alain de Krassny. Power sales concessions weren’t made public in both cases.
France lost 2 million industrial jobs over the past three decades, according to a 2012 report on competitiveness that concluded that the “relatively low” French energy prices need to be preserved.
EDF’s 58 atomic reactors make the country the most dependent in the world on nuclear power and have allowed French households and industry to enjoy some of the lowest power prices in Europe.
Bucher was asked to testify to lawmakers writing a report on the costs of EDF’s atomic energy. Their report could shape thinking about future state-set rates charged by the utility.
“It’s important to realize that France and Europe aren’t the most attractive for energy-hungry industries,” Socialist Lawmaker Francois Brottes said.
Ferropem is in talks about the possibility of setting up an installation in Quebec where power would cost less than $40 a megawatt hour due to a “substantial effort” by the provincial government to attract companies, Bucher said.
Other parts of the world with more competitive power prices include some nations in the Middle East, Iceland, Malaysia, Russia and the U.S.
“We can’t invest to develop in France due to a lack of visibility on energy costs,” Bucher said. “The end of our industry would be a waste of French natural resources.”
To contact the reporter on this story: Tara Patel in Paris at email@example.com