EU Probes Hydropower Contracts Amid French Battle Over Tendering

The European Union is investigating how hydropower contracts are awarded in countries such as France and Portugal where projects are operated by state-run companies.

The European Commission, the EU’s Brussels-based executive arm, “requested preliminary information” from some countries and will begin a probe into contracts granted to Energias de Portugal SA in 2007, it said today in an e-mailed statement.

The EU action means it’s weighing in on a controversy over French government plans to put hydropower concessions that are mostly held by state-run Electricite de France SA out to tender. French Energy Minister Philippe Martin defended the proposals last night after opposition within the ruling Socialist Party.

EU competition regulators are “observing what is happening in our country,” Martin said. “We can’t just do anything.”

France will eventually start tenders from the first half after President Francois Hollande at first put off predecessor Nicolas Sarkozy’s plans to offer 5,300 megawatts of capacity. The state auditor criticized the government, saying delaying tenders may cost hundreds of millions of euros in royalties.

Putting French dams into the public domain would “imply a renationalization of EDF,” Martin said yesterday. “There’s little room for alternative solutions to competitive tenders.” The EU had previously challenged France on competition rules.

French lawmakers including Marie-Noelle Battistel yesterday published a report backing alternatives to further competition, including spinning off EDF’s dams into a separate state unit.

“Our preferred solution is to extend the concessions,” Battistel said. The government doesn’t appear to favor keeping electricity costs low for households and industry, she said.

France’s hydropower plants, the nation’s biggest source of electricity after nuclear reactors, are run by former monopoly utilities EDF and GDF Suez SA. Foreign competitors have said that they would be ready to bid for the operating contracts.

Before it's here, it's on the Bloomberg Terminal.