If it is not actually a declaration of war, it looks very much like one. Last week a collective letter from 400 managers and senior engineers issued an unprecedented warning to EDF's board of directors about the dangers to the French energy giant in building two European Pressurised Reactors (EPRs) at Hinkley Point in south-west England. The existence of the letter was first reported by The Financial Times and now Mediapart can reveal its full contents.
The anonymous letter was sent to directors of the state-owned French company just days before a board meeting on Friday April 22nd at which EDF was due to present plans for the controversial 23 billion-euro project. In the end the board chose to delay the final go-ahead for the scheme for weeks if not months while senior executives consult with the company's internal management-union works council the Comité Central d'Entreprise (CCE). No final decision now seems likely before late June at the earliest and possibly not before September. The further delay was widely taken as a sign that President François Hollande had taken charge of the issue, and seen as a rebuff for economy minister Emmanuel Macron who had said a final decision on the project was “imminent”.
The letter, backed by around 400 managers and senior engineers, delivers a stark warning to the board that is unprecedented in the company's history. It bluntly reminds directors of their legal responsibilities as custodians of the company's interests. “You would be held personally responsible were you to take these decisions without carrying out the double duty of diligence and good faith which is part of your function as a member of the EDF board of directors and to the extent that it was established that these failures had a causal link with the destruction of EDF SA's value,” write the managers. “It is thus an opportune moment to recall the existence and impact of this double duty. French law permits any shareholder to take legal action against the director at fault for reparation for prejudice suffered.”
In short, the directors, whatever their status including that of civil servant, are being threatened with legal action if they are simply happy to go along with what the senior management and the government want them to accept, without greater prior reflection.
- The letter in full (in French only):
The chairman of EDF, Jean-Bernard Lévy, and the French government had doubtless hoped that after the shock resignation of EDF's group finance director Thomas Piquemal over the project, tensions would recede. They were mistaken. Piquemal's sombre warnings about the mortal danger that EDF was facing by committing itself to a project costing at least 23 billion euros stripped away the customary cloak of silence over such issues. The Hinkley Point project has now become the melting point for a rebellion by a wide cross-section of employees at the group, including both union officials and managers. Staff in all sectors, electricity distribution, the grid, sales, have become increasingly concerned as they discover the scale of the risks that threaten the group, their work and their pay.
Barely a day passes without a new form of opposition springing up against a group chairman who is increasingly under fire. “I've never known such a situation of rebellion in the company, such a rejection of its chairman. Yet we've seen a few crises and conflicts at EDF,” says a former power station boss who worked at the company for more than 40 years.
Last Tuesday, April 19th, it was the turn of the association of employee shareholders at the company to make their voice heard, sending a letter to the stock market regulator the Autorité des Marchés Financiers (AMF) and to the body that handles state holdings in companies, the Agence des Participations de l’État (APE), criticising the state for acting as an abusive dominant shareholder - it owns 85% - liable to ruin the group with its decisions.
The shareholders' association has asked the AMF to consider a proposal for what is known as a public withdrawal bid; a move that would force the French state to buy out all the minority shareholders, including employees. This would cost around nine billion euros. Most of all it would cause further damage to the image of the state as a shareholder at a time when it is planning to open up public companies to outside capital investment.
Then on Thursday the company's internal management-union works council the Comité Central d'Entreprise (CCE) asked for the entire Hinkley Point project to be presented to council members, including unions. The CCE feels that up till now the company management has kept them at arm's length over the plans. Trade unions at the group adopted a resolution allowing the secretary general of the CCE to make a formal legal complaint for “obstruction” if the group chairman refused to give more details about the project.
The resolutions were adopted unanimously, and all the unions have been united in a common front for several weeks now. The CFE-CGC union is on the same wavelength as the traditionally more hard-line CGT and FO unions. Even the CFDT branch at EDF, which has come under huge pressure from its own leadership which wants its members to adopt what it calls a “constructive dialogue”, has joined forces with the other unions.
In additional to these official requests, Mediapart understands that both the EDF management and the government have been warned privately about the potential consequences of their current stance on Hinkley. The message is blunt: the unions believe that proceeding with Hinkley at this time could lead to the group's financial ruin and break-up, and that if EDF and the government do go ahead they could face calls for a strike which would involve power cuts. The last time there was such a strike was 1995.
Despite the mounting criticism, Jean-Bernard Lévy, who is said to believe he has the government's support, remains convinced that he is right. After an earlier letter from around a hundred engineers who asked for the Hinkley project to be postponed – as reported by Mediapart – the chairman organised his own counter-petition in favour of the scheme across the Channel.
“We are convinced that EDF is capable of building and delivering the two reactors at Hinkley Point on schedule. Hinkley Point is politically, economically and industrially one of the most important projects of our time,” write the backers of this letter, which was revealed by The Financial Times. Not everyone was impressed by it. “This petition was written by the PR agency Brunswick in London and sent directly to Jean-Bernard Lévy's director of communications. The order was given to find 100 signatories. They found 103!” is the ironic verdict of someone close to events inside EDF.
Since then pressure has grown on senior executives. The EDF chairman's office has not only required all the top executives to come out in favour of Hinkley Point, but is now also demanding that executives at lower levels also commit to the project. “The more power slips away from him, the more Lévy wants to centralise everything,” says one executive, who wonders just how far things will go.
Yet the more the EDF senior management tries to control events, the more people start talking. A growing number of employees are now determined to ensure that light is shed on the project and to force the government, senior managers and the directors to face up publicly to the risks that many feel have been hidden up to now.
What game is the state playing?
Enlargement : Illustration 2
First of all there are the enormous industrial risks linked to the European Pressurised Reactors (EPRs) themselves. Ever since the controversy about the planned EPRs at Hinkley Point broke, some engineers have repeatedly stated that it is not reasonable to embark on such a project before having at least started the EPR that is still being built at Flamanville in northern France. The latest setbacks at the Flamanville site suggests they may be right. After problems with the reactor vessel, which had defects caused during the cooling process of its manufacture, the quality of the reactor lid is now being questioned by the French nuclear watchdog the Autorité de Sûreté Nucléaire (ASN) for the same reasons.
Areva, the French nuclear firm making the vessel and lid, has discreetly been making a second reactor vessel at its factory at Le Creusot in eastern France, aimed at the future Hinkley project. This reactor vessel is currently in pieces with Areva hoping it can show the ASN that the vessel installed at Flamanville does indeed meet safety standards. “Areva wanted to force things and present a fait accompli,” says one former nuclear power station boss. “But they won't manage it. It will take months, perhaps a year. But the ASN will oblige them to dismantle the vessel [at Flamanville].”
If so, there will be immediate consequence in terms of increased costs measured in millions of euros at least, and a new delay at Flamanville. But meanwhile there is also no reactor vessel available for the future EPR at Hinkley Point. “Taking account of the loss of industrial capacity at Areva in terms of forging, there's no one other than than the Japanese and the Koreans who can build a safe nuclear vessel. But to build a reactor vessel requires at least three years from the start of the order,” says the former power station boss.
In other words, while EDF is ready to commit to a construction project with a timetable that is judged unrealistic – two years less than a Chinese schedule say engineers who want the project postponed – the group still has no guarantee about the delivery of the essential piece of its reactor. So all the ingredients are there for delays and additional costs at the Hinkley site, even if everything else goes to schedule.
But important as these industrial risks are, they perhaps pale alongside the commercial and legal stakes involved, risk that until now EDF and the French government have endeavoured to hide or minimise. It was the association of employee shareholders who raised the issue of the commercial risks in its letter to the AMF. When the Hinkley Point agreement was signed with the British government in October 2015, EDF boss Jean-Bernard Lévy made much of the price guarantee that he had obtained in the so-called 'Contract for Difference' or CfD. The British government has indeed committed itself to paying 92.5 pounds (about 113 euros) per MWh for 35 years. As far as Lévy is concerned, this means that there is no commercial risk in the contract.
Enlargement : Illustration 3
However, the shareholders' association points out that the guarantee is on price, not volume. It continues: “Economists from the Toulouse School of Economics, from Oxford and Cambridge, who have examined the Contract for Difference (CfD), raise questions not about the merits of the price or the principle of the CFD, but about the actual use in the market of the MWh produced by the power station. In fact, according to them, the mechanism of merit order, which involves the allocation of production faced with demand, does not guarantee recourse to the [Hinkley] power station's full capacity. With the advent of the British energy mix, this mechanism will place great emphasis on renewable energies as a base, which will benefit from the best sales and economic margins from sales.”
This means that even though the EPRs at Hinkley Point have a guaranteed price, they risk being the last producer called on to supply the British grid, taking their place in the queue behind renewables. If so, the reactors could end up working at 40% capacity instead of the 80% that EDF is forecasting, meaning that even in the long term the plant would never be profitable. Some critics may well ask if it is EDF's role to provide the back-up for the British electricity market, and lose money doing it.
But the biggest risk is the transfer of EDF's capital stock abroad which is hiding behind the Hinkley Point contract. When multinationals take part in developments overseas they usually use the same setup: they create an independent subsidiary in order to limit the risks and to be able to burn their bridges in case of problems. But this is not the case with the British EDF subsidiary Though no clear separation has been established between the main French group and its British subsidiary – as France's audit body the Cour des Comptes made clear in its latest report - the group is ready to delegate a power of signature without any control to EDF Energy, to commit its balance sheet on behalf of the British EPR adventure.
Given that the EDF group already has debts of 37 billion euros, this project of at least 23 billion euros seems beyond its reach. Especially as EDF is already struggling. Caught between the collapse of electricity prices on the markets, the very high guaranteed purchase prices for renewables, and its public obligations, the group can no longer generate the necessary funds to meet its own investments. Even without the Hinkley project, if nothing is done the group will amass a funding gap of 20 billion euros by 2010.
On Friday the French government indicated that it was willing to provide three billion euros of a planned four-billion euro injection of cash in the energy giant. EDF also indicated that it was planning to sell off around 10 billion euros of assets by 2020. This will be achieved in particular by opening its grid subsidiary RTE to outside investment. Some fear that this could lead to a complete disintegration of EDF, of the public service company and of the French electricity system as it now exists.
It is hard to imagine that the French finance ministry and the APE failed to foresee all the inherent risks in the Hinkley Point project. Were they happy with a few business plans from senior bankers which, as always, promised a bright future? How can one explain the French government's position, the stance taken by economy minister Emmanuel Macron, who without waiting for the EDF board's decision had already declared that the Hinkley Point had to go ahead?
In any case it now seems that once again the French government's line has changed since Friday's board meeting. The decision to postpone a final verdict on Hinkley for up to two months or perhaps more contradicted Macron's bold assertion that the green light was imminent. On Sunday April 24th Macron was quoted as saying that the decision could now come as late as September. The state's decision to inject new cash into EDF was also at odds with the economy minister's claims just a few days ago that EDF probably did not need extra capitalisation. Both decisions suggest that President François Hollande and the Elysée have taken control of the affair, undermining Macron and also leaving Jean-Bernard Lévy in a weaker position.
Some observers believe that politics are behind all the recent developments. “If the government were really to draw the conclusions from Areva's failure, they should accept at least 5,000 additional redundancies. The Hinkley Project allows it to play for time and to pass this hot potato onto its successors,” explains someone close to the political machinations involved. Others point to a diplomatic reason for Paris's continuing support for Hinkley: France has made a commitment to the British government and feels obliged to keep its word.
For EDF staff, such arguments are less and less convincing. They do not understand why the government persists in supporting a project that is not good for British taxpayers and is ruinous to French interests to the point that it could remove yet another part of the nation's industrial heritage. They certainly do not think this is the way to defend the nuclear industry. “They say they want to save the French nuclear sector. But to commit at this stage to the Hinkley Point project is guaranteeing its definitive elimination, leaving the space to the Russians and Chinese. They know that,” insists an executive. “So, why? What private, political interests are hiding behind all this?”
--------------------------------------------------------------------------
- The French version of this article can be found here.
English version by Michael Streeter