UPDATE 2-France antitrust body urges end to regulated gas tariffs
* GDF Suez controls 90 pct of residential gas market
* Only 48 pct of public know it is possible to switch supplier
* French prices higher than liberalised Germany and UK
* Government says regulated tariffs here to stay (Adds government reaction in paragraphs 5 and 6)
By Geert De Clercq
PARIS, April 18 (Reuters) - France should gradually phase out regulated gas tariffs because they hinder competition and keep prices artificially high, its competition authority said on Thursday.
Regulated gas prices in France are based on a formula, which includes the costs of procurement, transport, storage, distribution and commercialisation for market leader GDF Suez .
The system has failed to lower consumer prices, the antitrust body said, noting that French residential gas prices are well above the European average and above prices in Germany and Britain, where gas price regulation has been abolished.
"Regulated gas tariffs have a negative influence on competition and do not benefit the competitiveness of French companies nor the purchasing power of French consumers," the Autorite de la Concurrence said in a recommendation to the government about a reform of the gas market.
Energy minister Delphine Batho rejected the recommendation and said in a statement the government wants to keep regulated tariffs for gas and electricity.
"Regulated tariffs protect purchasing power in the long run, which does not prevent consumers from benefitting from competing offers if they are cheaper," she said.
Since 2007, gas companies in France have been able to sell gas at unregulated prices, but the regulated gas market makes it difficult for new entrants to break the stronghold of GDF Suez, which controls 90 percent of the residential market.
Of the remaining 10 percent, 7 percent has been captured by state-owned utility EDF, which uses its dominant position in electricity distribution to sell gas to its customers as well - at prices even higher than GDF Suez's, the antitrust body said.
France's Poweo Direct Energie and Italy's Eni each have about 1.5 percent of the market but struggle to boost revenue despite selling gas at prices that undercut GDF Suez by as much as 15 percent.
Foreign utilities such as Germany's E.ON and RWE and Dutch Nuon avoid investing in the French retail market, despite their presence in several other European countries, because the regulated tariffs pose too big a risk for them, the antitrust body said.
Unlike other countries, France does little to inform its citizens about the possibility of switching suppliers, and polls show that only 48 percent of the public knows this is possible.
The competition authority estimates the average residential customer with gas heating could save up to 450 euros ($590) per year, or 12 percent compared with regulated tariffs, by switching to alternative suppliers.
"The very presence of regulated tariffs is the principal reason for the dysfunction of the French gas market," the antitrust body said.
Sixteen of the 27 EU countries have opted to retain regulated residential gas tariffs. Prices are lower in the 11 countries that have liberalised.
In the first half of 2012, the average pretax gas price in the European Union was 4.91 euro cents per kilowatt/hour, compared with 5.3 cents in France, Eurostat data show. Liberalised Germany had lower than average prices at 4.8 cents.
Prices in Spain and Italy, which also have regulated tariffs, also were well above the European average.
By contrast, France's gas market for corporate users is more competitive. GDF Suez and Total together control 49 percent of the industrial market and 72 percent of the small companies market.
"We recommend the government scraps over the coming years regulated tariffs, first for industrial clients, then small companies, then residential customers," the antitrust body said.
France imports virtually all its gas via pipelines and LNG terminals from Norway (36 percent), the Netherlands (19 percent), Russia (15 percent), Algeria (13 percent) and Qatar (6 percent). ($1 = 0.7644 euros) (Reporting by Geert De Clercq; Editing by Mark Potter and Jane Baird)