May 22, 2013 / 4:32 PM / in 6 years

INTERVIEW-Italy's Eni chips away at monolithic French gas market

* Eni wins 50,000 gas customers in eight months

* Raises forecast to 650,000 customers by 2016

* Tough market for new entrants, says CEO

* Obstacles are govt policy and GDF Suez dominance

By Geert De Clercq and Benjamin Mallet

PARIS, May 22 (Reuters) - Every day about 500 French consumers sign up with Italian gas vendor Eni as it chips away at the near-total domination of the French gas market by GDF Suez.

A huge advertising campaign featuring Eni’s six-legged dog logo has brought the Italian challenger 50,000 new customers since October. It now has 220,000 French retail clients and expects to hit 650,000 by 2016, having increased its previous forecast of 500,000.

Stronger competition in the French gas market could bring down retail prices - among the highest in Europe - and weigh on the margins of market leader GDF Suez.

But with GDF Suez still controlling about 90 percent of the market and the French government not inclined to incite citizens to try cheaper foreign offers, it’s a hard nut to crack.

“It is not easy,” Mauro Fanfoni, chief executive of Eni’s French gas and power business, told Reuters at the firm’s modest headquarters.

Eni has 7-8 million gas and electricity customers in Italy, more than 500,000 in Belgium and more than 1 million gas customers in Hungary. It also has small gas operations in Greece and Slovenia.

The French gas market was liberalised in 2007, but new entrants have a hard time breaking through.

Of the 11 percent market share held by alternative suppliers, 7 percent goes to state-owned EDF, which France’s antitrust watchdog has said uses its dominant position in electricity to sell gas to its power clients.

Eni has a 2 percent market share, with the rest split between other small firms such as Poweo Direct Energie .

“The degree of openness of the French market is not like elsewhere,” Fanfoni said, adding that government policy makes it difficult for new entrants to build up a viable business.

He said the first requirement is a stable regulatory framework. “Without certainty about the outlook, no new entrant can execute his business plan,” he said.

Fanfoni was critical of a recent reform of the French gas market that allows the government to freeze prices for up to a year if it deems they are rising too quickly.

CRITICAL MASS

A second requirement is clear communication by the government about alternative energy suppliers, Fanfoni said, adding that authorities in Britain and Belgium actively promote price comparisons.

Eni’s most popular offer is a three-year fixed-price contract. Another deal offers a 6 percent discount on regulated gas prices.

Eni has yet to make money on its retail business, though its gas sales to corporate customers are profitable. Eni France had 2012 turnover of 940 million euros ($1.2 billion).

Fanfoni said that part of Eni’s problem is that regulated gas tariffs are based on the cost structure of the historical operators, who can operate much more cheaply than new entrants.

“If governments want competition in their markets, they need to allow new entrants to achieve critical mass,” he said.

Eni has no plans to enter the French electricity market, which Fanfoni said is even more tightly controlled by EDF.

“Conditions are not ready for an opening of the electricity market, he said.

The only alternative energy supplier in France mounting a challenge to EDF is French-owned Poweo Direct Energy, which has more than 760,000 electricity customers and 240,000 gas clients. It aims to double its customer base to nearly 2 million in three years and boost its market share from 3 percent to 5 percent.

CEO Xavier Caitucoli lists the same obstacles to liberalisation as does Eni, but he believes the market will open up.

“For a market to become liberalised, the historical operator needs to lose 20 percent market share. We hope this will happen in three years,” he said.

The newest challenger is Lampiris, a privately owned Belgian company that is the third-biggest energy retailer in its home market with 600,000 customers.

Lampiris has only 6,000 French customers at present, but is aiming for 100,000 within three years - it is selling gas 12 percent below regulated tariffs and also sells “green” electricity from renewable energy.

“Eni may be the challenger in France, but at home it is a Goliath. We are David. Our common enemies are GDF Suez and EDF,” Lampiris France representative Julien Tchernia said. ($1 = 0.7766 euros)

Editing by David Goodman

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