European Commission backs EDF pension plan
FRANCE – The European Commission has approved the French government’s plan to reform the pension scheme for the electricity and gas sector.
The reform involves the sector becoming affiliated to the general social security scheme and the transfer of pension rights to a new independent pension fund called the National Fund for the Electricity and Gas Industries (CNIEG). All employees and employers in the sector will be required to join.
The pensions for workers in the electricity and gas sector are currently managed by EDF, Electricite de France, itself and financed by employees' contributions and the balancing contribution paid by all enterprises in the sector.
“The French authorities have given a formal undertaking that affiliation to the general scheme will be financially neutral,” the Commission said. “The general scheme will pay basic pensions to workers in the sector in return for collecting the normal employees' and employer's contributions.
“The Commission has found that this change is financially neutral and does not involve any state aid.”
Under the new plans, the specific pension rights of workers in the electricity and gas sector will remain the responsibility of the companies themselves.
But the specific rights already acquired at the date of the reform by employees will be financed by a levy on gas and electricity prices introduced by the new law.
“This reform confers an advantage on the sector in comparison with the existing situation, but it is compatible with the rules on state aid since it will eliminate the barrier to entry formed by the obligation on any entrant to set aside reserves to finance the pension rights already acquired by employees throughout the sector,” the Commission added.
“Accordingly, the pensions reform is proportionate and can be deemed compatible with the Treaty rules.”
The pension reform plan was part of a set of measures which also included the withdrawal of EDF’s unlimited state guarantee and the reimbursement of state aid.
"I welcome the favourable outcome reached in this highly sensitive case, in which the French authorities have also been cooperative,” said competition commissioner Mario Monti, of the package.
Standard & Poor's said the announcement had no impact on EDF’s AA-/Negative/A-1+ rating.
Moody’s Investor Services awarded EDF an Aa3/P-1 rating with a negative outlook. “The negative outlook reflects a number of uncertainties, including those surrounding the ultimate resolution of EDF's substantial unfunded pension liabilities,” it said.
Dresdner Kleinwort Wasserstein’s investment grade credit research team said in a note that it estimates EDF’s unfunded pension liability of at between eight and 10 billion euros. It said that of the 40-50 billion euros of pension liability quoted in press reports, “a significant proportion relates to state pension benefits which will be transferred to an independent fund for the gas and power sector”.
“They will remain a liability of the state although we understand EDF will be required to make ongoing payments to service these liabilities, as in the current situation.
“Whilst today’s news provides some guidance, uncertainty remains regarding the final outcome and detail of the pension reform and the amount and accounting method for EDF's pension liabilities.”