Macron's election setback complicates plans to revamp EDF

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By Benjamin Mallet

PARIS (Reuters) - French President Emmanuel Macron's setback at this weekend's parliamentary elections is likely to complicate his planned reform of state-owned nuclear power group EDF, muddying the waters over its fate.

Macron's centrist camp was searching for support from rivals on Monday to salvage some of its reform agenda after the elections delivered a fragmented parliament that leaves it at risk of paralysis.

Macron already had to scrap an overhaul of EDF - codenamed "Project Hercules" - last year due to opposition by unions and doubts voiced by the European Commission. That plan envisaged placing EDF's profitable renewables business in a new company, unburdened by the debt-laden nuclear assets.

Labour groups feared such a set-up would lead to a break-up of the company, while Brussels worried that if the businesses were not fully split, one part could subsidise the other.

Macron had been hoping to regain the initiative after his re-election for a second term in April - particularly with energy prices soaring and question marks hanging over Europe's power supply into the winter because of the war in Ukraine.

But with his "Ensemble" grouping falling well short of an absolute majority in parliament after Sunday's vote, the road ahead is far from clear.

"It doesn't look ideal," a source close to EDF's top management told Reuters.

One question is whether Macron will strike a coalition deal with the conservative Les Republicains - who have for now rejected that option - or enter into negotiations with opponents on a bill-by-bill basis.

If no agreement can be found, the euro zone's second biggest economy faces political deadlock.

"The real risk is to see all of Macron's proposals rebuffed by opposition parties ... and leave EDF in a sort of status quo, which worries us," said Sébastien Michel, in charge of energy policy and green transition at the FCE CFDT union.

LITANY OF WOES

EDF, in which the state holds an 84% stake, has faced a litany of problems this year, prompting the government to consider a full-blown nationalisation and de-listing, sources have said.

Half of its nuclear reactors in France are offline partly due to corrosion problems.

On top of that, the group has been forced to buy power at record high prices and sell it on to its rivals on the cheap, in line with a cap on energy tariffs set by the government to shield consumers from climbing cost-of-living expenses.

EDF expects an 18.5-billion-euro hit to its profits this year due to production losses, plus a 10.2 billion-euro loss from the energy price cap measures.

Analysts at JPMorgan expect Macron to press ahead with the nationalisation plan, they said on Monday. That would not require a parliamentary vote if it was carried out through a buyout of minority shareholders.

They also expect the government to set a guaranteed price for the whole of EDF's nuclear output - though for that the blessing of the EU Commission would be needed to ensure adherence to competition rules.

Both the timeline and sequence of the process "are uncertain at this stage", they said. Meanwhile EDF's debt is seen rising 40% this year to more than 61 billion euros.

An EDF spokesperson said: "A reform of EDF is necessary, quickly." But any wide-ranging overhaul of the company - and of the price at which it sells power - would need an agreement between rival parties.

"The reorganisation now looks a lot more difficult as a number of issues will likely have to go through parliament," said a senior source with knowledge of the matter.

(Writing by Silvia Aloisi; Editing by Matt Scuffham and Nick Macfie)

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