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UPDATE 1-France may need 'plan B' for debt-laden EDF, says minister

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PARIS, Feb 4 (Reuters) - France may need a plan B for state-controlled EDF as talks with the European Commission about restructuring the debt-laden nuclear utility are difficult and may not lead to an agreement, the environment minister said on Thursday.

The French government wants to separate EDF’s capital-intensive nuclear power arm from other parts of its business and needs EU clearance to make sure that a proposed new structure does not amount to state aid or crimp competition in a power market still largely dominated by the former monopoly operator.

The EU has pushed for an even stricter split of the business, sparking disagreements with Paris over the plan and dragging out the uncertainty for EDF, which faces heavy investments and is counting on the reform to help its finances.

“If we do not find an agreement, we will not sit back and watch ... but if no agreement is found, we will have to find a plan B, and that is not so easy,” Environment Minister Barbara Pompili said in parliament.

She did not give details of what that might entail. The government has had to recapitalise EDF in the past and has accepted share dividends instead of cash dividends in order to boost EDF’s finances.

A key element of the reform package is a review of the price at which EDF sells on nuclear power to its smaller competitors, which EDF says is too low and gives rivals an unfair advantage when market prices drop.

Under the government’s “Hercules” restructuring plan EDF would be split in three entitities: a regulated EDF “blue” for the nuclear fleet, EDF “azure” for its hydropower business - which may be fully renationalised - and EDF “green” for its renewables energy, distribution and retail activities.

EDF’s unions fiecely oppose any change and have called a series of strikes that have reduced nuclear production and forced EDF to import power to balance the grid, but Pompili told a parliamentary hearing that the status quo was untenable.

Pompili said that under the reform, the price of regulated nuclear power needed to cover EDF’s production costs. The Commission, in turn, wants proof the new structure would not involve hidden subsidies for EDF’s non-regulated activities.

EDF shares have fallen about 18% in the year to date following news about difficult talks with the Commission. (Reporting by Benjamin Mallet; Writing by Benoit Van Overstraeten and Geert De Clercq; Editing by Toby Chopra and David Evans)

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