GDF SUEZ: Belgian situation worse than feared

According to Belgian press, Belgium will go ahead with a nuclear exit in 2015 following on to a law signed in 2003. The government will look into ways to fill up the created production gap, in order to avoid energy shortage and black-outs. It will also provide a security of supply plan within six months after a new administration has been installed.

The 2015 phase-out target of Doel 1 & 2 and Tihange 1 is subject to the speed that alternative energy supply can come to the market. We know of several CCGT projects (Essent, Nuon Belgium/ENI, Eneco, SPE/EDF …) that are in the planning stage, and which should be able to be erected in 3/4 years time. A coal fired power station takes > 5 years to be erected and the only proposal, E.ON in the harbour of Antwerp, has been cancelled due to environmental restrictions. Hence, we stand a bit sceptic against the fact that their will be sufficient capacity available by 2015, although 1 or 2 out of 3 nuclear stations exiting the market by then could be a viable option. On the other hand, extending the lifetime by some years will require upright capex by GDF Suez, foremost for safety reasons. This could interfere with government flexibility.

While GDF Suez agreed with the previous government in 2009 (Van Rompuy), that in exchange for a € 250m nuclear tax 2010-2014 it wouldsee the nuclear power stations' lifetime extended by 10 years; the government is currently mulling over a nuclear exit AND a higher nuclear tax (at least double). Also the single buyer principle is still on the table, through which the government wants totackle the dominant position of Electrabel, and increase competition.

Conclusion:
We do notthink the market is taking a combination of a nuclear exit in 2015 (life time extension could we worth € 0.5-1.0/sh) and a higher nuclear tax (€ 500m p.a. 2011-14 would represent ~€ 0.5/sh) into account. The market is well aware of a possible nuclear tax and is currently anticipating € 500m p.a. for the sector over 2011-2014. Each € 250m ahead of that would impact our valuation by -€ 0.25/sh and eps 2011-12-13 by 1.5%. Hence, we treat this news as negative for GDF Suez.