February and
March are the months in which companies all over the world release their
financial results for the previous year. France is no exception and the results
season in Paris is now in full swing. Two companies particularly are in the
public eye at this time: Aéroports de
Paris (ADP) and La Francaise des Jeux
(FDJ). Their respective destinies are an interesting illustration of French
peoples’ contradictory attitudes to companies in general, their role in wealth
creation and the role of the state as a shareholder, attitudes which are also reflected
in the ongoing national debate about pension reform.
ADP is the
operator of the very lucrative Paris airports of Roissy, Orly and Le Bourget.
The French state has a controlling stake in the company but privatised it
partially in 2006, during the presidency of Jacques Chirac, keeping just over
50%. Anyone who bought shares at the IPO and has kept them ever since would
have seen them increase in value by well over 200%, not counting a regular and
comfortable yearly dividend. The current government’s intention to sell its
controlling stake to investors has generated a wave of intense and vocal hostility
in some sectors of public opinion, to the extent that the whole operation is at
best delayed and at worst in doubt.
FDJ is the
operator of the very lucrative French national lottery. It was wholly owned by
the French state until last November when 80% was sold, effectively privatising
the company. The operation was oversubscribed to the extent that orders from
small investors were served in totality and larger orders were reduced. The
introductory share price was at the top end of the expected range, rose by
about 15% after the IPO and stayed there. The announcement of the company’s
results for 2019 have boosted it by a further 15%. The government has
congratulated itself on a resounding success.
It is
difficult to fathom why the prospect of one privatisation has attracted so much
popular hostility while another actual privatisation has been such a popular
success. Both companies share similar characteristics. Both can be described as
“safe”, in the sense that they can both continue to do well in an economic
downturn. Both are de facto
monopolies, both are well managed by teams of former top civil servants with
close links to government, the core activities of both will continue to be
subject to some degree of government regulation, both will serve regular
dividends. Neither can be moved offshore.
An
expression often used by opponents of the privatisation of ADP is that the
state is selling its “crown jewels”, an expression that could equally well
apply to FDJ. The state wants to privatise ADP “just because it needs the
money” is another, often heard, criticism, as if this were a heinous crime on
the part of a state whose public debt to GDP ratio is now over 100%. The same point
could be made about FDJ but never is.
The real
sore point among opponents of the privatisation of ADP appears to be the mooted
suitor for the government’s controlling stake, the construction company, VINCI, that
took an 8% stake in ADP in 2006 and has made no bones of its ambition to take
it over when it is fully privatised. VINCI’s original sin, in the eyes of these
opponents, is that it became the concession holder of a large network of French
motorways when the state sold them at about the same time as it partially
privatised ADP. Since then, the motorways and the company that runs them have
been the subject of endless controversy: the tolls are “too high” and have “increased
more than inflation” and “motorists are being wildly overcharged”, “the state
sold them far too cheaply in the first place”, etc. etc. Few opponents seem
prepared to accept the argument, which is hardly ever heard, that large
infrastructure projects can either be paid for by the state budget out of general
taxation or by their users. In the case of the motorways, there seems to a good economic rationale for the second
option as, contrary to public services like the police, the courts, health
care, pensions and education that stand to benefit everybody, infrastructure primarily
benefits its users, many of whom, it should be noted in passing, are drivers
from outside France and not therefore subject to French taxation. Nobody seems willing to admit either that
since purchasing the motorway concessions, VINCI has done an excellent job of
managing and maintaining them, that motorists flock to them to speed down South
or out West come holiday time, complaining all the way to the toll booths as
they go. Populist politicians, mainly
from the hard left, fall over each other
to denounce a capitalist conspiracy to cheat the state and gouge motorists. At the height of the gilets jaunes protests at the end of 2018, toll gates were often delberately opened by protestors and sometimes even destroyed by fire. A number of the perpetrators have recently been convicted of arson and wilful damage by the courts.
Mainly as a
result of the gilets jaunes’ demands for a "peoples’ referendum", the French government felt obliged to
concede that any issue of “major” public concern could be put to a referendum of
this kind if a petition to request it was signed by 10% of the electorate.
Opponents from both the left and the right wings of politics were quick to
seize this opportunity and launched a petition for a referendum on the privatisation
of ADP. They seem very unlikely to gather the 4.7 million signatures necessary by
the deadline of March 12th. What the government will do then is uncertain, but
it will certainly not take any controversial decision quickly, just a few days before the first
round of municipal elections and still embroiled as it is in trying to get legislation on pension reform through parliament.
Meanwhile,
VINCI has purchased control of London’s second airport, Gatwick, after acquiring
a string of Portuguese airports some years ago, positioning itself as a major
airport operator worldwide. Like LVMH or Airbus and other successful and
world-renowned French firms, it could become another French champion. But
strangely, many in France seek to deny it that role. This is all the more
puzzling as those who have complained loudly about high taxes, and particularly
the gilets jaunes, do not
seem to want to realise that the more they ask the state to do, the less likely
it is that taxes can be reduced. And the more likely it is that those public
goods that so many rely on throughout the country like the police, the courts
and other universal public services, will continue to be starved of cash.
Funnily
enough, it was France under Napoleon 3rd in the 1850s that pioneered
the concession of public services to the private sector - what would be called
“outsourcing” in today’s jargon. Water was the first of them and led to the
creation of private companies like Lyonnnaise
des Eaux or Compagnie Générale des
Eaux, that are still around today, even if in different guises and under
different names. Most consumers pay privately owned water utilities for their
water supplies without a murmur and many of them are probably unaware that
these “public services” are outsourced to the private sector. Telecommunications,
after being a state monopoly for many years, is run today by four private
sector operators in a competitive market. Now that FDJ has been privatised with
a minimum of fuss, the controversy over infrastructure concessions in general
and ADP in particular is all the more difficult to understand. To coin a phrase often heard in a country supposedly steeped in Cartesian logic, " c'est pas logique " !
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