They may be whipping us in the medal tally for the London Olympics but when it comes to their latest corporate results the French are taking an absolute hiding at the hands of the Aussies.
Suez Environnement, the French waste and water giant, has just handed down its profit results. This is the company behind the ill-fated Melbourne desalination plant at Wonthaggi, the largest PPP (public private partnership) in Australia.
Incidentally, Suez seems to deploy a unique method for stemming the tide of bad news. It issues its media releases in French and when you click on the link it doesn’t work.
So BusinessDay is awaiting more detail from the company on its local financial performance. Suffice it to say that, were it not for the desalination debacle, its results globally might have been OK.
Instead, they were appalling. Thanks to Melbourne. This is the athletes’ revenge. Net income in the first half fell 82 per cent or 40 million euros ($47 million) on revenues of more than 7.3 billion euros, as the company was forced to swallow losses on its premier Melbourne water project.
Water is the last thing Victorians need. Since the drought broke, their dams are almost 80 per cent full and they may not require desalinated water for years, although they will pay for it at a cost of $500 million a year.
So the desal plant looks like being one of the fanciest and most monumental white elephants ever to grace the PPP landscape.
It is also a legacy of the previous Victorian government and, as with the abortive Ararat Prison project, the private partners in the PPP are being forced to make good on their part of the contract.
In Suez’s case, its joint venture with local contractor Thiess was contracted to deliver a desalination plant by June 30 – the deadline passed a month ago in other words.
And now, the Degremont joint venture is copping penalties of $1.8 million a day. As the state, quite appropriately, plays hardball, Suez and its partner Thiess are not happy.
For Suez, it has suffered the double whammy of recession in Europe and troubles abroad. In its latest accounts, lodged last night, losses of 310 million euros ($365 million) have already been recognised on the Melbourne Desalination Plant (MDP).
The Australian parent company (Suez Environnement Australia Holding Pty Ltd or SEAH) has pumped $365 million of equity into Degremont Pty Ltd to cover its losses to date. SEAH is a 35 per cent partner with Thiess (65 per cent) in the design and construction of the plant.
While the joint venture is facing fines of as much as $1.8 million a day for failing to complete the MDP, it has, in turn, also made claims and variations of up to $1 billion to the Victorian government.
The government has rejected these claims and also refused to extend the contractual deadline.
The losses in Melbourne have caused havoc with the Suez share price.
The stock is down 30 per cent or so in the past year – against the fall of 6 per cent in the broader French market – and Suez is so desperate it asked the French ambassador to visit the Victorian Premier, Ted Baillieu, to see what could be done about the Degremont deal. As yet, there is no variation.
Adding to its woes, Suez debt increased by 321 million euros during the past six months despite its stated objective of reducing debt. A dividend payment of 441 million euros during the half was largely responsible for the debt blowout.
Its heavy debt levels are mirrored in the leverage levels of its rival Veolia, the other major water company on the Australian PPP scene. Both have an ‘A’ credit rating.
Veolia, which provides water services to Sydney, is in a similar poor financial position although at least it is selling assets to reduce its debt. A consolation prize, of sorts.