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Repsol stirs Spanish passions for new energy game

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Repsol stirs Spanish passions for new energy game

By Paul Betts

Published: July 10 2008 03:00 | Last updated: July 10 2008 03:00

Antonio Brufau, Repsol’s chairman, is clearly finding it difficult to resist the temptation of joining in Spain’s new national sport. Forget football, tennis or even bullfighting. These days all the talk is of who is playing and who will ultimately prevail in the energy game.

Until recently, Mr Brufau has remained on the sidelines. Rather than engaging in the noisy debate over energy consolidation, he has been quietly getting on with the job of reviving Spain’s biggest integrated oil and gas company and sorting out its problems. Like Shell, Repsol was forced a couple of years ago to restate and write down its oil reserves by as much as a quarter.

Reporting errors, energy nationalisation in Bolivia and difficulties in Argentina all combined to unsettle the company and raise questions about its future. Worse, its largest shareholder, Sacyr, decided to embark on an ill-fated attempt to take control of France’s Eiffage construction and motorway group.

Sacyr has since retreated from France and sold its Eiffage stake. But there had always been the risk that the Spanish construction group could have been forced to sell its Repsol stake to finance its French foray – a move that would have further destabilised the oil group. But Mr Brufau pressed on and Repsol is now beginning to reap the fruits of his recovery strategy. Analysts have started warming again towards the Spanish oil group, upgrading it as a sound long-term investment. This week, Repsol confirmed it was in talks to acquire a large stake in a promising prospect in Russia as part of its efforts to reduce its reliance on South American supplies. It has been developing its liquefied natural gas business and its refineries are in good shape.

This does not mean that Repsol is out of the woods. Under the circumstances, Mr Brufau’s decision to stir up and enter the broader Spanish energy debate seems a bit surprising – all the more so given that barely a month ago he was saying he did not see Repsol participating in any move to form a new national energy champion in the medium to long term.

But then, he clearly could not resist reviving his pet subject. Back in 2000, Mr Brufau was chairman of Gas Natural. On two occasions he tried and nearly succeeded in merging the gas utility with Iberdrola. Madrid blocked the deal, and Mr Brufau subsequently left Gas Natural.

After a boardroom coup at Repsol, he was appointed chairman of the oil group that once controlled Gas Natural and now still owns 30 per cent of the gas utility. This weekend, Mr Brufau told a Barcelona newspaper that the Gas Natural-Iberdrola combination still made a lot of sense. It would also be an excellent way to keep French predators, such as EDF or Suez-Gaz de France, at bay. And it would fulfil his old ambition to create an integrated energy group with a strong electricity business.

But Mr Brufau could well be tilting at Spanish windmills. Iberdrola this week denied any talks with Gas Natural, damping intense stock market speculation that had sent its shares soaring. EDF has made it clear it is not interested in entering the Spanish energy quagmire if it is not politely invited. Suez is keeping its options open and would probably be willing to join in a Gas Natural-Iberdrola merger if its Spanish partner, La Caixa – the Barcelona savings bank with whom it has had a 20-year relationship – were to seek its support. However, it seems that La Caixa is cooling these days towards its French ally.

It is all pretty complicated, but La Caixa seems to hold the key cards. It is Repsol’s second-biggest shareholder, with 12.7 per cent, and Gaz Natural’s largest, with 35.8 per cent. Suez has also built up an 11.3 per cent stake in Gas Natural, so La Caixa and the French group could outmanoeuvre Mr Brufau. Perhaps that is why the Repsol chairman felt it was time to speak out.

Switched-on Schneider

Jean-Pascal Tricoire feels he is misunderstood by the markets. In the two years since he took over from Henri Lachmann as chief executive of Schneider Electric, he believes the shares of the French electrical equipment manufacturer have hardly reflected their true value.

According to Mr Tricoire, the market is still putting too much emphasis on Schneider’s exposure to the construction sector, in particular residential housing. In fact residential accounts for just 12 per cent of its turnover. Over the past few years the group has succeeded in building a strong presence in booming sectors such as utilities, oil and gas.

Schneider makes all sorts of plugs and switches that are no longer simply about turning lights on or off, but part of integrated intelligent systems to manage electricity more efficiently and more safely. Under the circumstances, Mr Tricoire seems delighted with high oil prices and positively welcomes more energy and environmental regulation. All this means more demand for Schneider equipment.

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