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Last Updated: Monday, 27 February 2006, 18:20 GMT
French deal creates energy giant
Enel workers fixing overhead power lines
European power firms are looking for opportunities to consolidate
French energy firms Suez and Gaz de France have unveiled merger plans which will create Europe's second-biggest energy firm after France's EDF.

The new 72bn euro ($85.3bn; 48.9bn) operation will be 34%-owned by the French state and is expected to deliver annual cost savings of 500m euros.

Italy has complained strongly that the merger is aimed at blocking a possible takeover of Suez by Italian firm Enel.

Prime Minister Silvio Berlusconi called on the European Union to intervene.

Italy's Economy Minister Giulio Tremonti is expected to meet with the EU's Competition Commissioner Neelie Kroes in Brussels on Tuesday.

Other Italian government officials also have also been voicing their concerns about French protectionism.

In an interview with La Stampa newspaper, Italian Industry Minister Claudio Scajola said Italy would ask the European Commission to examine the French government's backing of the merger.

"We are facing an enormous violation of the EU rules and the rules of the free markets," said Mr Scajola, adding that Italy would only turn to retaliatory measures as a last resort.

However, European Commission spokesman Oliver Drewes said on Monday that France's backing of the merger did not appear to violate EU rules on the free movement of capital.

Economic patriotism

The deal between Suez and Gaz de France was revealed by French Prime Minister Dominique de Villepin on Saturday.

On Monday, Suez said that it would pay its shareholders an extraordinary dividend of one euro per share, worth 1.25bn euros, and then offer one Suez share for each Gaz de France share.

The firms hope to finalise the merger by the end of this year.

French Prime Minister Dominique de Villepin
Prime Minister Dominique de Villepin is supporting the deal

The French Government currently owns an 80% stake in Gaz de France and critics said the proposal was an attempt to keep Suez in French hands.

Gaz de France is France's leading gas distributor while Suez supplies gas, electricity and water across Europe.

The merger announcement came days after Italian energy giant Enel said it was interested in buying Suez's Belgian subsidiary Electrabel and might bid for Suez itself.

Paris has championed a policy of "economic patriotism", whereby French companies and investors are expected to act in the country's national interests when taking major business decisions.

The French government has denied that this policy restricts free market competition and is against the spirit of European integration.

There is growing interest in consolidation in the utility industry as EU regulators try to open power markets to wider competition.

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