From The Sunday Times
January 18, 2009
Gérard Mestrallet spent seven years pushing through the merger of Suez and Gaz de France to create an energy leviathan. Now the UK is in his sights
Gerard Mestrallet in his office
That’s a nice picture, I tell Gérard Mestrallet, spotting a photo propped on a shelf in his Paris office. “Ees me on my ’orse. Ees my hobby,” says the boss of GDF Suez proudly in his French-accented English. Mestrallet’s second hobby after showjumping is drinking Belgian beer — so he is clearly quite a character.
“But I’m not drinking Belgian beer all day long, you know,” protests Mestrallet. “Just occasionally.”
Then he laughs. The good news is that one of the most powerful men in global business is also one of the most laid-back. Creator of a vast Franco-Belgian utility that now bestrides the world, Mestrallet, 59, is an engaging raconteur, with none of the aloofness that usually comes with running such international heavyweights.
But he is, first and foremost, a patient man. An aeronautics engineer by training, it took him two-and-a-half years to unpick French bureaucracy and union resistance in order to merge his water and energy business Suez with Gaz de France (GDF) late last summer, creating a giant that dwarfs any British or American utility.
With revenues of €80 billion (£71 billion)and a market value of €70 billion, it is matched only by its French compatriot EDF, majority owned by the French government, and German rival Eon. That makes Mestrallet a kingpin in European energy right now — with all the problems that involves.
As boss of the largest buyer and seller of natural gas on the Continent, he has the small matter of Russian-Ukrainian relations — and its effect on the gas pipeline to the West — at the top of his in-tray. And long term, how does GDF Suez keep investing to grow in a downturn, and get more involved in the British market?
Too much pressure? You wouldn’t guess it. Compact and craggy, jacket off, the bespectacled Mestrallet holds court round his desk in homely fashion, relaxed, drinking tea, with papers piled about and pictures and books filling shelves.
His customers, though, are rather more stressed. This month Mestrallet was on French radio, reassuring listeners that France had at least 80 days supplies of natural gas, so they need not worry about spats between Russia and Ukraine. His company has good relations with the Russian giant Gazprom, but Mestrallet says the solution for Europe’s energy future now is simple: diversify. GDF Suez is already doing just that.
“We combine supplies from Norway, the Netherlands, Algeria, Libya, Egypt, Qatar, Kuwait, Yemen, Nigeria and Russia. In fact Russia is only our fourth-largest supplier, with 15%. Norway, the Netherlands and Algeria supply more.”
So can he stand up to any Gazprom bullying? He smiles. “We have a very long-term relationship with Gazprom. They have always been a very reliable partner.”
And if gas suppliers form their own version of Opec, the oil producers’ group, to influence prices? “It would depend on the spirit with which it was done,” says Mestrallet , carefully.
As for GDF Suez’s own growth, he says there will be no change to a planned three-year, ¤30 billion capital-spending programme, taking in expansion in renewables, LNG (liquefied natural gas, of which GDF Suez is the world’s largest importer) and nuclear power. He has already raised more money with a bond issue.
“We have a vision of the long-term drivers of the energy sector, based on demography, the need for electricity and gas, and the necessity to protect national resources, to diversify supply and maintain security, and to fight against climate change — all these are long-term factors and we are in a sector of long-term investment.
“What we decide today comes into operation after the crisis, that is for sure. Therefore we have decided not to change anything.”
As for demand, he says, the need for gas and electricity will be high in the future. The problem for Europe is that its own gas sources, save for Norway, will run out in 10 years. “So we have to import. Our societies are shifting from oil-addict to gas-addict because it is clean and easy to use. It is inevitable.”
In Britain, GDF Suez already has the country’s largest combined-cycle gas-turbine plant, located on Teesside, and an interest in the waste firm Sita, part of its environment division, which it was forced to float as the price for the merger. It is also installing heating and cooling systems in the London Olympic village. And last year it nearly bought British Energy, which was eventually sold to rival EDF.
This year, we can expect more. GDF Suez wants to raise its stake in nuclear energy in the UK, so it is likely to bid for government contracts to construct new-generation nuclear power plants.
Competing against EDF? Mestrallet gives a Gallic shrug. “We compete against them here, in Germany, in Italy but, you know, we are much more international than they.”
The scale of the new GDF Suez is vast, from hydro-electricity works in South America to power and desalination projects in the Middle East and 35 power plants in America plus projects in Asia. More tellingly, it gives France two global energy champions to Germany’s one, and Britain’s none. What went wrong in Britain?
Mestrallet grins. “I guess the British electricity boards could have been privatised differently. Cutting them into regional pieces was inspired by the view of business as local. That’s not our vision. We consider it must be international and global.”
Why? Because, he says, the markets may be local but the know-how and capacity to build big projects are not.
So the British government got it wrong? Mestrallet, once an adviser to the politician Jacques Delors, shakes his head. “In our case, you know, it wasn’t the government’s idea to create an international energy champion. It was my idea. But the government here accepted it.”
It took time, however, and the French government insisted on keeping a 35% stake, as the merger required the privatisation of Gaz de France, nationalised since 1945. Not a problem, says Mestrallet.
“For us, it’s the best of both worlds — the government’s stake gives us a very stable shareholding structure.”
Even if it stops him making the efficiency cuts he wants? The new entity has almost 200,000 workers.
“No, we have a plan that will reduce costs by ¤1.8 billion. We have an age pyramid that is very favourable and we hire 20,000 people a year, so it’s easy to adjust.”
Reports suggest that Mestrallet was less phlegmatic over losing the Suez water and waste division, stripped out to balance the merger, though GDF Suez retains a stake.
“We found good agreement,” says Mestrallet. “They cannot be bought by surprise, and we can continue to deliver synergies between energy and environment.”
There is a logic and wit to much of Mestrallet’s presentation. The second of three brothers who all entered business, he also has a diplomat’s charm. Belgian politician Etienne Davignon, who sits on GDF Suez’s board, describes him as a clever strategist. “And for a Frenchman he is very modest, which is important to how he is seen internationally.”
Mestrallet says he adheres to his parents’ simple values. “Work hard, and try to be useful to others. Getting to the top was not my motivation.” Others might raise an eyebrow at that.
He joined the Suez conglomerate in 1984 as vice-president, special projects. Eleven years later he was chief executive, overseeing a radical overhaul in which Suez sold its financial-services and property interests, and refocused on energy.
“Yeah, we could have switched the lights off and walked away,” he says. “But for the teams and shareholders, what we decided to do was much better, eh? Back then the market value was ¤4 billion. Today?” He gestures upwards with his hands.
The reality is, he fought off considerable shareholder unrest — led by activist investor Knight Vinke — and took at least seven years to win over the French government to his plan. It wasn’t until the Italian utility Enel threatened to buy and break up Suez that he got his way.
So why did the merger take so long? “Because it had not been prepared with the unions,” says Mestrallet. “Therefore, immediately everyone was against it. But, hey, in Britain, you are renationalising, eh? Hahaha . . .”
I think he means that fondly. Does he expect more consolidation in the energy markets? Yes, he says. Size brings benefits. It has enabled GDF Suez to buy a third of Yemen’s gas production for the next 20 years.
“It’s not in the government’s interest to stop consolidation. The need for investment in electricity and gas is tremendous, about ¤1,000 billion in the coming years. Only the private sector can find that, not governments on their own. Not after they have invested so much in banks, eh?”
Then he chuckles again and beams. Like the showjumper he is, he takes each fence at a time, and look what he’s got? Soon the world may be run by big companies protected by big government stakes. And it seems the French just got there first.
The life of Gérard Mestrallet
Born: April 1, 1949
Marital status: married, with three children
School: Lycée Asnières
University: Ecole Polytechnique and Ecole Nationale d’Administration
First job: civil servant in charge of economic studies at the French aviation administration
Salary: €2m plus bonus
Homes: Paris and Normandy. “That’s where we have our stables.”
Car: grey Citroën C6
Music: The Rolling Stones
Book: “Any of the detective books by Georges Simenon. I love the Belgian link.”
Film: Le Vieux Fusil
Gadget: “I don’t have one, but my favourite object is a photo of my parents which I keep.”
Last holiday: Senegal
THE chief executive of GDF Suez wakes at 5 am at his home in the Paris suburb of Asnières-sur-Seine. Gérard Mestrallet is driven in to GDF Suez’s Paris base for an 8am start. “I used to drive myself but I was attacked by two men with knives who wanted the car. I fought them off, but now I have a chauffeur.”
Mestrallet has 10 senior executives reporting directly to him. He likes to concentrate on “people and strategy”. He also has two secretaries who work different shifts: one starts early, another finishes late.
Twice a week he works out in a gym on the way to work, and at weekends he returns to the family home in Normandy.
GERARD MESTRALLET’s favourite pastime is riding. He is a keen showjumper. “I have one horse. My wife has 60, but it’s her job; she has stables. Am I good? Well, not so bad. I wouldn’t make the Olympic team but . . .” He admits the hobby is expensive. “But it’s not millions of euros. It’s a balance.”
He also collects “steinware”, but has difficulty describing what it is. “Not copper, not silver. It has the chemical symbol Sn. I just like it.” And he is a fan of Belgian beer, from his time in Brussels running Suez’s Belgian interests. To relax, he says he just enjoys being in Normandy.