Valuation of French gas transmission networks

Report (15 pages in French, PDF) of a special commission established by the French Government to determine the terms on which the French gas transport concessions are to be terminated and the prices to be paid by the operators (GDF and Total) for the outright purchase of the networks.

Despite its statutory duty to take account of net accounting values, the commission decided to base its valuation on a calculation based on indexation of asset values by the GDP deflator, and the application of an average of straight-line depreciation (1/n each year for an asset with a life of n years) and economic depreciation (2i/(n*(n+1)) in year i for an asset with a life of n years).

The primary rationale for using this method appears to be that other European countries have used "economic" valuation methods, rather than net values based on historical cost accounting: apparently "equality" required the commission to follow the same practice.

The net payments to be made by the operators are calculated as 10 per cent of a discounted cashflow calculation on the basis of the commission's view that each operator would have had a 90 per cent probability of being reappointed if the concession system had been retained.

For further information or advice please contact Franck Latrémolière.

Filed under France, Gas, Price controls.

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