Peking – Hankow: financing and building the first major railway line in Imperial China, 1899-1905
At the turn of the 19th – 20th century, three of the BNP Paribas Group’s […]
If the founding event of the arrival of electricity in France was the Universal Exhibition of 1881, highlighting a science in full expansion, the installation of electric tramway networks and the automation and operation of the railway were decisive for the expansion of the electrical industry in France. It was a slow process, and it was not until the turn of the 20th century that the electricity market gained momentum with the development of electric traction on urban transport networks.
At this time, the electricity sector began its industrialization, with a growing need for investment as the size of generating plants and the extension of networks increased. The electricity producers and distributors, by structuring supply and lowering prices, organized the market and transformed the need for electricity into daily use. In this way, the electricity economy is gradually becoming a central element of the country’s economy.
These power companies need money. From 1905 onwards, with the boom in power generation and the formation of the first large-scale companies, private financing became a key resource for all players in the electricity industry. Thus, companies in the sector intensified their recourse to share and bond issues to finance the start-up of their activities as well as the construction of generation plants and the development of distribution and transmission networks. While until then the share of electricity stock emissions had been modest, accounting for no more than 5% of total emissions, in 1906 the sector’s emissions already accounted for more than 16% of the total and more than 17% in 1909.
Banks are thus beginning to play a key role in the development of electrification and distribution networks in major French cities, seeking to become involved in the electricity business. Little by little, they are joining the boards of directors of electricity companies through equity investments in this booming industry: on the eve of the First World War, one-third of the chairmen and vice-chairmen of the major French electricity companies were bankers. Among them were those of the Banque de Paris et des Pays-Bas (BPPB, the predecessor bank of Paribas), the Comptoir national d’escompte de Paris (CNEP) and the Société générale de Belgique (Fortis), forerunners banks of BNP Paribas.
Let ‘s focus on the case of Paribas. At the end of the 19th century, Paribas became a shareholder in new companies and power utilities, and then, as part of a more ambitious investment policy, initiated the creation of a number of them.
The Bank initially operated for the benefit of electricity producers and distributors at a time when the latter were financing themselves on the market through long-term loans. Thus it joined forces with Schneider in 1898 in the Franco-Swiss electricity industry, took stakes in the Compagnie parisienne de Distribution d’électricité (CPDE) in 1907, in the Société centrale pour l’énergie électrique alongside Thomson and the German group AEG. During the 1930s and 1940s, Paribas participated in numerous capital increases and other financing transactions for the CPDE (1930, 1934, 1937 and 1950).
Paribas then initiated the creation of various companies. Through a network strategy, the Bank has established personal links through its boards of directors and links between suppliers and customers, in addition to financial ties. For example, engineer Henry Urban, who was very involved in the electricity business, was recruited in 1916 to head the Brussels branch, while Louis Wibratte became head of the head office in 1920. On the initiative of the first one the Constructions électriques de France and the Constructions électriques de Belgique were created, integrated Franco-Belgian companies for the construction of electrical equipment for traction and power plant equipment, as well as for the operation of electrical networks and tramways. This group was completed by Paribas’ entry as a major shareholder alongside the Belgian group in Société nouvelle de constructions et de travaux, a major civil engineering company. The creation in 1923 of Energie électrique du Rouergue, dedicated to supplying power to the Toulouse region was a direct offshoot of this company. Then, in 1928, it was the creation of Alsthom, in 1931 of the Belgian company Electrobel or SCIE (at the time, Traction et Electricité), a company specializing in portfolio management, including that of the Compagnie centrale d’énergie électrique.
Even though they have a minority stake alongside other financial and industrial establishments in the electricity sector, the forerunners banks of the BNP Paribas Group play an influential role due to the size of the industrial interests they directly control. One observes that the major electricity groups emerged at a time when the big banks were beginning to take an interest in the hydroelectric industry. And this process developed after the war with the massive arrival of the banks: the sector became definitively integrated into the industrial landscape and it became inevitable to invest capital in it. Some banks even took the lead, as was the case with Paribas.
In the inter-war period, the electrical industry needed a large volume of capital to expand and the recourse to external financing was vital: one estimates that in 1933 the capital invested in the electrical industry reached FR20 billion, i.e. more than a third of the capital invested in the railways from the outset. At the same time, the sums invested in the chemical, coal mining and iron and steel industries were evaluated at FR15, FR12 and FR5 billion respectively.
In 1945, the annual investment of electricity securities represented 35% of the securities invested in banks. The securities issued by hydroelectric companies, the largest capital consumers, accounted for the two-thirds. The electricity sector is therefore by far the largest investor.
In April 1946, in order to enable the reconstruction of France and to promote harmonized electrical development throughout the country, the government decided to create a national and fully integrated energy player – Electricité de France (EDF). The nationalization process led to the creation of a national public establishment of an industrial and commercial nature. The State entrusts it with the management of the former electricity companies. This structure is responsible for the development of electricity in France, an activity considered as strategic: it controls everything from production to distribution. .
In the first years of EDF’s existence, the State made a massive appeal for savings in order to finance a huge program of work at an accelerated pace. EDF also took out short-term bank loans. Paribas and CNEP participate in the company’s capital increases and grant discount facilities in 1946 and 1947.
The electricity industry became the main driving force behind post-war reconstruction, and the goal of lifting the country out of its electricity shortage was achieved in 1950.
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