French retreat on green tax raises doubts on reform will

PARIS (Reuters) - The French government was split on Friday over how to recoup lost revenues after it dropped a contested levy on heavy trucks, a move which also raised doubts over its resolve to stand up to lobbies on unpopular reforms.

Facing a protest threat from hauliers, President Francois Hollande's Socialist government on Thursday suspended the so-called "ecotax" for the second time in two months - this time for what it called an indefinite period.

Environment Minister Segolene Royal said she did not want to see a trucker protest spiral out of control. But the move immediately raised questions about how France will make up the some 400 million euros in lost receipts just as Paris heads into a clash with EU partners over broken deficit-cutting promises.

Royal proposed an extra levy on motorway operators owned by firms including Vinci (PA:SGEF) and Eiffage (PA:FOUG), arguing they benefited from overly favourable concession contracts agreed with the previous conservative government.

But Finance Minister Michel Sapin poured cold water on that suggestion, noting that their concession contracts were drafted to require the state to pay hefty compensation if broken.

"The compensation would be an increase in the tolls. Would that be a good idea, including for trucks? I am not convinced," Sapin said on the sidelines of an IMF meeting in Washington.

"Otherwise, if the compensation is to extend the length of the concession - even though we consider that their concessions are already extremely advantageous - I'm not sure that is a good idea either," he added.

Royal had said that the state had "space to negotiate" with the motorway operators, citing in particular that they were seeking to extend their concessions. On Friday she said any solution should not result in an increase in toll fees.

Earlier this week Economy Minister Emmanuel Macron had also voiced concern about toll road tariffs, putting pressure on shares in Eiffage and Vinci. Their shares have shed 8.5 percent and 3.5 percent respectively this week.

In addition to the lost revenues, the government would have to pay compensation to the Ecomouv consortium charged with building the toll collection system if it scraps the ecotax for good. Philippe Duron, head of France's transport infrastructure agency AFITF, put the compensation at 1.2-1.5 billion euros.

The retreat on the levy added to doubts over the willingness of Hollande's government to push through unpopular measures at a time when it is coming under presser from EU partners to reform.

It had already dropped support last month for Air France management during a two-week pilots strike over its plans to develop low-cost units outside France. However, it did not flinch in a June rail strike over reform plans.

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"The knockout blow delivered to the ecotax above all shows the executive's lack of resistance to pressure from lobby groups," noted Les Echos business daily in an editorial.

Cecile Duflot, a leading Green and former housing minister for Hollande, said it was "a disastrous error".

"Whenever it's time to actually do something, no one's there," she told RTL radio.

Bigger tests of the government's reform resolve are in store as it already comes under pressure from pharmacists to notaries over a bill due in the coming months that aims to inject a stiff dose of competition into professions that currently enjoy a monopoly-like grip over their industry.