The controversial merger to create a French energy champion is on track according to the two protagonists, Gaz de France and Suez.

The two companies have said that the merger is on track to be completed, with a formal presentation to investors likely before the year-end. Suez and GdF also claim that the merger will create greater synergies than initially foreseen, with the value of these savings being increased by 10% to E1.1 billion.

However there are clouds on the horizon. The Financial Times reports that the necessary sell-off of state-controlled GdF could falter if French prime minister Dominique de Villepin loses his job in the near future. Mr de Villepin is battling a scandal over alleged smears against his great rival Nicolas Sarkozy and is facing mounting pressure to resign. Any potential successor may be wary of executing the controversial privatization of GdF, which is in any case bitterly opposed by French unions.

Suez also says that talks with Enel over the possible divestiture of assets to the Italian firm have ended without agreement. Suez and GdF may be on the verge of creating a ‘poison pill’ defense to ward off a hostile bid for Suez by Enel. It is widely believed that the concept of a Suez-GdF merger is at heart an attempt by the French government to prevent the former from falling into foreign hands.