Government cash injection is the third restructuring plan in 18 months, writes Lara Marlowe in Paris

It was a shocking announcement for a government that is considered to be ultra-liberal to make. To save the French energy and engineering group Alstom from bankruptcy, Paris is about to inject €300 million of fresh capital into the ailing private sector company, giving the government a 31.5 per cent share. The Finance Minister, Mr Francis Mer, denied that the move constituted re-nationalisation, but it is widely viewed as such.

The €2.8 billion rescue plan was drawn up between 40 creditor banks, Alstom's management and the French finance ministry at Bercy.

Finalised yesterday, it is the third restructuring plan in 18 months, and it has alarmed the EU Commission.

Mr Mer reportedly travelled to Brussels at the beginning of the week to present France's predicament to the competition commissioner, Mr Mario Monti, who requested a detailed explanation "as a matter of greatest urgency".

EU member states are not supposed to help private businesses because it creates unfair competition, and the Commission must agree before the plan can go ahead.

Mr Monti is said to be disgruntled that, in addition to the €300 million, Paris is providing a €200 million credit line and will guarantee 65 per cent of a new €3.5 billion credit line organised by a banking syndicate.

Mr Monti's spokesman said the Commission would be willing to accept public assistance to Alstom on condition that it be "accompanied by a credible restructuring plan, which would enable the company to return to financial viability". The French government insists it will end its involvement once Alstom recovers.

Paris has a long history of clashes with the competition directorate. In the last 18 months, the French government pumped €9.2 billion into France Télécom, and advanced €450 million to the computer company Bull. Thomson Multimédia received €1.68 billion in 1997, and the railway company SNCF saw its €16.77 billion debt forgiven the same year. Air France has received €3.3 billion in state assistance.

Each time, Brussels has grudgingly conceded, but Mr Monti has allegedly said this is the last time. The stakes for Paris are high; Alstom builds the prestigious TGV trains and France's nuclear power reactors. Its shipyards produce ocean liners, including the Queen Mary 2. At 345 metres long, the world's biggest passenger ship is scheduled for delivery to Cunard in December.

With €1.8 billion in debt payments falling due between now and April, Alstom's chief executive officer, Mr Patrick Kron, sent a blatant SOS signal last week by going to the Commercial Tribunal to investigate declaring bankruptcy.

Alstom employs 118,000 people in 70 countries and has an annual turnover of €21 billion. Its energy division, which accounts for 55 per cent of turnover, builds turn-key nuclear power plants, gas, steam and hydro-electric turbines and boilers.

The transport division manufactures the TGV and metro trains, including those purchased by Dublin for the LUAS. As part of the rescue plan, the sector that transmits and distributes electricity - considered the "family jewels" - is to be sold to Areva for €1 billion.

In defending its case in Brussels, Paris will argue that Alstom is too big a company to be allowed to go bankrupt, that the entire French economy and banking sector would be endangered by its failure. France's biggest banks, including BNP, Société Générale and Crédit Agricole-Crédit Lyonnais have made substantial loans to Alstom.

Alstom's troubles started in 1998, when its parent companies, the British firm Marconi and the French company Alcatel, floated 52 per cent of their holdings on the Paris Bourse. At the same time, the two companies quietly siphoned off €1.2 billion as exceptional dividends.

The former chief executive, Mr Pierre Bilger, then made the strategic error of buying the energy division of the Swiss-Swedish company ABB, although its new high-power turbines were already said to be faulty. That operation cost Alstom €4 billion - most of its present debt of €4.9 billion. A contract to build eight cruise ships for Renaissance Cruise looked like salvation, but when Renaissance went bankrupt after September 11th, it emerged that Alstom had guaranteed €684 million of the contract.

Mr Bilger created a scandal by demanding his €5.1 million "golden parachute" when he left Alstom on the verge of bankruptcy in March. Indemnities paid to Mr Bilger and two of his associates, including the former head of the energy sector who should have stopped the ABB acquisition, totalled €15 million.

All of which proves that shockingly poor management is not the preserve of the public sector. It was significant that the loudest praise for the bail-out came from the communist trade union CGT. At a time when the French government is meant to be privatising - not re-nationalising - the rescue of Alstom raises serious questions about the state of the French economy and the possibility of reform.