By Sophie Sassard and Arno Schuetze

LONDON/FRANKFURT (Reuters) - Electricite de France (EDF) <EDF.PA> is sounding out bankers about a partial sale of its electricity transport unit RTE, even though the government is not planning a sale at the moment, banking sources told Reuters.

RTE - a prize asset whose 100,000 km high-voltage network is Europe's biggest, stretching from Lille in northern France to Marseilles in the south - is a prime candidate for disposal as EDF needs funds to upgrade its ageing nuclear power stations and reduce its debt.

Sources said state-owned EDF is already quietly talking to advisors with a view to starting work on a deal for RTE, which has an enterprise value of about 12 billion euros (10 billion pounds) including 7 billion of debt.

Investment banks Lazard <LAZ.N> and Morgan Stanley <MS.N> are frontrunners to win the mandate because of their ties with EDF management and Lazard's role in the sale of gas network TIGF earlier this year, sources said.

Both banks and EDF declined to comment.

"EDF will start interviewing banks in late September-early October, although they probably know already who they want to work with," said one utilities banker who asked not to be named.

Five utilities sector bankers told Reuters EDF was expected to start evaluating financial advisers' pitches next month.

"Banks will actively pitch this autumn as they are expecting the sale in 2014," said one banker familiar with the matter.

The French prime minister's office denied the sale of RTE is being considered and a senior finance ministry source said an operation involving RTE was not on the agenda.

Any decision to sell RTE would be made by EDF CEO Henri Proglio, but he would need state backing.

"Hollande's government is quite pragmatic in the end," one banker said.

Bankers say EDF could sell a significant minority stake as the utility, weighed down by 61 billion euros of debt, needs to spend 55 billions euros between 2011 and 2025 to upgrade its ageing nuclear power stations.

One senior utilities banker said EDF could in coming months also launch a 5 billion euro share issue that would dilute the French state's 84.4 percent stake by a few percentage points.

French industry minister Arnaud Montebourg in April suggested cutting the stake to 75 percent.

MORE LIKELY

Much will hinge on whether EDF proceeds with its bid to build nuclear plants in Britain.

If that project goes ahead, a share increase looks more likely. If EDF abandons the UK plan, the government could raise money by selling existing stock.

An RTE sale could be launched in early 2014, as the government wants to wait for the outcome of the industry's union elections in November and would like to get a deal signed before municipal elections at the end of March, financial sources said.

RTE could attract interest from sovereign wealth funds such as Singapore's GIC, Qatar Holding and the Abu Dhabi Investment Authority, bankers said, noting other possible bidders range from pension funds such as Canada's CPP and Ontario Teachers (OTPP) to infrastructure investors like France's Antin.

Some bidders might come from the consortium that in February lost out in the 2.4 billion euro bid for TIGF, which oil major Total <TOTF.PA> sold to a group led by Italy's Snam <SRG.MI> and including GIC. [ID:nL5N0B5DEE]

"After TIGF, it became clear that people looking for stable returns would love to own bits of RTE," said one of the bankers, who asked not to be named because the talks are private.

Other possible contenders are seen as Global Infrastructure Partners (GIP) and insurers like Allianz <ALVG.DE>, which last year failed to buy German utility E.ON's <EONGn.DE> gas network Open Grid Europe (OGE), sold to a consortium led by Australian bank Macquarie <MQG.AX> for 3.2 billion euros ($4.2 billion).

Since then, disappointed bidders have been circling Europe's regulated assets, including RTE and French utility GDF Suez's <GSZ.PA> gas network GRTgaz, bankers said.

Some bankers expect RTE to be sold before GRTgaz, because EDF's electricity networks have already been partially carved out from the group and allocated to its nuclear decommissioning fund. Others expect GRTgaz to go first, as it is less politically sensitive than the electric network.

By law, both firms need to be controlled by a public entity. EDF qualifies as such and could sell down part of RTE while retaining a 51 percent stake, either alone or with a domestic public partner like state bank Caisse des Depots et Consignations (CDC), bankers say.

RTE employs 8,400 staff and earned a net 407 million euros on revenue of 4.5 billion in 2012. It plans to invest up to 1.5 billion in upgrading its network over the coming four years.

(Additional reporting by Anjuli Davies in London and by Benjamin Mallet, Matthieu Protard, Muriel Bosselli and Jean-Baptiste Vey in Paris; Writing by Geert De Clercq; Editing by David Holmes)