Government representatives on the board of Corsica ferry operator SNCM will vote on Monday to decide whether Veolia can retake control of the troubled business.
The vote is tricky for the government as siding with Veolia could lead to protests by SNCM unions in Marseille ahead of European elections in two weeks.
Veolia wants to put loss-making SNCM (Societe Nationale Maritime Corse Mediterranee) under court protection to shield it from a European Commission order to repay 440 million euros ($605 million) of state aid. Veolia has also said it will not put any more money into the ferry company.
Veolia owns 66 percent of SNCM via transport firm Transdev - itself a 50-50 joint venture between Veolia and French state holding company CDC. But Veolia has not been able to impose its will at SNCM because the chairman of the ferry company's board sides with the unions and has voted against his employer.
SNCM's unions say the French government and SNCM's appeal against the European Commission's state aid ruling will succeed and that SNCM needs more time. They also want the government to renationalise SNCM.
The board will also vote on Monday on whether to renew the mandate of SNCM chief executive Marc Dufour. Dufour told regional newspaper La Provence that he had little hope of getting it.
"I hope it will be, but I doubt it. My departure would be a bad sign for the future of the company, it will lead people to think they want to make SNCM disappear," he said.
Transdev has seven seats on SNCM's 14-member board, but with chairman Gerard Couturier expected to back Dufour, it will need the three state representatives to at least abstain to end Dufour's mandate, a source close to Transdev told Reuters.
An attempt to oust Couturier in April failed as the state representatives abstained from a vote to replace him with a Transdev representative.
The French state has 25 percent of SNCM's capital, while the ferry operator's staff own 9 percent of capital and have four board seats.
The transport ministry was not available for comment.
Transdev and Veolia have said SNCM's long-term business plan was not credible as it is based on unrealistic forecasts for ferry traffic growth.
But local politicians in Marseille led by conservative mayor Jean-Claude Gaudin have called on the state to help SNCM, which employs 2,600 staff and also provides work for some 2,400 suppliers and subcontractors.
Ahead of SNCM's partial privatisation in 2006, there were weeks of strikes and protests in Corsica and Marseille. One of the firm's ferries was hijacked and in the Corsican city of Ajaccio a rocket was fired at the offices of the city's top French representative.
"The French government is petrified by the thought of a major social conflict that would paralyse Marseille," French daily Le Parisien quoted an insider as saying.
($1 = 0.7269 Euros)
(Reporting by Geert De Clercq. Editing by Jane Merriman)