France ready to save nuclear group Areva whoever wins presidency
A government-led rescue of French nuclear group Areva and the wider atomic energy industry may cost the state as much as 10 billion euros ($10.45 billion), but political support is almost certain whoever wins the presidential election in May.
While taxpayers will ultimately pick up the huge bill, the main election contenders - from the Socialists and conservatives to the far-right National Front - broadly back the bailout, which involves splitting up Areva. (AREVA.PA)
On top of its dire financial state, Areva is beset by technical, regulatory and legal problems. But given its importance to a nuclear industry that generates three quarters of France's electricity and employs 220,000 people, the next government probably has little choice but to stand by the scheme hatched under outgoing Socialist President Francois Hollande.
France has a small but fierce anti-nuclear movement and some critics oppose investing billions in extending the life of ageing reactors. Nevertheless, nuclear energy is broadly accepted, even though neighboring Germany has decided to ditch it altogether following the 2011 disaster at Japan's Fukushima plant.
"I am convinced that the 21st century will need nuclear," said conservative presidential candidate Francois Fillon. "That is why we must support the industry during this difficult period," the former prime minister wrote in his manifesto.
Although Fillon is a frontrunner, the election outcome remains uncertain. However, even if National Front candidate Marine Le Pen pulls off an upset, she too has promised to stand by the nuclear industry.
While Germany is replacing lost nuclear output with wind and solar power capacity, Le Pen said "so-called green energies are not realistic yet". In her manifesto, she said nuclear was necessary in the medium term to meet targets for cutting carbon emissions and maintaining French energy independence.
The nuclear industry rescue also involves a cash injection for power utility EDF (EDF.PA), which operates France's 58 nuclear reactors and will buy part of Areva's business. But for all the domestic support, Brussels must also rule on whether the bailout complies with European Union rules on state aid.
Shareholders of two companies that will emerge from the restructured Areva are due to vote on the plan on Feb. 3. The timing of the EU decision is unknown, but an Areva spokeswoman said: "We hope for an answer from the European Commission within a timeframe that is compatible with the shareholder meetings."
GRAPHIC: Areva shares, uranium price: tmsnrt.rs/2hNy4iZ
ONCE THE CHAMPION
Once the champion of France's nuclear industry, 87 percent state-owned Areva has seen its equity wiped out by years of losses. Among its biggest problems is a nuclear plant it is building in Olkiluoto, Finland. Work is almost a decade behind schedule and huge cost overruns have led to Finnish utility TVO and Areva claiming billions from each other.
A similar project in Flamanville, France is also running years late, with costs spiralling. Areva has also had to take heavy writedowns on its African uranium mines while foreign orders have generally slumped since the Fukushima accident.
On top of this, U.S. and other regulators are investigating possible safety problems related to the suspected falsification of documents at Areva's Le Creusot plant, which makes components for reactors worldwide.
In a restructuring that means an end to Areva as an integrated nuclear group, the firm will sell its reactor unit Areva NP to EDF. The French state will effectively nationalize the Olkiluoto liabilities and Areva will receive a mainly state-funded cash injection of 5 billion euros ($5.2 billion) to refloat it as a uranium mining and nuclear fuel group.
The government is also seeking Japanese and Chinese investors to buy minority stakes in the fuel group, provisionally called NewCo, for one billion euros.
Such third-party involvement - which is likely to be crucial for winning EU state-aid clearance - could reduce the net cost to four billion, but the state's liabilities won't end there.
Areva's rescue closely involves 85 percent state-owned EDF. The utility has agreed to buy a majority stake in the reactor unit Areva NP based on a value of 2.5 billion euros. The hope is that outside investors will buy minority stakes in Areva NP too.
Last week Russian nuclear group Rosatom also expressed interest in participating in Areva's restructuring. While EU sanctions on Russia would be a problem, Fillon has promised to pursue warmer relations with Moscow if elected.
EDF itself has been weakened by low power prices, high debt and a series of safety-related outages at its Areva-designed reactors. Now it is taking on more heavy spending commitments.
In an 18 billion pound ($22 billion) project approved last year, EDF plans to build two reactors at Britain's Hinkley Point plant. This was Areva's first reactor sale in almost a decade.
EDF also needs to spend 50 billion euros on upgrading its French reactors and will sink billions more into helping to save Areva. To fund this, EDF plans a 4 billion euro capital increase in early 2017, to which the state will contribute 3 billion.
The state has agreed to take EDF's dividend on 2015 earnings in shares, saving the utility 1.8 billion euros in cash, and will accept the same on 2016 and 2017 earnings.
So, combining the capital increases for Areva and EDF with the foregone dividend income on the 2015-17 earnings, the total cost to the state is set to add up to around 10 billion euros - although the exact amount will depend on the size of third-party investors' stakes in NewCo.
In most countries such a bill would provoke a political row. In Britain, Hinkley Point is highly controversial due to its cost and the involvement of Chinese investors in a strategic industry. Prime Minister Theresa May held up signing of the deal for several weeks after taking office last year.
But France is different. As well as Fillon and Le Pen, Hollande's former economy minister Emmanuel Macron, who is running as an independent, also supports nuclear energy. The Socialists have yet to pick a candidate but their choice is almost certain to back the present Socialist government's plan.
"France is well known for heated debates about taxes, family issues and labor reform, but nuclear is one of the few things which every government has supported for decades," said Jean-Marc Ollagnier, Paris-based head of global consultancy Accenture's resources and energy unit.
The civil nuclear program has not only reduced dependence on oil from the unstable Middle East. Via state nuclear agency CEA, it is also linked to France's atomic weapons program and nuclear submarine fleet, whose propulsion systems are made by an Areva unit.
Letting Areva fail would mean relying on foreign groups such as Toshiba-owned Westinghouse (6502.T) to service EDF's reactors and handle their fuel, which is unthinkable within France's policy of energy self-reliance.
Areva is also due to play a crucial role in extending the lifespan of EDF's reactors. Most were connected to the grid between 1980 and 1990, and designed to operate for 40 years. Fillon supports EDF's wish to extend this to 60 years.
But critics note that while France struggles to sell nuclear reactors abroad, Denmark's Vestas (VWS.CO) and Germany's Siemens (SIEGn.DE) are winning export deals for wind turbines.
Former environment minister Corinne Lepage blames an old boy's network of graduates from France's elite engineering schools for defending nuclear at any cost.
She opposes EDF extending the life of its oldest reactors, saying it should instead start decommissioning them. EDF could build this into a business in dismantling reactors while gradually switching to renewable energy, she told Reuters.
"We need a massive reconversion plan for EDF staff. These are engineers. If they can handle nuclear reactors, they can also handle wind turbines and solar panels," she said.
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