French President Nicolas Sarkozy is visiting China this week and is expected to sign several major trade deals for French companies to do business there including Airbus and Areva (EPA:CEI) The three-day state visit is expected to net Areva a deal for two nuclear reactors and a nuclear fuel facility.
Areva's CEO Anne Lauvergeon told Reuters, "China is very important to us." China is indeed an important market for Areva. The country plans to spend $50 billion to quadruple its installed nuclear generating capacity. A deal for two new reactors is said to be worth EU$5 billion.
If it goes to completion the deal will be the first contract for Areva's European Pressurized Reactor (EPR) with a total generating capacity for the two units of 3.2 gigawatts. Under the deal, Areva will also supply China Guangdong Nuclear Power Corp with fuel for the plants for a period of over 20 years worth EU$2.84 billion. Reportedly, the French state-owned utility EDF will finance the agreement, taking a stake of 35-40 pct in a new company to build and operate the plant. This is unusual because China usually self-finances its energy projects.
The Taishan nuclear plant in Guangdong province in southern China is planned to have six 1000 MWe class units and will be the site of Areva's two 1600 MWe EPR units which are expected to be online by 2013. Last year Areva thought the China deal was in the bag, but for still unexplained reasons China awarded Westinghouse a deal in December 2006 for four reactors leaving the French firm out in the cold. China also, at the last minute, switched the sites for the proposed Areva reactors.
Efforts to rekindle the deal in February 2007 and again in July ended without a contract. The delay in summer 2007 was reportedly caused by Chinese nuclear officials having second thoughts about Areva's EPR due to the extra costs of the Olkiluoto 3 EPR under construction in Finland. Areva also had problems last winter with regulatory agencies in Finland which have since been resolved.
So it must come as a relief to have France's head of state carry water for the company. It would be next to impossible for the Chinese government to decide again not to sign a contract. Too much is riding on the outcome of Sarkozy's visit.
In July 2007 China closed a deal with Westinghouse, now owned by Toshiba, for four AP1000 nuclear reactors. The new Westinghouse plants are to be built in pairs in the eastern cities of Sanmen in Zhejiang province and Haiyang in Shandong province, both rapidly growing areas. Construction is to start in 2009 and reactors are scheduled to come on line between 2013 and 2015.
Euros not dollars will seal the deal
Reuters reports that China will pay euros for two nuclear power plants made by Areva. This is the first time a deal of this magnitude with China is being done in a single European currency. The French newspaper Le Figaro reported that the deal with Guangdong Nuclear Power Corp will be denominated in euros rather than dollars. The news comes as speculation increased China is modifying the composition of its $1.4 trillion worth of foreign exchange and concerns about the sliding US dollar. The Chinese central bank reportedly denied that China was backing off of the dollar. Reuters reported that Chinese central bank officials said they want to see a strong US dollar.
Sarkozy is Areva's top salesman
The International Herald Tribune reports that French President Nicolas Sarkozy is burning up lots of jet fuel traveling globally to promote Areva's reactors to countries that want nuclear energy. Since last January Sarkozy has been to nearly a dozen Mediterranean and Arab countries to conquer new markets. Increased concerns about global warming are driving interest in nuclear energy. His view, as reported by the French press, is that if France doesn't sell reactors to these countries, the Russians will.
While Sarkozy is helping Areva's marketing department, the firm's CEO is moving into regulatory affairs. Speaking to the World Energy Congress on Nov 12th, Anne Lauvergeon called for international coordination on the licensing of of new nuclear projects. She said country-by-country licensing was slowing down development of nuclear energy.
"The licensing process is long. We're in a system where we have to re-license every time we want to start a new project. We have to start from scratch with every country."
She said a fast track process could be established if there is international cooperation on what's really needed to license a reactor. In Europe Area has to spin up a new licensing effort for each reactor with specific, costly requirements in each country.
Areva waits for India deal with US
While Areva's prospects in China are looking up, the outlook is not so bright in India. The on-again/off-again deal between the U.S and India creates an uncertain outlook for the French firm being able to enter that market. India has set a target of 20,000 megawatts of nuclear power by 2020. and will need international nuclear technology and construction methods to realize the goal. This creates a political conflict within the country where some government officials in charge of nuclear energy are wary of becoming too dependent on outside expertise.Areva wants a shot at India's "ultra mega facilities." The firm is in talks with Indian firms to develop nuclear power projects in India, said Philippe Guillemot, an executive with Areva. Guillemot said Areva was waiting for a landmark nuclear technology deal between India and the U.S. to be finalized before forging any new ventures. The deal also has to be approved by the 45-nations Nuclear Suppliers Group and the International Atomic Energy Agency.
Areva CEO Anne Lauvergeon told the World Energy Congress earlier this month that she sees the US-India deal as being at a difficult stage despite the fact that leftist political parties in India have relented in their opposition to the negotiations. She said, "We really are in a political field. As industrialists we have to wait for the end of negotiations." She added that Areva has opened separate discussions with India's nuclear establishment.
If concluded successfully, the US-India deal would give India access to US nuclear fuel. Reportedly, India has had to shut down some of its reactors due to fuel shortages. India cannot purchase fuel from the Nuclear Suppliers Group because it has not signed the Nonproliferation Treaty. It makes no sense for India to buy reactors from Areva if they can't fuel them. India could become one of the world's major markets for nuclear reactors if it can resolve its internal political differences over foreign participation and come to terms with the demand of the Nuclear Suppliers Group to sign the nonproliferation treaty. That's a steep hill to climb and Areva may have a long wait.
Shifting sands at home for Areva
While the company was out selling its capabilities to China, developments close to home could bring profound change to the firm. Bloomberg News reports that the French state nuclear agency plans to sell 25% of Areva to pay for decommissioning of old facilities. The French Atomic Energy Commission, which owns 79% of Areva needs a reported EU$ billion to decommission old nuclear facilities. Through a variety of mechanisms the French government owns 94% of the firm.
Also, Areva needs to sell new shares to extend its uranium mining and enrichment lines of business and to pay for its expansion in new markets such as China and India. Areva also plans to build reactors in the US having signed a deal with Constellation Energy for an EPR at Calvert Cliffs which would be a model for a whole string of planned US nuclear facilities.
The sale of 25% of the firm would raise about EU$5 billion. Possible investors include Japan's Mitsubishi Heavy Industries and Germany's Sieman's which owns a 34% stake in the firm and wants to increase its position. Another option, which would keep Areva in French hands, is to develop a merger with Alstrom. Alain Bugat, the CEO of the French Atomic Energy Commission, thinks this third option is the way to go. However, he doesn't want the whole pie, just a controlling interest. Bugat told Bloomberg, "Areva should try to secure ties with a foreign partner." This way, he said the firm would be in a better position to win new contracts in various parts of the world. So it looks like there is room at the table for outside investors so long as they hold minority interests.
The results of an options study for the sale is being conducted by McKinsey and bank HSBC and is reported by AFX News to be ready for release by the first week in December. According to AFX, Areva does not want to merge with Alstrom preferring to remain independent.
Nukes OK Away, No Nukes at home?
On Oct 25th French President Nicholas Sarkozy said he opposes licensing of new nuclear plants in France even as he energetically promotes the sale of them abroad. France's main anti-nuclear group Sortir du Nucleaire issued a study at the same time calling for a phase out of all nuclear plants in France within 5-10 years. France currently gets 78% of its electricity from 58 PWRs.The environmental group is skeptical of Sarkozy's statement on nuclear power. A spokesperson for the group reportedly said Sarkozy's call for a freeze on new nuclear plants is "decietful" because it is easy to build many reactors on existing sites. Apparently, Sarkozy's ban only related to new, greenfield sites.
The group went further and called for the cancellation to the EPR power plant and the Georges Besse II enrichment project, termination of the planned ITER fusion reactor at Cadarache, and an end to work on a deep geologic waste repository at Bure. The group boycotted a national dialog with other French environmental groups, called 'Grenelle of the Environment,' which have taken a less drastic position on the future of nuclear power in that country. It is very unlikely Sarkozy will give in to the demands of the group.
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As Sarkozy tap dances his way across the nuclear energy landscape, it is clear he is bent on promoting Areva's international interests and is not planning to undercut the nation's dependence on nuclear power at home. The long sought China deal appears to be within his grasp and prospects abound for deals in other countries. He'll need to balance how much he time he devotes to his international goals with attention on the home front.