Thursday, July 19, 2012

Areva and Rosatom cooperate?

This makes sense if put in the context of pending reactor deals

A slice of a pie is better
than no pie at all
Luc Oursel, President and CEO of AREVA, and Sergey Kirienko, Director General of ROSATOM  signed a Memorandum of Understanding July 18 to set up working groups to study ways of strengthening the cooperation between the two groups in the nuclear sector.

This decision is in line with the Franco-Russian intergovernmental declaration of November 18, 2011 calling for closer ties between the companies involved in the nuclear industry in both countries.

The working groups will focus their attention on services to existing nuclear reactors, on the management of spent fuel and on cooperation in manufacturing and supply chain for nuclear island’s components.

Progress with the studies and the analysis of conclusions will be supervised by a steering committee led by Chief Operating Officers of both groups.

Why does this make sense?

On its face the collaboration seems almost implausible because the two firms are rivals for business in multiple venues in the global nuclear markets.
  • Both firms are short listed for two reactors to be built in the Czech Republic at the Temelin site in a project said to be worth $10 billion. Bids are in and the winner will be chosen in 2013.
  • Both firms are competing for a 9 Gwe tender in South Africa which would be worth $36-40 billion. The next round of competitive effort will likely begin in September.
  • Both firms are short listed for a 1,000 MW unit to be build in Jordan as part of an asset swap for uranium deposits.
  • Both firms are committed to building nuclear reactors in China.
  • Both firms are active in India with Russia having completed two 1,000 MW VVERs at Kudankulam in Tamil Nadu and recently sign a deal to provide $3.4 billion in financing the construction of two more at the same site. Areva is expected to sign the deal to build its first EPR in Jaitapur in December.
A scenario or two for the Areva Rostaom agreement 

So why would these firms collaborate? One of the useful ways to look at global nuclear markets is to conduct scenario analyses. These are "what if" thought exercises which assess the pros-and-cons of various plausible market developments.

Scenarios are especially useful when market data isn't complete or there are moving factors that create high levels of uncertainty.  Scenarios are not used to make decisions or draw conclusions about next steps in business planning, but they can create awareness of "what if" possibilities.

If I were Westinghouse, I'd want to conduct a scenario on whether the Areva Rosatom agreement is an effort to carve up the Temelin, South African, or Jordanian deals. After all, for Areva and Rosatom, a piece of a pie is better than no pie at all.

Temelin -
For instance, in the case of Temelin, The Czech Republic has to balance the fact they are inside Russia's geographic and political sphere of influence with the fact they want energy independence from its energy supplies including nuclear fuel. This would suggest a tilt towards Areva or Westinghouse.

On the other hand, an Areva Rosatom cooperative effort might result in the Czech Republic buying its reactors from Rosatom and its fuel from Areva. There are a number of ways to slice the pie, but one that is unlikely is for Temelin to wind up with one Areva EPR and one Rosatom VVER.  CEZ, the Czech state owned utility that will operate the plants, will want both reactors to be the same types from the same vendor.

South Africa - In the case of South Africa, a 9 GWe tender leaves a lot of room for multiple reactors from multiple vendors.  For instance, that amount of power could be split in the form of three 1600 MW EPRs and four 1200 MW VVERs. The wild card in South Africa is that Areva might team up with a state owned nuclear firm from China, for financing, which would match the Russian capability to self-finance. For their part, the South African's are counting on the vendors to finance the deals.

Jordan - As for Jordan, where there is only one reactor in play, it is going to be a winner take all deal for the reactor, but fuel and services might be bid out separately. This is what the UAE is doing with its four South Korean 1400 MW PWRs.  The fuel contracts are offered separately from the components. 

Jordan is hoping to finance the deal with an asset swap for uranium deposits it says are rich enough to pay for the reactor and fuel or at least enough in terms of debt to equity to get the ball rolling.

Saudi Arabia - Lurking in the future is the giant possibility that Saudi Arabia may build as many as 16 nuclear reactors from multiple vendors. It could turn out to be the biggest nuclear deal on the planet and in history.

This is all highly speculative thinking so don't bet the ranch or ever a $20 on the outcome.

Russia Signs $10 Billion Nuclear Reactor Contract For Belarus

19 Jul (NucNet): Russia and Belarus have signed the construction contract for two new Russian reactors (1,200 MW VVERs) in Belarus at an estimated total cost of 10 billion US dollars (about 8 billion euro), state nuclear energy corporation Rosatom has said in a statement.

The twin 1200-megawatt, AES-2006 Russian reactors are to be constructed at Astraviec (Ostrovets in Russian) in the Hrodna (Grodno) region of Belarus.   

Rosatom said about half the $10 billion investment would go to local industries and suppliers in Belarus.  Preliminary construction work at the site began in April 2012. The first reactor is due to be commissioned in November 2018 and the second in July 2020.  The turnkey construction contract was signed July 19 in Minsk.

The AES-2006 reactor, a descendant of the Soviet VVER reactors, is a 1,200 MW Generation III+ nuclear power plant developed by Atomenergoproekt of Saint Petersburg.  

The AES-2006 is being used for the twin-unit Leningrad II nuclear plant, where construction is under way, and the twin-unit Baltiysk (Kaliningrad) nuclear plant, where construction began early this year.  

India signs $3.4 billion nuclear finance agreement with Russia 

India and Russia on July 17 signed an $3.4 billion loan agreement for Russia to provide funding to build the third and fourth nuclear reactors at Kundankulam in Tamil Nadu. The loan will be repaid over a 14 year period based on sales of electricity from the two reactors.  It covers half the cost of the 1,000 MW VVER reactors which is reported to be about $7 billion.

Based on the agreement, 85% of the components, supplies, and services will be provided by Russian firms. The agreement was signed by India External Affairs Minister SM Krishna and Russian Deputy Prime Minister Dmitry Rogozin.

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