Areva struggles to dig out of debt

  • No more big first of a kind reactor projects, more cooperation with EDF
  • Capital from China?
  • Tech Transfer for India?
  • Anne Lauvergeon reflects on her time as CEO

digoutofdebtNewly appointed French CEDO Phillippe Knoche told UK news media March 15, where the firm is committed to building two EPRs at Hinkly Point, that they may be the last of their kind.

He said that Areva is abandoning the firm’s strategy of leading “high profile, new build projects” and instead will concentrate on the supply chain including major components of nuclear reactors.

In terms of specifics, he noted the firm will work with EDF to supply nuclear steam generators and related equipment. Another area where the firm is showing success is in new digital instrument and control systems for nuclear reactors.

Areva’s change in strategy comes as it struggles to overcome losses this year of 4.8 billion euros. The firm’s securities have been downgraded to “junk” status. Two EPR projects, one in Finland, the other in France, are reported to represent the bulk of the current debt, but less than 10% of the firm’s revenue.

The new core businesses will be uranium mining, nuclear fuel fabrication, recycling spent nuclear fuel and MOX. Decommissioning of old reactors will be a new line of business. French state-owned utility EDF will take the lead on new builds like Hinkley Point in the UK. Areva has a 10% equity stake in the project. This is a turnaround for the relationship between the two firms which took a nose dive under former Areva CEO Anne Lauvergeon.

Knoche said that the firm’s commitment to building two EPRs at Hinkley Point, and its cooperation with EDF on the project, “is beyond questioning.”

In terms of rebuilding, Knoche said the firm needs a 2 billion euro infusion of capital from the French government which he expects will eventually will be provided to drive the new business strategy. The firm will cut 1 billion euros in costs which includes layoffs. Some have already occurred in Germany which shut down half its nuclear fleet.  Areva will work with EDF to help maintain the current French fleet of nuclear reactors which provides 75% of the nation’s electricity.

Capital from China?

Reuters reported March 16 that Areva is exploring additional capital funding from China. The money would come from government sovereign wealth funds rather than state-owned nuclear companies. The report did not say how much money Areva was seeking or report the stage of the discussions. However, Areva indirectly confirmed the talks by telling the wire service its “restructuring plan includes partnerships with equity components.”

Tech Transfer for India?

In a major policy change, Areva is reported to be in talks with the Indian government to transfer nuclear reactor technology in return for a signed contract to build two of a planned six 1650 MW EPR reactors at Jaitapur on India’s west coast.

Erwan Hinault, managing director of Areva’s operations for India, told The Hindu newspaper on March 11, “Areva is open for technology transfer with Indian companies for making nuclear components which would be used for the Jaitapur project.”

Current plans for the twin units are for the main reactors to be provided by Areva. Electrical equipment would be supplied by Alstom and NPCIL would source from Indian firms balance of plant equipment and local infrastructure.

Hinault said that if Indian firms can supply some of the larger reactor components that the firm is open to getting them that way “if Indian firms can meet our quality requirements.”

Construction has not started at the site. Completion once slated for 2021 has now been pushed back a few years. Areva is hoping its “localization” plan will speed things up.

Former CEO Anne Lauvergeon talks about her tenure

Anne-Lauvergeon WECIn an interview with Les Echos for March 13, 2015 (translated from the French original text), former Areva CEO Anne Lauvergeon offered a few quotable comments in the direction of her critics.

One her main objectives in doing the interview is to push back on claims she is responsible for over-extending the firm’s reach with too many capital intensive commitments.

On the issue of how much responsibility she bears for Areva’a current financial crisis, she says that when yuo are the CEO of a firm for ten years “inevitably you wind up with some.”

That said she is critical of the French government’s decision that forced Areva to sell Areva T & D [electricity distribution business] which was a third of the firm’s revenues. The change put all of Areva’s eggs in the nuclear basket.

Lauvergeon points another finger at the French government which kept the state-owned firm under capitalized from 2001-to-2010. A 900 million euro infusion helped, but when Fukushima hit a year later in 2011 it caused an immediate 10% drop in sales across the board for its uranium mining, enrichment, and MOX fuel businesses.

As for cost increases at Areva’s delayed and increasingly expensive efforts to build its flagship reactor at sites in Finland and France, Lauvergeon shrugs pointing out that major high tech projects always cost most than their sponsors think they will. She cites high speed rail service in Europe, the Airbus A-380, and even a next generation concert hall in Paris as an examples where costs came in at three times the original price.

As for the Finnish reactor, she says that Areva’s “has a customer who won’t accept change orders,” referring here to the Finnish utility which is the customer for the reactor. Lauvergeon also tosses a grenade over the transom into the office of current Areva CEO Philippe Knoche pointing out one of his prior executive positions with the firm was as site manager for the Finnish project.

Even more interesting, she says the Areva 1650 MW EPR “was not her baby,” pointing out the design was born in 1991 well before the start of her tenure.

“My baby is the TDD (Atmea), a smaller 1,100-megawatt reactor, in partnership with Japan’s Mitsubishi. With four units sold to Turkey in 2012, this is the first large order recorded after Fukushima.”

Is nuclear energy dead as a result of Fukushima she was asked.

“No, nuclear power is not dead. The world needs energy without CO2. This is one of the subjects of the COP 21 conference in Paris. Areva is still a world champion. But new nuclear projects proceed mainly through state funding. Our major competitors have it, not us. This is a major issue for France and for all infrastructure industries.”

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