Another blow for nuclear: AREVA's financial woes

Nuclear Monitor Issue: 
#739
23/12/2011
WISE Amsterdam
Article

In 2009, multinational financial services corporation Citigroup called nuclear power – with its skyrocketing costs, disastrous economics and dependence on public bailouts – a "corporate killer". Now, in 2011, are we witnessing the slow death of one of the world’s largest nuclear companies? French nuclear giant Areva (the French state owns 87 per cent of the company), which designs, builds and exports nuclear reactors is in big financial trouble.

On December 13, Areva announced that operating losses for this year could reach 1.6 billion euro (US$ 2.1 bn), primarily as a result of the Fukushima disaster on the value of its uranium mining operations, and that it is sacking up to 1,500 workers in Germany, reducing jobs through attrition in France, freezing wages, and selling some assets while reducing the value of others. Areva will also cut its dividends to investors and its global investment for the next four years by a third. Not only that, the company is suspending planned "capacity extensions" at four nuclear sites in France and scale back planned investment at uranium mines in Africa. Central to Areva’s financial woes is a provision for an asset write-down of US$1,97 billion for property and equipment at its UraMin operations, which include Trekoppje in Namibia, as well as Bakouma in the Central African Republic and Ryst Kuil in South Africa. In addition, Areva slashed its uranium resource estimates at Trekkopje by nearly 42 per cent, the Trekkopje deposit is now estimated to carry only 26 000 tons of uranium – down from 45 200 tons previously. Trekkopje was expected to reach full capacity next year, producing 3 000 tons of uranium a year. In February this year, however, Areva said full production would be delayed until 2013, because of the “complexity” of the project.

Eagle Rock
Areva chief executive Luc Oursel also announced to halt work at its Eagle Rock enrichment plant near Idaho Falls in the US. Oursel's move to stop work at the Eagle Rock plant abandons an effort which includes an NRC license granted in October to build and operate the plant and a conditional commitment by the U.S. Department of Energy for a US$2 billion loan guarantee. The total cost of the plant is estimated to be between US$2.5 and US$3 billion. The federal loan guarantee covers US$2 billion of the costs. Oursel says that if the project is economically viable, investors will be found for the remaining US$1 billion. In October Areva postponed ground breaking to spring 2012. Its U.S. office assured the media that it planned to move ahead with the project saying that it was too late in the year to mobilize a contractor in the face of the oncoming harsh Idaho winter. Economic development leaders in Idaho Falls were skeptical having long experience with that environment. However, they had little choice but to accept the firm's explanation. And the combination of the NRC license and loan guarantee made the plant look like a sure thing from a financial perspective.

UraMin
Besides the shut down of Trekkopje, (an announcement every informed mining analyst was expecting for some months) Areva also announced the shut down of their South American, West African and South African operations. In a comprehensive statement,  Areva says it will reconsider its entire uranium operation conducted under Uramin. While the statement is full of legalese and mineralogical terminology, the message it conveys is that Areva has lost money by the billions and is forced to reconsider and reconsolidate its financial position before re-opening any of their uranium operations. The overall tone is negative.

The company paid 1.8bn Euro for UraMin, a Canada-based company with assets in Namibia, the Central African Republic and South Africa, when uranium was about US$138 a pound. Today the commodity used to power atomic reactors is trading at about US$50 after demand slumped following this year's nuclear disaster in Japan.

Hubris vs. Nemesis
So, what is happening to Areva? Simply put, with the likes of Germany, Belgium, Italy and Switzerland turning their backs on nuclear power, and public opinion hardening against nuclear power in the aftermath of Fukushima (not least in Areva's native France), the company is facing a fast dwindling number of countries willing to buy its massively expensive and incredibly complex nuclear reactors. It’s currently building four of its next generation EPRs (European –often mentioned Evolutionary- Pressurised Reactors) in Finland, France and China. The Finnish and French reactors are years behind schedule and billions of euros over budget. Meanwhile, the two EPRs being built in China are suffering the same construction defects and safety concerns. (see Nuclear Monitor 735, October 21 2011)

It’s a classic case of hubris meeting nemesis. Areva bet the farm by hoping it would sell 50 new nuclear reactors this decade. It hasn’t received a single order for a reactor since 2007. Apart from the UK, whose own nuclear reactors are increasingly delayed, nobody in Europe wants to buy Areva reactors. Areva hopes to sell the EPR to India but the country’s nuclear power ambitions are currently strongly opposed by the public and liability in case of nuclear accidents. Add to that the global financial situation (there has yet to be a nuclear reactor anywhere in the world built without public cash which is in short supply right now) and it doesn’t add up to a recipe for nuclear success.

Investments
The company plans to cut new capital investment to 7.7bn euro between 2012 and 2016, a reduction of around a third on investment over the previous five years. This could represent a blow to the UK's plans for a new fleet of nuclear reactors, given that Areva was one of the main firms expected to support new projects.

Areva's new chief executive Luc Oursel was appointed in June after the Fukushima accident forced Areva to drop its financial targets and as its long-serving CEO Anne Lauvergeon was battling with project delays and cost overruns, and a public spat with nuclear giant EDF. Oursel said on December 13, he expected Areva to win 10 new orders for the EPR between 2012 and 2016.

Source: Financial Times (UK), 13 December 2011 / Reuters, 13 December 2011 / / Idaho Samizdat: Nuke Notes, blog, 13 December 2011 / www.Businessgreen.com, 13 December 2011 / The Namibian, 14 December 2011 / Nuclear reaction, Greenpeace blog, 16 December  2011 / Namibia Economist, 16 December 2011
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