The AREVA half-year results exhibit the financial risks of nuclear power, now that new provisions on the Finnish European Pressurised Reactor (EPR) under construction at Olkiluoto virtually wiped out AREVA’s operating profits for this period. AREVA threatens to freeze the Olkiluoto-3 construction works, blaming “TVO’s inappropriate behavior” for the delays and cost overruns. The Finnish utility Teollisuuden Voima Oyj (TVO), insists on its compliance with the contract and expects AREVA to keep the fixed-price, turn-key agreement. Both parties have taken the issue to arbitrary court.
AREVA has taken a €550 million (US$ 800 million) provision in the first half of 2009 for the EPR being built in Finland, causing the company’s operating profit to tumble 97% to €16 million and the net profit with 79% to €161 million. The latest estimate of the Olkiluoto-3 construction costs reached €5.5 billion, more than double the price of €2.5 billion originally offered to Finnish decision-makers. Anne Lauvergeon, AREVA’s CEO, admitted that there could be more provisions to come. The Finnish project is currently three years behind schedule, and it is impossible to determine the final cost at this stage, she said. Still AREVA markets the EPR as ‘a cost-effective reactor’.
AREVA threatens it will only commence the final phases of the EPR construction once TVO has agreed upon proposals or contractual modifications. AREVA’s language is strong: TVO is accused of inappropriate behaviour in contract management, of not implementing agreed measures for speeding up the work, and of persisting with conduct that is not in line with standard industry practises. Delays are caused by “inadequate resources deployed by TVO” and TVO not “respecting the deadlines for processing the documents that have been delivered (2 months, versus 11 months in practice)”.
AREVA says TVO has changed its demands on the project and is to blame for long delays in the approvals and safety authorisation processes. AREVA currently demands €1 billion compensation from TVO, claiming there is more to come. TVO in turn still concerns Olkiluoto-3 as a fixed-price delivery and claims compensation from AREVA for losses and costs incurred as a result of repeated delays. This internal nuclear fight should act as a warning for potential investors, because it demonstrates that nuclear companies have no intention whatsoever to bear the risk of delays and cost overruns in future reactor projects.
The work continues
So far, the work at Olkiluoto-3 still continues. On 6 September 2009, the dome of the reactor building was installed, representing a major milestone in the EPR construction. The steel dome, weighing 210 tons and measuring almost 47 meters across, will be welded around its circumference and covered with 7,000 tons of concrete.
AREVA also reported that the construction of the EPR in Flamanville, France, is now 65% complete, and Taishan 1 and 2 in China are 30% completed. However, Reuters recently reported that the start of construction work at AREVA’s first nuclear reactor in China was delayed from August to around mid-September because of bad weather. The Chinese authorities still needed to authorise the start of the work, but were busy due to bad weather conditions. Construction works for the Taishan-2 reactor in China are expected to start in March 2010, and the Taishan reactors are expected to come online in 2013 and 2014 respectively.
EDF said in a statement end of July that it still expects Flamanville-3 to be connected to the grid in 2012. It claims that the problems in digging the seaside discharge channel are now overcome, but that remains to be seen. EDF is putting a lot of money and effort in the construction project, supposedly trying to be the first to finish an EPR (before AREVA in Finland). There are 1,800 workers on the construction site and work is being conducted around the clock to make up for past delays.
In the meantime, Anne Lauvergeon made some astonishing remarks about the EPR at a hearing in front of a parliament committee. She described the EPR as “a box of steel and concrete producing 1.650 MW in a very small volume. (…) It resists almost everything. Whatever happens on the outside, there will be no impact on the inside, even on the impact of a commercial plane or missile. (…) The only thing it can not resist is a nuclear bomb."
Raising cash
On 30 June 2009, AREVA announced plans to raise funds for new nuclear investments by selling its transmission and distribution (T&D) unit and by opening up its capital to strategic and industrial partners. AREVA needs the money not only for its ambitious expansion plans, but also to buy out Siemens, who announced in January 2009 it wants to withdraw from the joint venture with AREVA in AREVA-NP (see Nuclear Monitor 683, 12 February 2009: 'Siemens leaving Areva; joining Rosatom?') The French government, 91% owner of Areva, was forced to take action and has been pushing for sales of the T&D unit. CEO Anne Lauvergeon long resisted the sales because the T&D division is a profitable part of AREVA representing 36% of Areva’s turnover in 2007; but Lauvergeon had to give in.
Three consortia made a bid for AREVA’s T&D unit: GeneralElectric with private equity group CVC; Toshiba of Japan; and a French partnership of the turbine group Alstom and Schneider Electric (in 2004 Areva took over the T&D business from the French company Alstom). Toshiba appears to be the least serious, leaving the GE and the French bids on the table as most promising. A decision on the T&D bidding is not expected before beginning of November 2009.
On 11 September AREVA succeeded in raising a large amount of investment money by issueing a €2.250 billion bond. There was (surprisingly?) high interest from investors in the company’s first bond issue, and there might be more to follow.
Corporate bonds seem to be in fashion in the nuclear industry: EDF has raised about €3.2 billion with a public bond issue this summer, aimed to pay for massive investments in its domestic electricity production and electricity network. Also the Finnish utility TVO issued a bond (€750 million), the money to be used for “refinancing and general corporate operations”. It was not specified whether any of the money will be used to cover the Olkiluoto-3 cost overruns. Furthermore, the Italian company ENEL announced a bond issue this autumn to raise money for its investment programme. One of the projects to receive financing from this bond issue is the Mochovce 3,4 nuclear reactor programme.
Sources: Nuclear News Flashes 18 June 2009 / AFP 9 July 2009 / Nuclear News Flashes 30 July 2009 / Financial Times 31 August 2009 / AREVA Press Release 31 August 2009 / World Nuclear News 1 September 2009 / Reuters 2 September 2009 / AREVA Press Release 6 September 2009 / AFP 17 September 2009 / Financial Times 21 September 2009
Contact: Rianne Teule, Nuclear campaigner, Greenpeace International. Ottho Heldringstraat 5, 1066 AZ Amsterdam, The Netherlands.
Tel: +31 – 207 18 2229
Email: rianne.teule@greenpeace.org
Web: www.greenpeace.org