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French nuclear giant Areva melts down

Nuclear Monitor Issue: 
Charly Hultén – WISE Sweden

Chronically and heavily indebted, Areva, the once world-leading nuclear conglomerate, is no more. Areva was formed in 2001 with the fusion of two companies: Cogéma (uranium mining, reactor fuels and waste management) and Framatome (reactor engineering).

The crisis has been long in the making, but became obvious in February 2015, when Areva published its financial report for 2014 with net losses of €4.8 billion that year alone on a total turnover of roughly €8.3 billion. Press reports attributed a good share of the loss in 2014 to Areva's involvement in Finland's fifth nuclear reactor, an EPR, at Olkiluoto. At that point Areva bore an accumulated credit debt of €5.8 billion.

2014 was the worst, but this year the company has reported losses for five years running. Had Areva been a private company, bankruptcy would have been a prospect years earlier, but – like Electricité de France (EDF) – Areva is over 80% government-owned.

The (dis)solution

In early 2015, the prime minister and pertinent cabinet members decided to transfer Areva's reactor technology division, Areva NP, to EDF. CEO Jean-Bernard Lévy declared a willingness to absorb the division, but only on the condition that EDF be granted "immunity" against any further costs relating to the Olkiluoto venture.

The ministers emphasize the strategic advantages of restructuring the country's nuclear sector. There have been too many actors, competing against, or at best merely stumbling over, each other rather than pulling together. As Minister of the Economy Macron told Figaro in March 2015:

"Areva is paying ... the price of years of a lack of transparency and poor relations with EDF. ... It is our hope and, very clearly, there is a need for a thoroughgoing reorganization, a re-founding, of the historic partnership between these two groups – to the benefit of both."

On 27 January 2016, the French government announced the details of its plan for the reconstruction of what remains of the former industrial flagship. Areva is envisioned to "reassume the perimeters" of pre-fusion Cogéma and confine its focus to the fuel cycle proper. EDF will absorb the company's nuclear power division, and pay Areva €2.5 billion. Not all of this price will be borne by EDF in the longer term. Approximately 40% of Areva's current activity (contracts, etc.) will be distributed among Mitsubishi Heavy Industries and Chinese and British interests, according to Le Monde. These transactions are expected to bring in about half the initial outlay.

Minority posts in what remains of Areva will be acquired by China National Nuclear Corporation, which already holds a small share in the company and KIA (Kuwait), currently a partner.

The unions – CGT, FO and CFE-CGC – have all been skeptical of EDF's commitment to "save" Areva. The company is already strained with debts in excess of €30 billion, they point out. They also point to the looming renewal of an aging distribution network and numerous power generating units. Reported problems at EDF's EPR at Flamanville are yet another serious concern. (For the same reasons, the unions have opposed EDF's €16 billion involvement in Hinkley Point in the UK and, of course, taking on any responsibility for the EPR at Olkiluoto.)

Instructed to take immediate measures to shrink its budget by €1 billion by 2017, Areva has announced cuts of senior staff (15% in France, 18% abroad) for the period 2015–2017. This is the second round of austerity measures the company has had to undertake since 2011. Still, the forced measures come nowhere near covering the financial needs of the coming three years: an estimated €7 billion, according to Areva's management.

Asked in 2015 how much in the way of public funds would be required to make the new Areva viable, both President Hollande and Minister of Finance Macron declined to comment, saying only that the question was "premature", and that investment of public money was "not, by any means, a priority". Reports this past month (January 2016) speak of public monies making up "a very large part" of the approximately €5 billion needed to keep Areva afloat. In his announcement President Hollande specified that the government would be mindful of EU restrictions on government aid to enterprise.

Highlights from the road to perdition

Vertical integration of enterprises was in vogue back in 2001, and then CEO Anne Lauvergeon wanted her company to be able to deliver the entire range of nuclear products and services. To that end – and in line with widespread concerns about dwindling uranium supplies at the time – Areva paid a considerable sum of money to acquire a uranium mine. Areva also ventured boldly into renewables (wind, solar and biomass) and even shale gas. Hence the company's enormous debt.

In retrospect Areva's 'shopping spree' in the energy sector is now widely seen as first steps toward rack and ruin. (If, as some analysts now would have it, Lauvergeon suffered from delusions of grandeur, she was hardly alone in that. In roughly the same time frame, Sweden's Lars G Josefsson, CEO of state-owned Vattenfall, went so far as to pawn the whole company in his striving to become a world-ranking player.)

Perhaps the rashest venture that Areva entered into was to contract in 2003 to single-handedly supply Finland's fifth nuclear reactor, an EPR, with a design capacity of 1600 MW. The project was the first EPR ever to be built; moreover Areva had no previous experience of managing such a large project. The deal was controversial from the start. Many considered the €3.2 billion budget a gross underestimate and the four-year time-frame optimistic. The contract stipulated no ceiling on the penalties Areva might suffer for any delays, which in the case of unproven technology might prove to be a "time bomb" as the former general manager of Cogéma put it at the time. All these 'negatives' are now put down to the CEO's burning ambition to beat out both EDF and 'les américains'.

The time bomb detonated in 2008, when Areva (then partnered with Siemens) and their Finnish client, TVO, filed multibillion euro claims/counterclaims for damages for arbitration under the auspices of the International Chamber of Commerce. The conflict remains unresolved. But with the dissolution of Areva and the transfer of participation in the project to EDF, efforts have stepped up to reach some agreement.

Olkiluoto 3 is currently nine years behind schedule, and costs are triple the original budget. At the start of 2016 Areva had poured €4.6 billion into Olkiluoto 3, Le Monde reports.

Looking back, looking forward

The most dispassionate assessment of the Areva debacle I have seen comes from Areva's current CEO Philippe Knoche: "The amplitude of the net losses for 2014 illustrate the dual challenge that Areva faces: prolonged stagnation in the nuclear sector, lack of competitive strength and the difficulty of risk management in projects of great size."

Otherwise, there has been a pronounced tendency in the French press to personalize, even psychologize, the debacle. That, and to blame Fukushima.

The 'wisdom of hindsight', by definition anachronistic, often masks whatever rationality may have supported past decisions, especially when grand plans have gone awry. No-one in 2003 was aware of the finance crisis – and ensuing 'Great Recession' – a mere five years down the road. Nor could the tsunami that caused multiple meltdowns, fires and explosions at Fukushima in 2011 be foreseen. Areva's management can hardly be faulted for the collapsing demand for nuclear services that ensued. Areva had lost out to American competitors and Russia's Rosatom now and then, but serious competition on the part of China or South Korea was not yet in the picture. In short, the prospects for healthy financial returns dimmed appreciably after the daring first steps had been taken.

Looking forward, the horizon is not entirely cloud-free. New legislation in France aiming to cut the country's reliance on nuclear power for electricity from 75% to 50% by 2025, took effect last summer (see Nuclear Monitor #817). Moreover EDF has found it difficult to find the €16 billion in investments for its share of the EPR project at Hinkley Point in the UK. The board of governors is deeply divided on whether to proceed. Some analysts predict that the Finnish EPR may be a 'white elephant' if and when it ever comes online. In short, the problems facing the nuclear sector today may turn out to be more general and perhaps more persistent than many observers close to the nuclear scene in France have been willing to contemplate.


Jean-Michel Bezat: "Areva, un échec français" Le Monde, 28 Jan 2016.

Jean-Michel Bezat: "5 milliards pour sauver Areva". Le Monde, 26 Jan 2016.

Jean-Michel Bezat: "EDF-Areva: jour J pour la réorganisaton du nucléaire français". Le Monde, 26 Jan 2016.

Jean-Michel Bezat: "Emmanuel Macron veut en finir avec le bourbier de l'EPR finlandais". Le Monde, 21 Jan 2016.

"France's nuclear industry: Arevaderci". The Economist, 23 May 2015.

Jean-Christophe Féraud: "Plan social : les salariés d'Areva encaissent le choc". Libération, 7 May 2015.

"Areva confirme de lourdes pertes et annonce un pan d'èconomies". BFM Business, 4 Mar 2015.

"EDF à la rescousse d'Areva?" BFM Business, 4 Mar 2015.

Bertille Bayart: "Emmanuel Macron: 'Il faut une convergence entre Areva et EDF'" Le Figaro, 4 Mar 2015.

Bertille Bayart: "Perte record en vue chez Areva". Le Figaro, 20 Feb 2015.