France Expected to Win Few Big Nuclear Deals

Areva, France's struggling reactor builder, is unlikely to win much in the way of big new nuclear export contracts despite a major government-backed effort to woo customers at a trade show this week.

The Oct. 14-16 World Nuclear Exhibition (WNE), at the same venue as the Le Bourget airshow, is designed to boost Areva and France's associated nuclear industry, which comprises over 2,500 companies with combined revenue of 46 billion euros ($58 billion) and 220,000 employees.

French utility EDF has just won EU approval to build two Areva-designed EPR reactors in Britain, which will be Areva's first reactor sale since 2007.

The EPR features developed-market safety levels, with an outer skin designed to withstand a commercial airline crash and a built-in core catcher to collect radioactive remains in case of a meltdown. But it is less suitable for emerging markets, where most growth in nuclear generation is taking place.

"The EPR is too big, too complex and too costly for most of the existing market," said Yves Marignac, director of WISE-Paris, an independent consultant on nuclear issues.

Critics also say that for one French company, which is 84 percent state-owned, to buy reactors from another, which is 87 percent state-owned, with subsidies from the UK government is hardly the model of a competitive export industry.

Areva Chief Executive Luc Oursel had said for years he expected Areva to win 10 new EPR orders by 2016, but in August this year he dropped that objective as he announced a shock first-half loss that led to the biggest plunge in the company's stock in a decade.

Since losing a landmark United Arab Emirates contract in 2009 to South Korea's Kepco, Areva has lost out on tenders in Finland and Czech Republic and made no progress in India.

Meanwhile, Russia's Rosatom has won a string of contracts in emerging markets with its build, own and operate model.

Russia sells nuclear fuel and also provides financing, which is repaid with interest through electricity sales from the completed plant, industry insiders say.

"Provided it is safe, it is almost immaterial which nuclear technology is used for a reactor. The question is do you have a project, have you secured financing," said an industry specialist with experience in nuclear project finance.

Out-financing
Japanese, South Korean, Chinese and Russian reactor builders provide financing packages at rates about 2 percent lower than the French industry can match, according to Philippe Pradel, head of nuclear development at French utility GDF Suez.

"There is no point in competing ... you are out of the race right away," he said.

The capital-intensive nuclear industry is moving increasingly to a vendor financing model, which forces reactor builders to take a stake in their customers' projects.

The financial arrangements for the UK reactor at Hinkley Point C illustrate that trend: Areva had to take a 10 percent stake in the EDF-led consortium that will build and operate the plant.

Areva wants to finance that stake with money it is required to set aside to cover the cost of eventual decommissioning of its French nuclear installations, rather than issuing new debt.

It has yet to get government approval for that move, and with net financial debt of 4.73 billion euros in June, Areva has little room to take on more. It narrowly escaped a downgrading of its debt to junk status by Standard & Poor's last week.

With France pledged to reduce its reliance on nuclear power to 50 percent from 75 by 2025, Areva cannot rely on domestic demand and needs exports to survive.

WNE chief Gerard Kottmann, CEO of nuclear industry supplier Valinox, said in June it would be an illusion to expect to sign many major contracts at the trade show this week, but he hoped for a string of smaller contracts.

The trade show is expected to attract some 500 companies and the heads of France's nuclear industry, but few CEOs of major foreign reactor builders will attend, unlike events organised by Rosatom and the World Nuclear Association (WNA).

"There is an inflation problem with these conferences, one cannot attend every one," a regular at the WNA meetings said.

(1 US dollar = 0.7891 euro)

(Reporting by Geert De Clercq; Editing by Andrew Callus and Jane Baird)