France moves to salvage key nuclear reactor sector

France faces a unique challenge as it moves to save nuclear reactor manufacturer Areva and salvage one of its world-class industries and jobs, while at same time reducing its own reliance on atomic power.

The French presidency on Wednesday endorsed merging Areva's reactor-building unit with state-owned electricity company EDF, adding that the government would spend "as much as necessary" to recapitalise the troubled nuclear group, which is also controlled by the state.

Economy Minister Emmanuel Macron said Thursday that the government aims to "stabilise, save" the nuclear sector he termed "an industry of the future in France and abroad."

France has the world's second-largest nuclear sector, and generates around 75 percent of its power needs through nuclear capacities -- a greater proportion than any other economy.

It has also made the export of nuclear technology an economic priority, with Areva and EDF promoting the European Pressurised Reactor (EPR), a third-generation reactor design that France considers the most advanced and safest in the world.
But the industry has slumped since the 2011 Fukushima disaster in Japan, with several countries moving to reduce or even eliminate nuclear energy, like Germany's plans to phase it out by 2022.

Even France now aims to cut its dependence, with legislation to reduce reliance on nuclear to 50 percent by 2025 nearing final adoption.

Meanwhile, Areva has run into major construction difficulties with its first EPR reactor in Finland, which is now expected to begin operating in 2018 -- nine years late, and at nearly four billion euros ($4.5 billion) in costs to Areva.

It has also recently been discovered that Areva's reactor at EDF's EPR facility in Flamanville, France, has a serious manufacturing defect.

Doubts over nuclear's future and the repeated manufacturing problems have provoked a meltdown in Areva's finances.
The company, which is 87 percent owned by the French state, suffered a record net loss of 4.8 billion euros in 2014 from costs linked to delays.

Last month Areva said it would slash up to 6,000 jobs worldwide amid one billion euros of cost-cutting by 2017.

- New outlook -

Following the government's announcement, EDF will have a month to hash out the terms of absorbing Areva NP, the reactor subsidiary that employs around 15,000 of Areva's total workforce of about 45,000. Areva would then focus on uranium extraction, enrichment and reprocessing.

"The challenge isn't merely to respond to financial difficulties that Areva might encounter, but to restructure the entire sector and give it a new outlook," said an official close to President Francois Hollande Wednesday.

Macron said that "the French camp needs to work together internationally," adding Areva and EDF "had too often in the past competed against one another."
According to French business daily Les Echos, EDF has offered to pay just over two billion euros to become the main owner of Areva NP. Neither company have responded to that report.

A Paris broker who asked to remain anonymous estimated Areva's reactor business being worth around 4.5 billion euros.

Merged reactor operations might attract other potential investors to Areva, with speculation rife that state-held Chinese companies China National Nuclear Corporation and China General Nuclear could take a stake of up to 10 percent.

EDF, which is 84.5 percent state-owned, is also averse to finding itself on the hook for losses connected to the Finnish reactor.

French Energy Minister Segolene Royal warned Thursday that "we must make a complete inventory of the needs" of the sector.

Officials also moved quickly to quash speculation that the costs of rescuing Areva would be recouped by EDF through the state raising regulated electricity rates.

The broker estimated the merged company's long-term financing needs at seven billion euros.

With a record 3.5 million people out of work and the economy barely growing, the French government has become active in ensuring its stumbling industrial giants don't fall.

Last year it secured assurances most of Alstom's energy business will stay in France after its 12.4 billion euro acquisition by General Electric.

French officials also insisted Nokia preserve jobs in France when it struck a 15.6 billion euro deal in April to buy rival Alcatel-Lucent, creating the world's biggest supplier of mobile phone network equipment.

Areva shares finished the day gaining 2.21 percent to 8.94 euros, but are still way down from over 16 euros they fetched before the magnitude of its problems became clear. EDF shares slumped 2.76 percent to 21.17 euros.