France's economy minister Emmanuel Macron had insisted on it and his credibility was on the line; by the end of July the fate of the ailing nuclear firm Areva had to be sorted out. And so, after final negotiations, an agreement in principle was thrashed out between Areva and utilities giant EDF on Wednesday July 29th and formally announced the following day. “We are in the process of rebuilding the nuclear industry,” the minister proudly told Le Monde.
Rather than dwelling on the financial fiasco of the French nuclear sector over the last 15 years, or reflecting on the relevance of continuing in this direction at all, the minister seemed keen to ignore all traces of the past and to carry on as if nothing had happened. “I'm expecting realistic and ambitious battle plans from EDF and Areva,” said Macron. “The government has asked EDF to present a detailed investment plan in September for the modernisation of current power plants. It will involve a first instalment of several billion euros. That will generate business for Areva and for the many companies in the industry … we're starting a new adventure.”
Yet behind these resolute words lies a rather less brilliant story. State-owned Areva is bankrupt and had it been maintained in its current form would have needed to be recapitalised – bailed out – to the tune of seven billion euros. The French state is unable to provide such a sum.
The largely state-owned electricity producer EDF is not in great shape either. It has overall debts of 34 billion euros and the group is continuing to pay for its mistakes of the past, notably its costly acquisitions in the United States and the United Kingdom. Last year it recorded a negative cash flow of just over a billion euros and went further into debt to pay 2.9 billion euros in dividends to its shareholders, with the French state the leading beneficiary. These figures alone are enough to explain why EDF's management refused to take on all of Areva's losses as hoped by the government, who highlighted the merits of a fusion of the two groups under the flattering slogan of “number one in world energy”. In the end the arguments put forward by EDF executives won the day.
Thus the “new adventure” begins with a liquidation. For the reality of the situation is that the Areva group is being dismantled. Caught off guard by the group's financial crisis, the state hurriedly went back to a plan first proposed by former EDF chief executive François Roussely in his report on the future of the nuclear industry commissioned by Nicolas Sarkozy back in 2009. That report recommended ending the vertical integration that had been put in place by then Areva chief executive officer Anne Lauvergeon and instead advocated separating its activities once more. In particular it proposed that the manufacturing of nuclear power plants – the work once carried out by the company Framatome which became Areva NP in 2001 – should be separated from the mining activities and handling of the uranium fuel cycle which was carried out previously by COGEMA before it became Areva NC. It was this approach that was adopted.
As EDF had wanted, all the design and production work for nuclear power stations – currently carried out by Areva NP - will be moved to a new company. EDF will have a stake of between 51% and 75% in this joint venture, depending on whether new partners come on board. Areva will have a 25% holding. Areva and EDF have jointly agreed that this new company will be headed by Bernard Fontana, former chief executive officer of the Swiss cement group Holcim.
Behind the scenes EDF fought hard over the valuation of Areva's nuclear plant design and construction business, Areva NP. As far as the electricity group was concerned, it was worth no more than two billion euros. Or at least, EDF did not want to pay more than that. Executives at Areva, meanwhile, valued the business at four billion euros. After bitter negotiations Areva NP was priced at 2.7 billion euros, with a 75% stake worth 2 billion euros – the sum that EDF originally wanted to pay.
EDF has also succeeded in ensuring that the financial liabilities linked to the completion of Areva's nuclear plant project at Olkiluoto in Finland – estimated at some three billion euros – are excluded from the remit of the joint venture. It remains unclear whether Areva itself or some other entity will carry the burden of those costs. In the same way there is also some uncertainty over who will take final responsibility for all the financial risks arising from the discovery of serious faults at the European Pressurized Reactor (EPR) under construction at the Flamanville nuclear plant in northern France. Areva management admits that the issue will not be fully clarified until the start of 2016.
In any case, the agreement in principle signed this week between EDF and Areva leaves some doubts over the latter's future. The nuclear firm has, alongside the joint venture, managed to secure a long-term agreement to supply and treat uranium for EDF, which runs all of France's 58 nuclear reactors. But it also has to establish the viability of the rest of its businesses and the group is undergoing a restructuring that is likely to end in the loss of 5,000 to 6,000 jobs – and according to unions this is a conservative estimate.
Even despite that restructuring, Areva's board of directors believes it needs up to seven billion euros to see it through the medium term, according to a press statement issued on July 30th on the publication of its quarterly results. “If the government was really fulfilling its duty as a shareholder it should provide at least three billion euros to Areva. But it can't do so. So it will stall and employ all means to reduce the bill,” says someone familiar with the case.
According to Mediapart's information, the plan of action will be carried out as scheduled from June. The mining activities, which are the most profitable part of the business – they still account for most of the operating income with stocks being sold off at an accelerated rate – are set to be listed on the stock exchange. Areva will maintain a major stake in the operation but will not necessarily be the majority shareholder. The group's renewable energies division, meanwhile, is also set to be sold off. Yet even all this may well not be enough to have a major impact on the group's debts.
“Everything will be done to ensure that the real cost of the French nuclear industry fiasco is never revealed,” claims someone close to the case, who predicts that a large part of that cost will be passed on to consumers. Already EDF has been given the go ahead to increase its tariffs on a recurring basis in the coming years, as it had requested. These rates are likely to increase by 2.5% from August 1st. The first of many such rises to come, it would appear, representing the true cost of the French nuclear industry's “new adventure”.
- The French version of this article can be found here.
English version by Michael Streeter