Under the normal scheme of things the French company nuclear giant AREVA should be bankrupt. But given that the French state owns 85% directly or indirectly through the CEA “Commissariat a l’Energie Atomique” it cannot die and instead taxpayers are bailing AREVA out. The bailout includes the French national utility EDF (84% owned by the French state) purchasing between 51% and 75% of the nuclear reactor manufacturing entity, AREVA NP (ex-Framatome) with AREVA NP valued at €2.5 billion (subject to revision in accordance with financial results up to 2018). In addition, a capital increase of €5bn for AREVA was agreed with the French state providing most of the funding.

AREVA itself will keep the uranium fuel cycle entity, Areva NC (ex-Cogema) which will mean that AREVA is back where it was before 2001 when Anne Lauvergeon, CEO of Cogema, succeeded in merging Cogema with Framatome and CEA-Industrie Technicatome to create AREVA. How has this all happened? Who is to blame for this long descent into the abyss of a company which was the clear leader in the global nuclear industry throughout the 2000’s?

If you read the French media today, you would believe that Anne Lauvergeon, the CEO of AREVA between 2001 and 2011, was solely to blame for everything. She is described as a business-woman with “la folie des grandeurs” with decisions such as the purchase of Uramin and the EPR reactor Olkiluoto 3 deal given as examples of her absurd decision making.

In 2007, under Anne Lauvergeon’s tenure, AREVA purchased Uramin, a relatively small Canadian uranium mining (with mines in Africa). After the purchase, it was found out that the reserves of uranium had been greatly overestimated and the Uramin deal eventually created a €3b loss for AREVA. But Uramin was amongst the only uranium mining companies that were still for sale in 2007. AREVA, already a leader in the uranium mining sector, had to further secure its uranium supply. The company had to get ready for the “Nuclear Renaissance” with prospects of selling loads of next generation nuclear generator using the so called Evolutionary Power Reactor (EPR) – and supplying its fuel – all over the world. One of the problems was that AREVA could never get the funds, before the Uramin deal, to purchase a bigger and better mining company and in the end they were left with the “last girl alone at the end of the party”.

Ms. Lauvergeon tried hard before and after 2007 to raise more capital for the required investments of AREVA. Since November 2004, the issue of an equity raise for AREVA had been discussed on a regular basis with the French government. For different reasons it never happened: the government was never ready to fund a capital raise, an IPO of 35-40% equity was initially planned, but at that time, in 2005, the IPO of EDF was given priority; the same year, the ministry of Economy and future President Nicolas Sarkozy tried to merge AREVA and Alstom, creating even more confusion and encountering a clear opposition from Ms. Lauvergeon for business strategy reasons; eventually in June 2009, the AREVA investment board decided to sell a 15% stake to institutional investors, but the long negotiations with Mitsubishi and the sovereign funds of Qatar and Kuwait only lead to the Kuwaiti sovereign fund taking a 5% share. And here we are today with the AREVA wreckage all around and the French government is injecting new capital into the company. It will cost much more than if the situation had been dealt with in 2004.

As to the sale of the first EPR (European Pressurized Reactor) to the Finnish company TVO in December 2003, it was a turnkey contract (price fixed, time certain). AREVA was supposed to deliver the reactor Olkiluoto 3, a “First Of A Kind”, in only 4 years for only €4 billion (far below the Hinkley Point C figures!). From inception, the deal was too risky for AREVA and delays have ultimately bankrupt the company. We can only wonder now why the construction of the reactor prototype was not launched first in France, retaining the risk domestically before any negotiations abroad. Was it just for AREVA to demonstrate they could build successfully a competitively priced reactor in a liberalized electricity market? Was it to show off to EDF that they could do without them through the whole engineering procurement and construction of the project? It is obvious today that AREVA and the EPR design were not ready for market and that the French government should have never allowed the investment board of AREVA to sign the contract with TVO. Instead, the government should have made the decision to endorse the risk in France.

It was nothing but another expression of the “Rafale syndrome” which is all about the lengthy time the French government took to decide to purchase the French built jet the Rafale for the French armed forces. As a result, it was impossible to sell the Rafale abroad. Potential purchasers would say: “Why do you want me to buy something that you do not want for yourself?” You have all reasons to think it is too expensive or not that good. Alternatively, the supplier could sign a deal in which he takes all the risk. Therefore, we end up with a series of “what ifs”. What would have happened if the successive French governments had given the required financial means to AREVA for its required investments? What if the EPR had been built first in France and certainly not with a turnkey contract abroad?

Finally, we must talk about the rivalry between EDF and AREVA that effected the whole situation. This rivalry is not new. EDF and the Commissariat a l’Energie Atomique (CEA), the main shareholder of AREVA) have been fighting with each other more or less since their establishment in 1945 and 1946 respectively.

Part of the issue is that CEA and EDF leaders graduated with different specialization at the same engineering school! The CEA leaders tended to come from the Polytechnique (also called “X”): “X-Mines” while the EDF leadership come from “X-Ponts et Chaussees”. To put it simply, historically, the CEA has been the champion of the independency of France and its grandeur (after all, they have been developing the atomic bomb in France) without a special focus on costs control whereas EDF has been driven by the limitation of the cost of electricity for achieving competitiveness on the international market. But beyond the philosophy, “X-mines” engineers, who are selected from the top 10 students of Polytechnique every year, are perceived as condescending by their colleagues of “X-Ponts”. To make matters worse EDF always thought they should control the French nuclear industry.

As it now stand, EDF maybe the winner but it is a hollow victory as the French nuclear industry is in disaray. For the media, the lack of commitment of the French governments in the past goes unnoticed, and Anne Lauvergeon is judged guilty and EDF is now seen as the savior of AREVA. But in the end French taxpayers will pay. This is what happens when politics governs business. This is what happens when the state is your main shareholder.

Fred Gatte is underwriter at Nuclear Risk Insurers Limited (NRI Ltd), the British nuclear insurance pool. Before joining the insurance industry in 2013, he served as navy officer, head of propulsion and reactor departments on-board French nuclear submarines. He was also appointed later as a senior consultant in nuclear engineering and risk management by various national and international organisations.



Please note this article is a personal opinion that does not reflect the position of NRI