The recapitalization of Areva is taking on a quality of the global nuclear energy conglomerate being too big to fail.

Two of the French state-owned firm’s key partners in huge, globally significant, nuclear energy projects are stepping up to the plate to take significant minority stakes. They represent 15%-25% each of a required $7 billion in new cash needed to get Areva’s nuclear reactor division back on its feet. It needs the money to complete significant projects with these partners.

China National Nuclear Corp., representing the Chinese government’s interests in two EPRs in China, and a $22 billion spent fuel reprocessing facility, will take a minority stake in the French state-owned firm.

Japan’s Mitsubishi Heavy Industries (MHI), in a partnership with Areva to build four 1100 MW Atmea nuclear reactors in Turkey, will also take a minority stake in Areva of up to 25%.

EDF, which is leading the development of an EPR in Flammanville, FR, and will lead construction of two EPRs at the $24 billion UK Hinkley C site, will retain a 51% stake in Areva. How much cash that will represent is still to be negotiated within the French government since both firms at state-owned corporations.

China’s strategic actions

It’s almost a no-brainer for China National Nuclear Corp. (CNNC) to come to the table. AREVA is constructing two EPR reactors at Taishan site,in Guangdong province, China. This contract is on eof the largest international commercial contracts signed in civil nuclear history.

While CNNC is not directly involved in the project, it is state-owned corporation and represents the interests of the Chinese government.

The Taishan reactors are on schedule, but the Chinese the government has issued an edict that no fuel will be loaded in their cores until an issue with the quality of the steel in the reactor pressure vessels (RPV) is resolved by the French nuclear safety agency. Areva has said it can make the case the steel is good, but getting there will take time and money.

The last thing the Chinese government wants is to have on its hands as stranded white elephants are two partially completed 1600 MW EPR nuclear reactors. That situation would be analogous to TVA’s abandonment of two 1200 MW reactors at the Bellefonte site one of which most likely will never be completed by the utility.

The second, and more serious issue or CNNC, is that it is a partner with Areva in the construction of a spent fuel reprocessing project in China. The main facility was originally estimated to cost $15 billion when it was announced in 2007. Since then the expected cost of the facility has risen to an estimated $22 billion. CNNC is expected to provide half of the cost of building the plant. China needs the spent fuel reprocessing center because it expects to have over 100 nuclear reactors online within the next two decades. All of them will be producing bundles of spent fuel.

Ground will be broken for the plant by 2020 and it is expected to be in operation by the end of that decade. In addition to the reprocessing and MOX fuel capabilities, the project will also include a spent fuel interim storage site that can hold up to 3000 tonnes and a high level waste unit to produce safe storage of residual products from the reprocessing center.

The Areva/CNNC facility will leverage Areva’s mastery of manufacturing MOX fuel which can then be placed in the cores of LWR reactors replacing as much as one-third of the fuel. This action leads to longer time periods between fuel outages which results in more generation of carbon emission free electricity. China is working to reduce its dependence on coal fired power plants due to deadly episodes of air pollution from the plants and industrial activity.

The plant is urgently needed since China’s current and projected future nuclear reactors are expected to produce almost 24,000 tonnes of spent fuel by 2030.

In addition to MOX fuel, the plant will also produce fuel for China’s CANDU type reactors and for export to CANDU reactors where China’s nuclear firms are partners or developers, e.g., e.g., Argentina and Romania.

The agreement for CNNC to take an equity stake in Areva follows a two day state visit to China by French President Francois Hollande in early November. He said the French government welcomes CNNC’s investment, but he also said, and for the first time in public, acknowledged that settlement of the bickering between EDF and Areva over recapitalization cash will ultimately be his responsibility.

China is also taking a 33.5% equity stake in the $25 billion Hinkley C site in the UK which will involve construction of two 1600 MW EPRs. EDF will manage the project. In return EDF will facilitate China’s submission of its 1000 MW Hualong One PWR reactor for approval through the UK’s Generic Design Review. If successful, EDF and Chinese state owned firms will collaborate to build two of them at UK power stations.

Japan’s MHI seeks 25% stake

This isn’t the first time that Areva and MHI have teamed up, but it is the first time that Japan’s MHI has said it will take an equity stake, perhaps as much as 25%, in its French partner. Since 1991 the two firms have had a joint venture in the nuclear fuel cycle and another in the fuel fabrication business. In 2007 they formed a joint venture to produce the 1100 MW Atmea LWR type reactor and have signed a deal with Turkey to build four of them at Sinop on Turkey’s northern Black Sea coast. Mitsubishi is also producing steam generators for French nuclear power plants operated by EDF.

The success of the SINOP project will set the stage for exports of the smaller version of the 1600 MW EPR to other markets. It is a “too big to fail” project in which Japan’s MHI has the lead role. However, it cannot complete the project without Areva’s design which makes the significant investment an essential lifeline for the Sinop power station and a confidence builder for future potential customers for the Atmea reactor.

EDF to retain controlling equity stake in Areva

The French government has made it clear that while it welcomes international investment in Areva, it will not give up control of the company. EDF is expected to retain 51% of the equity in the firm and Areva itself may keep up to 15%.

EDF is still involve in internal discussions, within the French government, about how much cash will be transferred to Areva for the 51% stake. This is a political discussion the outcome of which will major implications for Areva’s partners. If the cash transfer isn’t enough, even major infusions of money from other investors could put globally significant projects are risk of being under capitalized and at risk of failure.

Areva needs at least $7 billion to cover near term needs for operations and to cover liabilities from projects, like one in Finland, which are experiencing cost over runs and schedule delays. For his part French President Hollande has to balance the need for a bail out against another of his policy initiatives which is to reduce dependence of France on nuclear power for its electricity.

That policy is the result of an expedient bargain with the French Greens to help the wildly unpopular Hollande keep a majority in the French parliament. It is opposed by Segolene Royal, his energy minister, and who is also the mother of his four children. Who says French politics isn’t interesting?

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