The clouds over the French nuclear industry

“I am convinced that the nuclear industry has a future, that it is a strength of our country.” The fact that Manuel Valls, the prime minister, had to make such a statement in the National Assembly in Paris two weeks ago is a dramatic indication of the depths of the problems the nuclear sector in France is facing.

A few facts:

• In Finland, the new EPR reactor being built by Areva at Olkiliuoto is nine years behind schedule and and its original budget has doubled. The reactor is now the subject of a bitter legal conflict between Areva and TVO, the Finnish utility.
• In France. the new EPR reactor being built by EDF at Flamanville in Normandy is five years behind schedule and almost €6bn over budget. According to utility EDF the reactor will now be commissioned in 2017 – a date many in the industry still doubt.
• As a result of these problems and the doubts over nuclear safety raised by the accident at Fukushima in Japan, Areva has signed no new nuclear construction deals since 2007.
• Last month, Pierre-Franck Chevet, the head of the French nuclear safety agency, announced a full-scale inquiry into problems with the quality of the reactor vessel designed for use at Flamanville and built in Burgundy by the Creusot Forge engineering firm that is a key subsidiary of Areva. It remains unclear when the company knew about the problem and how long it took them to tell the French government or any of the other governments around the world (including the Chinese and the British) who are in the process of buying nuclear reactors of the same design.
• On May 7 Areva announced that it was laying off 6,000 of its 45,000 strong workforce, having lost €4.8bn last year.
• Last week it was announced that EDF would bid €2.2bn for Areva’s nuclear reactor business.

The plans to merge Areva’s nuclear design and construction operations with EDF has been promised for months but has been hampered by doubts about the detailed financial terms. Areva is in effect broke and any deal with EDF will have to include some prior write off of debts and some acceptance by the French government of any continuing liabilities – not least in Finland. There are also personal animosities – the two companies have been at daggers drawn for years, and it is hard to see a happy marriage in prospect.

Meanwhile, the vultures are circling, ready to pick the flesh off the bones. Three Chinese companies – the Chinese National Nuclear Corporation (CNNC), China General Nuclear Power Corporation (CGNPC) and Dongfang Electric Corporation (DEC) are reported to want to be financial investors in the remainder of Areva’s business – which specialises in mining and refining uranium, supplying fuel to nuclear operators, and managing decommissioning and waste disposal. Each is said to want just 10 per cent of the company but the idea that they would not act as a single agent of China Inc defies credibility. China wants to match Russia as an industrial power in the nuclear sector worldwide and has the financial resources to force its way in and to build a global presence.

At stake in all this is not just the fate of one company and its workforce, but also the future of a major European industry. What happens next will show whether France and Europe as a whole are capable of maintaining a strong industrial base. Europe is behind on information technology and computing, and is also (with a very few exceptions) behind in other new technology businesses such as solar power and biotech. Europe’s science and research base is being outstripped by sustained investment in both the US and China. Even in Germany, which has great industrial strength, especially in engineering, high costs – not least for energy – are forcing companies that face global competition to relocate activity out of the country.

For the French nuclear sector the action required goes well beyond the forced merger of EDF and Areva. Three steps are essential if the sector is to thrive:

First, tell the whole truth. To retain trust the companies must be absolutely transparent about the things that have gone wrong. The internal assessments of the problems at Flamanville and Olkiluoto should be published in full.

Second, when in trouble, stop digging. The EPR reactor whose problems are at the heart of the current crisis is an expensive failure. It has to be written off and replaced by a new generation of smaller, less complex reactors that can be built on time and on budget. The EPR was designed at a time when it was believed that energy costs would rise inexorably. That is no longer the case. Prices may be volatile but the range of choices worldwide – including shale gas, cheap coal and plentiful natural gas – suggests that competition will be fierce and can only get tougher as the current extensive investment in research and development in the renewables sector begins to pay off. To survive, the nuclear sector has to find reactors that can deliver power competitive in a world of relatively low energy prices. In France this is particularly important because within the next decades the process of replacing the country’s existing fleet of nuclear reactors, which date back to the 70s and 80s, must begin. Companies hate to write off failures but all history suggests that a write- off is better than digging on, pouring good money after bad.

Third, the French government has to take its hands off the companies. At the moment the state own 87 per cent of Areva and 84.5 per cent of EDF. President François Hollande is not about to privatise anything but the new company should be run at arms length by an independent, international board – not by a collection of civil servants representing the different ministries in Paris.

I believe Mr Valls is right. The French nuclear sector does have a future. The level of skills in Areva is very high. Most of the business is effective and viable. Nuclear power has given France 40 years of low-cost energy. The EPR has been a problem compounded by weak governance and an unwillingness to face up to reality. But other reactors work and can be built. The situation is very difficult, but does not have to be fatal.