(December 4, 1997) Worldwide nuclear fuel markets are shrinking because the number of nuclear power plants is stabilising and the quantities of nuclear fuel needed are declining by using higher burnup fuel. At the same time, the competitiveness of nuclear energy is under heavy pressure. As a result, nuclear utilities are looking for possibilities to lower their costs. One notable result is the growing pressure on fuel costs.
(482.4785) WISE Amsterdam -The new wave of mergers could push European nuclear fuel prices closer to the lower United States prices, which are twice as low as in Western Europe. This development towards lower prices is driven by the electricity market deregulation which opens the European market for US companies and forces nuclear utilities to negotiate with fuel fabricators about lower fuel costs. This year, the French fuel fabricator FBFC had to lower its prices by more than 10% in a new contract with Electricité De France (EDF). By buying Exxon Nuclear, Siemens started the decline in US fuel prices. Now, with its recently announced merger with BNFL, it is responsible for starting a similar drop in European fuel prices. Prices on the German fuel market, the most protected market in the European Union, are close to the highest in the world, next to Japanese fuel prices. The only way for European fuel fabricators to compete with the US companies is to lower their costs by expanding their market, by buying, merging or cooperating with other companies.
The European fuel market
In Europe the main fuel markets in nations like France, Germany and England are dominated by their national fuel companies. The main Western European fuel producers are: the Framatome/Cogema joint venture Fragema (with about 50% of the total European market), Siemens (30%), BNFL, ABB, Westinghouse and General Electric. The position of Fragema as the current nuclear fuel market leader in Europe is threatened by the new BNFL-Siemens venture. The US companies Westinghouse and General Electric have minority shares of the market. In the past, Siemens bought the US fuel company Exxon. BNFL is already cooperating with Westinghouse in the European Fuels Group (EFG), set up in 1991, together with Spain's Enusa. The EFG has a very minor market share. ABB is the result of a merger of the Swiss/US Brown-Boveri and Sweden's Asea-Atom. It produces most of the fuel for Swedish and Swiss nuclear power plants.
Declining French fuel market
For some years Framatome has been scaling down its workforce because of the declining domestic nuclear fuel market. But Framatome's 51%-owned daughter FBFC has recently decided to close one of its three fuel fabrication plants, the most modern one at Pierrelatte, which was opened only seven years ago. The decision was forced by decreased production and growing overcapacity. FBFC fuel production in 1992 stood at 1450 tons, 1250 tons this year, and will be 1000 tons per year in the future. The main reason for the decline is the fact that in 1997 EDF ordered 300 tons less fuel. FBFC's overcapacity is nearly 50%. Framatome's Novatome division, which produced fuel for Phenix and Superphenix, has no current orders at all as both units are shut down.
Siemens-BNFL merger: No MOX plants included?
The French government and Framatome were shocked by the October 15 announcement of the Siemens-BNFL joint venture. French industry secretary Pierret had mentioned Siemens as a possible new shareholder for Framatome just one week befor this announcement. They fear the Anglo-German alliance will compete with Framatome to buy Westinghouse's nuclear business, leaving Framatome in the cold. The BNFL-Siemens merger could exclude Westinghouse from the European fuel market and result in the break-up of the EFG, the Westinghouse-BNFL coalition. Siemens has much higher nuclear sales, US$1.14 billion, than BNFL's fuel division, with US$390 million. However, Siemens' nuclear sales are only about 2% of its total sales, whereas BNFL's Springfield fuel plant is 100% nuclear. BNFL's reprocessing business and Urenco participation will not be part of the merger, nor will BNFL's MOX division, according to the joint press release. An internal Siemens memorandum mentioned, however, that MOX would be included. Siemens already has ad hoc partnerships in the MOX field with Cogema, in France and in Russia. Siemens might try to compensate the loss of its MOX fuel plants in Hanau through its BNFL merger.
Framatome's merger partners: foreign or French?
The possibilities of a merger of Framatome with another firm or of privatization have been under discussion for years. The past French government sought to privatize Framatome. There were rumors that GEC-Alsthom might buy the company. The French government owns a majority of Framatome, the private French firm Alcatel-Alsthom owns 44% was well as 50% of GEC-Alsthom. The other 50% of GEC-Alsthom is owned by British General Electric Company (GEC). For years Alcatel-Alsthom has wanted to merge GEC-Alsthom with Framatome, as has Framatome's chairman Vignon. But GEC rejected the conditions the French government set for the merger. Framatome with its large cash reserves - over 10 billion French francs (US$ 1.57 billion) - was attractive for GEC-Alsthom, which wanted to use these cash reserves to buy Westinghouse's conventional turbine business. However, the new French government recently decided to definitely rule out a merger between Framatome and GEC-Alsthom. And in October 1997 the French government announced that Alcatel would participate in a partial privatization of the defense electronics firm Thomson-CSF. This means Alcatel has less reason now to want a merger with Framatome. Another partner for Framatome had to be found and a merger between Framatome and Siemens was discussed. Therefore France sees the unexpected Siemens-BNFL alliance as a frontal attack on Framatome and as a sign that Siemens is breaking up French-German nuclear cooperation. This could endanger the Siemens-Framatome joint venture Nuclear Power International which was formed in 1991 to develop the EPR, a new advanced Pressurised Water Reactor. On October 20, the German Minister of Environment Merkel decided that Bonn won't subsidize the EPR, further threatening its future. According to Huettl, head of Siemens KWU, Dutch engineering firms are interested in participating in EPR.
In July, Framatome began secret negotiations with Westinghouse. The US firm was looking to split its industry and broadcast business. Westinghouse's nuclear business, like Framatome's, is not doing well. About 2000 people are to be fired and profits this year decreased, with US$270 million compared to 1996 profits. But possible future billion dollar nuclear sales to China would turn Westinghouse's present losses into new profits. The key to Framatome's future is thought to be a purchase of Westinghouse's nuclear business. It was said that Framatome would make a bid for it in the beginning of November, and that the bid is supported by the French government. But things quickly changed. A Framatome board meeting on 15 October, that was seen as crucial for its future, made no decisions at all. And Framatome chairman Vignon called it absurd that Framatome's future should depend on buying Westinghouse's nuclear business (see accompanying item below on Westinghouse). The French government wants to retain a majority share in Framatome, returning to a policy of promoting public ownership. Secretary Pierret wants Framatome to diversify, away from nuclear, to compensate for the shrinking nuclear market. All other options being ruled out, it is now proposed that Cogema become the largest shareholder in Framatome. In exchange, Framatome could get a share in Cogema. This will turn the French nuclear industry into a `bunker' against the rest of the world.
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Contact: WISE Amsterdam
As published in the last issue, Siemens bought the conventional power generation bussiness of Westinghouse for US$1.525 billion cash. The German group said it had also wanted to buy Westinghouse's nuclear business. However, according to Financial Times, Westinghouse stopped the sale late in the negotiations, apparently because of pressure from the US government, which doesn't want the operations to go to a foreign buyer. The Energy Systems' nuclear division and the Government Operation branch, which runs US Department of Energy sites under contract with the US government, are expected to be divested from the company by mid-1998. Financial Times, 15 November 1997 / Nucleonics Week, 20 November 1997