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Siemens leaving Areva; joining Rosatom?

Nuclear Monitor Issue: 

Vladimir Putin has invited Siemens to enter into discussions with Rosatom, the umbrella agency for the Russian nuclear power industry. A tie-in now looks likely. The discussions follow Siemens' announcement that it wishes to leave its nuclear plant construction partnership with Areva. The Areva group will buy back Siemens 34% stake in Areva NP before the end of January 2012. “We will have to negotiate with Areva over the details” of a separation agreement “beginning right away”, Siemens announced.

According to Siemens the cooperation between it and Areva has been good, but that the minority stake "considerably limits the entrepreneurial maneuverability of Siemens within the joint venture." Siemens CEO Peter Loescher said “it was not possible” for Siemens to participate in the global nuclear power plant market through its partnership with the French firm. Loescher said Siemens was committed to doing business in that market. The company's main role in Areva NP has been heavy involvement in the conventional islands for Areva nuclear power plants - the steam turbines, generators and main systems apart from the reactor building. The company said it wanted to continue to offer its products for nuclear plants, including systems for operation and control.

According to sources close to the company, Siemens will explore setting up an equal partnership with Russian industry that would allow Siemens to participate in what the German company believes will be a major global expansion in nuclear power plant construction.

But according to Nucleonics Week, some board members have voiced caution that partnering with Moscow-controlled firms is risky, and there is no consensus so far that Siemens should take that risk. In 2007, Siemens and Russia’s Federal Agency for Atomic Energy, or Rosatom, signed a memorandum of understanding for future cooperation. That MOU, which is dormant at the time, could become the basis of a future partnership in which Russian VVER technology could be joined with Siemens’ technology for energy production and distribution systems, sources said.

By cooperating with Rosatom, Siemens could even gain a re-involvement in reactor technology, which it packaged into Areva NP. Russian nuclear technology could gain a valuable image boost, while a joint venture would allow Russia some interest in Western markets.

Siemens has already cooperated with AtomStroyExport to build the two pressurized water reactors at Tianwan in China, supplying the control systems. Atomstroyexport, a Rosatom subsidiary, is incorporating Siemens instrumentation and control in all its export nuclear power plants, and there are plans to use it in domestic Russian reactors as well. Siemens will also partner with Areva to supply electronic equipment for two new Russian reactors at Belene in Bulgaria.

The Siemens move is no surprise. More than a year ago, in November 2007, the Nuclear Monitor published an article called: 'Rebuilding the Areva group – End of German Reactor Constructor?' in which was announced the likelihood of Siemens leaving the Areva-group. Reason for the departure would be the reconstruction of Areva.

The merging of nuclear construction capacities and the know-how of the two leading West European nuclear constructors Siemens and Framatome in 2001 was meant to help to survive economically and to push for a new generation of nuclear reactors. In 2001 Siemens houses its nuclear section, Siemens Nuclear Power (SNP) in the subsidiary of Areva, Framatome. Since the first of March 2006 this subsidiary trades under the name of Areva NP.

At the time the Siemens nuclear section became part of the Areva company, it was agreed that the French state has the right to takeover the German shares in 2009 at the soonest and in 2011 at the latest. The legal effectiveness of the Areva/Siemens deal would thus be on January 1, 2012.

Areva NP is currently heavily involved in promotion of its EPR pressurized water reactor worldwide, with four planned for the UK and six under discussion for the USA. Announcements are expected soon regarding deployment in India. The units are already under construction at Flamanville and Olkiluoto, while work will start soon on two more units at Taishan in China.

Besides its involvement through Areva NP, Siemens is a consortium partner at Olkiluoto 3 in that it provides the entire conventional island. Siemens has also signed a letter of intent to cooperate on EPR deployment in the UK and should provide the conventional islands for any forthcoming EPRs in that country. Meanwhile, French rival Alstom is contracted to provide turbine islands for Flamanville 3, the two EPRs at Taishan and the three proposed Unistar Nuclear Energy EPR projects in the USA.

Areva NP

Delays at Olkiluoto-3 and Flamanville-3, cancellation of South Africa’s nuclear plant tender, and “uncertainties about the US program” are elements that could lower the value of the Areva NP business plan and future cash flow projections, Vignon, former president of Areva NP predecessor Framatome said. That could result in Areva lowering its estimate for what it owes to Siemens for the 34% stake in the joint venture. According to a January 28 report in French financial newspaper Les Echos, Siemens management evaluated the Areva NP stake at between 2 billion and 3 billion euro. But independent sources say it is 500 million less than 2 billion euro.

Areva announced net debt of 2.4 billion euro at the end of June 2008 and is scheduled to release its full-year financial results on February 25. Finnish utility Teollisuuden Voima Oy, or TVO, is seeking 2.4 billion euro in compensation from Areva and Siemens. The money is for delays in startup of the Olkiluoto-3 EPR that forced TVO to buy electricity in the market. Areva and Siemens, in turn, are seeking 1 billion euro in compensation from TVO for the utility’s delays in processing project documentation.

According to industry observers quoted in Nucleonics Week, Siemens’ announced exit from the Areva NP joint venture with Areva puts the Paris-based vendor under “tremendous financial stress” that could force it to rein in its ambitious investment plan and strain its ability to raise more money. Areva is engaged in a vast investment program that some outside the company have estimated as high as 14 billion euro (US$18.5 billion). The program includes two uranium enrichment plants, a new UF6 conversion complex, new uranium mining projects, construction of a reactor components plant in the US and similar facilities in France. Areva CEO Lauvergeon told the government in January that her company needs some 3 billion euro to support the investment program in this year alone.

Industry observers say the move will force the French government, which owns about 84% of Areva, to clarify the company’s ownership structure. It will force a government decisionon whether to pump more state money into the company, organize a merger with turbine maker Alstom, promote the entry of oil giant Total, or a combination of those options.

Meanwhile, Total, which is seeking a double-digit percentage stake in France's second EPR nuclear plant, stated that it also wants to play an active role in its construction. "We want to acquire expertise in the nuclear sector in order to one day become a true nuclear plant operator," Chief Executive Christophe de Margerie told French daily les Echos in an interview. "We do not want to be just a financial partner in this new EPR plant. We would like a significant stake, a double-digit stake, but we are also industrialists and our wish is that EDF gives us the opportunity to participate actively in the construction of the second French EPR," he said.

Nucleonics Week, 29 January 2009 / World Nuclear News, 27 January & 4 February 2009 /  Nuclear Monitor 662, 8 November 2007 / Reuters, 9 February 2009