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France’s AREVA-EDF nuclear merger – easier said than done

France Grapples With a Knotty Nuclear Problem http://blogs.wsj.com/corporate-intelligence/2015/06/04/france-grapples-with-a-knotty-nuclear-problem/ By AMBROISE ECORCHEVILLE 

The reconstitution of France’s nuclear industry is officially underway. Under orders from President François Hollande, atomic-power utility  Electricité de France ‘sEDF.FR -0.45% is going to invest in the nuclear-reactor business of Areva to help refinance the troubled engineering group. The two state-controlled companies have a month to clinch a comprehensive deal.

That’s going to be easier said than done.

Leaving aside the questions about the future of nuclear energy in a world of fast-changing energy markets and geopolitical uncertainty, the interests of the French state, EDF and Areva are far from convergent.

Take Areva’s finances. The group, whose operations run from uranium mining to treating nuclear waste, needs a cash injection of €6 billion ($6.6 billion) to €8 billion. EDF, according to people familiar with the matter, has offered to invest €2 billion in Areva’s reactors unit. Some analysts question the willingness of the government to make up the difference. They note France’s stretched public finances and long-term risks associated with Areva’s unfinished, much-delayed, and over-budget nuclear reactor projects in Finland and France.

The future commercial ties between EDF and Areva also leave unanswered questions. The government wants to reset them. EDF’s success in diversifying its sources of nuclear fuel for its park of French reactors, responsible for about three quarters of the country’s electricity, has squeezed margins at Areva.

True, France could try to lure foreign investment but outside investors can only ever hope to be junior partners in such a strategic industry. Areva sees itself best placed to pick up business from the €55 billion investment program EDF is considering to extend the average life of its nuclear power plants to 60 from 40 years.

As for EDF, there are financial and commercial risks in being a more vertically integrated nuclear business. Building reactors is capital intensive, while foreign customers may not fancy have the prospect of EDF bidding to build, operate and now equip new projects.

The government could dull the pain by letting EDF raise electricity prices at home. That would bring a smile to the faces of shareholders, not least the state given its 84.5% stake, just not necessarily to those of President Hollande’s electorate

June 6, 2015 - Posted by Christina Macpherson | business and costs, France