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Cablegate: Set Back for France's Nuclear Company Areva

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 PARIS 007561

SIPDIS

SENSITIVE

STATE FOR EUR, EUR/WE, OES, OES/SAT, ISN, AND EB/OIA;
DOE FOR POLICY AND INTERNATIONAL AFFAIRS: BRODMAN, EUROPEAN
AFFAIRS: PRICE AND NNSA;
DEPT PLS PASS TO U.S. NUCLEAR REGULATORY COMMISSION FOR
INTERNATIONAL AFFAIRS

E.O. 12958: N/A
TAGS: ENRG TSPL TPHY KSCA EINV PGOV FR
SUBJECT: SET BACK FOR FRANCE'S NUCLEAR COMPANY AREVA

REF: 04 PARIS 8615

THIS MESSAGE CONTAINS COMPANY PROPRIETARY INFORMATION; FOR
USG USE ONLY, NOT FOR INTERNET DISTRIBUTION.

1. (SBU) Summary: On October 27, Prime Minister de Villepin
cancelled the planned partial privatization of French nuclear
powerhouse AREVA, generating a flurry of journalistic
commentary, mostly suggesting that the non-privatization will
upset the company's planned expansion to take advantage of
the coming nuclear 'renaissance.' Insiders confirm the
company was very disappointed by the move, and that top
management changes are expected. The government's decision
also is evidence of a growing tendancy to shelter "national
champions." End Summary.

Company Reined In
-----------------

2. (U) France's 94% state-owned nuclear holding company
AREVA - with major subsidiaries COGEMA (fuel cycle
activities) and FRAMATOME (nuclear plant service and
fabrication) - is a world-wide leader in the nuclear field.
AREVA USA, the company's 100%-owned U.S. subsidiary is said
to be the largest nuclear supplier company in the U.S. In
fact, AREVA boasts subsidiaries in dozens of countries and
seeks to expand strategically in the U.S. and China to
position itself to help build an expected new wave of nuclear
power plants. In recent years, AREVA and Siemens of Germany
collaborated to design a new, evolutionary nuclear reactor
which in Europe is called the European Pressurized Reactor or
EPR. The first of these reactors is under construction in
Finland for completion in 2009. Electricite de France (EDF),
itself undergoing partial privatization, has ordered an EPR
for Flamanville in Normandy. If no major problems are
encountered or major new innovations develop in the short
term, the EPR may well be a first of a kind for a new fleet
of power reactors for France, which already produces 78% of
its electricity from nuclear power. U.S. utility
Constellation Energy recently expressed interest in building
an EPR in the U.S.

3. (SBU) To take advantage of what is widely foreseen as a
renaissance in the nuclear industry brought on in part by
concern over climate change and the high cost of fossil
fuels, AREVA planned to expand its capacity to produce
nuclear reactor vessels, steam generators, and other nuclear
equipment. It had planned to do this in part with funds
raised by a partial privatization (see reftel). Moreover,
the vision of the company's dynamic leader, Ann Lauvergeon,
who is also well-connected politically, is to turn the state
company into a fully-fledged private one giving it greater
autonomy and flexibility to operate in the complex world of
nuclear power. Indeed, a year ago, then Finance Minister
Sarkozy had put AREVA on its short list of privatizations for
2005. In March 2005, Finance Minister Breton pushed the
partial privatization into 2006. Now, the Prime Minister has
all but buried it. (We definitely do not expect further word
of AREVA privatization before the outcome of the 2007
elections.) However, somewhat illogically according to some
analysts, this announcement contrasts with the government's
willingness to proceed with other privatizations. For
example, the initial public offering of Electricite de France
(EDF) took place last week (see Paris 7373 and 7334) and the
privatization of Aeroports de Paris (ADP) is expected in the
first quarter of 2006.

But Why?
--------

4. (SBU) Explaining the government's reasoning to drop the
privatization, Prime Minister de Villepin claimed that
AREVA's nuclear work was too sensitive for the company to
proceed with a significant increase in private shareholding.
In a widely quoted statement, he remarked, "In a sector as
strategic as the supply of fissile material, enrichment and
treatment of nuclear waste (i.e., AREVA's core business), it
is the State that must provide guarantees to the citizen as
well as to foreign customers." Furthermore, de Villepin
contrasted AREVA and EDF saying, "There is a major difference
between an electric operator who works within narrow terms of
reference (to produce electricity), and the provider for the
entire nuclear process."

5. (SBU) The emphasis on the "strategic" nature of AREVA as
the rationale for the move highlights yet again de Villepin's
economic policy preference for protecting French enterprises,
in the belief that the GOF can create "national champions"
while appealing to voters' economic patriotism. Using this
rationale, however, creates new questions about what exactly
the GOF views as the nature of its strategic interest, e.g.,
whether it is the risk of handling nuclear material that is
stategic, or the opportunity of selling nuclear services to
potential foreign customers, or whether it is the energy
itself, given recent price trends in the petroleum industry.
More important for the company, perhaps, is how the GOF plans
to offset the aborted capital infusion to maintain or promote
whatever it views as its newfound strategic interest. (For
more on recent French debates over foreign investment
restrictions for strategic sectors, see Paris 6995 and 6570.)

6. (SBU) Other analysts considered de Villepin's comments
as mere rationalizations. The overwhelming speculation is
that the privatization of AREVA, coming on the heels of EDF
and ADP IPOs would be too much, too soon politically for the
ruling UMP Party with elections looming. Socialists and
union leaders had already objected strenuously to EDF's share
offering. Senior socialist figures were quoted as saying
that if they were returned to power in the 2007 general
elections, they would re-nationalize EDF.

Company Turned Upside Down
--------------------------

7. (SBU) One senior AREVA representative told Embassy ESTH
Counselor that he could not suppress his disappointment and
bewilderment with the Prime Minister's decision. When asked
why the privatization had been cancelled, he replied that he
is still searching for a rational explanation, claiming it
made "no sense." Nonetheless, he said, the company would
have to find other ways to raise capital to satisfy expansion
plans. He took umbrage when ESTH Counselor referred to his
company as "state-owned," responding that it operated as a
private company and was, moreover, profitable. The
privatization of AREVA had been in the works for years, he
said, in fact since Ann Lauvergeon had assumed chairmanship
of the board in 2001. A foreign ministry official with close
ties to AREVA also told ESTH Counselor that the cancellation
was disappointing for the company and that management changes
would take place in summer 2006.

Impact
------

8. (SBU) Analysts are still considering the effect that
AREVA's non-privatization will have on the company's plans.
Remaining a govenment entity will impact the company's
ability to raise capital and its flexibility to act
aggressively to exploit market opportunities. We also
understand that the non-privatization will negatively impact
the Atomic Energy Commission's (CEA's) ability to finance the
dismantlement of nuclear facilities. Some of the three to
four billion euros the AREVA partial privatization would have
raised was expected to go to CEA which owns 79% of AREVA's
shares.

9. (SBU) On the personnel front, a number of analysts see
the non-privatization as a personal blow to CEO Ann
Lauvergeon, often referred to as "one of the most powerful
women in business." It was her vision to consolidate nuclear
entities into a holistic enterprise and increase private
shareholding. Her term as chairman ends in summer 2006 and
it is widely expected she will then be replaced.

10. (SBU) Comment: By all accounts, the cancellation of
AREVA's public offering will significantly impact the company
and may alter ambitious plans on the world stage particularly
in competition with GE and Westinghouse. These three
companies boast of having updated, efficient and safer
designs for nuclear power plants. Yet, even without new
capital generated by a share offering, AREVA remains a
formidable, world class nuclear player. End comment.


Please visit Paris' Classified Website at:
http://www.state.sgov.gov/p/eur/paris/index.c fm
Stapleton

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