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China To Award Nuclear Contracts

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French state-owned nuclear engineering company Areva SA is expected to land 7 billion euros ($10.39 billion) in contracts later today to supply a Chinese electricity company with two advanced nuclear reactors, the fuel to power them for 15 years and more uranium for other plants, according to French industry and government officials.

The deal to be signed between Areva and China Guangdong Nuclear Power Holding Co., or CGNPC, during French President Nicolas Sarkozy's visit to Beijing this week is part of a plan by China to build dozens of reactors over the next two decades to help satisfy a surge in demand for power.

The contract could also be crucial to the future of Areva, the world's largest nuclear company by revenue.

Not long ago, the French government indicated it was thinking of dismantling Areva, which offers everything in the nuclear production chain from uranium mining to reactor building and fuel waste management.

The government's argument was that Areva can no longer cope with the world's increasing thirst for nuclear energy and should be split up into several companies to better serve clients from the U.S. to China, Britain and South Africa. Recent delays encountered by Areva as it builds a nuclear plant in Finland, Europe's first in 15 years, is fueling the debate.

'Nuclear power is one of France's trump cards. We don't want to spoil it,' Henri Guaino, special adviser to Nicolas Sarkozy, said in a recent interview.

Areva is keen to retain its one-stop-shop structure, arguing that customers such as China's CGNPC see advantages in buying fuel and reactors from one company.

Under the expected deal in China, Areva would sell two 1,600-megawatt power reactors to CGNPC and enough fuel to power them until 2026, according to the people familiar with the matter. Under a separate contract, Areva is expected to supply uranium for other, less powerful reactors that CGNPC plans to build. In the longer term, Areva may also co-operate with China on the building of a used-fuel reprocessing plant, these people said. An official from CGNPC declined to comment.

The tussle between Areva and the French government is part of a larger debate over how the world's nuclear industry plans to handle renewed demand for nuclear energy. The industry, which went into decline after the accidents of Three Mile Island in the U.S. in 1979 and Chernobyl in the Soviet Union in 1987, is experiencing a reawakening. The International Atomic Energy Agency anticipates the construction of at least 60 new plants world-wide over the next 15 years.

Areva was created in 2001 when the dip in demand for nuclear energy prompted the French government -- partly to save costs and retain skilled nuclear engineers -- to pool its scattered nuclear assets into one company.

Germany, which had just opted to phase out nuclear power at home, joined the project. Siemens AG, the German conglomerate, transferred its nuclear assets to the newly created Areva in exchange for a 34% interest in Areva NP, the group's reactor-making arm.

Areva today owns mining operations to extract uranium, notably in Niger and Canada, and enrichment plants to make nuclear fuels. The group designs and manufactures nuclear-power reactors and high-voltage electrical equipment. It also handles the reprocessing of nuclear fuels, which is one of the more sensitive parts of the nuclear chain as it involves handling of the radioactive element plutonium.

But the French government this summer said it planned to review the existing structure of Areva -- including possibly breaking it up and selling off the parts.

In addition, France's nuclear research agency Commissariat a l'Energie Atomique, which manages most of the state's 92% interest in Areva, said it would like to sell a 25% to 30% block on the market or to an industrial buyer to raise some of the funds it needs to decommission ageing research reactors.

Many suitors are emerging.French power plant and bullet-train maker Alstom SA has said it would like to merge with Areva to create a diversified engineering giant that could serve clients around the world.

Construction and media group Bouygues SA, which holds a 30% interest in Alstom, and oil company Total SA have both said they would be interested in buying shares or some of the assets of Areva if the nuclear company were privatized or split up. Japan's Mitsubishi Heavy Industries Ltd., which has industrial partnerships with Areva, has said it would be interested in Areva shares if they were made available.

Some 4% of Areva already trades publicly in the form of nonvoting investment certificates. Based on the certificates' latest price, the company's market value tops 25 billion euros. Alstom has a market value of 20.4 billion euros.

With this week's China deal, Areva hopes to persuade its main shareholder to leave the company's structure unchanged. Instead, Areva executives say they would like to obtain the government green light to raise cash through a rights issue. The issue, combined with a possible partial stake sale by the Commissariat a l'Energie Atomique, would result in a partial privatization. Selling a stake of Areva on the market would also provide the government with an indication of the real value of the company, which analysts say may not be as high as 25 billion euros.

It's unclear what role would be left for Siemens should Areva be partially privatized or split up. Officials at Areva say they hope to continue working with the company. A Siemens spokesman said the company 'has no intention to pull out.'

David Gauthier-Villars