Focus on France Ian Sparks reports from Paris

EURO-REPORT

FOCUS ON... France

Ian Sparks reports from Paris on the latest from two of France’s major energy players, Alstom and Areva.

France’s engineering and energy giant Alstom is to sell off most of its power generating assets to US group General Electric in a €12.4 billion deal finally authorised this month by the Paris government.

GE won a two-month long bidding war in June against Siemens and Mitsubishi Heavy Industries for Alstom’s energy assets, which represent around 70 per cent of the French conglomerate’s revenues.

But another five months were then needed for the government to give its approval for the alliance after a new law this year that gave Paris veto rights over foreign bids for ‘strategic’ French companies, notably those in the energy and transport sectors.

Economy Minister Emmanuel Macron has now announced that the government is “satisfied that state interests in France’s nuclear activities and energy security are fully taken into account under the deal.”

GE will now take on Alstom’s nuclear, steam turbine, offshore wind and hydro power businesses, which it will run as 50-50 joint ventures with French shareholders – which include the government. It will merge its electricity grid business into Alstom’s on a 50-50 basis, and it will take over Alstom’s profitable gas turbine business completely.

At the same time, the US firm will hand its own train signalling business to Alstom – which makes France’s TGV fast trains – and, bolstered by an infusion of cash from the deal, this will then be the core business of Alstom.

GE has also agreed to create jobs in France, rather than cut them through consolidation, and even promised to pay a penalty of 50,000 euros for every job out of the 1000 promised that it fails to create in France. And in a victory for Paris, GE has also agreed to give the socialist government holding key blocks of shares in the joint ventures, and granted the government a veto over key decisions.

Also, as part of the deal, the French government has agreed to buy the 20 per cent stake held by Alstom’s largest shareholder, the Bouygues family, giving it two seats on the board of the post-deal company which has just released its half-year fiscal results for April to end-September showing a 32 per cent drop in net income to 255 million euros.

Steve Bolze, president of GE Power and Water, said that with government approval now given, all that was needed is the backing of Alstom’s shareholders at a December 19 meeting and the agreement of the antitrust authorities in 20 countries.

He added: “The deal is on track to close in mid-2015. The numbers from areas like providing services to Alstom’s existing customers look better than ever.

“We like it more today than the day we announced it. We’ll be bigger in Europe and bigger all over the world.”

Challenges for Areva

Meanwhile, experts have cast doubt on whether France’s struggling nuclear reactor builder Areva is likely to win much in the way of big nuclear export contracts, despite a major government-backed effort to woo new customers.

French utility giant EDF may have just won European Union approval to build two Arevadesigned EPR reactors in Britain, which will be Areva’s first reactor sales since 2007. But the high-grade EPR reactors, with an outer skin designed to withstand a commercial airline crash and a built-in core catcher to collect radioactive remains in case of a meltdown, are feared to be too expensive for emerging markets, where most growth in nuclear generation is taking place.

Yves Marignac, director of France’s independent nuclear consultant WISE-Paris, said: “The EPR is too big, too complex and too costly for most of the existing market.

“Also for one French company, which is 84 per cent state-owned, to buy reactors from another French company, which is 87 per cent state-owned, and with subsidies from the UK government, is hardly the model of a competitive export industry.”

Areva chief executive Luc Oursel has also had to backtrack on his long-standing forecast that Areva will win ten new EPR orders by 2016 after first-half losses this year led to the biggest dive in the company’s stock in a decade.

Since losing a landmark United Arab Emirates contract in 2009 to South Korea’s Kepco, Areva has lost out on tenders in Finland and the Czech Republic and made no progress in India. Meanwhile, Russia’s Rosatom has won a string of contracts in emerging markets with its build, own and operate model.

The nuclear industry is also moving increasingly to a vendor financing model, which forces reactor builders to take a stake in their customers’ projects. And Japanese, South Korean, Chinese and Russian reactor builders now provide financing packages at rates about 2 per cent lower than the French industry can match, according to Philippe Pradel, head of nuclear development at French utility GDF Suez.

This was amply highlighted by the fact that Areva wants to finance the UK reactor at Hinkley Point C with money it is required to set aside to cover the cost of eventual decommissioning of its French nuclear installations, rather than issuing new debt, he said.

Areva has yet to get government approval for that move, and with net financial debt of €4.73 billion in June, the company has little room to take on more to compete effectively with Russia and its Asian competitors.

Mr Pradel added: “We are out of the race straight away. There is really no point in competing.” n