November 2003

Areva Markets Nuclear Power And Itself

The Wall Street Journal Europe, November 12, 2003
By John Carreyrou

[Posted 20/11/2003]

Blackouts this year in the U.S., Scandinavia and Italy were a stark reminder that the world has yet to figure out how to meet its soaring power needs without messing up the environment.

Areva SA, a large but little-known company owned by France, thinks it has the answer: nuclear power.

The world's biggest builder of nuclear reactors and recycler of nuclear waste, Areva aims to go public next year. It is pitching itself to potential investors on the controversial premise that nukes are making a comeback -- and that the in industry that spawned Chernobyl is actually good for the environment.

To make its case, Areva has embarked on a global marketing campaign that takes as much from the fashion industry as it does from the grubbier world of electricity. Areva's chief executive, Anne Lauvergeon, hired a former top executive from fashion house Hermes to gussie up nuclear power's image. Television and newspaper ads in France several years ago featured a predecessor company's slogan: "We've got nothing to hide. Come see."

And to prove that point, Ms. Lauvergeon had Webcams installed at a nuclear-waste recycling plant in Normandy, the largest repository of radioactive material on Earth. Cameras piped live shots of the plant's interior to a Web site for public viewing. The French government ordered the cameras turned off for security reasons after the Sept. 11 attacks.

Unlike coal and natural gas, nuclear plants don't emit greenhouse gasses. Given that wind and solar energy have yet to become large-scale energy sources, Areva argues that nuclear plants are the only way to substantially boost power production without damaging the environment.

In preparation for an initial public offering, Areva has been hosting meetings with investors and analysts. Bertrand Barre, a company engineer, says he tells these gatherings that the climate disruption wrought by global warming coupled with a projected doubling of power consumption over the next 50 years presents the world with "an impossible equation." He adds, "That's when I pull nuclear energy out of my hat."

But at this point, it is still an open question whether nuclear power is really undergoing the resurgence Areva claims. There are 441 operable nuclear reactors in the world today, accounting for about 17% of global power production, according to the World Nuclear Association. The 104 reactors operating in the U.S. generate 20% of its power. France's 59 reactors generate 80% of its power. But the U.S. and Western Europe, the world's biggest power consumers, haven't added a reactor in years. Germany swore off nuclear power in 2000, although it plans to keep using its 19 reactors until they reach the end of their life span. Sweden is doing the same.

On the other hand, Finland recently decided to build a fifth nuclear reactor, citing greenhouse pollution as one of its reasons. A consortium led by Areva was selected last month as the preferred bidder for the estimated 2.5 billion euro contract. In France, where public opinion is divided on nuclear power, the country's industry minister has said she supports building a new reactor.

"Globally, things are beginning to move" toward nuclear power, says Ms. Lauvergeon. "What's happening in Finland is going to happen in a certain number of countries."

Peter Fraser, a senior policy adviser with the International Energy Agency, is more cautious. He doesn't foresee a reactor-building spree in Europe and says growth in the U.S. will depend on government financial incentives for operators. "Asia is where a lot of the growth potential is, especially China," he says.

Roughly 30 new nuclear plants are being built, most in Asia and Eastern Europe. Rising concern about dependence on Middle East oil since Sept. 11 has helped rekindle interest in nuclear power among some Americans. It has been 25 years since the U.S. built its last nuclear plant, but the Department of Energy last year published "Nuclear Power 2010," to encourage power-plant operators to start building new reactors by the end of the decade. The agency has earmarked $388 million (337.6 million euros) in 2004 for nuclear energy.

Still Areva, which has more than 50,000 employees and reported 8.3 billion euros in revenue last year, faces enormous skepticism in its quest to sell the public on an industry until recently thought to be on its last legs.

Memories of the Chernobyl disaster in Ukraine are still fresh. In 1986, the reactor exploded, exposing an estimated 4.9 million people to radiation and causing at least 45 deaths and thousands of cancer cases. Last year, a boric-acid leak almost ate through the lid of a reactor at the Davis-Besse nuclear plant in Oak Harbor, Ohio. It was the most extensive corrosion ever found on a U.S. reactor.

The nuclear-power industry also hasn't convincingly addressed its two biggest problems -- what to do with nuclear waste that remains radioactive for millions of years, and how to ensure that uranium or plutonium that could be used for bombs doesn't fall into the wrong hands in an age of escalating terrorism.

Areva's public offering would be a test of Ms. Lauvergeon's thesis that nuclear power is on the verge of a rebound. Of Areva's competitors, two are state-owned: Russia's Minatom Group and the U.K.'s British Nuclear Fuels. The third, General Electric Co.'s GE Nuclear Energy, is a small part of a conglomerate.

The French government, which owns 93% of Areva, hasn't decided whether it will sell its stake to the public. But it is widely expected to, having recently hired an investment bank. Ms. Lauvergeon says the offering could happen as early as March. Areva is already technically listed on the Paris Stock Exchange in the form of investment certificates, although they represent just 4% of the company.

Areva is the child of three decades of nuclear research and engineering, dating back to France's decision in the early 1970s to lessen its dependence on Middle East oil. To jump-start its efforts, the French government bought Westinghouse's stake in a reactor-making joint venture with a French company. The Westinghouse joint venture was called Framatome, short for "France-America Atom." Separately, the state agency that built France's nuclear bomb created Cogema, a company to mine and enrich uranium and recycle nuclear waste.

By the time Ms. Lauvergeon was appointed in 1999 to head Cogema, the bigger of the two state companies, it had been destabilized by years of attacks from environmentalists and had developed a culture of paranoia. "It was kind of a bunker," recalls Ms. Lauvergeon, 44 years old, a former aide to the late French president Francois Mitterrand.

One of her first decisions was to move Cogema's headquarters from a gritty Paris suburb to a building in the city center with a giant glass atrium -- to symbolize transparency. Ms. Lauvergeon ordered Webcams at the large Cogema recycling plant and started announcing train shipments of nuclear waste to the recycling plant from Germany.

For years, Greenpeace, the environmental group, had denounced the secrecy surrounding the shipments and had sent some of its activists to lie down in front of the trains. Ms. Lauvergeon let her executives appear on TV talk shows, reversing the previous management's policy of ignoring media requests.

In 2000, Ms. Lauvergeon received the results of an energy study she had commissioned that showed that global warming was beginning to alarm the public. She decided to use it as a powerful argument to promote nuclear power.

Ms. Lauvergeon lobbied the government to merge Cogema and Framatome, which had become bitter rivals, to create the world's biggest nuclear-engineering company. She got her way in September 2001, and renamed the company Areva.

The next month, Ms. Lauvergeon hired Alain Bucaille, the former No. 2 executive of Hermes, to improve nuclear power's poor image. He applied some of the brand-marketing techniques of luxury-goods makers to nuclear energy.

Mr. Bucaille also developed an advertisement for TV and the Internet showing a pressure cooker with a soundtrack of noise that grows louder and louder until the screen goes dark -- a metaphor for global warming. The ad ends with the question: "Could nuclear energy be part of the solution?"

In early 2002, Areva sponsored France's yacht in the America's Cup race in a bid to improve its name recognition in the U.S., where Areva generates 1.7 billion euros in revenue a year. The Nuclear Regulatory Commission has extended the life span of 15 U.S. reactors to 60 years from 40 years -- a boon for Areva, a leader in reactor maintenance. Areva hoped to win more of that business.

The race took place in Auckland, New Zealand, where 17 years before French agents had sunk the Rainbow Warrior, a Greenpeace boat protesting French nuclear-bomb tests in the South Pacific. Greenpeace saw Areva's sponsorship as a provocation and Frederic Marillier, one of its activists, called it the "height of contempt." So, when the greenish yacht, sporting "Areva" in red letters on its bow, embarked on its maiden sail from Brittany, a Greenpeace motorboat rammed it and damaged its hull. The Areva yacht ended up finishing second-to-last in the America's Cup race, but Areva says it got lots of positive media exposure.

Whether the PR blitz helped is unclear. But Areva recently won two high-profile DOE contracts: one to help with the storage of U.S. nuclear waste in the Yucca Mountain in Nevada; and another to transform the Pentagon's excess plutonium into fuel for nuclear plants. Areva also has clinched 10 U.S. contracts to replace the massive lids on nuclear reactors, which each cost 15 million euros.

But while Areva has trumpeted the lid replacements as evidence of its promising prospects, they are also a reminder of the risks inherent in nuclear power. The replacements were prompted by the mishap in Ohio last year. Ms. Lauvergeon says the leak at Davis-Besse "is very bothersome" but that the averted accident wouldn't have been anywhere near as dangerous as Chernobyl.

Another danger was highlighted by Greenpeace earlier this year. Every week, Areva trucks take plutonium from the company's plant in Normandy to another plant in the south of France 960 kilometers away, where it is turned into reactor fuel. In February, Greenpeace activists immobilized one of the trucks for three hours in the French town of Chalon-sur-Saone to make the point that the convoys are vulnerable to attack.

Ms. Lauvergeon plays down the incident, saying the plutonium transported isn't weapons-grade, the trucks are escorted by police cars and special mechanisms make them impregnable. Mr. Marillier says each truck carries enough plutonium to make 15 Hiroshima-size bombs. "As long as Areva handles plutonium, it won't be just another company," he says.

But global warming has caused some environmentalists to make peace with nuclear power. James Lovelock, the British scientist who was one of the founding fathers of the Green movement, has become actively pro-nuclear. Nuclear energy "is the only clean source of energy we have as far as the atmosphere goes," he says.

Ms. Lauvergeon maintains that if nukes don't stage a comeback, Areva is still an attractive investment because it will take decades to phase out the world's nuclear-power infrastructure. That will guarantee steady business from uranium mining, reactor servicing and waste recycling, she says. Last year, Areva earned a profit of 250 million euros without a single new reactor order. Its investment certificates have risen 38% this year, valuing Areva at 6.8 billion euros.

"I carefully weighed the pros and the cons and decided that what Areva has told me makes sense," says Joseph Ourghoulian, who manages the $500 million Amber Fund for SG Cowen in New York and has invested in the thinly traded certificates.

At Areva's plant in Normandy, 8,000 tons of highly radioactive spent fuel sit in four giant pools to cool for several years. Most of it eventually will be recycled to create new reactor fuel, but part will produce unusable waste that will be fused with a special glass for long-term storage. The pools' contents alone are enough to keep the plant busy for the next eight years and represent billions of euros in future revenue for Areva.

"These are our assets," says Philippe Pradel, Areva's director of reprocessing, standing at the edge of a pool. "As long as these pools are full, we'll be fine."

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