Areva: Outlook bright despite OL3 overruns

01 September 2008

Areva is anticipating orders and revenue to increase sharply over the remainder of 2008, although it has had to make an additional provision on the contract to build Finland's Olkiluoto 3 because of cost overruns.


In a 29 August presentation of the French fuel cycle company's half-year results and outlook, Areva CEO Anne Lauvergeon noted that operating income went up in all divisions of the company except for Reactors and Services, which posted a loss of €285 million ($416 million), €28 million ($41 million) greater than the loss the division made in the first half of 2007. For the company overall, the first half's operating income of €332 million ($485 million) was up from €207 million ($302 million) in the same period of 2007.


Lauvergeon confirmed that the company had made an additional provision on the Olkiluoto 3 contract. This had been needed because of cost overruns from the need to mobilize additional resources to enable timetabled "milestones" to be met, plus some issues arising from subcontractor operations. When challenged to give a 'ballpark' figure for the extent of the extra provision during a question and answer session following her presentation, Lauvergeon remained circumspect.


Stuk OKs Olikuoto 3


Allegations of substandard welding work at Olkiluoto 3 have been dismissed as unfounded by Finland's radiation and nuclear safety authority, Stuk.


After a three day audit of the site, Stuk confirmed that welding in the concrete structure was of the required standard and that there was no concern about construction quality. The regulator nevertheless found that improvements were needed in general safety culture at the site.


It concluded that allegations of substandard work, made by Greenpeace and in Finnish TV news broadcasts, was based on misconceptions.

Olkiluoto 3 is a 1600 MWe European Pressurized Water Reactor (EPR) being built for Finnish utility Teollisuuden Voima Oy (TVO) by an Areva-Siemens consortium. Work began on the project, the first EPR to be built, in 2005, but various delays have seen the startup date pushed back from 2009 to 2011. The three main companies involved in the project - TVO, Areva and Siemens - have now agreed 50 measures including improvements to documentation flows, prioritization of topics based on the project's critical path, and the management of project interfaces, which Areva says will improve and accelerate the project.


Despite the effects of Olkiluoto 3 on the balance sheet, the Reactors and Services division remains active in other new-build projects, with component manufacturing for the second EPR to be built, Electricité de France's Flamanville 3, proceeding on schedule. Meanwhile in China, site preparation is ongoing for the construction of two EPRs for China Guangdong Nuclear Power Company (CGNPC) at Taishan, with a groundbreaking ceremony in August and first concrete due to be poured in September.


Looking to the future, Lauvergeon noted that a second EPR is to be built in France. "We don't know what the utility will be – maybe it will be a different situation than the one we have been used to", she added, raising speculation that the unit could be GdF-Suez's major entrance to the nuclear market. She also described Areva's bids for new build in South Africa, Canada and the United Arab Emirates as "official" tenders and proposals.


Coming soon at GBII


A major project for Areva's Front End division is the construction of the Georges Besse II (GBII) centrifuge enrichment plant in France. The acquisition by Suez of an equity interest in the plant earlier in the summer had contributed to gains in the Front End division, and the company says it is expecting to announce new minority holders in the project - one of whom is already confirmed, according to Lauvergeon - in the second half of 2008. The first module of the 7.5 million SWU plant is due to start up in 2009.