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. 
 
 
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Stapleton