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R 171712Z MAR 08
FM AMEMBASSY PARIS
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UNCLAS SECTION 01 OF 03 PARIS 000500 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB/ESC, AND EEB/CBA; EUR/WE; OES; ISN 
 
E.O. 12958: N/A 
TAGS: ENRG EIND ETRD KNNP PREL FR
SUBJECT: FRANCE: CIVIL NUCLEAR EXPORTS BOOM 
 
Ref: 2004 STATE 8615 
 
CONTAINS SENSITIVE PROPRIETARY INFORMATION 
NOT FOR INTERNET DISTRIBUTION 
 
 
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Summary 
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¶1. (SBU) French President Sarkozy has announced contract signings or 
preliminary discussions for the eventual export of French nuclear 
technology during several recent trips abroad.  Both France's 
nuclear powerhouse Areva (reftel) and French government officials 
emphasize that the export boom is focused on existing nuclear 
countries, and that actual sales to new customers in the Middle-East 
and Asia will not occur for many years, once safety and security 
prerequisites are firmly in place.  Areva plans to use partnerships 
to implement many of these deals, a strategy that is likely to be 
affected by ongoing discussions within the GOF about how to 
recapitalize the firm. 
 
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AREVA 
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¶2. (U) In 2001, the GOF regrouped the French nuclear industry into 
industrial holding company, Areva, approximately 93 percent of which 
is owned by the French government.  The French Atomic Energy 
Commission (CEA) holds 79 percent, the French state directly owns 5 
percent, and the rest is held by the Caisse des Depots (3.5 
percent), Electricite de France (EDF), Total, and employees. 
Roughly 4 percent of Areva is traded as nonvoting investment 
certificates on the Paris stock market.  Areva is number one 
worldwide in the nuclear power cycle.  With a market value of 
approximately 20 billion euros, Areva recently reported 14.5 percent 
growth in 2007 profits, and has said it expects that its existing 
backlog of 39.8 billion euros will increase in 2008 on the back of 
continued strong growth. 
 
¶3. (U) Areva is the only industrial group in the world involved in 
the entire production cycle for nuclear energy. 
Since its creation it has rapidly increased its business in Europe, 
North America, and Asia.  At the end of 2007, 62 percent of the 
group's revenues came from Europe/CIS; 17 percent from North and 
South America; 14 percent from Asia/Pacific; and 7 percent from 
Africa.  The roots of its current surge in foreign sales lie in the 
development of a reactor based on a modernized third generation 
version of current technology, the European Pressurized Water 
Reactor (EPR), the first contract for which was awarded to Areva and 
Siemens in 2003 by Finnish TVO. 
 
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Areva's export surge 
-------------------- 
 
¶4. (U) Reactor sales or nuclear cooperation agreements designed to 
prepare the way for eventual sales have been announced recently in 
China (8 billion euros for the sale of two EPR power plants plus 
fuel), Libya, Morocco, Algeria, and the United Arab Emirates (two 
1600 megawatt reactors).  Contacts have been made with India on a 
potential agreement, and Areva has proposed construction of twelve 
EPR reactors in South Africa.  Areva is also proposing to build EPRs 
in the UK and in the U.S., the latter via the Unistar nuclear 
partnership with Constellation Energy. 
 
¶5. (SBU) Though a good deal of attention has focused on recent 
discussions with Middle-Eastern countries, Jacques Scheer, 
Diplomatic Advisor to Areva CEO Anne Lauvergeon told us that the 
company expects 90 percent of its new business in the coming 30 
years will be from countries that already have a nuclear industry. 
Areva was particularly interested in the U.S., China, India, UK, and 
South Africa. Brazil was restarting a nuclear program, and Areva saw 
potential in replacing Central Europe's Soviet-era reactors as well. 
 Indonesia and Vietnam could also be potential markets.  The demand 
was so great Areva would have to forego participating in some 
markets, probably in former Soviet Union (eg. Belarus). 
 
¶6. (SBU) Areva is convinced that the prospects for nuclear energy 
are so promising it is developing a long-term plan based on all the 
reactor orders it expects by 2020-2025 and all the "factors" 
required to manage these, including capital, material, new personnel 
(particularly engineering talent) and training.  Areva has hired 
over 20,000 people in the past two years (out of a total of 65,000 
employees) at a total cost of around 200 million euros per year. 
Areva plans to hire another 12,000 people in 2008. 
 
PARIS 00000500  002 OF 003 
 
 
 
¶7. (SBU) Scheer underlined that with the exception of Libya, which 
has stockpiles of uranium of interest to Areva, Middle-Eastern 
countries had "not been a priority" of the company before the recent 
presidential announcements. Although Abu Dhabi has had a nuclear 
cooperation agreement with France since 1980, and is reported to 
want to move ahead quickly with construction, Areva Nuclear Power's 
CEO Luc Oursel told Emboff bluntly that even this is "not a real 
project" at present, and that the company had "no interest" in 
seeing it move ahead quickly.  As a company largely owned by the 
French state, the diplomatic advisor Scheer said that Areva would 
obviously not go into countries without a green light from the GOF. 
However he underlined the distinction between the GOF signing a 
cooperation agreement and Areva completing a contract for a reactor. 
 Areva would need to negotiate numerous preparatory MOUs before it 
could contract and deliver reactors.  Under the best case scenario 
Scheer did not foresee reactors in any of these countries being 
operational before 2020-25. 
 
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The road ahead 
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¶8. (SBU) GOF officials strongly support Areva's efforts to export 
nuclear technology.  They tout the environmental advantages of zero 
carbon emissions (a politically potent argument in green-conscious 
France) as well as the possibility it offers to oil producing states 
to conserve fossil fuels, diversify their energy mix, and desalinate 
water.  They note that sales to developing countries are consistent 
with the stipulations of the Nuclear Non-Proliferation treaty, and 
that President Sarkozy has publicly pledged to help countries that 
comply with the treaty develop a civil nuclear industry. 
 
¶9. (SBU) However, Energy and MFA officials with whom we have 
discussed these sales also note that discussions with these 
countries are at a very preliminary stage, and that France is 
committed to seeing that all appropriate safeguards for safety, 
security, and non-proliferation are in place before any actual sales 
take place.  None of the recently announced nuclear cooperation 
agreements has yet been officially signed, and all are subject to 
prior EU review by EURATOM.  None of the sales of reactors to new 
nuclear countries involves fuel, and all would in any case be 
subject to export controls of sensitive technology, which require 
adequate guarantees about non-proliferation before completion. 
Areva confirms that it does not envisage selling enrichment or 
reprocessing technology to countries that do not require it, meaning 
a minimum fleet of 20-30 reactors, which would exclude countries in 
the Middle East. (Note: One exception may be China.  The Chinese 
have expressed interest in nuclear waste reprocessing technology. 
Areva is scheduling very preliminary discussion with Chinese 
authorities in the coming months.) 
 
¶10. (SBU) French officials freely admit that there will be major 
challenges ahead in developing a culture of safety and security in 
aspiring nuclear countries.  Nuclear cooperation agreements are only 
the start.  We have been told the GOF recently adopted a classified 
road-map for implementing such agreements, and is considering 
establishing a new office to manage international civil nuclear 
cooperation sometime this spring.  France will no doubt be looking 
to international agencies such as IAEA to help to establish 
prerequisite safety and security frameworks so that sales can 
eventually be completed. 
 
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Areva's Partnership Strategy 
---------------------------- 
 
¶11. (SBU) Recent announcements have confirmed Areva's strategy of 
partnering with a variety of firms in export ventures.  Scheer told 
us that Areva wanted to overcome the perception that EDF was an 
obligatory partner (though it is still very present in the U.S. and 
China deals) in order to give customers flexibility and choice.  Any 
exclusive partnership with turbine manufacturer Alstom could mean 
the loss of its partnership with Siemens, with which it has 
developed the EPR, and which currently owns 33 percent of Areva's 
reactor subsidiary.  Bad blood between Siemens and Alstom goes back 
to the development of high speed rail in the 1980s Scheer said, and 
partnership with both was impossible.  Local partners were essential 
to some deals: China insisted on a partnership stake and technology 
transfer in contracts for reactors.  Areva partnered with Suez 
rather than EDF in Abu Dhabi, and also brought in Total for its 
knowledge of the region. Areva was working with a variety of firms 
in building reactors, including leading French construction firms 
Vinci and Bougyues. 
 
¶12. (SBU) Areva's reliance on new partners may expose it to 
 
PARIS 00000500  003 OF 003 
 
 
additional risks of delay or cost overruns.  Construction of the 
first EPR in Finland has proved far more time-consuming and costly 
than expected.  It is now two years behind schedule, and one to one 
and one half billion euros over budget.  Areva and its Finnish 
partner TVO are trading charges about who is responsible for delays 
in obtaining regulatory clearances. Other sources have told us that 
the absence of a partner with experience building nuclear plants 
(such as EDF) has contributed to these problems. 
 
------------------------ 
Areva's Recapitalization 
------------------------ 
 
¶13. (U) Areva's booming sales and expansion strategy lend particular 
significance to discussions about how it should be recapitalized to 
support future growth.  The GOF has been considering selling 35-40 
percent of Areva since 2004. President Sarkozy's reported preference 
for a marriage with another major French industrial company such as 
Alstom or Bouygues has been fiercely resisted by CEO Anne 
Lauvergeon, who wishes to maintain Areva's independence and unique 
focus on an integrated nuclear cycle through a public offering of 
shares, with only small cross-holdings available to partner 
companies.  Finance Minister Christine Lagarde is reported to have 
given the results of an HSBC-McKinsey study of Areva privatization 
to the Elysee early in February, where it is now being considered. A 
final decision is expected in the coming weeks or months. 
 
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Comment 
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¶14. (SBU) Areva is well-positioned to take advantage of France's 
sustained commitment to civil nuclear energy of the past 30 years, 
as developed and developing countries alike look to diversify away 
from fossil fuels for baseload electricity production.  Most of its 
exports will go to countries that already have developed nuclear 
systems, and sales to emerging countries will be long in coming, if 
at all.  Often included in high-profile presidential "deliverables" 
that include contracts for other infrastructure such as desalination 
plants or high-speed trains, military equipment, or even strategic 
assets such as the first-ever French military base in the Persian 
Gulf, Areva's export surge demonstrates France's desire to use its 
cutting-edge nuclear technology to develop long-term strategic and 
commercial relationships that will help it to expand its influence 
abroad and give it a "foot in the door" for future sales as 
developing countries complete their infrastructure. 
 
¶15. (SBU) Though Areva has moved to a strategy of multiple 
partnerships designed to maximize its flexibility and ability to 
meet local commercial constraints, many of these retain an aura of 
"Made in France."  Though the wind is blowing in CEO Lauvergeon's 
direction at the moment, the Elysee's decision on how the firm will 
be recapitalized will help determine whether this strategy will 
prove sustainable over the long-term.  In any case the assurance of 
GOF assistance in creating the institutional infrastructure for 
civil nuclear energy and in meeting the requirements of 
international nuclear regulation will remain a critical factor in 
selling reactors to new nuclear countries. 
 
STAPLETON