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RUEHZL/EUROPEAN POLITICAL COLLECTIVE
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RUEHUL/AMEMBASSY SEOUL 1846

C O N F I D E N T I A L SECTION 01 OF 03 PARIS 000104 
 
SIPDIS 
 
STATE PASS USTR 
 
E.O. 19528: DECL: 01/27/20 
TAGS: ENRG ECON ETRD PREL FR
SUBJECT: FRANCE: NUCLEAR ENERGY LEADERS FEUD OVER INDUSTRIAL STRATEGY 
 
CLASSIFIED BY  AMBASSADOR CHARLES RIVKIN FOR REASONS 1.4 (B) AND (D) 
 
SUMMARY 
------- 
 
¶1. (C) Summary: Prime Minister Fillon demanded Areva and Electricite 
de France (EDF) CEOs settle disputes over the Areva-EDF framework 
agreement on nuclear fuel.  Differences in the leaders' corporate 
strategies have been compounded by a very public personality clash. 
GOF officials condemn the feud, which they see as evidence of lack of 
leadership and direction in the sector, and one that negatively 
impacts France's image abroad.  President Sarkozy commissioned an 
expert panel to make recommendations on long-term industrial 
restructuring and strategic international alliances.  After a short 
but nasty political fight, the GOF will allow the newly-appointed CEO 
of state-owned EDF Henri Proglio to retain a non-executive position 
at his former private-sector company but only temporarily.  Meanwhile 
rumors swirl of Areva CEO Lauvergeon's imminent demise.  Other 
operational trends may cast doubt on France's chance of leading the 
global nuclear revival.  End summary. 
 
EDF-Areva Framework Agreement in Limbo 
-------------------------------------- 
 
¶2. (SBU) Prime Minister Fillon gave Areva CEO Anne Lauvergeon and 
Electricite de France CEO Henri Proglio two weeks to settle disputes 
over the terms for nuclear fuel reprocessing.  During a January 20 
meeting with the two CEOs, Fillon asked them to resolve their 
differences over two main issues: the terms under which Areva 
collected, transported, and reprocessed spent fuel from EDF's power 
plants and the price for enriched uranium fuel.  In January, Areva 
stopped collecting spent fuel from EDF to make clear that it would 
not continue provisional terms that applied in 2009.  (Note: 
collections have since resumed.  End note.)  Meanwhile, Proglio 
complained of the rising costs of handling the spent nuclear fuel. 
 
Alarms in Enriched Uranium Supply Chain 
--------------------------------------- 
 
¶3.  (SBU) Following the January 20 meeting, Fillon underscored the 
"strategic importance" of the French nuclear energy industry, which 
offers the full range of services from mining through enrichment, 
reprocessing, and disposal.  He emphasized that domestic production 
capacity should be able to meet the country's electricity demand. 
The GOF wants EDF to rely on domestic markets for enriched uranium. 
However, Proglio had threatened to reduce the amount of enriched 
uranium EDF buys from Areva.  As of 2011, EDF would diversify its 
suppliers to include Russian sources, which reportedly offer 
competitive prices. 
 
¶4.  (SBU) EDF's proposed switch in suppliers prompted condemnation by 
lawmakers and Areva.  Lauvergeon criticized Proglio for wanting to 
lead the French civil nuclear energy team but at the same time rely 
on Russian suppliers for enriched uranium; "this is not the right 
signal to encourage investment in France," she told members of the 
National Assembly.  She also cautioned that Proglio's strategy could 
violate the 1994 Corfu Declaration which caps EU imports of Russian 
uranium at 20 percent. 
 
Personality Clash Adds to Strategy Differences 
--------------------------------------------- - 
 
¶5. (C) A personality clash between the energy CEOs has been unfolding 
since Proglio was selected to lead EDF and surfaced during the failed 
talks over the framework agreement.  Lauvergeon and Proglio - known 
respectively as "Atomic Anne" and "le Patron Teflon" - are 
strong-willed and passionate advocates.  Proglio, who says he is not 
used to being politically correct or diplomatic, was hand-picked by 
President Sarkozy and PM Fillon to lead EDF.  Lauvergeon hails from 
the left and is considered a political survivor who has spent ten 
years building Areva as an integrated firm.  Fillon recognized the 
personal rivalry and tried to reset the relationship the day after 
Proglio took office in November by staging a team-building visit to 
the new generation nuclear reactor (EPR) plant in Flamanville, 
France.  It was also an opportunity for Fillon to set the record 
straight on the question of leadership in the French nuclear energy 
industry:  the GOF would be at the helm. 
 
Proglio Jumped Out Ahead 
------------------------ 
 
¶6.  (C) The Flamanville visit came after bold announcements by 
Proglio, after he was appointed but before he started work, calling 
for EDF to take the lead of France's nuclear energy sector.  Proglio 
questioned the scope and economic terms of EDF's international 
 
PARIS 00000104  002 OF 003 
 
 
investments and of Areva's vertically integrated model.  For Proglio, 
it was time to rethink the structure of the French civil nuclear 
energy industry and its competitive footing internationally. 
Commentators saw this salvo as an attack against Lauvergeon's 
international plan to acquire 30 percent of the world civil nuclear 
market by 2030 and her management of the first two EPR projects in 
Finland and France, which are both behind schedule and over budget. 
 
Seeking a Long-Term Vision for the Industry 
------------------------------------------- 
 
¶7.  (C) In December, President Sarkozy commissioned former EDF CEO 
Francois Roussely (reportedly a friend of both Sarkozy and Proglio) 
to report on the sector's long-term strategy (2010-2030).  Key 
objectives of the report are to identify effective domestic 
partnership arrangements and international alliances for the civil 
nuclear energy market 2010-2030 and clarify the role of civil nuclear 
energy in the context of France's broader energy security policy. 
The Roussely Report is due in April. 
 
The Low Point: Failed UAE Reactor Bid 
------------------------------------- 
 
¶8.  (C) The domestic debate in the French nuclear energy industry 
went critical when the UAE awarded its USD 20 billion nuclear reactor 
contract to South Korea.  Sarkozy and Elysee Secretary General Claude 
Gueant had invested significant diplomatic energy in lobbying the 
French offer.  Lauvergeon pointed to EDF's initial refusal to join 
the French consortium and claimed it hurt the team's credibility.  In 
her January 13 remarks to the National Assembly, she said EDF did not 
consider UAE to be a strategic country and felt the deal had little 
chances of success.  The Areva CEO also blamed poor coordination 
among other members of the consortium (EDF, Total SA, GDF-Suez, 
Bechtel). 
 
Reignited Debate over EDF 
------------------------- 
 
¶9.  (C) As March regional elections near, Fillon's January 20 meeting 
with Areva and EDF was an opportunity for politicians from the left 
and right to reignite the controversy surrounding the GOF's 
recruitment of Proglio to head EDF.  Last November, the GOF agreed 
that Proglio could continue to serve as chairman of the board of 
Veolia Environnement, in a non-executive capacity, and collect two 
salaries in the process (1.65 million euros from EDF and a 450 
thousand euros from Veolia).  His two million plus euro combined 
compensation package (USD 2.8 million) while modest by the standards 
of many top U.S. CEOs, caused outrage in France, especially coming in 
the middle of the financial sector compensation debate. 
 
¶10.  (C) Parties on the left now insist that Proglio choose either 
his position in the private or the public sector.  Gerard Longuet, 
governing UMP majority leader in the Senate called on the Elysee to 
rethink the arrangement, contending that Proglio would not be 
impartial in deciding EDF industrial policy if he kept a foot in 
Veolia.  On January 21, Proglio announced that he would forego his 
Veolia indemnity, claiming that public outcry would distract from 
successfully implementing his industrial and social plan for EDF. 
Sarkozy and Minister of Economy Lagarde then backtracked on the 
original GOF approval claiming that Proglio's position with Veolia 
would be temporary and designed to ensure a smooth change in 
management. 
 
Other Trends further Weaken French Industry 
--------------------------------------- 
 
¶11. (C) Problems with the reactor control systems for the new EPR and 
with reactor maintenance have further tarnished the French civil 
nuclear energy industry's standing.  For the first time there was an 
international consensus on a "serious security" issue regarding the 
command and control system of France's EPR, Andre-Claude Lacoste, the 
President of France's Nuclear Safety Authority stated.  The joint 
complaint by the three national regulators (France, the UK, and 
Finland) cast doubt on Areva capabilities especially in light of the 
firm's claim that its EPR is the most technologically advanced and 
safest reactor in the world. 
 
¶12.  (C) For its part, EDF's operations have been beset with 
maintenance issues and strikes over the last year that prompted fears 
of black-outs and price increases.  French nuclear electricity 
production dropped 6.8 percent in 2009, the biggest decrease in 10 
years and nuclear electricity exports decreased by 47 percent over 
¶2008.  In the month of October, France was a net importer of 
electricity for the first time in 27 year.  The number of days in a 
12-month period during which France was a net importer rose to 57 in 
 
PARIS 00000104  003 OF 003 
 
 
2009, compared to 6 in 2008, and 20 in 2007.  Industry analysts point 
to a lack of investment in existing reactors and infrastructure 
(electricity grid, interconnections with European markets). 
 
Comment 
------- 
 
¶13.  (C) Personality clashes between Areva and EDF executives and 
disagreements over the civil nuclear energy sector's organization and 
business outlook could create market drama for months to come. 
Senior lawmakers have called the internecine feud an embarrassment to 
France's image abroad and one that could ultimately amount to "a 
collective suicide" of the companies involved.  One top French 
businessman close to Sarkozy told the Ambassador recently that Anne 
Lauvergeon would soon be replaced.  Industry Minister Estrosi told 
the Ambassador that Henri Proglio had Sarkozy's unqualified backing. 
The salary issue was ridiculous, Estrosi said.  It is clear that the 
Elysee and Areva want France to lead the nuclear revival by offering 
a new-generation reactor and services in the entire nuclear energy 
chain.  But there is no operational EPR to showcase.  It is also 
unclear what will be the future roles of EDF, Total, and GDF-Suez, 
which also has ambitions to operate nuclear plants.  The Roussely 
report may shed light on these issues.  Uncertainty in the industry 
comes at an awkward time; Sarkozy will host a ministerial-level 
conference in Paris March on access to civil nuclear energy (with the 
IAEA and the OECD).  He told the French diplomatic corps January 22 
that France's leadership in the field will mark the March event, 
which he hopes will conclude with an international consensus on the 
direction of the nuclear energy renaissance.  For now, domestic 
consensus appears more pressing. 
 
RIVKIN