Areva to Settle Finnish Project Loss With Client TVO (Update2)

http://www.bloomberg.com/apps/news?pid=20601085&sid=aolZmT1zo2PE&refer=europe

Areva to Settle Finnish Project Loss With Client TVO (Update2)
By Anne-Sylvaine Chassany
Oct. 16 (Bloomberg) -- Areva SA, the world's largest reactor maker, is negotiating with Teollisuuden Voima Oyj, or TVO, to share losses at a reactor it is building for the Finnish utility.
The company is also working with TVO on 50 measures to accelerate the project, as resources dedicated to the project are almost at the limit, Philippe Knoche, project manager of the Olkiluoto-3 project, or OL3, said late yesterday in a presentation to analysts and reporters in Finland.
``OL3 is and will remain a very challenging project,'' Knoche said. The teams are working six days a week and 24 hours a day and any unexpected problem may lead to further delay on the project delivery date, he added.
OL3, which has been plagued by component, construction and organization problems since it started in 2005, is more than 25 percent over its 3 billion-euro ($4.1 billion) initial budget and its delivery date has been pushed back two years to mid-2011. Even that target is ``challenging,'' Jouni Silvennoinen, senior VP at TVO, said today in a presentation on site.
The French state-owned company, which competes with General Electric Co. and Toshiba Corp.'s Westinghouse in a global nuclear race, wants to use OL3 -- the first nuclear plant to be built in western Europe since Chernobyl -- as a showcase for its new- generation Evolutionary Power Reactor as it seeks to supply about a third of the estimated 300 reactors needed worldwide by 2030.
``Areva obviously lacks visibility on the project but really needs to make it happen to prove its new design really works,'' said Pierre Boucheny, an analyst at Landsbanki Kepler in Paris. The analyst, who rates Areva ``reduce,'' estimates that the cost overruns of about 1 billion euros have already wiped out profit on Areva's next 10 reactors.
No Visibility
The company has never disclosed the exact amount of provisions for the project over the time. Areva's reactors and services unit had a 258 million-euro operating loss in the first half on additional charges as the company tried to accelerate the work and allocated more resources than planned, it said.
The OL3 contract was the first reactor order negotiated by Areva after the nuclear power industry's long pause. ``It badly wanted to win and took some risk,'' Boucheny said. The company also wants to use the project to demonstrate it can handle a big turnkey contract, its first in a long time, the analyst added.
``OL3 is a prototype and we're making sure we learn from our experience,'' Knoche said.
Areva hadn't anticipated the level of scrutiny TVO and the Finnish Safety Authority would have at every step of the construction process, Knoche said. The utility wants to approve about 100,000 engineering documents along the way, which differs from the French practice and slows down the project, he said. About 30 percent of these documents have been approved so far, he said.
``It's heavy work, which none of the parties had anticipated,'' he said.
Scrutiny
While TVO contractually committed to approving each of these documents in two months, on average, it takes the Finnish utility seven to nine months, said Isabelle Coupey, Areva's financial communications director. This, in turn, disrupts the planning of the project and incurs additional costs.
Separately, Areva has filed a complaint to the International Chamber of Commerce to settle a dispute with TVO that happened at the beginning of the construction phase and is not related to the engineering certification process, Coupey said without elaborating.
The OL3 project is entering a new phase in 2009 with the end of civil work and the start of the assembling of the primary components, Knoche said.
New Phase
Despite difficulties in Finland, the Paris-based company is positioning itself to build the country's sixth nuclear reactor, Knoche said. Westinghouse Electric Co., the reactor-builder owned by Japan's Toshiba Corp., won't bid, Dan Lipman, the company's head of nuclear plants, already said Sept. 4.
Finland's parliament will vote on a sixth nuclear reactor by the third quarter of 2010. TVO will probably order one unit if it gets government approval for another, Knoche said. Fortum Oyj, the country's biggest utility, and E.ON AG-led Fennovoima Oy are also planning to add nuclear capacity in the Nordic country. E.ON is Germany's biggest utility. Areva is answering technical questions from all of these parties, Knoche said.
Areva is also building a reactor for state-owned utility Electricite de France SA. It will build another one by 2011, French president Nicolas Sarkozy said in July. It won an 8 billion-euro contract in November last year to supply two Evolutionary Power Reactors and uranium to China and is competing for reactor contracts in South Africa and the U.S.
The French government is weighing options for the nuclear maker, as the company needs funds to expand. Options include selling shares to the public and a merger with French turbine maker Alstom SA. Lauvergeon opposes a merger with Alstom, she has said repeatedly.
To contact the reporter on this story: Anne-Sylvaine Chassany in Paris achassany@bloomberg.net Last Updated: October 16, 2008 06:41 EDT