French nuclear firms confident in credit crisis

Tuesday, November 25, 2008

PARIS, Nov 24 (Reuters) - French atomic energy firms may be over-confident when they say their plans to expand abroad will survive the credit crisis unscathed.

Some analysts say financing problems, if prolonged, are bound to delay schemes in a sector with such high capital costs.

France hopes to use its unrivalled atomic expertise to lead a global nuclear revival spurred by rising fossil fuel prices and concerns over climate change. Its firms may even benefit as a slowing economy lowers costs for current building in France.

But Jean-Marie Chevalier, head of the geopolitical energy centre at Paris Dauphine University, said recession and sliding prices will force energy companies to review spending on nuclear reactors while the credit crunch may prevent them from borrowing the required sums.

"The crisis will have an impact on financing and will favour short-term projects such as gas-fired plants rather than long-term nuclear projects," Chevalier said.

"Utilities and banks are telling themselves that they are not quite sure where they stand so they will want to wait before launching new projects," Chevalier added.

This month a South African energy official said the country may have to postpone a plan to build its second nuclear power plant, for which France's Areva and U.S.-based Westinghouse Electric have bid.
Nevertheless, EDF, Europe's largest nuclear power operator with 58 reactors, said the crisis was not disrupting its plans to build new reactors in France and abroad, including in Britain.

Former power monopoly EDF is buying British Energy to build four nuclear reactors at two sites in Britain by 2025 with the aim to have the first one running by 2017.

"There are no projects called into question," a spokesman of state-owned EDF said. "And this is also true for Britain. We have time ahead of us and we don't exclude partnerships with other companies to run the reactors we will build," he added.

But the seven banks guaranteeing a loan to help EDF finance the British Energy bid were struggling to find additional banks to share the risk, the French press reported earlier this month.

The head of state-owned reactor maker Areva, Anne Lauvergeon, said she believed the crisis would only have a limited impact on her company.

"The energy sector has great potential and we don't have many debts," she said.

Some analysts said that given the size and financial health of France's main players in the field, the impact of the crisis should be limited, but added it would become a problem if bank money were needed.

"I do not think that companies with a solid balance sheet and those which are government-owned will be hit by the economic crisis and nuclear should continue to develop in those countries," said Colette Lewiner, head of utilities at French consultancy firm Capgemini.

"This is the case for France, Britain, China and Korea," she added.

Koen Dierckx, analyst at KBC Securities, said that the financial strength of the two big French energy companies EDF and GDF Suez should help them through the credit crunch.

"Maybe we will see some delays but I don't expect the crisis to completely derail projects."
How long the economic downturn lasts will be decisive.

"If this crisis goes away in 12 to 24 months, and since nuclear reactors take a long time to build, then the impact will be fairly limited," one analyst said.

"But if it lasts for years it will be a completely different story."

Some energy experts said one positive outcome of the recession would be lower costs to build those nuclear reactors which are already under construction, as demand for raw materials and construction workers falls.

"The current crisis could entail good news for the construction of the (new-generation) nuclear reactor in Flamanville because there should be a drop in building and material costs and the staff crunch should ease," said Lewiner.

Labour and material costs, such as steel and concrete, have been spiralling in the last few years, and nuclear plants have been particularly hit given their specialised labour needs, material intensity and a tight supply chain for key components.

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