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Areva warns of soaring reactor costs

By Peggy Hollinger in Paris

Published: August 29 2008 19:00 | Last updated: August 29 2008 19:00

Areva, France’s nuclear engineering group, on Friday confirmed that the initial cost of building nuclear reactors is soaring, just as demand is rising for a more cost-effective source of power than oil and coal.

The group has taken its sixth provision in two years to cover cost overruns and delays to its new generation reactor in Finland, called OL3. Though Areva refused to quantify the provisions so far, senior management on Friday confirmed reports that the final price would be closer to €4.5bn ($6.6bn) instead of the initial €3bn estimate.
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The EPR reactor project in Finland, already delayed by two years, is suffering from high raw material and construction costs. One senior executive, who refused to be named, said the group was working to cut the costs of future reactors. “All big projects have the same difficulties. The nuclear sector is not alone,” he said.

Areva has also launched arbitration proceedings with the Finnish utility TVO to determine how the cost overruns would be shared.

The admission came as the group ended what has been a difficult summer with a record level of interim net profits, up from €295m a year ago to €760m. The increase was buoyed by unquantified gains from disposals and higher volumes.

Meanwhile, the prospect of a rapid decision from the French government on the future of Areva appears to have faded. The government has been weighing a partial privatisation and a proposal from construction group Bouygues to merge its turbine affiliate Alstom with Areva. Martin Bouygues, chief executive, suggested Friday there would be no decision before the end of the year.