Joint venture for a one-stop shop

A nervous few months are awaiting the key players in a proposed joint venture that would offer the nuclear industry a “one-stop shop” for fuel and engineering services. Framatome and Cogema of France, and Siemens of Germany will not be told until December whether or not the competition authorities at the European Commission will allow the planned consortium to go ahead. Winning the agreement of the EC is not a foregone conclusion: as Framatome says, “It is not an easy matter to guess what the Commission will say.” Framatome and Siemens signed a final agreement on 5 July, agreeing to merge their nuclear activities. The venture will be called Framatome ANP (Advanced Nuclear Power), with Framatome holding a 66% stake and Siemens 34%. This split reflects the value that each company brings to the merger: in 1999 Framatome achieved sales of E2 billion, compared to Siemens E1.1 billion, and framatome employs some 9000 people, compared to the 4100 employed by Siemens.

Cogema already owns 34% of Framatome, which is partly thanks to an agreement in mid 1999 under which it received the holdings currently owned by Alcatel. Even at that time, Siemens was described by France’s industry minister Christian Perret as being a ‘natural partner’ for Framatome. Cogema will also be represented through an agreement in principle on future co-operation, signed in December 1999.

The three companies have a considerable range of services and experience. Originally established to develop the PWR in France, Framatome now exports its technology worldwide. It also claims to be the world’s number two connector manufacturer, a market that opens the world’s demands for electronic circuitry and control panels to the company.

Cogema covers the entire nuclear fuel cycle, from prospecting for uranium through to reprocessing spent fuel and related engineering.

Siemens designs and supplies different types of nuclear plant and their related fuel operations. It also manufactures equipment such as instrumentation and control systems and replacements parts for nuclear plants.

The two companies have been working together for a number of years to develop a PWR that will meet licensing requirements in a range of countries – the reactor is known as the European PWR (EPR). Details of the EPR design were covered in the October 1997 issue of NEI.

Both Siemens and Framatome have operations in the USA and it is here that Siemens spokesman Wolfgang Breyer had identified potential new markets when the merger was first announced in late 1999.

However, even in Europe, Framatome and Siemens are said to be convinced that the present stagnation in the European nuclear market will not last long. In Europe, there is an increased pressure on prices for plant operators as a result of deregulation. However, the companies anticipate a surge of demand taking place both in Europe and in the Americas for new nuclear plants and the engineering and services associated with them. Pressure on industrialised countries from the Kyoto Agreement to reduce their CO2 emissions will influence this, as will rising demand for energy. The companies also want to expand their business in Asia.

The selling points of the new venture are pricing and stability: “The joint venture will be better positioned than either company would be alone to succeed in ever-stiffer international competition,” said Dominique Vignon, chairman and chief executive of Framatome.

Norbert König, a member of Siemens KWU executive board, said: “Because of its international character, the joint venture will be less dependent on political developments in individual countries.” The companies have considerable resources and existing markets behind them, and the published results for 1999 do show some sales growth. For Framatome and Cogema, the recurring net profit in 1999 was upby 53%, and the energy sector was up by 43% on the previous year. Cogema serves around 30 countries and it claims that 41.2% of its turnover for 1999 arose through new clients. Fifty power companies representing 210 reactors worldwide are supplied by Cogema.

Co-operation between Siemens and Framatome is not new – the companies have worked together for over a decade and have, for example, supplied new and replacement heavy components in operating plants and have upgraded Soviet-designed plants to Western European standards.

INDUSTRY CONSOLIDATION

The proposed merger is part of a worldwide process of concentration in the nuclear engineering industry.

In May, BNFL announced that it had carried out another consolidation deal. Through Westinghouse, BNFL has completed a $485 million acquisition of ABB’s nuclear power businesses. This covers operations all over the USA, and in Sweden, Germany and France.

In 1999, Siemens and Framatome together held 20.9% of market share, and they could have claimed to be the largest group. However, the next- largest company was BNFL-Westinghouse, with a 17.5% market share, before it acquired the nuclear business of ABB.

The markets that are most likely to feel the main effects of the proposed new Framatome/Siemens joint venture are those of fuel assembly design and manufacture, instrumentation and control systems, and replacement and installation of power plant components.

The European Commission has said that it is concerned about the size of the European market share that the new entity would have, and it has expressed some serious doubts about the operation’s compatibility with the European Union common market. It also says that a broader view of the venture’s possible impact on nuclear technology markets in general needs to be taken.

Based on these serious concerns, the European Commission has decided that it will undertake an in-depth, second phase investigation of the proposals. It will announce its final decision on whether or not the venture can go ahead by the end of 2000.

What of the industry itself? Steve Kidd, head of programme research at the Uranium Institute, seems to be unworried by the proposed consolidation of the market, at least in the fuel supply sector. “A one-stop shop for the fuel buyer could bring benefits,” he said. “Normally, one has to buy fuel and then approach several different organisations to get the finished product. So it seems to be more much logical to offer the whole service right through to fuel fabrication.” However, he also added: “When Westinghouse tried to offer a similar service in the 1970s, it got its fingers badly burned when uranium prices – against all predictions – went through the roof. Fuel buyers tend to like the old system, with several companies competing for their business. If a huge consortium collapses, then that leaves an enormous hole, and the company runs the risk of being left without supplies.” BNFL does not seem to be particularly worried about the prospect of a new giant entering the market. A BNFL company spokesman said: “The nuclear market has always been a very competitive one. Our own restructured organisation is now going out to compete effectively in the world markets.”