Finish the Finnish reactor

Areva books charges on project delays
(updated 09/02/09 with quotes from TVO via NucNet)

Areva and Finnish utility TVO are still feuding over the path forward to complete the 1,600 MW EPA which will become Olkilutoto #3.

In a statement Areva blamed “inadequate resources deployed by TVO to fulfill their contractual commitments” which led to schedule delays and increased costs.

Areva said in unusual blunt language that TVO's proposals and contractual modifications were due to "inappropriate behavior in contract management" including conduct which "is not in line with standard industry practices."

For its part TVO said in a statement published by NucNet,

“Contrary to what Areva implied in its press release yesterday, they have not informed TVO about discontinuing work or presented any conditions for the continuation of work on the OL-3 construction site. According to the fixed-price turnkey contract, the Areva-Siemens consortium is responsible for the construction and commissioning of the plant unit and for the project schedule.”

TVO president and chief executive officer Jarmo Tanhua added:

“The schedule for the construction site is challenging and Areva's public speculation about stopping the works does not make it any easier to keep to it.”

The NY Times reported Sept 2 that the Finnish safety authority said Areva outsourced some of the construction modules to unqualified subcontractors, making it responsible for some of the problems.

The original price of the reactor set at (euro) 3 billion has accumulated an additional (euro) 2.3 billion in new costs. As a result, the French state-owned nuclear giant said its profits dropped by a heart stopping 79% in the first half of 2009 after booking (euro) 550 million in charges over delays related to construction of the plant. Net profit for the six month period ending June 30 was (euro) 161 million against profits of (euro) 760 million a year ago.

This is the latest in a series of setbacks for the plant, one of two EPRs now under construction in Europe. The project is being closely watched by the global nuclear industry, and its critics, to see if cost overruns which plagued new reactor builds in the 1970s will re-emerge to sink the nuclear renaissance. The plant was scheduled to enter revenue service in 2009, but a projected 2012 start-up date is not certain.

Areva CEO Anne Lauvergeon told wire services “there is a good chance” the 2012 date will be met, but Areva and TVO have reportedly not yet come to terms on the final construction schedule. Also, Areva has feuded off-and-on with Finnish nuclear regulatory authorities over quality assurance standards based in part on miscommunications between the reactor builder and the government. Workforce issues including language barriers have hampered progress at the site.

Finland is Areva’s moonshot

Clearly, Areva has a boatload of problems in Finland some of which are not of its own making, but it owns the project. For better or worse, it is the current showcase for what the nuclear industry can, or cannot do, with a new reactor design. The credibility of its own future and the future of the global nuclear industry will be affected by whether the firm can finish the Finnish reactor. In short, this is Areva’s moonshot and it cannot miss.

The prospects for other projects will rise or fall with the outcome in Finland. Areva is building a similar plant in Flamanville, France, and has booked deals for four more including two in China and two as part of India’s race to build nuclear reactor power stations. In the U.S. the firm plans to break ground in 2012 at Constellation’s Calvert Cliffs plant in Maryland. Other U.S. projects include a high profile deal with Duke Energy for a site in Ohio.

Areva and TVO need to come to terms, not only to address their respective interests, but also because they have an obligation to the global nuclear industry. Olkilutoto is already a big fat target for anti-nuclear groups in the U.S. and overseas. The faster the two parties can agree and then get the job done, the better the future will be for Areva’s other nuclear projects and for the nuclear industry. Like they say at NASA – failure is not an option.

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