Areva, Westinghouse Chase China Nuclear Deals Amid Global Slump
March 2 (Bloomberg) -- Westinghouse Electric Co., whose designs run half the world's nuclear reactors, is counting on U.S. government help to unseat France's Areva SA as the leader in China's nuclear-power market.
Paris-based Areva, the world's biggest reactor builder, is banking on history: It has supplied four of China's nine working nuclear plants over 20 years. Westinghouse, previously shut out of the market by a U.S. export ban, is now vying with Areva for an $8 billion contract to build four Chinese reactors. Both companies submitted bids to meet a Feb. 28 deadline.
``The U.S. government has been very supportive of overall China-U.S. nuclear cooperation,'' says Gavin Liu, 37, Monroeville, Pennsylvania-based Westinghouse's representative in Beijing. ``It's a very, very critical market for Westinghouse.''
China's nuclear-power market is growing faster than any other as environmental and safety concerns halt U.S. and European reactor construction. The four planned reactors are the first of more than 20 in a $54 billion push to quadruple Chinese nuclear- power capacity by 2020 -- an effort to ease power shortages in an economy that grew 9.5 percent last year.
``The industry does need new orders, and it seems that China is going to be the most positive feature,'' says Steve Kidd, 48, director of strategy and research at the London-based World Nuclear Association, which promotes nuclear power use. ``In world terms now, it is the biggest expansion.''
U.S. Ban Lifted
For Westinghouse, the U.S. unit of state-owned British Nuclear Fuels Plc, the pending Chinese contract is the first opportunity to sell nuclear hardware to China since the U.S. lifted a ban on such exports in 1998.
U.S. President George W. Bush's administration has pushed to boost his country's involvement in China's nuclear program. As the only U.S. bidder for the current Chinese contract, Westinghouse is the main beneficiary of those lobbying efforts.
``The U.S. government has supported helping the Chinese in their economic development, and part of that is producing energy,'' says Bruce Blakeman, special counsel to U.S. Commerce Secretary Carlos Gutierrez at the U.S. embassy in Beijing. ``It's something where American companies have a great deal of expertise and the best technology.''
Westinghouse is leading a group of bidders that also includes San Francisco-based Bechtel Group Inc. and Tokyo-based Mitsubishi Heavy Industries Ltd., according to Westinghouse spokesman Vaughn Gilbert. While Westinghouse is owned by Warrington, England-based British Nuclear Fuels, a successful Chinese bid would add billions of dollars to U.S. exports and create thousands of U.S. jobs, says Blakeman, 43.
Congressmen in Beijing
U.S. government officials have visited Beijing in the past year to back Westinghouse's bid, Blakeman says. They included a group of congressmen led by Ohio Republican David Hobson, chairman of the House Appropriations Subcommittee on Energy and Water Development, who visited last April, Blakeman says.
Former U.S. Energy Secretary Spencer Abraham, who left the post on Feb. 1, lobbied for Westinghouse during a meeting with Zhang Huazhu, chairman of the state-run China Atomic Energy Authority, in Beijing in December, the authority says.
``He pointed out that both governments have made efforts on nuclear cooperation and hoped their nuclear industries could follow,'' the Chinese authority said in a Jan. 7 report. ``He said Westinghouse Electric Co. had participated in the bidding process for new Chinese nuclear projects based on its capability and good record.''
Abraham, 52, declined to comment on U.S. government support for the bid. Westinghouse and Areva officials say they expect China to choose a winning bidder by early 2006.
U.S. Trade Deficit
Pressure on China to reduce its swelling trade surplus with the U.S. may give Westinghouse an edge over Areva, says the World Nuclear Association's Kidd.
``The very big trade surplus that the Chinese have with the U.S. might save the U.S. vendors in the next round of bidding,'' Kidd says. ``American companies are pushing very hard, and they're quite hopeful of getting a significant amount of business for the next 10 years.''
The U.S. trade deficit with China widened 31 percent to a record $162 billion in 2004, according to U.S. government figures. France's trade gap with China last year was a fraction of that size at 11.5 billion euros ($15 billion).
`Deep Concern' Over Arms
The U.S. push to sell nuclear reactors to China comes as Bush opposes plans by the European Union to end a 16-year embargo on weapons sales to China.
``There is deep concern in our country that a transfer of weapons would be a transfer of technology that would change the balance of relations between China and Taiwan,'' Bush said at a press conference in Brussels on Feb. 22.
Russia's state-owned AtomStroyExport is the third contender for the pending Chinese reactor contract.
``It's a very promising market,'' AtomStroyExport President Igor Klochko said in a faxed response to questions. The Moscow- based company won an earlier contract to build two Chinese reactors, which aren't operating yet, he said.
China's nuclear expansion will boost the country's share of global nuclear-power capacity to 10 percent by 2020 from about 2 percent now, making China the world's No. 4 generator of nuclear power after the U.S., France and Japan, Kidd estimates.
China's plan to increase its nuclear-power capacity to 36,000 megawatts by 2020 will require an estimated 27 new 1,000-megawatt reactors costing about $2 billion each, according to a September estimate by Yu Jianfeng, a director at China National Nuclear Corp.
Nuclear Programs Halted
Countries such as the U.S. and Germany have halted their nuclear programs because of concerns about safety and environmental risks, highlighted by the 1986 Chernobyl reactor explosion in Ukraine.
Only a single reactor order has been placed outside Asia since Chernobyl, by Finland in 2003, according to the World Nuclear Association. Finland paid $3.7 billion for a model from Areva's Framatome ANP nuclear-reactor unit, a venture with Germany's Siemens AG.
No nuclear plants have been ordered in the U.S. since 1978, according to the Vienna-based International Atomic Energy Agency. Germany agreed in 2000 to permanently close its 19 nuclear power plants over the next two decades, after Chancellor Gerhard Schroeder met an election pledge to phase out nuclear power.
While India's nuclear expansion rivals China's in size, with nine reactors under construction and another 24 planned, overseas companies don't stand to profit. They're barred from exporting nuclear technology to India because it hasn't signed the Treaty on Non-Proliferation of Nuclear Weapons, according to the World Nuclear Association's Kidd.
Areva's Advantage
That means China will drive growth in the global nuclear- power market in coming years.
Areva is relying on its track record to maintain its lead. The company has supplied more plants in China than any other -- including state-owned China National Nuclear Corp. It employs 3,500 people in the country, compared with about 15 for Westinghouse, and signed its first Chinese contract in 1986.
``The Chinese strengthened their nuclear culture by being in contact with the French, so there's a familiarity and understanding,'' says Arnaud de Bourayne, 59, Areva's president for China. ``It is potentially the fastest-growing nuclear market for Areva.''
Areva is still the most likely winner of the pending contract, says Manoj Singh, the Hong Kong-based chief executive officer for Asia at Deloitte Touche Tohmatsu.
``Areva clearly has an advantage because consistency is very important,'' says Singh, who has been a consultant to energy companies for 25 years. ``One of the things the French have done very well is to standardize designs for nuclear power plants, and the Chinese government is trying to adopt that as a policy.''
Government Help
Like Westinghouse, Areva has gotten government help in pushing for Chinese contracts.
CEO Anne Lauvergeon accompanied French President Jacques Chirac on a trip to China in October, after China announced its call for tenders for the reactor project on Sept. 28, to meet President Hu Jintao and other Chinese leaders.
During a June visit to Paris by Chinese Vice Premier Zeng Peiyan, the nations signed an agreement to cooperate on technology for future nuclear reactors. Lauvergeon, 45, attended the signing, according to an Areva press release.
With or without government backing, companies seeking to profit from China's nuclear expansion face obstacles, Areva's de Bourayne says.
`Very Demanding Market'
China plans to phase out international participation in its nuclear program in coming years, and the winning bidder will have to ensure that the designs and equipment it supplies can be replicated locally.
``It's undoubtedly a very demanding market because of competition and because of the request for localization and co- development in China,'' says de Bourayne, who's based in Beijing. ``It's basically a state operation. Decision-making is very complex.''
Westinghouse's experience in transferring technology to other countries may give it an advantage, says Liu, the company's representative in Beijing.
The company has built reactors in the U.S., Europe and Asia, most recently helping South Korea build a self-sufficient nuclear program in the same way China aims to, he says.
Westinghouse is offering its new AP1000 reactor, which it says is safer and more cost-effective than competing models. The AP1000's safety system eliminates the need for human intervention in case of an accident. The reactor has a modular design that limits construction time to as little as three years, according to a Westinghouse press release.
`Geopolitical' Decision
Framatome's EPR, or European Pressurized-Water Reactor, takes 57 months to build and cuts electricity production costs by 10 percent compared with the most recent model built in France, according to Areva's Web site. The EPR also uses 15 percent less uranium, reducing toxic waste and radioactivity levels, and is designed to run for 60 years, rather than 40 for existing Framatome reactors.
China's choice won't be based on technology alone, says Pierre Nebout, who helps manage 20,000 Areva non-voting investment certificates -- part of the 4 percent of the company that's publicly traded -- at Paris-based La Cie. Financiere Edmond de Rothschild Banque.
``Areva's proposal may be rejected not for technical reasons, but more for geopolitical reasons,'' Nebout says. ``The role of the Americans is very significant in China.''
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