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Ottawa to sell AECL to SNC-Lavalin

The Glob and Mail: SHAWN MCCARTHY - June 28, 2011

http://www.theglobeandmail.com/report-on-business/ottawa-to-sell-aecl-to-snc-lavalin/article2078110/

The Harper government is set to announce the sale of Atomic Energy of Canada Ltd. to Montreal-based engineering firm SNC-Lavalin Group (SNC-T56.580.811.45%), a major gamble that Canada’s nuclear program can stand on its own amid growing global resistance to nuclear energy.

The sale of AECL’s commercial division could come as early as this week, although negotiators are still working out the final details of the deal, sources close to the talks said Monday.

The sale completes the Conservative government’s long-held plan to get out of the nuclear-energy business, which has been a drain on federal resources. AECL has had billions of dollars of government support and faced major cost overruns at key projects in recent years while failing to find an international partner in sale talks.

After an international bidding process, SNC-Lavalin emerged as the sole bidder to meet Ottawa’s conditions for buying the financially troubled Crown corporation. The Candu reactor sales and service division will be split from the Chalk River laboratory and its research reactor that produces isotopes for medical imaging and diagnostic procedures, which the federal government will continue to own but will be managed by outside contract.

SNC-Lavalin has assured the government that it is buying AECL with the expectation that it will boost reactor sales and servicing.

Critics say putting AECL into private hands could leave the nuclear company starved for resources and unable to compete effectively with global giants in the industry without federal subsidies. They fear AECL will be slimmed down and largely operate to service and refurbish existing reactors because SNC-Lavalin will try to avoid risk by reducing spending on research and development and new generation reactors.

The ambitious goal of building new generation reactors is crucial to the company’s future; no company can survive long on yesterday’s technology.

AECL’s fortunes have been battered by poor sales, soaring costs and this year’s explosion at Japan’s Fukushima plant, which set off a wave of anti-nuclear sentiment around the world and dealt a blow to the industry. Amid nationwide protests, Germany vowed to shut down its nuclear reactors by 2022, and China halted approvals of new reactors, although it has since determined existing reactors are operating safely.

The sale to SNC-Lavalin will bring much-needed certainty to AECL and its suppliers in the Candu industry, who have been in limbo as Ottawa pursued a sale for the past three years. The company has been barred from taking on contracts that could expose Ottawa to further financial risk.

But the privatization won’t solve AECL’s problems, said Bryne Purchase, former deputy energy minister in Ontario and adjunct professor at Queen’s University. He said SNC-Lavalin simply doesn’t have the financial clout to compete with international giants such as France’s Areva Group or the two U.S.-Japanese reactor companies, Toshiba’s Westinghouse and GE Hitachi Nuclear Energy, and that AECL won’t survive without a foreign partner.

“Unfortunately, I feel AECL reached a dead end when no big international player would buy them,” Mr. Purchase said. “But no politician in Ottawa or in Toronto wants to contemplate the real end game.”

And AECL supporters worry that the Harper government is gambling with the loss of an important Canadian reactor technology, which supplies Ontario with half its electrical power.

Ontario is moving forward with its plan to buy two Candu reactors for its Darlington site. Premier Dalton McGuinty has urged Ottawa to provide financial backing for the project to reduce the risks to Ontario taxpayers and ratepayers. But Prime Minister Stephen Harper has rebuffed pleas for such guarantees for AECL, once described as a financial “sinkhole” by a former aide of Mr. Harper.

Now Ontario will have to negotiate with SNC-Lavalin, which is determined to conclude any reactor sales on a strictly commercial basis.