Ottawa’s plan to sell AECL threatens future of Canada’s nuclear industry

Globe and Mail: SHAWN MCCARTHY - November 10, 2010

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Ottawa’s plan to sell Atomic Energy of Canada Ltd. threatens to undermine the company’s ability to compete internationally, leaving the country’s nuclear flagship a second-class citizen in world markets.

After a year-long process to sell AECL, the government has failed to attract any international bidders who could bring financial heft and global marketing clout to the company, which was once a global leader in reactor sales but is now relegated to the sidelines.

Only two companies have submitted formal bids, say sources close to the negotiations: Montreal-based SNC-Lavalin Group Inc. (SNC-T54.49-0.06-0.11%) and Ontario’s Bruce Power, which operates the Bruce nuclear plant on Lake Huron. Both prospective buyers are offering far less than what Ottawa believes the company to be worth, based on a confidential valuation provided by Wall Street investment firm Rothschild Inc.

And neither is willing to make a commitment to finance the completion of AECL’s Advanced Candu Reactor – known as ACR-1000 – technology the company is relying on to compete in both foreign and domestic markets.

The Harper government has been critical of AECL for many years due to its frequent taxpayer-financed cost overruns, its inability to sell reactors and its troubles at the Chalk River nuclear research laboratories. The government plans to divide the company, keeping the labs, but under private management, while selling off the reactor business.

The government has been planning the privatization almost since it took office five years ago, and has grown increasingly frustrated by AECL's enormous annual subsidies. The government was dragged into a crisis when AECL's research reactor was shut down twice, disrupting critical supplies of medical isotopes.

Richard Walker, a spokesman for Natural Resources Minister Christian Paradis, said the government is pursuing the goals of strengthening AECL’s nuclear business and reducing the financial risk to Canadian taxpayers. “We are engaged in discussions with serious investors who have demonstrated a potential to meet our objectives,” he said.

However, it appears Ottawa will end up with a deal that will relegate AECL to the status of a niche player, marketing an updated version of its existing, smaller Candu 6 reactor and refurbishing existing Candus around the world. Taxpayers won’t be off the hook completely as the bidders want Ottawa to continue to provide support for the industry, including financing overseas sales, dealing with waste issues and supporting research and development.

Bryne Purchase, a former deputy energy minister in Ontario, said he is worried that Ottawa will sell AECL but retain much of the risk associated with technology development.

“The worst of all possible worlds is where you’ve privatized any upside but you’ve kept all the risk,” he said. “We’ve seen that before.”

The Queen’s University professor said he doesn’t expect Prime Minister Stephen Harper to scuttle the deal since the government is keen to get AECL off its books. But he added the Auditor-General should review any transaction to ensure it represents good value for taxpayers and is of strategic benefit for AECL.

Critics of the government say Ottawa did a bad job marketing the company to potential buyers, especially after a former spokesman for the Prime Minister referred to it as a “sinkhole” for government money.

At the same time, the global industry has coalesced around a handful of dominant players, none of which were interested in AECL’s heavy-water technology, which is out of favour with most major reactor buyers because it is expensive to maintain.

But neither SNC-Lavalin nor Bruce is willing to finance the completion of the ACR-1000, a 1,200-megawatt unit that is in the late stages of development.

AECL spokesman Dale Coffin said the design on the advanced reactor is 85 per cent completed, and that any major development work would depend on the requirements of a specific customer. But without the federal government to backstop a reactor sale, a privatized AECL will be hard-pressed to find customers for the new technology.

Both SNC-Lavalin and Bruce have existing ties to AECL. SNC-Lavalin – one of the world’s leading engineering firms – has frequently partnered with the nuclear company on new-build and refurbishment projects. Bruce – controlled by Saskatchewan’s Cameco Corp. and Calgary-based TransCanada Corp. – is working with AECL to retool its existing reactors.

But a sale to a domestic buyer would do nothing to improve AECL’s position in the global marketplace, Prof Purchase said. “You don’t get access to any major market by virtue of the company you are now associated with. You don’t get scale or size. You’re not in the league with the other international players,” he said.

The company had hoped to sell its first ACR-1000 reactor to the province of Ontario in a bidding process that concluded 18 months ago, but the McGuinty government shelved the plan after being shocked by the price tag. Energy Minister Brad Duguid said recently that Ontario still expects to purchase two new reactors. But the province will likely opt for the smaller, enhanced Candu 6.

AECL hasn’t sold a reactor since the 1990s. There are 11 Candu 6 reactors operating around the world, including one in New Brunswick and one in Quebec. The last one was completed at Qinshan, China – on time and on budget – in 2003.

The ACR is a so-called generation III reactor which AECL says would be more cost-efficient to build and maintain than older models. The previous Candu models required heavy water for fuelling and coolant, while the ACR will use light water for coolant. It can also be refuelled while it is operating, avoiding costly shutdowns.

However, there is also a high likelihood of cost overruns when a company builds the first reactor of a new design, and neither the federal government, nor Ontario, nor prospective buyers are willing to take on that financial risk.