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Areva deal signals chilled French-Chinese nuclear partnership

China is crucial for growth, but two sides fail to agree on terms

Areva suffered cost overruns at the Olkiluoto 3 nuclear plant in Finland.

PARIS -- Troubled French reactor builder Areva has agreed to accept equity stakes from Mitsubishi Heavy Industries and Japan Nuclear Fuel. But missing from the list is a Chinese backer, signaling cooling Sino-Franco relations in the nuclear sector.

Reforms, including the injection of fresh capital, are essential for growth of Areva, CEO Philippe Knoche told a shareholders meeting Friday. Shareholders are expected to approve a capital increase of some 5 billion euros ($5.39 billion).

The French government will provide 4.5 billion euros of that. Mitsubishi Heavy and Japan Nuclear Fuel will pick up the rest in exchange for separate 5% stakes in nuclear fuel reprocessing unit NewCo.

After cost overruns while constructing a reactor in Finland, the French group had posted its fifth straight annual net loss through the year ended December 2015. The cumulative losses for the five years reach well north of $8 billion, prompting the company to seek capital relief.

The group courted China National Nuclear Corp. to invest in NewCo, but talks apparently fell through in late January. According to a person close to the matter, the Chinese side wanted to acquire a larger stake than the Japanese contingent as well as install a director -- terms Areva was not willing to swallow.

Many within Areva and state-owned utility Electricite de France, which is acquiring reactor-building unit Areva NP, have argued that the Chinese market should be a priority. The world's No. 2 economy will account for most new nuclear plants through 2040, meaning growth would be impossible without Chinese orders. But both Washington and Tokyo have raised security concerns, forcing Areva to give up accepting an investment, according to French media.

Now the French are worried about frosty business relations with China. The two sides have been building new plants in the mainland and sharing nuclear fuel reprocessing technology. But now new orders from China may be hard to come by. Fissures may also appear in the Franco-Sino partnership in the U.K. EDF and a Chinese company have purchased stakes in the Hinkley Point C nuclear station in southwestern Britain. In the southeast, EDF is providing support for the Bradwell plant being developed by the Chinese.     

China is one of the few partners French companies rely on when it comes to finances. The French have not yet closed the door on an eventual sale of an equity stake in NewCo.

The French nuclear industry is home to between 300,000 to 400,000 workers. Facing high unemployment rates, the government has led the rescue efforts at Areva, highlighting the urgency of overhauling the nuclear sector. Areva is spinning off its nuclear fuel business into NewCo. Areva NP will severe the Finland reactor project and go under the umbrella of EDF. The French government is looking for international investors in Areva NP. Mitsubishi Heavy has shown interest, but the failure at NewCo may cloud discussions with potential Chinese suitors.

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