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AREVA
The Queen of Nukes
Anne Lauvergeon, head of French nuclear giant
Areva, wants the world to give atomic power another chance. Is the
world ready to listen?
FORTUNE
Tuesday, May 4, 2004
By Richard
Tomlinson

Dangling from the claws of a remote-controlled robot, the spent
nuclear fuel rods look strangely impotent. Only the heat waves
shimmering around the metal tubes give any clue to the radioactivity
inside. During its four-year life span, the enriched uranium inside
the tubes generated enough power to supply the annual electricity
needs of a town of 10,000 people. Or, put in the wrong hands, it
could have helped make a bomb to kill them.

At La Hague, the world's biggest nuclear reprocessing facility,
every possible precaution is taken to ensure that never happens. On
this spring morning French soldiers are tramping round the 750-acre
compound on the Normandy coast checking for intruders. Three
round-the-clock surveillance networks are in operation, beaming live
feeds to the nuclear regulatory agencies of the UN, the European
Union, and France. An alarm system is set to go off at the merest
trace of excess radioactivity. "We consider ourselves the most
monitored nuclear site in the world," says Eric Blanc, director of
operations at La Hague for Areva, the French state-owned company
that runs the facility.

Nuclear Nations

Atomic energy production as a percentage of
total electricity output, 2003

Country

%

Lithuania

81%

France

75%

Belgium

60%

Ukraine

47%

Switzerland

41%

Hungary

40%

Japan

35%

South Korea

33%

Germany

32%

Finland

30%

Spain

29%

Britain

27%

U.S.

20%

Canada

14%

Russia

13%

Mexico

7%

Netherlands

2%

India

2%

Brazil

1%

China

0.5%

Source: Uranium Information
Center

For the past quarter century, that kind of sales pitch has failed
to quell the fears of most people about nuclear power. The partial
nuclear meltdown at the Three Mile Island power plant in
Pennsylvania in 1979 drastically curtailed reactor building in the
U.S. Seven years later the Chernobyl disaster turned public opinion
in Western European countries outside France against nuclear power.
As a result, nuclear power's share of global electricity production,
which shot up from 2% in 1970 to 16% in 1988, has been stuck at that
level ever since.

But Areva believes that nuclear power is poised to make a
comeback. "You can't have a solution to growing global energy
demands without nuclear power," says Anne Lauvergeon, Areva's
44-year-old chief executive. Coming from the French, it's easy to
dismiss such remarks as special pleading. After all, France—a
country with no major petroleum reserves—has made the world's
biggest bet on nuclear power. In 1974, in response to the oil
crisis, the government concluded that France's scientific and
engineering expertise meant nuclear power was the best route to
energy self-sufficiency. In true Gaullist fashion, the government
launched a reactor-building program with little consultation. Today
France derives 75% of its energy from nuclear power, far more than
any country other than Lithuania. Whether that proves that France's
nuclear gamble has paid off depends on your vantage point.
Supporters of nuclear power say that France, the world's largest net
exporter of electricity, also has Western Europe's cheapest retail
electricity prices. Opponents maintain that the dangers associated
with enriched uranium and its byproduct, plutonium, far outweigh any
presumed economic benefits.

What's clear, however, is that France's championing of nuclear
power is no longer exceptional. For the first time since Chernobyl,
a growing number of governments around the world are making the case
for more reactors. Two years ago the Bush administration, concerned
about dependence on Middle East oil, launched a campaign to prod
U.S. utilities to build a new generation of reactors by the end of
the decade. Despite the financial risks, chances are the initiative
will bear fruit. Last month a consortium of U.S. utilities and
nuclear power companies, led by GE and Westinghouse (a subsidiary of
British Nuclear Fuels), presented a proposal to the Department of
Energy to share the estimated $800 million cost of developing a new
reactor.

Meanwhile, U.S. nuclear regulators have begun extending the
40-year operating licenses of existing reactors, originally awarded
in the 1970s and 1980s, for another 20 years. That's good news for
GE's nuclear division, Areva's main competitor in the U.S. market
for replacement reactor parts. But it is even better news for Areva,
which leads the U.S. market. Since reactor licenses began to be
renewed in 2000, Areva has grabbed 40% of American steam generator
sales and 50% of reactor vessel sales.

Areva's winning streak in the American market doesn't end there.
Last June, with relations between France and the U.S. in a tailspin
over Iraq, Energy Secretary Spencer Abraham made a surprise visit to
La Hague to inspect Areva's reprocessing operation. Call it nuclear
realpolitik. Since 1977, when President Carter banned commercial
recycling of nuclear fuel, the U.S. has had no reprocessing
expertise. The Bush administration wants to explore this option
again, and Areva is one of only two Western companies (the other is
British Nuclear Fuels) that offers this service. Areva is already
doing reprocessing business with the U.S.: Later this year it will
receive a test sample of weapons-grade plutonium from the U.S.,
which it will convert into less fissionable nuclear fuel at its
plant near Avignon. If the test is a success, Duke Energy will
convert 34 tons of military-grade U.S. plutonium at a plant near
Charlotte, N.C., using Areva technology.

The importance of the U.S. to Areva is reflected in its financial
statements, which showed a 62% increase in net profit last year to
$467 million, on total sales of $9.9 billion. The U.S. now accounts
for 19% of Areva's revenue from nuclear energy. (The company also
has an electricity-connectors division that accounts for 16% of
sales.) But other nuclear markets around the world look equally
promising. Areva won a contract last year to build a new reactor in
Finland, the first outside France since Chernobyl. And the Japanese,
the Chinese, and the South Koreans, all heavy oil importers, are
committed to building new reactors. All told, it's likely that the
world's current network of 440 operational reactors will pass the
500 mark in ten years.

The nuclear revival is being fueled by some stark projections
about the world's future energy needs. The OECD's International
Energy Agency estimates that worldwide demand for electricity will
double by 2030. Advocates of nuclear power argue that it cannot be
excluded from strategies to cope with the surge because traditional
fossil fuels and renewable energy sources (sun and wind) can't
possibly meet the demand. That argument, disputed by some, is
especially relevant in the electricity-guzzling West, where nuclear
energy already accounts for 20% of America's annual electricity
output and 35% of the EU's total power generation. There are, of
course, some hurdles to overcome, such as the steep cost of building
new reactors. "Right now the economics of nuclear power in most
markets aren't favorable compared with other options," says Peter
Fraser, a nuclear energy expert at the International Energy Agency.
But that's a risk a growing number of countries seem prepared to
take, as they pursue the Holy Grail of energy self-sufficiency.

The risks aren't just financial. "If you spend huge amounts of
capital on nuclear power, it means there is no money left to invest
in renewable energy sources like wind," says Yannick Rousselet, head
of antinuclear activities for Greenpeace in France. But the nuclear
industry has a riposte to the green lobby. Nuclear power, they say,
is also a "green" energy source because it doesn't release the
carbon dioxide that contributes to global warming. That view even
has a small constituency in the environmental movement. Says
Lauvergeon, dubbed "Atomic Anne" by the French press: "It's very
difficult for the green movement to be against climate change and
also against nuclear energy."

Amid all the sniping, one fact is clear. As the West's only
one-stop nuclear energy shop, Areva is in pole position to reap the
rewards from the nuclear comeback. It claims 22% of the world's
uranium-mining market, 35% of its fuel-production market, 20% of all
reactor construction and service sales, and almost two-thirds of the
nuclear reprocessing and waste business. While Areva counts rivals
in all its business sectors, such as General Electric in reactors
and British Nuclear Fuels in reprocessing, only Russia's Minatom
covers the nuclear waterfront. But as the folks responsible for
Chernobyl, Minatom has a serious image problem in the West.

So a bet on Areva is essentially a bet on the nuclear industry's
future. And it's a gamble that investors believe is worth making.
Since September 2001 about 4% of Areva's stock has been traded on
the Paris stock exchange in the form of nonvoting investment
certificates, with the government holding almost all the rest. In
the past year the price of the certificates has risen 37%. Investors
on both sides of the Atlantic are waiting for the government to sell
up to 50% of Areva in an initial public offering, which they expect
before the middle of 2005. In theory, there's nothing to stop the
government from selling the entire holding. "It's not a problem for
me," says Lauvergeon, who is equally untroubled by the thought that
Areva might one day be controlled by foreign shareholders.

All this is a tribute to Lauvergeon's efforts to give Areva the
ethos and corporate structure of what she calls a "normal" company.
Far harder is the task she has set herself: To win over not just
Areva's clients and investment bankers but also fearful consumers
who see nuclear power as at best a necessary evil and at worst an
apocalyptic disaster in the making. "To develop nuclear energy, we
need to have the public's acceptance," says Lauvergeon. That may be
an impossible assignment, given the memory of Chernobyl. But if
anyone can persuade the public to give nuclear power a second
chance, it's Lauvergeon.

Smart, charming, and candid, Lauvergeon breaks the mold of stodgy
male bureaucrats and engineers who have traditionally run nuclear
power companies. The daughter of a history professor, she graduated
from France's elite Ecole des Mines, then made her name in the early
1990s as a highflying civil servant in President Francois
Mitterrand's office. In 1995, Lauvergeon became a partner at Lazard
bank in Paris, moving in 1997 to French telecom group Alcatel as
head of the international division. Two years later she was selected
by the government to run Cogema, the state-owned nuclear
reprocessing and services business that preceded the creation of
Areva.

When she turned up for her first day at Cogema's dismal
headquarters outside Paris, the urbane Lauvergeon was shocked by
what she found. "It was a bunker," recalls Lauvergeon of the
company's introverted, defensive culture. "Some people behaved like
little children who say, 'I'm closing my eyes so you can't see me.'
" Lauvergeon takes the opposite view of how to conduct a nuclear
business. "If we have nothing to hide, we have to explain
everything," she remarks. "We have to tell the truth, even if it is
sometimes not easy."

To that end, Lauvergeon installed web-linked cameras at La Hague
so the public could monitor operations on Cogema's Internet site.
(The webcasts were shut down after the Sept. 11, 2001, terrorist
attacks.) She commissioned a series of TV ads inviting the public to
visit La Hague. And she hammered away at the message that France's
nuclear business was safe. "I can say that our security systems are
much more elaborate and organized than you find in the chemical
industry," she declares.

To bring Cogema's benighted executives out of their bunker,
Lauvergeon moved the head office to a gleaming new building in
Paris, a few blocks from the Bourse. Behind the scenes, she was also
working fast. In 2001 she persuaded the government to merge Cogema
with Framatome, France's state-controlled uranium mining and
nuclear-engineering firm, and then appoint her to run the new
entity, called Areva. As if that wasn't enough to keep her busy,
Lauvergeon found time to have two children.

It is an impressive start, but what Lauvergeon hasn't won yet,
even in France, is the case for nuclear power as an acceptably safe
energy source. The French are commonly regarded by the rest of the
world as a nuke-happy people bizarrely proud of the 58 reactors that
disfigure their countryside. That perception has some basis in fact,
given the unquestioning pride most French people take in their
nation's engineering prowess. In the past, French faith in nuclear
technology hasn't even been dented by the industry's imperfect
safety record.

But although most of these incidents have been trivial, the
French have become more ambivalent about nuclear energy. In 2002,
for instance, a French poll found that while 59% of respondents
thought nuclear energy was the cheapest way to produce power, 62%
didn't want nuclear power used in the future.

Some of that ambivalence is evident in Nogent-sur-Seine, a
picturesque town of 6,000 people 55 miles southeast of Paris. Nogent
is home to a nuclear power station that supplies a third of the
annual electricity needs of the French capital and its surrounding
region. On the edge of town, two enormous cooling towers loom above
the 16th-century summerhouse where the future French king Henri IV
entertained his mistress. The towers look sinister, but Francois
Brunet, the mayor's spokesman, says that when the reactor was
commissioned in 1987, the only protesters came from Paris. "Local
people know the technology has been mastered," he says. Nonetheless,
Brunet adds, "Some residents have expressed concern since Sept. 11,
2001, about the possibility of terrorists getting into the power
station."

Those concerns are shared by Greenpeace, Areva's main adversary
in France. In February 2003 a group of Greenpeace activists
blockaded a truck carrying 330 pounds of plutonium in
Chalon-sur-Saone by chaining themselves to the vehicle at a traffic
light. Areva says the plutonium wasn't sufficiently fissionable to
make a bomb; Greenpeace begs to differ. "We agree with Areva that
the quality of the explosion would not be the best, but we could
have made an explosion all the same," says Rousselet, who helped
organize the stunt. Lauvergeon condemns the hijacking as
irresponsible: "It was extremely hazardous, because it would be easy
for a terrorist to say, 'Don't worry, we're only Greenpeace
demonstrators.' " She might be right, but her remark contradicts
Areva's line that its plutonium transports are safe.

Meanwhile, the French are paralyzed about what to do with their
nuclear waste. In the 1970s and 1980s the government selected
underground sites for final waste disposal without consulting the
local population. But in 1991 rising public concern prompted a law
that imposed a 15-year moratorium on any final disposal while the
French nuclear industry researched better options. The result can be
seen at La Hague, where the accumulated nuclear waste is temporarily
stored in 5,500 canisters. "I am confident it's a solvable problem,"
says Lauvergeon, who is critical of the undemocratic approach to
waste disposal taken by her predecessors.

Given the increasingly nervous state of the French public, it's
possible the politicians won't make a decision by next year's
deadline. Areva won't state publicly its preferred solution. But in
private, executives say they favor a "geological" solution. That's
nuke-speak for burying the waste deep underground, although Areva is
researching better ways to reduce and contain the radioactivity.

Areva has an even tougher job convincing nuclear doubters in
Europe, America, and Japan, where there are thriving antinuclear
movements. For a start, nuclear energy is not like the auto
industry, where one manufacturer's defective car is a rival's market
opening; any nuclear disaster contaminates the entire sector. "A
nuclear accident anywhere is a nuclear accident everywhere," says
Lawrence Scheinman, a professor at the Monterey Institute's Center
for Non-Proliferation Studies. At La Hague, that uncomfortable fact
was brought home one wet day in May 1986 when, for the first and
only time, all the radioactivity alarm systems were triggered in the
compound. The rain clouds had been blown thousands of miles west
from the stricken Chernobyl reactor.

Areva can't do much about Minatom, the Soviet-era behemoth that
still operates Chernobyl-style reactors. Nor, says Lauvergeon, can
Areva do much about the spread of nuclear technology, except to
refuse to do business with countries not bound by the
nonproliferation treaty. Lauvergeon says Areva could sell six
nuclear reactors to India tomorrow. "But we have said, 'Sorry, we
can't sell to you,' " she says, chopping her hands on her office
desk.

That's fine as far as it goes. But Areva has sold four reactors
to China, a country suspected of supplying dual-use nuclear
technology to Pakistan. China also has one of the world's worst
industrial-safety records. Lauvergeon, displaying a French
technocrat's faith in bureaucrats and legal documents, maintains
that the rules put in place by China's nuclear regulatory authority
are stricter than those governing the U.S. industry. As for the
Chinese regulator's credentials, she says, "We only sell nuclear
plants to countries with a real nuclear safety authority with an
adequate degree of independence from the political power." In China,
that would be the Communist Party, which has held a monopoly on
political power since 1949.

Lauvergeon says that if Western countries closed down their
nuclear industries, "it would not change the situation in places
like Iran and North Korea." That's debatable, given the enthusiasm
of Western nuclear companies to sell their wares to developing
countries accused of providing rogue states with technology.
Lauvergeon also argues that nuclear power is going to be with us for
decades, even if no new plants are built. "Areva can easily exist
for a long time to come with the business we get from existing
nuclear plants," she says. And since nuclear power can't be wished
away, Areva maintains it is preferable for well-run, responsible
companies in the developed world to keep standards as high as
possible and nurture a new generation of competent technicians.

The force of that point is apparent at Areva's manufacturing
plant for reactor replacement parts in Chalon-sur-Saone. At the
front entrance, the Stars and Stripes flies proudly next to the
French flag—proof that despite the war in Iraq, Americans are the
most valued customers here. Since 2000, when U.S. operating licenses
began to be extended, a steady stream of American utilities have
bought replacement parts worth $420 million.

Business has certainly picked up at Chalon. But Jean-Pierre
Durski, the plant's head of operations, shakes his head sadly at the
rundown state of the U.S. nuclear industry, 25 years after Three
Mile Island. Durski reports that many of his U.S. customers send
retired engineers to monitor their orders, because they don't have
qualified technicians on the payroll. "Most people in the U.S.
nuclear industry have never seen a manufacturing plant like this,"
explains Durski, surveying the gigantic hangar where half a dozen
steam vessels the size of school buses are under construction. He
adds that, for the worldwide nuclear industry, "It's important to
recruit talented young people to maintain the sector's
competitiveness in the future."

There are many who say the world doesn't need a nuclear energy
industry at all. Yet if the industry is here to stay for at least
the next few decades—and it is, short of an overnight conversion by
the West to a green lifestyle—Lauvergeon is surely right that the
world needs more well-run nuclear companies like Areva. But she is
surely wrong about Areva ever becoming a "normal" company. After
all, in what other business does the core manufacturing ingredient
have the potential to blow up the world?

Feedback: [email-masked]

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