Go to the Globe and Mail homepage

Jump to main navigationJump to main content

MInister of Natural Resources Joe Oliver, right, and Patrick Lamarre, CEO of SNC-Lavalin Nuclear, announce SNC-Lavalin's acquisition of the CANDU reactor division of AECL Ltd. (Della Rollins For The Globe and Mail)
MInister of Natural Resources Joe Oliver, right, and Patrick Lamarre, CEO of SNC-Lavalin Nuclear, announce SNC-Lavalin's acquisition of the CANDU reactor division of AECL Ltd. (Della Rollins For The Globe and Mail)

Energy

SNC got a deal, but Candu profits not guaranteed Add to ...

SNC-Lavalin Group Inc.’s scored a coup with its $15-million deal to buy Atomic Energy of Canada Ltd.’s Candu business from the federal government, but turning the nuclear assets into a profitable business could still prove an uphill battle.

SNC’s purchase of the Candu business, announced late Wednesday, was hailed by investors Thursday, with shares rising $2.33 – or 4 per cent – to $58.88. SNC’s share price has been climbing all week after The Globe and Mail reported the company was close to finalizing the long-pending AECL deal.

More related to this story

Analysts applauded the Montreal-based engineering firm for acquiring the nuclear assets at a nominal price while leaving the federal government with the liabilities. They expect a disciplined, long-term growth strategy that will have little impact on SNC’s bottom line initially.

The deal includes a stream of royalties for Ottawa on future reactor sales and refurbishments, the current value of which the federal government said could be up to $285-million, based on undisclosed assumption of future reactor sales. But that estimate is “at the very high end of the range” of likely sales, said Frederic Bastien, an analyst with Raymond James.

The price tag left critics grumbling that Ottawa conducted a fire sale of a company that has received $21-billion in federal support over its 60-year life, and was the cornerstone of an industry that employs some 30,000 people, most of them in Ontario.

Still, despite the nominal price paid, SNC faces major challenges in turning a profit with AECL. Even with $2-billion in federal support in the last three years, losses have piled up, with an $80-million shortfall in 2010 and a $413-million loss the year before.

In an immediate effort to pare costs, SNC will shed some 800 jobs from a work force of about 2,000. Some 465 of those job losses will come from the scientific and engineering staff, reducing that group by nearly 40 per cent.

“Since the restructuring has started [three years ago] there has been no right-sizing within AECL,” Patrick Lamarre, SNC’s executive vice-president for global power, said in an interview.

He noted the company was handling three major projects to refurbish Candu 6 reactors – at Point Lepreau in New Brunswick, Bruce in Ontario and Wolsong in South Korea – and that the refurbishing work is winding down.

It’s also not clear the extent to which SNC will invest in new product development. Mr. Lamarre said the company will concentrate on new refurbishment work and the sale of the enhanced Candu 6 reactors, which are still in development. Ottawa has committed an additional $75-million to complete that design work.

The focus on refurbishments and the enhanced Candu 6 – a remodelled version of its best-performing workhouse – led AECL employees to express concern for the future of the country’s nuclear flagship. “It’s a declining future,” Michael Ivanco, an AECL engineer and vice-president of the Society of Professional Engineers and Associates. “They’re not big enough to invest in a new product … But if you’re not constantly developing new product, you don’t have a future.”

ACEL has been selected to provide two enhanced Candu 6 reactors to Ontario, but the province wants the federal government to provide financial guarantees. In the absence of federal participation, SNC will have to negotiate a risk-sharing deal with the province.

Ontario officials say they are prepared to walk away from the deal if the price is too high. Mr. Lamarre said SNC will show similar discipline in refusing projects that it sees as too risky.

“Obviously, if a client wants terms and conditions that are unacceptable, we’re going to have to walk away from it,” Mr. Lamarre said. He said the industry practice is that the utilities share the financial risks with the reactor vendor.

SNC expects the Candu 6 technology to hold appeal for utilities that want a smaller reactor – it produces 700 megawatts compared to more than 1,000 megawatts for most competitors – and for countries that want the flexibility to reprocess spent fuel and re-use it in the AECL’s heavy-water reactors.

However, there is tremendous political resistance to the reprocessing of spent nuclear fuel over fears that it will contribute to weapons proliferation.

In the know

Most popular videos »

Highlights

More from The Globe and Mail

Most popular