Ontario Premier Dalton McGuinty warned Ottawa back in June that its effort to sell Atomic Energy of Canada Ltd. could scuttle a provincial proposal to buy new reactors from the company, a deal that would boost the long-term value of the federally owned corporation.
In a letter sent last summer, Mr. McGuinty urged Prime Minister Stephen Harper to suspend the privatization effort and instead focus on concluding a deal to sell Candu reactors to Ontario. AECL has said a sale to the province would provide a critical boost to its international marketing efforts.
The province wants Ottawa to help cover potential cost overruns of an AECL project, which could be substantial given that the company is offering a new generation of reactor technology that is still in the design stage.
"The government of Canada's decision to sell AECL's Candu division has complicated Ontario's procurement process," the Premier said in a letter, a copy of which was obtained by The Globe and Mail.
He suggested the two governments appoint officials to work on a deal that would "translate Ontario's need for significant nuclear refurbishment and new nuclear generation into a more valuable AECL - one that will benefit all Canadians.
"I also propose that Canada suspend its bidding process for AECL, pending the successful outcome of negotiations with Ontario," he wrote on June 11.
Instead, the federal government has plowed ahead with its auction process, despite a lack of broad international interest in the bidding. Two companies have submitted formal offers: Montreal-based engineering giant SNC-Lavalin Group Inc. and Bruce Power, which is controlled by Calgary-based energy company TransCanada Corp. and Saskatchewan's uranium miner, Cameco Corp.
However, those two bidders will not commit to financing completion of AECL's new Advanced Candu
Reactor (ACR), and have submitted offers far below what Ottawa believes the company to be worth, sources have told The Globe.
Natural Resources Minister Christian Paradis said Wednesday that AECL's current operation is "unsustainable" and that it is being restructured to diminish the burden on the Canadian taxpayer. The federal government is attempting to sell the reactor division of AECL - by far its biggest operation - while keeping ownership of its research laboratories but bringing in private-sector management. The minister said "everything is still on the table" and it is possible that the federal government could sell off 100 per cent of the company.
Ontario officials have long complained that the Harper government was unwilling to back Mississauga-based AECL, which has most of its work force and suppliers in the province. However, industry sources say the province is going to have to accept some risk of cost overruns in order to conclude a reactor deal.
The federal government imposed strict commercial conditions on AECL's bid to sell its ACR1000 to Ontario during a 2009 competition, and refused to accept any risk of cost overruns. In a process that ended 18 months ago, the province chose AECL's reactor design but said its price was too high. George Smitherman, then the provincial energy minister, called on Ottawa to come to the table to help reduce the cost.
In his letter, Mr. McGuinty said the province had been talking to AECL last spring in an effort to bridge the divide, but added the discussions "have not resulted in any demonstrable progress."
The Harper government is eager to rid itself of the financial problems of AECL, which has lost $493-million in the past two years. The government has allocated some $1.6-billion to the company over that period, including $446-million to cover cost overruns at its Candu refurbishment projects in New Brunswick, Ontario and South Korea, and $228-million for development of the ACR1000 reactor.
Without the financial backing of the federal government, it is unlikely AECL and Ontario can reach an agreement on new advanced Candu reactors. Instead, the province is now considering buying an enhanced version of the older model Candu 6, which carries less development risk, though AECL boasts the advanced Candu would be more cost effective over the long term.