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SNC-Lavalin, OMERS in talks to hook up on AECL purchase

Graphical representation of CANDU and Atomic Energy of Canada Limited (AECL)'s ACR-1000 nuclear power plant.

Nuclear Energy Institute

SNC-Lavalin Group Inc. the engineering firm bidding for government-owned Atomic Energy of Canada Ltd., is in talks with pension giant Ontario Municipal Employees Retirement System about joining forces for the venture.

A source familiar with discussions said SNC-Lavalin's bid for AECL's Candu reactor division has entered the exclusive negotiations stage of talks with Ottawa - the next step toward a deal. Ontario-based Bruce Power pulled out of the bidding for AECL in January, leaving Montreal-based SNC-Lavalin as the sole bidder.

If negotiations between SNC-Lavalin and OMERS succeed, the resulting combination could create a powerful team to oversee the future of Atomic Energy's Candu division. OMERS has deep pockets and more than $48-billion of investment assets.

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The pairing would also create a made-in-Canada solution for Ottawa, which has been eager to offload money-losing AECL.

It's not clear what precise form a joint effort between SNC-Lavalin and OMERS might take.

Talks with SNC-Lavalin give OMERS another crack at playing a role in AECL's future. OMERS is a private investor in Bruce Power, which operates a generating station on Lake Huron. Bruce pulled out of the running for AECL because some of its shareholders were reluctant to take on the financial risk that would come with owning Atomic Energy of Canada, sources say.

Both OMERS and SNC-Lavalin declined comment Tuesday. SNC-Lavalin said it's bound to confidentiality as a result of its bid for AECL and cannot discuss any aspect of the offer. OMERS said it doesn't comment on potential interest in acquiring specific assets.

For OMERS, taking a stake in AECL could help furnish the fund with more infrastructure investment options as nuclear-plant refurbishment work or new reactor construction takes places in Ontario.

OMERS chief executive officer Michael Nobrega is managing the deployment of about $20-billion into private investments over the next five years, as the fund looks to lessen the proportion of its asset mix that's allocated to stocks and bonds. It is looking to put more of its money into areas such as infrastructure, real estate and private equity.

In an unrelated interview Tuesday, Mr. Nobrega said that he expects that the big opportunities for deals will be in the energy and transportation sectors.

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"I think the big areas are energy and transportation and all of the industries that surround those areas," he said. "I would say that the next area that may very well emerge, given government deficits and the need to restructure things, might very well be in the energy sector in Ontario."

Ottawa has been pursuing a sale of AECL for several years in an effort to put the company on a more market-oriented footing and end taxpayer subsidies that have run into billions of dollars in the past decade.

AECL has lost $493-million in the past two years. Ottawa has given 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 advanced Candu reactor.

Ottawa's sales effort, though, has been plagued by AECL's ongoing problems, and none of the foreign companies that now dominate world reactor sales submitted a bid.

The Ontario government has committed to buying two new reactors as part of its long-term plan to have nuclear power supply half of the province's electricity supply, and said it would prefer to purchase from AECL. But Premier Dalton McGuinty has made it clear the province expects Ottawa to stand behind any AECL reactor sale.

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