Government rejects bargain basement bids by Bruce Power and SNC-Lavalin Group

AECL SymbolThe Canadian government’s efforts to sell the commercial divisions of Atomic Energy Canada Ltd. (AECL) appear to have collapsed after the only two bidders, also both Canadian firms, walked away from the negotiating table.  The move appears to leave the government still owning the Crown Corporation and its thousands of employees. 

Also at risk is the planned “do over” of the star-cross Darlington, Ontario, new build which calls for two new reactors.  Industry observers have said that it could specify AECL’s new ACR1000 1100 MW reactor.  However, neither bidder for AECL was interested in paying for completion of the design or taking it through the licensing process with the Canadian Nuclear Safety Commission. 

Two years ago the Harper Administration in Ottawa called for sale of AECL and chartered a review by investment bankers to assess its value to potential buyers.  As it turned out the two bidders only wanted the parts of AECL, along with their engineers, that maintain the existing fleet of Candu reactors in Canada.  The government valued the workforce, and the incomplete technology for the ACR1000, at $300 million.  While no figures have surfaced about what either of the two bidders offered, there have been reports the numbers were far below the government’s expectations.

Cost overruns on refurbishment projects

Canada one red centAECL has not sold a new reactor for more than a decade.  AECL has not been  able to book a sale in either India or China which are the world’s two most ambitious builders of new reactors. 

The Darlington project is the bright spot on the horizon. However, the provincial government got cold feet on the first round of bids in 2009. Since then it has dug in its heels demanding that AECL, or the federal government, assume responsibility for any cost overruns. 

The Ontario government has good reason to worry about cost overruns.  The refurbishment of the AECL reactor at Point Lepreau in New Brunswick has officially gone $475 million over budget with a schedule delay of more than a year. The cost of buying replacement power while the reactor is out of service is also a major sore point for provincial officials.

Bruce Power may have pulled the plug on its bids due to cost overruns for refurbishment of the AECL built Bruce A power station which is reportedly running more than 100% over budget from the original $2 billion estimated cost.

Any bright spots?

A wild card in the bid process, which the government refuses to discuss, is Canadian businessman Andrew Day. He says he is interested in the new reactor design and believes AECL could be successful if there is proper development of the technology and marketing it to international customers.  Day has a financial background and is CEO of a telecommunications company.

A workers group, the Society of Professional Engineers, says the uncertainty about the future of AECL makes it impossible for the firm to book new business.  Provincial officials in Ontario, which is also home to the majority of AECL’s workforce, agree with this assessment.

Premier Dalton McGuinty made a person appeal to Prime Minister Stephen Harper so that the province could proceed to buy two new reactors from AECL.  Ontario Energy Secretary Brad Duguid was more direct.  He told the Canadian Press wire service last November, “Their decision to sell AECL in the middle of our procurement process is very bothersome to us.”

In the earlier round of bidding for Darlington, AECL offered a very competitive price of about $2,700/Kw for the two new reactors plus cost estimates to refurbish 10 other reactors.  However, without the full financial backing of the Ottawa government for the crown corporation, AECL’s future may languish in limbo a bit longer.  Michael Pardis, the third Natural Resource Minister to grapple with the issue, refused to comment on the sale prospects for AECL or financial guarantees for the Darlington project. 

Chalk River not part of the deal

While the government always intended to keep the Chalk River R&D reactor, and its cleanup liabilities, out of the sale, it also has to fund a replacement for the now 50 year old reactor with its ever increasing maintenance burden.  The Chalk River reactor produces between a third and half of all the short-lived medical isotopes in North America. When it was shut down for extensive repairs in 2009, it created an acute shortage nuclear medicine clinics and stimulated efforts in the U.S. to build a more reliable supply.

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