SNC buys AECL for $15 million

Federal government to retain intellectual property right to CANDU reactor technology.

Comments Off on SNC buys AECL for $15 million June 28, 2011
by Design Engineering Staff

TORONTO – Ottawa unloaded Atomic Energy of Canada Ltd.’s nuclear reactor business Wednesday to SNC-Lavalin Group, ending a two-year privatization saga for the troubled Crown corporation.

Called the crown jewel of Canadian technology, the company that has cost taxpayers $1.2 billion over the past five years was sold for a mere $15 million to the Montreal-based engineering giant.

SNC has promised to protect 1,200 AECL jobs, but neither the company nor the federal government would say what will happen to the other 800 employees. Natural Resources Minister Joe Oliver insisted the deal, which is set to close in October, will “revitalize” a Canadian industry that employs about 30,000 people.
“It will require a process of adjustment, but it provides a stronger foundation for the future than any alternative course of action,” he said.

Under the deal, AECL’s three main businesses — its lucrative repair business, reactor services and new builds — will be taken over by a new SNC subsidiary called CANDU Energy.

The federal government will retain ownership of CANDU intellectual property and provide SNC with an exclusive licence for the technology. But Ottawa will be able to collect royalties from any future sales, which Oliver said could reach about $285 million over 15 years.

Ottawa will also have to fork over up to $75 million for the development of AECL’s enhanced CANDU 6 reactors. SNC has agreed to pony up the remaining 30 per cent of the estimated costs.

Oliver said the deal won’t affect employees at AECL’s nuclear laboratories division, which will supply SNC with research and development and other “critical” services.

However, the federal government is reviewing the research division “to ensure that they continue to provide value to Canadians in the future,” he said.
A union representing nuclear scientists and engineers said the privatization deal is putting 800 high-paying jobs at risk.

The commercial division has 2,000 employees, including 1,200 engineers and scientists and 800 support staff, said Michael Ivancoe, vice-president of the Society of Professional Engineers and Associates.

He said he’s not worried about his members, who are all highly skilled and employable.

“There will be places for them to go, but I’m more worried that the design group will be split up,” said Ivancoe.

But saving 1,200 jobs is better than none at all, which is what would have happened if the government had wound up the business, Oliver said.

“We concluded … several years ago that the company just didn’t have the kind of robust future that would make for success,” he said. “And we were concerned about continuing demands on the treasury, and this is particularly problematic in a time of fiscal constraint.”

The minister said there were other bidders, but SNC was the only one to meet Ottawa’s conditions for buying AECL.

Patrick Lamarre, SNC’s executive vice-president of global power operations, said he’s confident the company will be able to sell the CANDU technology, even without the backing of the federal government.

“Foreign governments have been very happy to work with SNC-Lavalin on megaprojects around the world,” he said.

However, AECL has long been a headache for successive governments and swallowed billions of dollars in subsidies, including about $1 billion in the last two years alone.

It’s also faced major cost overruns at key projects in recent years while struggling to find a buyer.

In May 2009, the Conservatives announced plans to spin off AECL’s commercial reactor business from its research division. The announcement coincided with what turned into a lengthy shutdown of the company’s research reactor at Chalk River, Ont., which caused a worldwide shortage of the medical isotopes used to detect cancer and heart ailments.

An earlier shutdown in late 2007 also strained the global isotope supply and ended only after Parliament voted to bypass the nuclear safety regulator’s closure order.

In 2010, AECL’s commercial reactor division generated $428 million in revenue but lost $104 million.

The sale could have major spillover effects on two Canadian provinces, which face questions about how it will affect their own nuclear power industries. AECL has bid for two new reactors that Ontario wants to build, but the provincial Liberals — who are facing an election Oct. 6 — want Ottawa to help cover potential cost overruns of the multibillion-dollar project.

The new deal leaves Ottawa on the hook for any cost overruns relating to five projects currently underway, including Point Lepreau in New Brunswick and Ontario’s Bruce nuclear station, while SNC will take responsibility for all new projects. But Oliver wouldn’t say whether the federal Conservatives would be open to the idea of underwriting the construction of new nuclear plants in Ontario.

“That wasn’t part of this deal and I have no comment on that at this time,” he said.

Ontario Energy Minister Brad Duguid said he’s disappointed the federal government won’t help Ontario when it has made similar promises to other provinces.

The ruling Conservatives have promised to back the Lower Churchill hydroelectric project in Newfoundland and Labrador and have made a number of investments in the oil and gas industry in the West, he said.

“We’re going to be looking to the federal government for a response on that to see whether, indeed, they were serious when the prime minister made the commitment that he would treat all provinces equal,” Duguid said. “Ontario families deserve the same treatment as families in Newfoundland and families out West when it comes to our energy system.”

Point Lepreau is in the middle of a refurbishment that is running three years behind schedule and $1 billion over the original $1.4-billion budget. The province’s Tory government has been looking to Ottawa to cover roughly $1 billion in additional costs during the Lepreau refurbishment, which is being overseen by AECL.