Election deals another blow to AECL

OTTAWA, ONTARIO - Problem-plagued Atomic Energy of Canada Ltd. is facing a further setback to its recovery plan as a looming federal election promises to delay its long-awaited restructuring.

Crippled by cost overruns and confronting an anti-nuclear backlash after Japan's reactor disaster, AECL has had its business development plans put on hold while Ottawa pursues the selloff of its reactor division.

The Conservative government is in late-stage negotiations with SNC-Lavalin Group Inc. and the Ontario Municipal Employees Retirement System OMERS pension fund to sell them the commercial division of Canada's flagship nuclear company.

The government had been hoping to close a deal by March 31 but that target slipped as Tokyo Electric's Fukushima plant suffered multiple reactor problems and significant radiation emissions after the March 11 earthquake and tsunami.

SNC and OMERS wanted more time to assess Fukushima's impact on the global nuclear business, sources close to the deal said. Even without the Japan crisis, it's not clear the two sides would have met Ottawa's March 31 deadline, as key questions remain regarding risk-sharing and Ontario's commitment to purchase new reactors.

Now, opposition parties are vowing to bring down the Harper government and force an election. And it is near certain that the government would not announce a potentially controversial nuclear deal during an election campaign.

The delays "are problematic to AECL's management trying to keep the business going," said one source close to the company. "An election will only add to the uncertainty the company has been struggling with."

Neither SNC nor OMERS would comment on the negotiations OMERS chief executive officer Michael Nobrega said the pension fund needed time to assess the impact of Fukushima.

Worried about being stuck with more cost overruns, Ottawa has prohibited AECL from entering into new contracts that would either entail financial risk to the government as shareholder, or impose obligations on a new shareholder As a result, AECL has been stalling with Argentina's nuclear power company, which wants to refurbish a Candu 6 reactor. AECL had also hoped to sell Argentina two new reactors, but the lengthy privatization process has resulted in the South American company looking to other international vendors.

AECL CEO Hugh MacDiarmid confirmed at a parliamentary committee hearing earlier this month that the company has been hobbled by the government's prohibition on major new contracts.

The company has projected that if it does not find new business, its engineering work force will decline to 340 people by 2013 from its current complement of 870 engineers. However, Mr. MacDiarmid said he remained confident that AECL would win contracts once the ownership issue is settled.

The dry spell is also playing havoc with AECL's 164-company supplier base, including engineers, machine shops and major component producers, many based in Ontario. "Companies are being forced to lay people off and downsize while awaiting the decision," said David Marinacci, general manager with the Organization of Candu Industries.

Even with a deal, AECL faces major challenges, especially given heightened safety fears since the Japanese accident. The company has been shut out of the international reactor market for years, and is now pinning its hopes on proposals by Romania to purchase two new reactors.

In Canada, Quebec had been considering refurbishment of its Candu 6 reactor at the Gentilly 2 plant but opposition is mounting to the project.

That leaves Ontario as a potential customer. The province remains committed to refurbishment projects and the purchase of new reactors, but none of that work is to begin until 2015. And with a provincial election coming in the fall, AECL will find it difficult to get a firm commitment from the McGuinty government - despite the broad statements of support.