France's Areva wins $5 billion nuke deal

By Chen Aizhu

BEIJING (Reuters) - French state-run company Areva (CEPFi.PA) has unexpectedly agreed a $5 billion deal to build two nuclear power plants in China weeks after a U.S. rival appeared to have won a competition that dragged on for more than two years.

Beijing's surprise expansion of the tender to six plants from an original four underlined both the country's voracious appetite for power and its diplomatic skill in satisfying rival suitors for its tempting markets.

The agreement covers a total of 3.2 gigawatts of generating capacity in southern Guangdong province, an official at the government-backed China Nuclear Society told Reuters on Tuesday.

Final commercial details have yet to be hammered out, but the two reactors are slated for completion around 2013, he added.

The deal was as much political as economic, analysts said, as Beijing struggled to smooth troubled relations with the United States without alienating long-standing friend France.

"I don't think technology is the key concern here. It's a political balancing act. China doesn't want to upset the French since they were the earliest builders of reactors here," Yang Fuqiang, head of China office for U.S.-based Energy Foundation.

Beijing appeared to have snubbed France in late 2006 when it awarded contracts for four reactors in coastal China to U.S.-based Westinghouse Electric, now owned by Japan's Toshiba (6502.T).

Instead it added two reactors to the tender, but kept the expansion quiet while negotiating terms for the Yangjiang plant which will use European Pressurized Reactor (EPR) technology, the official, who declined to be named, told Reuters.

"Deals like this are more political than economic," he added.

Westinghouse will build two reactors in the east coast province of Shandong and two in Zhejiang province, bordering Shanghai.

Also due for completion in 2013, they will have total capacity of 4 GW. That deal is worth around $6 billion to $7 billion, the official said.

The Areva deal would have no impact on Westinghouse's plans to build these nuclear plants, a Westinghouse spokesman said.

NUCLEAR BOOST

China has also set up a special government-run company to handle the transfer of nuclear technology, a key component of both agreements, he said.

Beijing plans to spend some $50 billion on building around 30 nuclear reactors by 2020, raising its installed nuclear capacity to 40 GW -- nearly enough to power Spain.