TORONTO/VANCOUVER The Canadian government is selling the nuclear reactor division of AECL to SNC-Lavalin Group, ending the flood of money it has pumped into the loss-making unit over the past six decades.
In a long-awaited announcement, the two parties said on Wednesday SNC-Lavalin will pay state-owned Atomic Energy of Canada (AECL) C$15 million ($15.4 million) plus royalties for the unit, which designs and builds nuclear reactors for generating electricity.
Reactions to the sale price and the announcement that AECL will retain past liabilities, which includes billions of dollars to cover cost overruns on reactor projects that taxpayers will have to fund, were swift and at times angry.
"I predicted AECL would go for a 'fire sale, bargain basement' price -- but C$15 million? I never thought it would go that cheap," said Green Party leader Elizabeth May in a message on Twitter.
Investors in SNC-Lavalin, Canada's biggest engineering company, will "breathe a sigh of relief" at the acquisition cost, said Maxim Sytchev, an equities analyst at NCP Northland Capital Partners.
After decades of government funding -- estimates run into the C$20 billions -- Ottawa announced in 2009 that it planned to sell off AECL's commercial reactor operations. The division suffered a net loss of C$435 million over the past two years.
The auction drew tepid interest even before the Fukushima nuclear disaster in Japan this past March, which punctured interest in nuclear power stations around the globe.
A handful of potential suitors and financiers, including Canadian nuclear power operator Bruce Power and Canada's OMERS pension fund, stepped up briefly in what was an ultra-secretive sales process, but all except SNC-Lavalin dropped out.
JOB LOSSES, NEW BUILDS
About 1,200 AECL employees are expected to move to Candu Energy, a newly created subsidiary of Montreal-based SNC-Lavalin. Candu, which is short for Canada deuterium-uranium reactor, is the name of the reactor AECL designed, built and has sold 34 of in Canada and abroad.
Opponents of the deal quickly raised concerns about job losses, a possibility Canada's natural resources minister said was a small price to pay.
"The other alternative would, of course, be the winding down of the business. And that would have meant ultimately all the employees dismissed, much more significant losses, an abandonment of current customers and damage to Canada's international reputation," Joe Oliver said at a media briefing in Toronto to announce the deal.
In a surprise development, the two parties said Candu Energy will work toward completing AECL's enhanced Candu reactor development program, known as the EC6, helped by a contribution from Ottawa of up to C$75 million.
It was widely thought that SNC-Lavalin was only interested in pursuing nuclear reactor refurbishment and maintenance contracts, not the building of new reactors.
SNC-Lavalin said Candu Energy will target new reactor projects in the Canadian province of Ontario, as well as in Jordan, Romania, Argentina, Turkey and China.
The royalty payments that the government will earn will come from future new reactor construction and life-extension projects at existing power plants.
The net present value of these royalties plus the sale of AECL's inventory of heavy water reactors is C$285 million, a background note to the announcement said.
The is expected to be finalized early in the fall, subject to certain conditions including Competition Act approval.
AECL's research business, the Chalk River nuclear facility that produces isotopes for medical imaging, was not included in the deal. The government will hold on to this unit and place it under private management.
SNC-Lavalin's shares closed down 9 Canadian cents at C$56.55 on the Toronto Stock Exchange before the deal was announced.
(Additional reporting by Randall Palmer in Ottawa; Editing by Rob Wilson and Steve Orlofsky)