Atomic Energy of Canada Limited chief executive Hugh MacDiarmid holds a news conference in Toronto on July 8, 2009.FRANK GUNN/The Canadian Press
Bidders for federally owned Atomic Energy of Canada Ltd. will have to take a "leap of faith" that it can be profitable without the massive government support it has received in recent years, chief executive Hugh MacDiarmid says.
Mr. MacDiarmid and Natural Resources Minister Christian Paradis appeared separately before a parliamentary committee Thursday to defend the government's decision to provide the struggling nuclear company an additional $102-million this year.
In total, Ottawa has plowed $872-million into AECL this year to cover cost overruns at refurbishment projects in New Brunswick, Ontario and South Korea, support the retooling of the Chalk River research complex, and finance design work on the new Advanced Candu Reactor, the ACR1000.
The new funding, which was revealed this week, comes as the federal government is negotiating the sale of AECL's commercial division to a joint venture between Montreal engineering firm, SNC-Lavalin Group, and OMERS, which manages pension funds for Ontario's municipal employees.
Mr. Paradis told MPs that he was angry and disappointed at AECL's failure to better manage its project costs.
The minister made it clear that, while Ottawa will cover existing liabilities, it will provide no new financial support for AECL's reactor sales or refurbishment projects.
That would leave the new owners on the hook for huge financial liabilities for projects, unless AECL could persuade its customers to assume the risk. Indeed, the fear of enormous cost overruns is haunting the nuclear industry worldwide, and the U.S. government is offering billion-dollar loan guarantees to get new reactors built.
In an interview after the committee hearing, Mr. MacDiarmid insisted that AECL has learned from its past mistakes on the refurbishment deals and is now confident it can complete similar projects on time and on budget. But he acknowledged the company has work to do to regain its credibility.
"We need to demonstrate that we can deliver commercially viable major projects like that," he said.
"So it is in some cases a bit of a leap of faith that somebody needs to take that we are going to be a company in the future that will enjoy growth, profitability and operational effectiveness in terms of major projects."
While opposition MPs worried that the government is engaged in a "fire sale" of AECL's reactor division, Mr. Paradis said the goal is to have a healthy company that no longer relies on taxpayers' support.
He gave no indication when the negotiations with SNC and OMERS might be concluded, but acknowledged the lengthy privatization process has hurt AECL's business prospects.
Argentina's leading utility is eager to reach a deal with AECL to refurbish one of its Candu reactors, but Ottawa won't let the company sign any contract that includes a federal commitment on potential cost overruns.
SNC has made it clear that it wants a firm commitment from Ontario to purchase new Candu reactors as part of any privatization deal. The Liberal government says it will need two reactors by the end of the decade, and is interested in buying a retooled version of the existing Candu 6 rather than the new and larger ACR1000.
But it is unlikely to formally announce a nuclear reactor deal prior to the fall's provincial election.
The fate of the ACR1000 - the company's next-generation offering for the global marketplace - appears bleak. Mr. MacDiarmid said the AECL has completed all the design work that it can in the absence of a committed buyer.
And it will be tough to find a buyer if AECL does not have a deep-pocketed shareholder that is willing to bear the financial risk from cost overruns that typically occur in first-of-a-kind construction projects.