Framatome can expose the Group through its activities in France and abroad, for nuclear operators other than EDF or other customers.
The Group’s exposure may be financial or reputational in nature. Framatome’s industrial performance is strategic for EDF as a nuclear operator in France and the UK
The success of EPR projects, the competitiveness of the nuclear industry in France and the Group’s successful international development all depend on the quality and compliance with contractual clauses in the production of studies, components and services by Framatome.
Summary : The Group is exposed to the operational continuity of supply chains and contractual relationships with its suppliers as well as to fluctuations in the price and availability of materials, equipment and services it purchases in the course of its business activities. These risks may be aggravated by conflicts between nations or blocs of nations, when the territories concerned contain important sources of raw materials or means of production that are essential to the continuity of supply for the Group or its industrial partners.
Criticality : ●● Intermediate
The Group’s needs may arise in markets with a reduced area or in markets subject to growing pressure, due in particular to the structure and evolution of the industrial offer or to increased competition from new uses. This pressure is attributable in particular to the growing needs of information systems and the needs of energy actors, especially those related to climate transition. These market pressures may increase the cost of supplying certain critical products or services and lead to a reduction in supply by some suppliers in response to a contraction in their margins. Fluctuations in the price and availability of certain raw materials or products that play a key role in setting the price of electricity and energy services may affect the Group’s supply capacity and results. This risk is currently heightened due to inflationary pressures on the price of raw materials and components needed for operations.
The Group uses technologies, mainly in the fields of nuclear, hydraulic and renewable energy generation, electrical storage and mobility, that require materials and elements that may be highly sensitive in terms of access (1) . The scarcity of or conditions of access to certain raw materials may be critical for the Group due to geological, geopolitical, industrial, regulatory or competitive limitations, particularly in a context of energy transition. Certain crisis situations, such as the Covid health crisis, may also accentuate or generate difficulties regarding access to certain products, materials or services required for the Group’s activities and may make performing certain services particularly complex or delay their completion. The development of uses, particularly related to storage, the growth of renewable energies and the penetration of low-carbon electricity, could pose problems regarding access to certain materials: lithium for batteries, ferromagnetic rare earths for wind power, indium or selenium for solar energy. These difficulties could limit the Group’s ability to achieve its development objectives. In addition, control of the conditions under which raw or semi-finished materials are extracted, processed, packaged or made available for the Group’s needs may be subject to provisions calling for greater control of regulatory requirements and the duty of vigilance.
The Group currently depends on a limited number of industrial players with specific skills and the required experience. This situation reduces competition in markets where EDF is a buyer and exposes the Group to the risk of default of one or more of these specialised suppliers or service providers. Restructuring observed at the level of major groups (GE, ABB, ENGIE, Rolls-Royce, Bilfinger, etc.), some of which are under pressure from activist minority funds, may also have an impact on the quality and operational continuity of contracts in progress, or the cost of services rendered and products delivered. But apart from the large groups, it is the small and medium-sized French companies that represent the essential part of the industrial fabric of suppliers. These companies have so far weathered the Covid crisis relatively well. Those companies that were the most affected suffered from their exposure to the aeronautics, oil and automotive sectors rather than the nuclear sector, as the nuclear sector continued to ensure sustained activity thanks to the major maintenance projects underway in France in particular. However, the trend of financial fragility observed over the last ten years or so continues, although bankruptcies, which are limited in number, generally end in a takeover and provide an opportunity for revitalisation.
There may also be difficulties in terms of relationships with the partners involved with EDF in completing these projects. Trade tensions between the United States and China could have an impact on the conduct of some of these projects given the technologies and partnerships implemented
In this respect, decisions were made in October 2018 by the US Department of Energy (“US DoE”) relating to civil nuclear cooperation with China with regard to CGN, and in August 2019 by the US Department of Commerce (“US DoC”) placing 4 CGN Group entities on the restricted entity list (entity list). These decisions concern in particular the transfer of American goods and technologies, in particular dual-use goods and technologies, to CGN, EDF’s partner, notably in its new nuclear projects in the United Kingdom. As a result of these decisions, the transfer of goods and technology to the entities in question for the technical scope covering them under the decisions, must be specifically authorised in advance by the competent US authorities, with the presumption that such authorisation will be refused
In June 2020, the US Department of Defense also published a list of entities, including CGN, presumed to belong to or be affiliated with the Chinese army. This geopolitical risk also exists in the United Kingdom.
As a result of these measures, the People’s Republic of China enacted its first integrated law on the control of exports of sensitive goods and technologies (December 2020), as well as “a blocking law” against decisions, particularly those of the United States, that are extraterritorial in scope (January 2021).
These risks may be exacerbated by conflicts between nations or blocs of nations, and in particular, to date, the Ukrainian conflict, when in the concerned territories are located important sources of raw materials or means of production essential for the continuity of supply of the Group or its industrial partners.
In 2021, the Group adopted a new Suppliers policy which aims to secure the performance objectives of projects by ensuring that they can rely on panels of suppliers that meet their needs and by mitigating situations of supplier failure, quality crisis or contractual blockage.
(1) The issue of uranium supply is not considered here. It is dealt with in Risk 5D Control of the fuel cycle.
