French Areva is struggling to find a buyer for its new nuclear fuel unit, analysts and sources said, a key condition for the European Union to clear a State rescue package for the group, hit by years of losses.

Experts say third-party investment would prove to the European Commission that the new nuclear fuel group is a viable enterprise in which a savvy investor is willing to invest but so far, progress has been slow.

Any buyer would be taking on Areva's financial problems and its poor record of building reactors on time and on budget. The nuclear industry has also seen a steep downturn in the wake of Japan's Fukushima disaster in 2011.

"Time is running out," said a source familiar with the situation, who doubts Areva will be able to sign a deal in coming weeks.

Areva hopes for a green light from the EU at the end of November, in order to launch a capital increase in early 2017.

Under the terms of a State rescue package struck in January, the French government would take part in a €5-billion capital increase for 87% State-owned Areva.

State-owned utility EDF would buy a majority stake in its reactor unit Areva NP, and a new slimmed-down Areva "NewCo" would focus on uranium mining and nuclear fuel.

Three billion euros would go to Areva "NewCo", two-billion to legacy Areva SA, which would hang on to obligations related to its troubled Finland reactor construction project, which is the subject of billion-euro legal claims.

In July however, the European Commission opened an investigation into the package and said the sale of the reactor unit and the participation of third parties in the capital increase were essential for State aid clearance.

"Third-party participation in NewCo's capital increase would allow the State to reduce its contribution by about a billion euros and is part of Areva's commitments as a counterpart to the capital increase," a source familiar with the situation said.

Areva said late last year it had signed a memorandum of understanding with China National Nuclear Corporation about taking a minority stake in the nuclear fuel firm, but there has been no update since.

Earlier this month, the government said Areva was in talks with Kazakhstan uranium mining company Kazatomprom about a potential investment in Areva, but gave no indication on timing.

Two sources familiar with the situation told Reuters that Mitsubishi Heavy Industries, which in June struck a deal with EDF to possibly take a minority stake in reactor maker Areva NP, might also consider one in Areva NewCo.

BFM Business TV has reported that Areva had asked potential investors to put a formal offer on the table by Oct 22 and that Kazakhstan might confirm its interest on that date.

Areva declined all comment.

POLITICAL HEADACHE
The company said in July that if its capital increase were delayed, it would call on the State for a shareholder loan to repay a €1.2-billion bridging loan expiring in January.

Experts say this increases the risk France will put the rescue on ice ahead of the May 2017 presidential election.

A banker specialised in energy also said the government could be tempted not to decide anything ahead of the election.

Junior Industry Minister Christophe Sirugue told parliament on Oct. 7 the European Commission was working on a schedule compatible with French plans for a capital increase early 2017.

A string of manufacturing problems at Areva, revealed in the past months, could also lead EDF to lower the 2.5-billion valuation for Areva's reactor unit or even call the deal off altogether, analysts say.

EDF is expected to formalise its bid for Areva by end November, but since it agreed on a valuation for Areva, EDF has been forced to temporarily close several reactors to inspect their resilience because an Areva factory had falsified manufacturing documentation.

French daily Les Echos on Wednesday quoted an internal Areva note saying EDF could back out of Areva's reactor unit takeover if the quality audits reveal "significant and systemic quality control shortcomings ".

Areva's bondholders approved the rescue plan on Sept. 20. Shareholders are set to vote on it Nov 3.