Korean Group's UAE Victory Surprises Few Insiders

Korean Group's UAE Victory

Surprises Few Nuke Insiders

By Nancy E. Roth, Managing Editor

[Note: This article originally appeared in FCW #358, January 6, 2010]

South Korea’s long pursuit of nuclear know-how paid off big in the waning days of 2009, when United Arab Emirates officials announced that a consortium of mostly Korean nuclear giants had won a plum$20.4 billion contract to build the first nuclear reactors in the Middle East.

Early news reports on the Dec. 27 announcement focused on the low bid of the consortium of Korea Electric Power Co., Doosan, Samsung, Hyundai and Westinghouse—which came in an astonishing $16 billion below that of France’s AREVA/Electricite de France-led consortium.

Apparently the EPR design’s redundant safety systems require a heavier load of steel and concrete, adding to its construction price. The French, who drastically underbid for their EPR contract at Olkiluoto, Finland, were clearly in no mood to offer any more loss leaders. The KEPCO team also beat the bid of a consortium that General Electric-Hitachi headed.

Korea: Economic Development Through Nuclear

But the story that has emerged from longtime industry observers and participants is that in effect Korea began assembling its bid package for the UAE tender 30 years ago, when it first set nuclear technology self-reliance as a national goal.

“A lot of us have seen this coming,” veteran nuclear-industry specialist Edward Kee, vice president of NERA Economic Consulting, told FCW. While the nuclear industry in the U.S. foundered in the 1980s, Korea, lacking native energy resources and fully dependent on expensive energy imports, strove “with a singularity of purpose” to master nuclear energy technology, he told FCW.

“Korea decided to make this a national effort, with a multiyear plan to develop manufacturing capacity as well as research and training programs tied in with the universities,” added Kee.

Korea Hydro & Nuclear Power Co. Senior Vice President Myung-Jae Song offered the particulars in a 2008 article he authored for Nuclear Engineering International, noting that in its early years the Korean nuclear industry relied on foreign contractors to build and operate its first nuclear plants.

But after the first three reactors, KEPCO “geared up on self-reliance in construction technology” and performed “6% in architect engineering, 40% in equipment supply and 100% in construction” for the next six units, wrote Song. Subsequently Korean companies took the lead role in all nuclear construction, hiring foreign companies only as subcontractors.

By the early 1990s, however, Korean companies introduced the Optimized Power Reactor 1000, based on the System 80+ design licensed from the American firm Combustion Engineering (later acquired by Westinghouse). As Korea’s first standard plant design concept, the OPR-1000 was a national declaration of nuclear technology independence. Six of the 1000-MWe units are now operating there.

One of the OPR1000’s offspring is the APR-1400, a 1,350-MWe Generation III evolutionary design, two of which are now under construction at Shin Kori and six more to be built by 2021. It was the APR-1000 that won the UAE nod, allowing Korea to emerge as a global nuclear technology exporter.

Supply Chain, UAE Relationships Helped

Kee also pointed out that Korea’s vast nuclear manufacturing infrastructure also would have worked to the KEPCO consortium’s advantage in the UAE tender.

In an all-day 159-slide pre-application presentation at the Nuclear Regulatory Commission last November KEPCO included a section on Doosan’s manufacturing capabilities, including the facility shown above right. That know-how was undoubtedly highlighted in the UAE proposal as well. KEPCO plans to apply for NRC certification of the APR-1400 in October 2011.

Korean companies have developed longstanding commercial relationships and a reputation as reliable, on-time, within-budget project managers in the UAE through their involvement in major infrastructure ventures over several years, according to Kee. That “greased the path” for KEPCO, he said.

Westinghouse Role: TBD

The UAE imposes strict confidentiality requirements on its contractors and bidders, making it difficult to ascertain what role Westinghouse, the only non-Korean member of the KEPCO consortium, will play in the project.

Some press accounts have hinted that UAE officials may have felt obligated to choose a team with an American participant in view of the U.S. government’s recent ratification of a 1-2-3 Agreement with the Middle Eastern nation. The Obama administration in recent months has showcased the agreement as an ideal for nuclear commerce in the region, because at the outset the UAE declared itself uninterested in enrichment and reprocessing technologies, which could feed a weapons program.

But it appears more likely that Westinghouse is involved because of the technology licensing agreements it still holds with Korean nuclear industry participants. Some have suggested that Westinghouse, with its 20% owner Shaw, would be involved in component design—but its Korean partners will undoubtedly perform all manufacturing.

The White House Wants to "Help"

By Andrea Jennetta, Publisher
The top White House energy and climate adviser said the Obama administration wants to help the nuclear industry build a power plant for the first time in decades, Reuters reported on January 11.
“We have not built a nuclear plant in this country in a long time but we want to work with the industry to make that happen in the not too distant future,” Carol Browner, Assistant to the President for Energy and Climate, said yesterday in a live chat on the White House website. “We have been working with the nuclear industry to understand exactly what it is they need.”
Browner also asserted that President Obama “believes that nuclear needs to be a part of our energy future.”
If you subscribe to the axiom that actions speak louder than words, then you will agree that the current administration isn’t serious about “working with the industry” or understanding “what it is they need.” You might even be cynical about Browner’s statement.
As proof, look no further than the inexplicable delays in the nuclear reactor loan guarantee program. Congress authorized $18.5 billion for nuclear loan guarantees in 2005. But five years later, the U.S. nuclear industry is still waiting.
One week later, though, DOE Deputy Secretary Daniel Poneman said the agency’s negotiations with energy companies for “first mover” reactors “still had some distance to cover.”
The foot-dragging is widely thought to be the result of a standoff between DOE and the Office of Management and Budget over the pricing of credit subsidy premiums, Reuters reported. Conventional wisdom puts that figure at 10% of the loan guarantee amount.
Poneman told the New York Times on December 24, “[W]e have worked with, and continue to work with OMB very cooperatively, on trying to get these things resolved ... . It’s obviously mission-critical to figure out if the [project] transactions will work. It’s not surprising that this would be a number that gets pretty closely scrutinized. We’re getting close, but we’re not done.”
While DOE and OMB dicker over the details, the four companies on the short list for the guarantees—NRG Energy, SCANA, Southern and Constellation—are operating in business limbo. If the goal of the loan guarantee program is to reassure investors that building new reactors is an acceptable, predictable financial risk, the government is failing spectacularly.
This is why it is difficult to take Browner’s comments seriously—or believe that the Obama administration really supports nuclear power, despite its efforts to expand the role of nuclear energy in a climate change bill currently stalled in the Senate to attract support from opposition Republicans.
(I could now launch a rant about how irresponsibly the White House has “managed” the national nuclear waste disposal program, but you’ll have to wait for a future post.)
I know I speak for the entire (hooting, laughing) U.S. nuclear industry when I say I’ll believe it when I see it.