Wake-up call

Int'l experts give Korea's nuclear industry reality check

By Kim Da-ye

Mycle Schneider, a Paris-based international energy and nuclear policy consultant, was startled by the extent the “top level decision makers” in the Korean government and nuclear industry he met were “disconnected from the international industrial reality.”

“This lack of reality check is possibly the most frightening of the characteristics of this industry. Nuclear power has been on the decline for a long time,” said Schneider, the founder and author of the World Nuclear Industry Status Report, in an email interview with The Korea Times’ Business Focus.

The consultant visited Seoul last year to present the yearly report in a seminar organized jointly by the International Atomic Energy Agency, the Korean government and the local nuclear industry.

Korea has been bullish on nuclear energy. The government has advocated nuclear power as a source of clean energy and pushed forward its expansion in the country’s energy portfolio. It strongly promoted exports of nuclear power plants, arguing it is a highly profitable business.

The ambitions at home and abroad were, however, hit by two disgraceful events. Three nuclear reactors were shut down for the long term after a whistleblower’s report led to the finding that control cables that send signals to the reactor’s control system in case of an accident did not pass the quality test but were still used in the reactors with fake certificates. Only six months ago, two reactors in Younggwang Nuclear Power Plant were suspended because thousands of parts were found to have been supplied with fake warranties.

Although the government vowed to get rid of corruption and improve the lack of transparency in the domestic nuclear energy industry, it hardly touched on deeper issues including if Korea should remain as dependent on nuclear energy as it is now and if the country has competitiveness as a nuclear power plant exporter at all.

Business Focus talked to five international nuclear energy experts for their views on the current scandal, possible measures and Korea’s status in the international nuclear energy industry. The experts, who come from diverse backgrounds, differ on their opinions about nuclear energy but agreed on two things — Korea’s nuclear energy industry should become more transparent, and it isn’t easy to make money in the nuclear energy export market.

Exports, thorny path

On May 28, when two reactors were shut down because of the installation of unauthorized control cables, the energy minister was in the United Arab Emirates (UAE) attending the groundbreaking ceremony for the second reactor of the Barakah Nuclear Power Plant.

Under former President Lee Myung-bak’s administration, Korea has aggressively tried to export nuclear power plants.

The consortium of the state-run Korea Electric Power Corp. (KEPCO), Hyundai Construction & Engineering, Samsung C&T and Doosan Heavy Industries & Construction won Korea’s first overseas deal in the UAE. The government backed the deal with former President Lee personally visiting the UAE to persuade the royal family.

The government is apparently so committed to the UAE deal to the extent that its commitment affects domestic affairs. In Miryang, South Gyeongsang Province, KEPCO and the residents fought over the construction of transmission towers that would send high-voltage current generated from the newly built reactor of Gori Nuclear Power Plant. The residents barricaded the road to the construction site and protested against KEPCO, citing that the towers are too close to the residential area and may cause health hazards.

In a lunch meeting with reporters, Byun Jun-yeon, then vice president of KEPCO, said that the construction must go on because of the terms of the UAE deal. “The conflict must be solved at least for the UAE nuclear power plant deal. The Gori Nuclear Power Plant is a reference plant for that in the UAE. If the Singori third reactor does not operate by 2015, we have to pay a penalty, which is 0.25 percent of the amount we received. It’s on the contract,” said Byun. His later had to hand in his resignation for his controversial comments.

The UAE deal is Korea’s only overseas nuclear power plant building project so far. The country recently lost the bid for the 25-trillion-won project to build a nuclear plant in Turkey to the Japanese-French consortium.

On Jun. 7, amid the corruption scandal, the energy ministry signed an agreement with Vietnam to review the feasibility of a nuclear plant in the Southeast Asian country. “The two countries agreed to carry out a feasibility study in the next 18 months. If the review is approved at the Vietnamese parliament in early 2015, we will be close to winning the deal,” said the energy ministry in a press release.

KEPCO also has its eyes on South Africa to build a 9,600-megawatt nuclear power plant by 2029 and is working on building academic ties.

The corruption scandal, however, dampens this enthusiasm.

“The huge quality-control scandal hit the Korean nuclear industry’s reputation badly in an already depressed commercial environment,” said Schneider.

Dave Lochbaum, director of nuclear safety projects at the Union of Concerned Scientists, commented in an email interview, “The issue doesn’t help marketing. But the response to the problem can restore confidence and limit the damage done to the reputation.”

While the Korean government keeps projecting a rosy outlook for the export market of nuclear power plants, experts aren’t as bullish. Although they have different opinions about the state of the global nuclear energy market, they agree that it’s a competitive to market to win in.

Some experts point out at governments’ heavy subsidies in the industry as the proof.

In the UAE deal, the Korean government, or more precisely, the Export-Import Bank of Korea, will actually provide $10 billion in loans to the nuclear plant project. The UAE government will guarantee the loan.

“The use of loan guarantees distorts the true cost of nuclear power and warps the market there by encouraging nuclear power over better, safer, more affordable alternatives,” said Jim Riccio, the nuclear analyst at the environmentalist group Greenpeace.

Chris Gadomski, lead analyst for nuclear energy at Bloomberg New Energy Finance, has a positive view on the nuclear energy industry, saying that 72 nuclear reactors are being built across the world. He says that the recent corruption scandal wouldn’t hit Korea’s reputation badly, but amid steep competition from larger economies, Korea will have to prove its competitiveness by finishing the UAE project on time and within budget.

According to Gadomski, the client of a project assesses bidders in terms of three aspects — technology, financing capacity and ability to build. In the UAE deal, Gadomski said France’s technology was more advanced than Korea’s, but Korea won the deal by coming up with a less expensive proposal and because of experiences of building large projects in the Middle East. He added Russia has become increasingly competitive, as indicated by its government’s willingness to provide financing for the project.

“If Koreans are successful and have the first reactor built on time by 2016 or 2017, more sales would follow. If unsuccessful, I wouldn’t be surprised that it would be very difficult for them to find another sale,” said the analyst.

Is lack of transparency solvable?

In late April, the Nuclear Safety and Security Commission received a tip about control cables that were supplied with falsified certificates. A further investigation discovered that parts that did not pass quality tests were installed in two reactors in the Gori Nuclear Power Plant and another two at the Wolseong Nuclear Power plant. The control cable plays a key role in an event of an accident by transmitting the signal to operate the cooling system of a reactor.

In Korea, the Korea Hydro & Nuclear Power (KHNP) orders for parts. The supplier maps out the testing procedures for the parts and chooses the testing body. The procedures get approved by KEPCO Engineering & Construction (KEPCO E&C), an affiliate of KEPCO. The testing body then examines the parts, and the results are authorized by KEPCO E&C.

In the recent scandal, the supplier of the control cable, the testing body and KEPCO E&C were all found to be closely connected to each other.

JS Cable, the supplier of control cables and an affiliate of LS Group, chose Saehan TEP as the testing body.

Back in 2008, Saehan TEP, the domestic testing body, had 12 cable samples tested by a foreign organization, only three of which passed. Saehan TEP, however, deleted parts of the document containing the test results, submitting a revised document with only the results of two qualified samples and one failed sample, according to the report by the Ministry of Trade, Industry and Energy. The vice president of Saehan TEP was hired from KEPCO E&C, the very body that authorizes test results.

The government report said that the current scandal resembles last year’s case where thousands of small parts were supplied with fake warranties, prompting the suspension of two reactors at the Younggwang Nuclear Power Plant. It pointed out, however, that the latest revelation is worse because the testing and certifying body is the one that faked the results of the tests.

The government has vowed to eradicate the corruption in the industry. It identified four problems in the present case: the collusive tie between the supplier and the testing body; the lack of procedures for verifying test results; the lack of an independent watchdog for testing bodies; and the lack of transparency.

“In the last 30 years, the nuclear energy industry insisted on its unique status as the one that deals with nuclear materials. It grew into a closed circle free from surveillance and control. This is the root cause of its corruption, opaque system and come-day, go-day attitude,” said the government report.

According to the international experts, similar cases and problems have been reported in other parts of the world. They said that the cause of the problem should be made public while those responsible should be criminally liable.

The government has begun to take such steps. It has prosecuted four officials from JS Cable, Saehan TEP and KEPCO E&C. It will also amend the regulations so that high-ranking officials of state-run companies in the nuclear industry including KHNP do not get hired by private firms in the same sector. It will also establish a system where national institutes verify the test results from private testing bodies.

The scandal, however, hasn’t ignited a substantial debate about Korea’s approach for nuclear energy in the long run. There are currently no government measures that deal with this issue.

Mark Hibbs, senior associate in the nuclear policy program at Carnegie Endowment for International Peace, said that Korea will stay with nuclear energy.

“While ever-greater wealth can lead to complacency in Korea about where its energy is coming from, Korean authorities can for now count on Koreans understanding that the country’s nuclear program gives it 40 percent of its carbon-free electricity,” said Hibbs.

“Koreans can look at Germany and see its carbon emissions increasing. Germany in the future will import nuclear power from its European neighbors, but Korea won’t have that luxury.”

Schneider has a different opinion. He met last August with Park Won-soon, the mayor of Seoul, to discuss Park’s initiative for saving enough energy to stop running one nuclear reactor.

“The energy revolution towards high-tech, small-scale, decentralized systems is on its way. Consumers become investors, generators and storers,” said Schneider.

“A nuclear power plant is like a building-size computer in the age of the Internet where millions of computers provide computing power. It is expensive and slow. It will not be part of the future energy landscape. A dinosaur does not belong in a flower garden.”