Endless scandals hit nuclear power supplier

KHNP suffers from grave loss of public credibility

By Kim Da-ye

When the heat wave subsides and preventing a nationwide blackout is no longer a priority, the public will recover their composure and question what made this summer the worst one in history.

Was the heat probably caused by climate change? No. The government's inability to adjust electricity rates to reasonable levels and the failure to estimate electricity consumption this summer and prepare enough energy sources? Probably, but the rates have been kept that way for many years. Or it is consumers and businesses that squandered electricity because it's so cheap? To an extent, but citizens did a lot in the past month to prevent a blackout. The responsibility clearly lies with Korea Hydro and Nuclear Power (KHNP), the state-run company that's responsible for the country's nuclear plants.

Former Korea Hydro and Nuclear Power CEO Kim Jong-shin makes a public apology in relation to the malfunctioning of the first reactor of the Gori Nuclear Power Plant at the Busan city hall, April. 5, 2012. In July, Kim was apprehended and his home was raided in connection to bribery allegations. He was later indicted for having taken some 130 million won from a subcontractor. / Korea Times photo by Lee Sung-deok

A scandal continues to unfold surrounding the country's nuclear power plants. Corruption at KHNP has led to nearly a quarter of the country's 23 nuclear reactors to stop. With few reactors online, concerns over a nationwide blackout loomed. Aside from energy concerns, prosecutors continue to uncover illegal activity that happened between KHNP employees, subcontractors and politicians.

The corruption scandal at KHNP started with mounting safety concerns. Investigators found thousands of substandard parts with fake warranties installed in reactors. Plus, control cables that shut down reactors in the event of an emergency failed safety checks but were still installed in several nuclear reactors with forged safety certificates.

As the investigation continues, the deep ties between KHNP and the industry are being revealed. The Korean media came to name the tightly-knit, insular nuclear community as "the nuclear mafia."

The scandal now has spilled over onto the political circles with a former vice minister close to former President Lee Myung-bak being investigated over if he was bribed for favor to a subcontractor of KHNP. Some people are referring to the situation as a Korean version of the Watergate scandal that brought down the Nixon administration in the United States as investigators look into possible government ties.

Former Vice Minister of Knowledge Economy Park Young-joon, center, is summoned to the Busan Eastern Branch District Prosecutors' Office for investigation on suspicion of bribery, Busan, Aug. 27. / Yonhap

Main players

Minister of Trade, Industry and Energy Yoon Sang-jick speaks at a press conference held at the Korea Electric Power Corp. headquarters in southern Seoul, Aug. 11. He warned of the possibility of a rolling blackout.
/ Yonhap

It's not the first time KHNP has made headlines. On Jan. 24, the prosecutors uncovered 11 KHNP officials took bribes from subcontractors for various illegal favors. Some officials stole parts from the inventory and gave back to the supplier of the parts that made money from providing KHNP with the same parts. Some chose suppliers that bribed them in biddings.

In May, when investigators found unsafe cables, the Supreme Prosecutors' office launched a special investigation. The office claims several layers of corruption were revealed as part of their investigation.

The original point of the investigation was to look into the installation process of the substandard control cables, but other concerns soon emerged. The investigation led to a raid at the home of former KHNP CEO Kim Jong-shin on July 5. Kim was later indicted for receiving 130 million won from a waste-water-filtering company.

The headquarters of Hyundai Heavy Industries was also raided. The investigation found that several present and former officials at Hyundai bribed a general manger of KHNP with the last name, Song.

In June, prosecutors found about 600 million won at Song's home during a raid. It was later revealed that Hyundai officials offered Song 1.7 billion won in total in bribes, of which he collected 1 billion won. The prosecutors are trying to figure out where 400 million won flew into.

The world's second-largest ship maker supplies parts worth hundreds of billions of won to the large-scale nuclear plants in the United Arab Emirates, which is a consortium Korean companies are building.

In August, another fraud was made public. A senior manager of KHNP took a bribe to help a subcontractor pocket foreign parts, which were assembled into the supplier's turbine valve actuator. The company boasted about developing a Korean-made turbine valve actuator that led to deals worth 20 billion won.

By late August, Park Ki-chul, the head of the power generation division and vice president at KHNP, was taken into custody for receiving 100 million won from a president of a small company identified with the last name Soh. Soh's firm allegedly hoped to win a contract for maintenance of a specific nuclear part. He's the same man who was considered for the CEO position at KHNP in 2010.

In August, four KHNP officials identified as Song, Nam, Shin and Huh were arrested for taking tens of millions of won from suppliers. Soh is suspected of bribing Song to win a maintenance contract and is suspected of being the middleman between Hyundai Heavy Industries and the general manager of KHNP.

Employees of Korea Power Exchange react as the level of backup power plunged below 3.5 million kilowatts at 3:28 p.m. on Aug. 21. The sixth reactor of the Hanbit Nuclear Power Plant came to a halt at 2:44 p.m. on the same day for unknown reasons. / Yonhap

Relationships in nuclear industry

According to an independent nuclear energy consultant, nuclear industries across the world are notoriously tightly-knit and Korea is no exception.

"The nuclear industry has its origin in military establishments. Most, if not all of the nuclear programs had a military component at some point, even in countries like Switzerland and Sweden," Mycle Schneider, a consultant and lead author of The World Nuclear Industry Status Reports said.

"The technology can be used for civil and/or bomb purposes. That makes it extremely difficult to regulate and to control. At the same time, that makes it difficult to govern under democratic rules. The more democratic elements come in, the more difficult for the industry to maintain its supreme position as a highly centralized, government supported and (more or less) controlled industry."

The collaboration between various parties to select qualified parts for nuclear reactors is an example of the close ties within a nuclear entity. In Korea, KHNP orders the parts.

The supplier selects a testing agency to ensure the safety of the parts, but the entire procedure is approved and authorized by KEPCO Engineering & Construction (KEPCO E&C), an affiliate of KEPCO.

During the scandal, the supplier, tester and employees at KEPCO E&C were all closely connected to each other. JS Cable, which supplies control cables, chose Saehan TEP as the testing agency. Saehan TEP had 12 cable samples tested by a foreign organization, of which only three passed inspection. However, Saehan TEP deleted parts from the test results and submitted the falsified documents, according to a report by the Ministry of Trade, Industry and Energy.

The vice president of Saehan TEP was hired from KEPCO E&C, the same agency that authorizes test results. As the investigation progressed, two KHNP officials were arrested for allegedly knowing about the falsified reports and approving the installation of the parts.

The relationship between Lee Jong-chan, the senior executive vice president of Korea Electric Power Corp. (KEPCO) and Song is also in question. Prosecutors suspect Song bribed Lee multiple times with money he took from KHNP's subcontractors. Song and Lee worked together in 2008 at a construction site where two nuclear reactors were built at the Gori Nuclear Power Plant. In 2010, both men took a development role in nuclear plants overseas, according to Yonhap.

The photo shows the sixth reactor of the Hanbit Nuclear Power Plant that came to a halt on Aug. 21. Korea Hydro and Nuclear Power's logo is seen on the building. / Yonhap

Possible political connections

While the lack of transparency in the nuclear industry is nothing unusual across the world, the corruption scandal at KHNP has a very unique aspect — potential involvement of politicians-turned lobbyists and a high-ranking politician.

"There have been numerous nuclear scandals in various countries. I'm not sure about the involvement of high-ranking politicians, but definitely top managers," said Schneider.

The previous Lee Myung-bak administration strongly promoted nuclear energy at home and abroad. To win the deal for building the nuclear plant in the UAE, the former president visited the Middle Eastern state himself to show what he called "energy diplomacy." The corruption scandal has now reached Lee's closest aide, Park Young-joon.

A former vice minister of knowledge economy (currently trade, industry and energy), was also summoned and interrogated by prosecutors who suspect Park took bribes to favor subcontractors of KHNP. Park has been jailed on unrelated charges of illegal surveillance on civilians.

According to local media reports, Lee Yoon-young, a Grand National Party member-turned nuclear plant lobbyist, gave Park 60 million won in 2009 to help Hankook Jungsoo Industries. The company, which filters wastewater from nuclear plants, allegedly wanted to secure more deals at the UAE plant. Hankook had been awarded a water filtering deal for the first four nuclear reactors at the UAE.

Information from the prosecutors' office shows Oh Hee-taek, another nuclear lobbyist, took 1.3 billion won from the founder and CEO of Hankook Jungsoo Industries. He claimed the money was used to bribe Park. Allegedly, Oh signed a contract for consulting services worth 8 billion won, and collected 1.3 billion won so far. The CEO confirmed in an interview with a local magazine that he was forced to give the money to Oh. Hankook has already won the deals to take care of the water filtering systems of four nuclear reactors at the UAE, and according to the CEO, Oh said Park could help the firm win contracts for four more reactors at the UAE. Hankook is the entity that allegedly handed former KHNP CEO Kim Jong-shin about 100 million won.

It's believed Oh and Lee Yoon-young split the 1.3 billion won — 1 billion won went to Oh and 300 million won to Lee. It's unclear if any of the money went to Park. Lee testified that he gave 60 million won of his share to Park, but Park denies the allegation.

Hankook recently received 64.3 billion won from a state-run investment fund called New Growth Engine Fostering Fund 1, for which Hankook sold 68 percent stake in his company. Investigators are looking into possible fraud in this process as well.

While serving his term at the Ministry of Knowledge Economy, Park is known to have enjoyed an immense power. He comes from a town in North Gyeongsang Province close to the hometown of former President Lee Myung-bak. He also worked as an aide of Lee Myung-bak's elder brother Lee Sang-deuk, a former lawmaker at the Grand National Party (now the ruling Saenuri Party) and the vice speaker of the National Assembly who currently serves his prison sentence for having taken bribes. Park was dubbed the "king vice minister."

Even if Park is cleared of all allegations, the political influence in the nuclear industry is staggering. The lobbyists who tried to abuse a subcontractor by boasting their ties to influential politicians prove that.

According to local media reports, Lee Yoon-young is a former member of the Seoul Metropolitan Council and a former deputy spokesperson of the Grand National Party. He held a key post in the Saenuri Party's central committee. He also served as an advisor to the transition committee when Lee Myung-bak was elected president in 2007. He was appointed as the auditor of Grand Korea Leisure, the casino business owned by the government.

Oh is known to be at the center of the "Yeong-Po Line," the major political circle in the Lee Myung-bak administration that consists of politicians from the Yeongil and Pohang areas of North Gyeongsang Province. Until last winter, Oh served as the chairman of the alumni association of middle schools and high schools in Pohang. Oh went to the same school as former President Lee. He also worked for Lee Myung-bak's campaign in 2007.