David H. martin

November 1, 1996

Executive Summary

Canadian CANDU exports have entailed extraordinarily high costs for Canadians, both in financial and in human terms.

• Canada’s nuclear program has cost the Canadian treasury over $13 billion to date. Yet domestic sales have dried up, and export sales are scarce. Any sales that occur cannot possibly recoup the value of the nuclear subsidies already received from Canadian taxpayers. 
• The dark underside of nuclear power has always been its potential to aid in the production of nuclear weapons, through the production of plutonium — an inevitable byproduct of reactor operation. Of all commercial reactors, the CANDU design produces the most plutonium per unit of energy, and is the most difficult to safeguard. 
• The ethical cost of CANDU exports has also been high, as CANDU sales have repeatedly involved bribery, and have contributed to Canada’s abandonment of an effective human rights policy.

Economics

In a February 1996 publication by the Campaign for Nuclear Phaseout entitled Nuclear Sunset: The Economic Costs of the Canadian Nuclear Industry, it was demonstrated that Atomic Energy of Canada Ltd. (AECL)1 received federal taxpayer subsidies totalling $13 billion up to the end of March 1995.

Reactor sales cannot hope to recoup that massive subsidy. Indeed, the proceeds from reactor sales may not even keep pace with ongoing annual federal subsidies „ AECL will receive a subsidy of $174 million for 1996-97 (up from $172 million in 1995-96). The amount of the annual subsidy is supposed to drop to $132 million in 1997-98, and to $100 million in 1998-99 „ presumably it will then remain at that level.

Since Canadian utilities are clearly not interested in building more reactors, AECL maintains that prospects for reactor exports justify ongoing subsidies from Canadian taxpayers. However, nuclear prospects are not numerous. The number of nuclear power reactors under construction around the world is at its lowest level in 25 years. Installed nuclear capacity worldwide has remained relatively flat throughout the 1990s. 2Given the intense competition for reactor sales, the scarcity of sales opportunities, and the domination of the existing world market by other reactor types, AECL cannot realistically expect to achieve a large number of sales, or even to capture a significant market share.

The likelihood of market success is further reduced by the CANDU’s worsening international performance. Contrary to the myth of CANDU superiority, in 1995, the load factor for CANDU reactors worldwide was 61. 4% „ the worst of all the major reactor types. 3 The growing trend towards more competitive electricity markets worldwide will also discourage CANDU sales, because nuclear power is a high cost, high risk option. Early CANDU sales involved concessionary financing, which entailed some combination of low prices, outright grants, low or no interest, and long repayment periods. Occasionally other perquisites were made available, including outright bribes or trade concessions. The full extent of hidden incentives and subsidies for these past sales, as with current CANDU deals, may never be known.

In the case of CANDU sales to China, Natural Resources Minister Anne McLellan claims that financing for the CANDU sale to China will be on a ~commercial~ basis. However, the loan, thought to be about $1.5 billion, will go through a crown corporation (the Export Development Corporation) on its “Canada Account”, which is carried on the books of the Department of Foreign Affairs and International Trade. The reason for this is that the loan is too big and too risky for the EDC alone, or for the private sector financial community. The EDC typically provides cheaper loans (i.e. at lower interest rates), for longer periods than commercial banks. There is some doubt as to whether the rules of the OECD4 Consensus Agreement will be observed by AECL and its partners in the sale of CANDUs to China. Indeed, in the recent past, the OECD Consensus Agreement has been violated by one of AECL’s partners.

In addition, there are serious questions about:

• the absence of political risk insurance on the loans;
• the degree to which AECL will “give away the store” through technology transfer;
• the consequences of serious cost overruns; and
• the cost of possible performance guarantees or warranties.

On the other hand, CANDU deals with other financial structures, such as Build-Own-Operate-Transfer (BOOT) potentially carry even greater risks, as AECL would become the owner and operator, relying on electricity sales to recoup its investment.

The minimum political requirement for CANDU deals should be transparency and disclosure. AECL traditionally keeps its nuclear financing deals secret, but if the China deal is strictly commercial as the government claims, then the details should be made public. AECL is after all a crown corporation, and CANDU sales to China have the economic and political support of the federal government.

CANDU and the Bomb

The explosion of an atomic bomb by India in 1974, using plutonium from a Canadian-supplied reactor, demonstrated the very real contribution that Canadian reactors can make to nuclear weapons proliferation. Canada promptly discontinued nuclear cooperation with India. Within a few years, Canada also broke off nuclear cooperation with Pakistan because of that country’s determination to pursue a nuclear weapons program in response to India’s demonstrated capability.

Despite Canadian and international non-proliferation agreements, CANDU sales carry an inherent risk of proliferation ~ purchasers can simply ignore their commitments, as India did. All of our past CANDU customers (India, Pakistan, Taiwan, Romania, Argentina, and South Korea) have at one time or another pursued a nuclear weapons program.

In recent years, without any public discussion or parliamentary debate, Canada has allowed its non-proliferation policy to be eroded. Since 1989, Canada’s nuclear boycott of India and Pakistan has been abrogated by quietly allowing AECL and other Canadian companies to provide nuclear assistance to both countries.

Because China has given aid to “threshold” nuclear weapons states like Pakistan, the United States government will not allow its privately owned nuclear companies to sell reactors to China. The Canadian government has no ethical compunctions about selling reactors to China ~ it is eager and willing to take advantage of the absence of American competition.

Human Rights

Human rights violations are particularly severe in countries which AECL has targeted as its highest priorities for CANDU sales. China, Indonesia, Turkey and South Korea, among other AECL customers, have consistently been identified as among the world’s worst human rights violators. The Canadian government has argued that through a policy of “constructive engagement”, i. e. by establishing even stronger commercial relations, Canada can encourage improvements in human rights. However, such a policy of appeasement is self-serving and hypocritical. If Canada is serious about improving human rights (or discouraging proliferation), it should impose trade sanctions, rather than expanding trade.

Corruption

Corruption is particularly entrenched in countries such as China, Indonesia, South Korea, and Turkey, all of which are CANDU marketing targets. AECL already has a history of using bribes to secure CANDU sales. Over $22 million in bribes — disguised as agent fees — was paid by AECL to secure sales to Argentina and South Korea. As recently as 1994, AECL’s agent in South Korea was arrested and jailed for paying bribes to the head of South Korea’s nuclear utility. Since AECL was first compelled to disclose “Agent Fees” in 1977, about $60 million has been paid out for dubious purposes. If bribery and corruption are the price of CANDU sales, Canada should get out of the business.

Conclusion

AECL’s most promising customers are all located in countries that exhibit serious human rights problems, and suffer from extensive corruption. Some are developing countries with oppressive and dictatorial governments (e.g. China, Indonesia). Some are governments that have recently shifted to more democratic systems, but still suffer from the heritage of a dictatorial past (e.g. South Korea, Romania, and Turkey). The absence of democracy, or the existence of a fragile democracy replete with human rights violations, invariably means that public debate and consultation on nuclear programs are non-existent or severely limited. Even in developed countries such as Canada the nuclear industry is secretive, democratic processes are rare, and information is often inaccessible. In developing countries these problems are far worse.

Given the fact that the prospects for foreign sales of CANDUs are minimal, the ongoing subsidization of the Canadian nuclear industry cannot be justified. In particular, the financing of CANDU sales should not be supported by the federal government. Canadian taxpayers should not be expected to assume the risks of reactor sales.

End Notes

1 A federal crown corporation that designs and markets the CANDU reactor as well as other nuclear technology and services.

2 Safe Energy Communication Council, “International Nuclear Power”, Myth Busters # 10, Spring 1996.

3 1995 average load factors were as follows: PWR = 75. 2%; BWR = 76. 6%; PWHR (CANDU) = 61. 4%; Magnox = 65.6%; and AGR = 69. 5%. See: Laurie Howles, “Load Factors: 1995 annual review”, Nuclear Engineering International, May 1996, p. 30.

4 Organization for Economic Co-operation and Development