Selling ‘seeds’ for H-bombs

Paul MacKay
The Ottawa Citizen
June 7, 1998


Canada sold reactors first to India, then to Pakistan. Paul MacKay reports that Turkey is likely to be next. India did it. Pakistan did it. Turkey will likely be next.

The potential sale this month of Canadian Candu reactors to Turkey would arm that country with the same technology that India and Pakistan used to build nuclear bombs.

“Canada’s nuclear reactors were the seeds of today’s nuclear armed conflict between India and Pakistan,” says Norm Rubin, a nuclear technology specialist with Toronto-based Energy Probe. “If Prime Minister Chretien is shocked by recent developments, he simply doesn’t understand what seeds do.”

The Turkish state power commission is expected to announce the winning bid to build the country’s first two power reactors by the end of June. The Canadian government, through the Crown company Atomic Energy of Canada Ltd., is one of three finalists.

Although the sale to Turkey would be financed by Canadian taxpayers, the federal government is doing its best to keep the deal secret.

AECL, which receives a $100-million annual grant from Parliament, has refused to disclose the financial details of the Turkish bid. So has Jean Chretien’s cabinet, which approved a $1.5-billion loan for the AECL/Turkey nuclear project in April 1997. Details of the loan were made public in a leaked cabinet document last November.

“The Candu is the perfect camouflage to cover military activities,” Mr. Rubin said. “It can conceal and put a pretty veneer on some pretty nasty activities. For someone who wants to make bombs, it is exquisitely ambiguous.”

To avoid parliamentary and public scrutiny of the deal with Turkey, said Elizabeth May, a lawyer who is executive director of the national Sierra Club office in Ottawa, the federal cabinet routed the $3 billion in federal loan guarantees through an obscure ledger item called the “Canada Account.”

The Canada Account is administered by the Export Development Corporation and is jointly supervised by the federal Minister of Finance and the Minister for International Trade.

AECL and the government have also refused to reveal financial details about a 1996 carbon-copy sale of two Candus to China (a nuclear state), financed by a cabinet-approved, $1.5-billion loan.

The Chinese and Turkish deals are the largest government-backed export loans in Canadian history.

“It’s Candu deja vu,” says Elizabeth May, “The Chretien government always wants to celebrate the sales of nuclear technology, without facing the world-security and financial responsibilities.”

AECL supplied a Candu prototype reactor to India, which used it to extract plutonium for its first nuclear bomb in 1974. AECL also supplied a Candu to Pakistan, and then officially cut off all nuclear assistance when Pakistan’s nascent bomb program was uncovered.

Reid Morden, president and CEO of AECL, has said that Candu reactors are “safe and represent the best nuclear technology in the world.” He is adamant that “Candu reactors have never been used to make bombs.”

Reactor sales to Pakistan and India were financed by AECL and Canadian foreign aid programs.

“In the history of AECL sales to India and Pakistan, and to military dictatorships in Taiwan, Argentina, Romania, South Korea and China, there is a clear cause and effect,” says Ms. May. “Most of those sales were approved when Jean Chretien was in the federal cabinet.”

Ms. May says the Sierra Club has spent $80,000 — so far — seeking a Federal Court ruling that would puncture the extraordinary secrecy surrounding the Candu sales to China and Turkey, and make them subject to Canadian environmental standards. The case has not yet been heard.

Meanwhile, construction is 10-per-cent completed in China, and the AECL bid in Turkey is proceeding.

Court documents confirm that Finance Minister Paul Martin and former International Trade minister Art Eggleton co-signed the Canada Account approval for the $1.5-billion loan to China.

Cabinet documents indicate that Ms. May’s Federal Court challenge hit a raw legal and political nerve in the Prime Minister’s Office. The Sierra Club named the Minister of Finance, the Minister of Foreign Affairs, the Minister of International Trade, and the Attorney General of Canada as defendants in the legally contested Candu sale to China.

With the Federal Court case pending, the federal cabinet approved a $1.5-billion loan for the Candu sale to Turkey, through the Canada Account. But, this time, the cabinet was explicitly apprised of the political and legal risk.

A secret cabinet memorandum dated April 24, 1997, for the members of the key Cabinet committee on Economic Development Policy, warned that the Turkish Candu deal might be declared illegal by the Federal Court.

More ominously for the cabinet, it noted: “Justice has advised that its case is not strong, and that the Federal Court may well rule in favour of the Sierra Club.”

The April 24 cabinet document was approved by cabinet three days later. It contains several extraordinary details:

– It recommends approval of the $1.1-billion loan for the AECL/Turkey bid through the Canada Account, in addition to a January 1994 cabinet approval for $400 million. The financing costs were projected at $110 million over seven years.

– The $1.5-billion loan was to be made directly to an unnamed Turkish state entity. No details were provided on when and how the $1.5 billion would be repaid.

– It recommended that “Cabinet reaffirm its previous policy that, unless Court decisions require a change in the policy, the export credit system is not subject to the requirements of the Canadian Environmental Assessment Act (CEAA) until such time as a regulation concerning the Export Development Corporation and its Canada Account program, and the Canadian Commercial Corporation, is developed.”

– “Should AECL be successful in securing a winning (Turkey) bid and pending the outcome of the current legal challenges, Ministers will be asked to decide whether or not the environmental assessment for this project should encompass the public registry process (notification and public comment) as would be required for CEAA compliance under Section 55.”

– “To improve the competitiveness of the bid to be submitted by AECL for the supply of CANDU reactors to Turkey, (one clause in the Cabinet approval document) should be modified to allow for a loan and/or guarantee. This will provide the flexibility necessary for the Export Development Corporation to structure a financing package which will better meet the needs of the Turkish authorities.”

– In aid of “sheltering the transaction from court challenge or delay,” it suggests conducting a “shadow” environmental assessment on the Turkey deal, with or without the public notification. On the latter option, it concludes: “The conduct of a shadow assessment, which is consistent with (federal law) in every way, except for the public registry aspects, means that the government would be able to react quickly to a negative ruling in the Sierra Club case, by converting the shadow screening into a screening which meets (existing federal) regulations.”

– “The rationale for Cabinet’s decision to protect export projects from the requirements of the CEAA was that this might subject Canadian exporters to a regulatory process not faced by their competitors from other countries. It was feared that this might impact on the international competitiveness of Canadian companies and place them on an unlevel playing field, in that they might be subjected to delays and costs not faced by their competitors.”

Cabinet approved the amended AECL/Turkey deal on April 27, 1997. This included the $1.5-billion loan through the Canada Account, setting up a “shadow” environmental assessment to protect its legal flank, and putting the minister of Finance and minister of International Trade in charge of the financial terms — and the pending Federal Court challenge.

Cabinet also approved an already-written “communications plan,” and the recommendation that “this transaction not set a precedent for future Canada Account transactions.”

What the cabinet document never stated — but all cabinet members knew — was that the “Canadian exporters” being sheltered from competitors and Federal Court challenges was the federal government itself. Through AECL, it holds the only licence to sell Candu technology. Through the Export Development Corporation’s Canada Account, it is the sole financial underwriter for the Candu sale to Turkey.

This mirrors steps the Liberal government took to obscure details of the Candu sale to China.

In a rare, hastily arranged evening session on Nov. 6, 1996, cabinet made changes to Canadian Environmental Assessment Act regulations, with the intent of exempting major Canadian export projects from standards imposed on major projects in Canada. The law applies to export projects financed by federal tax dollars, or promoted directly by a federal government agency.

Those regulations (now being challenged by the Sierra Club) were given the force of law the next day. The usual 60-day review period, in which proposed regulations are posted in the Canada Gazette for public comment, was suspended. The new regulations were first posted on Nov. 27, 1996 — one day after the prime minister attended the signing of the AECL/China deal in Shanghai.

Despite sustained efforts, the Sierra Club has been unable to extract financial details about the Canada Account financing of Candu sales to China and Turkey. The only certain detail is that the federal government — through the Canada Account — has pledged $3 billion to complete the construction of two Candu reactors in China, and two in Turkey.

In affidavits to the Federal Court, government lawyers have argued that:

– additional financial details are not relevant to the Sierra Club court challenge;

– the loan guarantees through the Canada Account were not authorized directly by any cabinet minister and, therefore, have not technically triggered application of federal environmental laws;

– the ministers of Finance and International Trade never reviewed the Candu/China agreements, contracts or financial arrangements, and so could not be expected to provide details;

– release of the financial details would be contrary to the national interest, by jeopardizing future sales of Candu reactors;

– the details are exempt from Federal Court review since they are covered by cabinet secrecy provisions and/or solicitor-client privilege.

The Sierra Club’s Elizabeth May says the federal government has a direct, vested interest in pushing Candu sales as fast as it can before the Federal Court rules on the “Canada Account” case — and in delaying any court ruling as long as it can.

“They’re on the financial and political hook for $3 billion in taxpayer funds,” she says. “The cabinet rammed both deals through; on a wing and a prayer they’d get the money back somehow, someday. The public is in the dark about all this. They may be, too.”

On the eve of Sierra Club lawyers cross-examining government officials about the Canada Account loans, AECL filed a surprise motion to formally join the Federal Court action. The AECL motion was filed on April 15, 1998 — 15 months after the case was initiated. It concluded: “It has become apparent that the applicant (Sierra Club) intends to use the Application to adversely affect AECL’s interests.”

On April 29, the court dismissed AECL’s effort to become a party to the action. It allowed AECL intervenor status on condition it not duplicate issues already raised by its federal government allies.

“All the legal bills of AECL, the Export Development Corporation, the Cabinet ministers named in our suit, and the federal government itself — are being paid with public funds,” says Ms. May.

“The public is also paying for all the court time and costs. All because we are saying $3 billion in public loans shouldn’t be secret, and Canada’s environmental laws shouldn’t be junked so Jean Chretien can flog reactors in China and Turkey.”

Ms. May says Sierra Club researchers have pieced together a partial picture of how the $1.5-billion loan to China is being spent:

– The federal Export Development Corporation Canada Account received the $1.5-billion commitment from the federal government, signed by Finance Minister Paul Martin;

– The EDC provided a secured $1.5-billion loan guarantee to the State Bank of China;

– The State Bank of China began borrowing funds against the Canada Account loan guarantee. The borrowed funds are routed through the Asian Development Bank, which in turn makes loans to the China state nuclear agency;

– The China state nuclear agency pays AECL as work progresses at the Quinshan site, where two Candu reactors are being constructed.

The Chinese Candu project capital cost is estimated at $4 billion. The $1.5-billion AECL portion, about 40 per cent of the estimated cost, covers the reactor and steam generation components. The remainder of the work is subcontracted to Chinese, U.S., Japanese and South Korean companies, which arranged their own financing.

Ms. May says that unless the Federal Court orders the government to release the financial contracts and Canada Account statements, the public will never know how much profit or loss the AECL deal carries, or what the financial risk is.

Court documents confirm that if the Chinese default on the $1.5-billion loan repayments, future Canadian taxpayers will assume the liability. The loan term is 22 years. In documents released under the Access to Information Act the loan interest rate has been omitted.

Energy Probe’s Norm Rubin fully endorses the Sierra Club court challenge.

He says the federal government is secretly subsidizing — in the guise of foreign aid — a reactor system that last year had the worst operating record in the world. That record is largely due to the shutdown of seven Ontario Hydro Candu reactors.

“When the federal government is cutting social expenditures that have widespread public support, for the Chretien cabinet to risk $1.5 billion in Turkey on top of the $1.5 billion for China, for a technology that has already failed any reasonable economic and technical test — is outrageous.

“This is the technology that has bankrupted Ontario Hydro.”

Financial details about the pending sale of two Candu reactors to Turkey are even murkier. Even though the bidding has been closed for several months, the AECL has refused to disclose the capital cost of the project, its predicted profit margin, or the repayment terms of the $1.5-billion loan.

In fact, the loan may not be repaid in cash. In April, Hukuk Musaviri, general manager of the Turkish state bank supervising the three final bids, told the Citizen that Turkey will not pay any up-front capital costs for the reactors. They are expected to be in the $4-billion range. The finalists include AECL, a French/German consortium, and a private partnership led by Westinghouse and Mitsubishi Corp.

The reactor construction, at a site called Akkuyu on the Mediterranean coast, will be 100-per-cent financed by the winning bidder, Mr. Musaviri said.

He confirmed that when those costs are repaid by the Turkish government, under the contract terms, a significant portion won’t be paid in cash.

Instead, Mr. Musaviri said, the reactor costs will be repaid in “counter-trade” — Turkish-produced goods such as steel, farm implements, and food products. If AECL is the winning bidder, he said, it will be expected to accept then resell those goods to recoup its costs.


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