June 29, 2009
Prime Minister Harper quipped last Fall that falling stock markets provided a good buying opportunity. Right now the opposite is true for Canadian nuclear. Now is the time for the government to sell, sell, sell; which is exactly what the government plans to do. The federal government plans to restructure and sell off parts of the federal Crown Corporation, Atomic Energy of Canada Limited (AECL).
AECL, in effect, runs three businesses; nuclear research (medical isotopes for example), CANDU nuclear reactor sales and development, and reactor servicing and refurbishment. The federal government has announced plans to divest both the sales and servicing divisions and proposes a public-private-partnership to run the medical isotope operation. A plan for how to do this is expected early this Fall.
Opponents of the restructuring argue that selling assets in a down market is a mistake. This is true but not relevant for nuclear today. The global market for nuclear power is experiencing tremendous growth. The World Nuclear Association projects world-wide demands of 100 or more new units with dozens of projects over the next 20 years. The nuclear market is on an upswing and now is the best time to sell.
Opponents also argue that AECL should never be sold as it is a ‘crown jewel’ whose jobs must be protected at all costs. They suggest this can only be accomplished with the federal government owning all of AECL and sinking untold more billions of dollars into it. They couldn’t be more wrong.
In fact, not selling AECL risks Canadian jobs. Of the 100 projected new units, only three are CANDU units, all from one Romanian project which was contracted back in 1977. There hasn’t been a CANDU sale for 13 years and none are on the horizon. The last CANDU sale was in 1996 to China when, then Prime Minister Chretien provided $1.6 billion from the Canada Account to fund the project.
The CANDU technology was once top notch. Now it is old news. Chalk River has been shut down and the project to build a new kind of reactor to replace it to produce medical isotopes – the Maple project – was scrapped. It was so far over budget and so far behind schedule that it had virtually no prospect of getting to market. As a result on the Chalk River mess, MDS Nordion has filed a $1.6 billion lawsuit against AECL for defaulting on its contract to provide medical isotopes. The lawsuit is a large taxpayer liability.
Divesting the reactor sales and development business would provide Canadian expertise greater access to the growing global market, greater international expertise and new capital from which AECL is increasingly shut out.
The Canadian nuclear industry once was and still could be strong, in part, because it spans the nuclear fuel cycle; including uranium mining, electricity production, nuclear research and development, the application of nuclear technology in the medical field, and the management of nuclear fuel-waste. The federal government has funded this for over 50 years with decreasing success. The exact funding figure is unclear but substantial. Restructuring AECL also may protect Canadian taxpayers from the continued dumping of very large sums of cash into a company on the decline.
George Lermer, then Dean of the Faculty of Management at the University of Lethbridge, reported in 1996, that between 1947 and 1994, the federal government had invested $19 billion (in 2001 dollars as calculated later by Energy Probe) in AECL and its CANDU program, over and above any offsetting gain to the federal government or federal taxpayers. Dean Lermer concluded that “The CANDU project should have been declared a commercial failure and wound up at least two decades ago.” And the cash keeps flowing. Since 2006-07 AECL has received $1.7 billion more.
AECL has had a shoddy record when it comes to meeting budgets for building its reactors. According to the Pembina Institute, 7 projects to build 22 reactors at Pickering A and B, Bruce A and B, Gentility 2, Point LePreau, and Darlington all came in two to three times over budget. To be fair, nuclear projects are often over budget. However, restructuring can reduce the risks to taxpayers.
AECL has benefited from more taxpayer money than any other corporate welfare recipient; even more than GM, Chrysler, Pratt and Whitney and Bombardier combined. With Ontario expected later this year to announce the winner of its $26 plus billion in nuclear projects, taxpayers and Canadian nuclear workers alike would be best served by the government’s planned AECL restructuring.