Nuclear Sales and Service

Everything old is new again. The global nuclear industry, which suffered a prolonged slump in the wake of the Chernobyl and Three Mile Island incidents, is once more on the move.

Nearly 30 nuclear plants are under construction worldwide with perhaps another 70 contemplated as countries respond to rising prices for oil and natural gas and a demand from the public to do something about emissions that are seen to be causing climate change.

China is planning to build 30 to 40 reactors over the next 15 years. Ontario, which learned some bitter lessons about the nuclear industry in the 1990s, is set to build at least two new reactors. Even oil-rich Alberta is musing about building reactors as an alternative to the natural gas used in its oil sands operation.

The heavyweights in the energy industry are forming partnerships to give themselves a better chance of claiming the billions of dollars that will be spent. Areva, which bills itself as the world’s top nuclear-energy player (it has constructed 100 nuclear plants in eleven countries and is building a new reactor in Finland) is a Franco-German company. It is competing with General Electric-Hitachi, Toshiba-Westinghouse and several consortia.

And then there’s Atomic Energy of Canada Ltd., creator of the Candu nuclear reactor. It is Canada’s only nuclear energy company and has been a source of pride—and concern—since it was formed as a Crown corporation in 1952.

It is a bit player on the global scene but it retains the ambitions of its early days. The company received a black eye in Ontario in the late 1990s when Ontario Hydro was forced to suspend operations at seven Candu plants because of poor performance. And the company was tarnished in 1998 when India and Pakistan, which had received enormous amounts of Canadian assistance, exploded nuclear bombs.

Despite this experience, the global nuclear building boom is quickening pulses at AECL’s headquarters in Mississauga, where there has not been much good news since China bought two of its Candu reactors in 1996.

Duane Bratt’s new book, The Politics of Candu Exports, offers a timely look at AECL’s international experience and uses this to cast a look forward at the company’s future. Bratt examines every Candu sale since 1956 (as well as some notable unsuccessful sales pitches) and reveals the delicate interplay of politics and economics that is intrinsic to AECL’s operation. He gives us the analytical tools that we will need to assess the company’s activities in the next decade or so.

The Politics of Candu Exports is not, perhaps, a book for the general reader. But its subject matter is crucial to those Canadians who pay taxes and expect the lights to come on when they flick a switch.

Canada was in at the beginning of the effort to harness the energy of the atom. A research laboratory established in Montreal in 1942 was, for a time, an integral part of the development of an atomic bomb. The United States eventually assumed practical control of the Manhattan Project, but Canada was given the job of building a heavy water reactor to produce plutonium for atomic bombs. A research reactor in Chalk River, Ontario, opened in September 1945. This was a month after the first atomic bombs fell in Japan, but the facility and a full-scale reactor that followed two years later served notice that Canada was capable of becoming a nuclear nation.

The Canadian government decided, however, to turn its back on the military uses of nuclear power and to concentrate instead on peaceful applications. The creation of a new Crown corporation, AECL, in 1952 was a signal step in this regard.

A decade later, a prototype of the Candu reactor went into commercial operation near Chalk River. It employed a completely different technology from that being developed in the U.S.—one that used so-called heavy water and natural uranium rather than enriched uranium and light water. Each technology has its advantages and disadvantages, but Canada was not wealthy enough to dabble in both systems. Ottawa policy makers worried that if AECL opted for the U.S. technology, it risked becoming a branch plant nuclear producer. Candu gave Canada a distinctive technology—for better or worse.

AECL executives also realized early on that, given the limited size of the domestic market, they had little choice but to pursue foreign markets. The marketing program seemed bright: Canada had some of the most substantial deposits of uranium, thus ensuring reliable fuel supplies for customers. It was hoped that this, combined with a workable technology, would make the country a major player in providing energy from nuclear power.

The sales effort began in 1956. Cracking the developed countries, such as the U.S. and France and Britain, was impossible since each of them was trying to develop its own technology and did not want any unneeded competition. Similarly, the poorest countries in the world were not great energy consumers and had neither the need for the abundance of electricity that nuclear reactors promised nor the industrial infrastructure to support a nuclear program.

That left the so-called advanced developing countries such as Venezuela, Greece, Mexico and Egypt. Not all the countries AECL sought as customers were established democracies, and there were nagging concerns from the start that Canada could be accused of supporting the ambition of establishing a nuclear weapons program by less-than-savoury countries.

This concern about the proliferation of nuclear weapons was one of the elements arrayed against the economic benefits of selling abroad. Canada had also to be wary of dealing with regimes that violated human rights and of the impact Candu technology could have on the environment through the production of nuclear waste and the possibility of an accident that would contaminate the atmosphere.

It must have seemed a godsend, therefore, when AECL concluded its first export deal, in 1956, with India. Not only was it the world’s largest democracy, but it was also a member of the Commonwealth, and the two countries enjoyed warm relations. The $9.5 million CIRUS research reactor was, in fact, a gift under an aid program in place at the time. Helping India was seen as instrumental in fighting communism, but it is clear, in retrospect, that Ottawa overlooked some troubling signals about India’s intentions with that first sale. The safeguards against proliferation were minimal, with India simply pledging that the reactor would be employed for peaceful purposes only.

Bratt contends that Canada’s economic and political arguments outweighed any qualms about the spread of nuclear technology. “The economic imperative of establishing markets for nuclear exports, when combined with Canada’s political interests in fighting communism and promoting economic development, easily overwhelmed any fears that recipient countries would develop nuclear weapons,” he writes.

India bought its first power reactor, the 100-megawatt RAPP 1 facility, in 1963. The safeguards were tougher for this facility and a subsequent 200-megawatt one sold in 1966, but, as history showed, not tough enough. The warning the year before by British and U.S. intelligence services that India wanted to use Canadian technology to develop nuclear weapons proved correct. The 1965 sale, through an intermediary, of a 137-megawatt unit to Pakistan was further evidence of Ottawa’s ability to whistle past the graveyard. Pakistan was politically unstable, was locked in a protracted dispute with India, and had ambitions to become a nuclear power.

In 1974, India exploded a nuclear device despite its government’s position that its nuclear program was intended only for peaceful purposes. The blast was a challenge to AECL and Canada because Indian scientists used plutonium that had been diverted from that 1956 research reactor. The age of innocence, if there ever had been one, was truly over.

Voters back home were unhappy because they believed that Canada had played a key role in getting India to the point where it could test a nuclear device. As Bratt details it, there was much validity to this belief.

First, India was able to harvest its plutonium because the CIRUS reactor was not governed by any nuclear safeguards and second, there had been enormous technical transfers and assistance to India’s nuclear program in the 1950s and 1960s.

The horses may have left the barn but Canada moved to sternly close the doors. From 1974 to 1976, the government introduced a series of changes that strengthened its nonproliferation policy. As the author says, this was a “high-water mark for Canada’s concern with nuclear proliferation.”

For years after, despite a bit of wavering, the government’s nonproliferation policy remained paramount to commercial considerations. A potential sale to Argentina (under the rule of a military junta) was lost on this point although critics of the AECL initiative were also quick to point out Argentina’s lamentable human rights record. (In the end, the Latin American country opted for a German reactor.)

By 1990, the lessons of India were somewhat forgotten and economic concerns again became dominant. Environmental and human rights considerations took a back seat, as did the incessant criticism that Candu purchases would not have happened without massive government subsidies to the buyer.

Reactor sales to China and South Korea—two countries with a history of human rights abuse—were justified on the theory that doing business with a country was preferable to isolating it.

Which brings us, more or less, to the present. AECL has not made a sale in a decade. It is not clear where the next foreign sale will come from. The energy needs of China, the owner of two Candu reactors built on time and on budget, are expanding dramatically. China wants to quadruple its nuclear capacity by 2020, but AECL faces an uphill battle to persuade it to buy Candu. The sale of four advanced-design reactors by Westinghouse late last year indicated that China is turning away from Candu to the alternative pressurized-water reactor technology.

AECL remains a bit player in the global nuclear industry. It has sold a scant 14 reactors internationally. Its customers—China, India, Pakistan, South Korea, Romania and Argentina—are a suspect lot. Contrast this against Areva’s 100 plants in 11 countries.

AECL carries on with a technology that, although proven, is not catching on abroad. The only source of optimism in the bleak outlook it faces comes in Ontario, where the government has recommitted itself to rebuilding its nuclear fleet.

But, even here, commercial success is not assured. The province’s public power company, Ontario Power Generation, says it is comfortable with Candu technology, but Dalton McGuinty’s government says it wants to explore non-Candu alternatives.

A rejection by Ontario of Candu would be a disaster for AECL. How could it ever hope to market abroad if the premier domestic generation turned its back on the technology? It could carry on as an enterprise that repaired and refurbished existing reactors, but while that is a considerable amount of business, it is a long way down in the glamour index.

This prospect undoubtedly accounts for the spasm of boosterism that afflicted natural resources minister Gary Lunn late last year. He volunteered to a reporter that the Canadian government was not “technologically neutral” about Ontario’s impending purchase of at least two new reactors.

His enthusiasm for Candu is understandable on a couple of levels. For a start, Canadian taxpayers have invested heavily in AECL and would, if they thought about it, likely demand some return on their investment.

(There is no agreement on the public subsidy, however. AECL admits to an investment of $6 billion in its nuclear program since 1952 and argues that this has generated more than $160 billion in benefits such as power production, uranium exports, and research and development. Energy Probe, a private lobby group, calculates that AECL has wallowed in $20.9 billion in subsidies in the past five decades. Bratt wisely stays out of the debate, arguing that the Energy Probe numbers do not reflect the contribution of the pure science that AECL scientists have undertaken.)

Just as significant as the history of the subsidy is its future. Ottawa is said to be mulling over some form of privatization of AECL or perhaps simply finding it a partner among the global nuclear heavyweights. Whichever it is, the government needs a sale to Ontario to maximize the Crown agency’s value. A decision by the McGuinty government to embrace an alternative technology would send its worth plummeting.

Stephen Harper’s government is not the first to face the prospect of AECL’s partial or complete demise. Indeed, one of the magic potions the company has had is that every government has shuddered at the prospect of a collapse of Canada’s nuclear program on its watch. This is particularly true of Conservative administrations since John Diefenbaker killed the Avro Arrow aircraft program in 1959. No Tory leader wants to be associated with the death of another high-profile industry based on sophisticated technology.

So, whither AECL? Bratt argues that economic arguments favouring Candu exports have become weaker. Fewer people, he argues, accept the economic benefits of Candu exports as realization grows about just how heavily subsidized many of the sales have been.

On the domestic front, the experience of Ontario in facing cost overruns in construction of new reactors and massive spending in refurbishing old ones has led many to question the technology’s value.

Bratt detects, however, that the pro-nuclear lobby is on to something with its arguments that nuclear power is a “clean” source of energy. Never mind the barrels of nuclear waste that cover the equivalent of four hockey rinks; environmentalists are starting to warm to the notion that this is not nearly as bad as the emissions from coal or natural gas generation plants.

“If the nuclear industry can convince the media and the public to compare its environmental record to fossil-fuel–based industries, it is possible that a reconsideration of nuclear power could take place,” he writes.

It would be a remarkable turn of events if this were to happen. It might even rescue AECL and its cherished but underappreciated Candu offspring from the oblivion with which it is flirting.