Kane Pomperroknuclearexportsfinal052013map

7/30/2019 Kane Pomperroknuclearexportsfinal052013map

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Chen Kane and Miles PomperJames Martin Center for Nonproliferation Studies

May 21, 2013Korean Economic Institute

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South Korea hopes to become a major exporterof nuclear plants

It has a proven success in building its domestic

nuclear industry If South Korea draws the right lessons from its

UAE experience it could record similar successin the future

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Domestic: 23 operating reactors 5 nuclear units are currently

under construction 4 more units are planned to

be completed between 2018and 2021

International: UAE: $20.4 billion contract to

build 4 nuclear power plants

Jordan: Constructing Jordansfirst research reactor ($130million )

Providing training programsto nuclear newcomer states(Egypt, Kenya, Mongolia,Indonesia etc.)

Source: Walter KIM, KINS, Nov. 2012

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Consortium led by KEPCO selected by UAE to build fourAPR-1400s in Barakah in 2009 Other companies in the consortium: KHNP, KOPEC E&C,

KNF, KPS, Doosan, Westinghouse, Hyundai and Samsung The consortium will design and build the four units, supply

the initial fuel loads, and provide the UAE with technicalsupport, training, and education

The first plant is scheduled to become operational in 2017 andthe three subsequent reactors completed by 2020

Source: Kepco, Investor Presentation, Feb. 2012 4


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KAERI and Daewoo signed$130 million agreement with

Jordan for its first researchreactor 3.5 years worth of fuel provided

by ROK.

ROK to provide $70 million softloan for additional fuel andstudy

ROK plans to train Jordaniannuclear engineers andtechnicians at JUST

Expected to be online and

operational by 2015.

Source: Khalifeh AbuSaleem, January 29, 2013

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Political factors

Technical factors

Business model

Financial factors

Cultural factors

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ROK leader in reactorreliability KEPCO renowned for having

highest capacity factor

Lowest unplannedshutdown

ROKs ability to initiate andcomplete projects quickly Reduces construction and

financing costs

Shortens time until electricitywould be available

Source: Nagatomi, Matsu and Murakami,IEEJ, July 2010,

Comparison of average outage time andthe operational cycle periods

(1990-2008)

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Experienced the consortium has worked togetherfor years on the domestic Korean nuclear powerprogram

Adaptable ROK was willing to adapt certainlegal aspects of their bids to UAE preferences

Construction and operation risks where all borneby KEPCO Puts responsibility on one organization, reduces the

litigation risks in case of delays or performance problemsand increases the incentives for the contractor to meet theproject delivery objectives

Commitment to extensive training, humanresources development and education

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The South Korea bid was significantly lowerthan the other bids

Financing package offered by ROK:

Fixed price 23-year deal

Low interest rates of 1.75-2.6, with full governmentguarantees on project risks

Includes investments, direct loans, and external debtguarantees, preferred loans for domestic suppliers

60 year contract for equipment replacement

and potential equity interest 10


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UAE choose ROK because:

Distinct competitive advantage in terms of low cost,high credibility, and high performance

Active political support from government andpresident

Attractive financing

US technology provided at a low cost and with close

cooperation (tied UAE to US-key security benefactor)

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MKE set a goal in 2010 to capture 20% of the worldmarket in the next 2 decades (80 reactors/ fourunits per year/$400 billion).

Scaled back following Fukushima, global financialcrisis, shortages of qualified personnel.

More realistic expectation: ten nuclear plants by 2030

ROK has signed nuclear cooperation agreements

with 27 states

Hopes to secure additional contracts (India,Vietnam, Poland, Saudi Arabia, South Africa,China and the United States)

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Finance

US reliance

Safety

Personnel

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Reactor price, financing, ROK profit margin ROK not expected to be as generous with

future customers UAE financial offering -the golden case that will not

happen again

Potential customers will seek to receive same deal

Suppliers like Russia, China driving prices

down (e.g. Russia and potentially France/Japan in Turkey) BOO model would be riskier

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ROKs links to the United States bothpolitically and commercially

ROK vulnerable to disruption in relations withUS

Bilateral civil nuclear agreement extension buys time but some issues remain: Politically: U.S. government still likely to have a

strong say over ROK nuclear power plant exports Technically: There are technologies that South Korea

has not mastered/ technologies that are patented byU.S. companies.

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Legally:

APR-1400 is based on a Westinghouse design meansU.S. approval is required for re-export under sections123 and 131 of the Atomic Energy Act

Westinghouse would likely need to seek Part 810Authorization before it and its employees can conductnuclear-related business abroad

Re-export of major U.S.-origin nuclear reactor

components may requires the ratification of a nuclearcooperation agreement between the U.S. and theimporting country

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In nuclear agreement talks, ROK wants US advancedconsent for reprocessing (pyroprocessing); US doesntwant to grant permission

How much effect on exports?

Pyroprocessing:--supply service to manage othercountries spent fuel? Political opposition is likely to be even higher to accepting

foreign spent fuel for reprocessing

Enrichment (reap both direct profits from selling

enrichment services and perceived additional profitsfrom offering a full-service) Difficult to compete with established enrichment suppliers

Existing suppliers have not expressed a willingness to transfertechnologies to the ROK

Front end/Enrichment market is a much smaller and complexmarket than nuclear reactor market 18


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ME particularly attractive market for ROK

Experience and prominence in running andoperating mega projects in the region

ROK experience to adapt APR-1400 to specificsecurity and geographic characteristics, training,quality assurance, and grid upgrade support

UAE deal led to more contracts, long-term profit:

Follow-on contracts being discussed

Hints that ROK would be supplier of future reactors

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Long-term nuclear cooperation agreement with US Pyroprocessing and enrichment less important than finding a

win-win solution with US to boost ROK exports

Strengthening competitive advantages Nuclear energy for desalination, training

Invest in construction of additional centrifuge capacity atexisting enrichment plants or equity

Consider SMR and KAERIs SMART reactors for export tosmall countries

Concentrate on countries that can afford nuclearenergy, especially ME in exchange for greater fossilenergy security

Quick and decisive action regarding safety

Cutting profit margins can be compensated in futuredeals and other realms bigger picture 21

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Kane Pomperroknuclearexportsfinal052013map