The two enormous nuclear energy projects agreed to in principle in Poland over the past two weeks for up to ten full size nuclear reactors are being overshadowed this week by the national security implications of a lawsuit filed by Westinghouse (WEC) against South Korea’s bid team KHNP.
The situation has evolved since the legal action by WEC was filed in Federal District Court two weeks ago. The twists and turns that have emerged this week have begun to look like a complex corn maze and may be as difficult to navigate if the two parties cannot resolve their differences.
The issue is a claim by Westinghouse that the KHNP’s APR1400 PWR contains engineering design information and technology which were previously licensed from WEC and cannot be used in the South Korean bid for Poland’s nuclear reactor fleet without paying licensing fees. The precedent is that KHNP/KEPCO did exactly that (licensing the WEC IP) to a reported tune of $20M for permission to use it to sell and build four APR400s to the United Arab Emirates (UAE) for a cool $20 billion.
The national security issue for the US is that WEC wants to block KHNP’s bid for the Polish reactors, for the Czech tender for Dukovany, and, most significantly, for its bid for two new reactors in response to a tender from Saudi Arabia.
If South Korea is blocked by the WEC lawsuit from selling its reactors to Saudi Arabia, it is possible that country might turn to Russia or more likely China for commercial nuclear power. Neither choice is in the national security interests of the US.
The Bloomberg wire service reported a stark challenge to KHNP by WEC.
“Korea Hydro’s bid faces hurdles after Westinghouse sued the company two weeks ago to prevent “unauthorized” sharing of nuclear technology with other countries including Saudi Arabia and the Czech Republic”
“I think that we have to let the litigation play out,” said David Durham, president of energy systems at Westinghouse, who doesn’t see the Korean bid as a threat. “If we win as we expect, then I do not see them building these reactors either in Poland or in the Czech Republic or Saudi Arabia.”
Here’s the Problem
If WEC prevails in federal court on the intellectual property issue, and knocks KHNP out of the ring, the Saudi Government, which is believed to favor South Korea based on its success in building four reactors in the United Arab Emirates, has said previously it will turn to China for its reactors. Th original tender for the Saudi reactors even specified the power rating of the South Korean reactor at 1400 MW.
The Saudi government can, when it wants to, be very direct about its interests. As far back as early 2019 Saudi Arabia made it clear it said it would seriously consider the Chinese Hualong one, which is a 1000 MW PWR, if it can’t get western or South Korean reactors.
China has built one Hualong One for Pakistan, a close ally of Saudi Arabia, and is nearing completion of a second unit. It is easy enough for the Saudi energy ministry to take a trip to Karachi to kick the tires of the Chinese nuclear reactor to see if they like it. China is building the two reactors as part of its global Belt & Road program, but there has always been the thought that it chose reactors for Pakistan due to that country’s close relations with Saudi Arabia.
Plainly, it is not in the interests of the US to have China involved in the energy security of Saudi Arabia for the next 60-80 years which is why WEC’s efforts to interfere via litigation with the South Korean bid to Saudi Arabia and elsewhere are a big concern.
While WEC has a legal right to protect and be compensated for the use of its intellectual property, the outcome it seeks has some important consequences that go way beyond that objective.
As things stand now Westinghouse has no chance of winning the business in Saudi Arabia because of the lack of a 123 Agreement with the US and no prospects of there being one soon enough to matter. However, WEC may not have considered what happens to Saudi Arabia’s plans for nuclear power if WEC prevails in the US courts in its lawsuit against KHNP.
If the Saudis are denied their obvious first choice, based on South Korea’s experience in the UAE, they could turn to either Russia, a recent “partner” in managing global oil markets, or more likely China for their nuclear reactors Either outcome is bad for the US.
Plus, President Biden went to South Korea last May and signed a bilateral agreement to cooperate on nuclear energy exports. Letting the Westinghouse suit go forward to trial is not the kind “cooperation” the South Koreans were thinking of at the time. Behind the scenes the South Koreans are probably making their displeasure known through diplomatic channels. Is anyone in the White House listening?
It would seem to a disinterested observer that the US government has an opportunity to mediate the dispute and not let the issue fester or worse. The blind spot Westinghouse has in pursuing its interests is that the lawsuit is bad for the government, bad for US cooperation with South Korea, and bad for giving either Russia or China a potential 60-80 year run of having significant influence over the energy security of the world’s major oil producer. So far there no news media reports that the Biden administration sees the problem or has taken any steps to address it.
KHNP Says the WEC Claim Lacks a Basis in Fact
Westinghouse is seeking to force KHNP to comply with US laws restricting nuclear power technology sharing. Under these rules – Part 810 requirements (10CFR810) – the US Department of Energy has statutory responsibility for authorizing the transfer of unclassified nuclear technology and assistance to foreign atomic energy activities within the USA or abroad.
KHNP denied that WEC has any legitimate claims. In a statement to the UK-based nuclear trade press magazine ‘Nuclear Engineering Week’ on 10/27, KHNP said,
“After launching its own nuclear program, Korea gradually built up technology, carrying out research and development projects with long-term plans for over 30 years. Thanks to this process, it gained competence in the design, production and construction of nuclear power plants in order to finally develop her own, independent technology.”
KHNP said in its planned exports of Korean nuclear power plants to Poland, “it will use its own nuclear technology developed by Korean companies, to which we have full intellectual property rights. Korean nuclear technology is independent of Westinghouse technology and can be exported without restrictions and without the consent of the US.”
A Short List of You Can’t Get There from Here Factors
Even if WEC were to prevail in court, the victory might not yield the results it seeks.
- The Saudis didn’t ask WEC to bid on the tender. The firm can’t show up uninvited.
- The Saudis released the tender last June. It is now October. WEC cannot make up for lost time relative to the Saudi timetable which they have indicated is to rack and stack all bids starting in December and to make a decision on a winner by the end of 2023.
- Things have changed for the worse in terms of US/Saudi relations. It may be that any thoughts by the US government to cut WEC slack to”help it out with the Saudi tender, via a “waiver” of some kind of the 123 rules is probably not in the cards at least for now.
Mohammed bin Salman Al Saud, Crown Prince of Saudi Arabia, also known as “MBS,” could simply blow off any litigation in the US on the grounds a federal court has no jurisdiction over his actions. He could then select KHNP to build its reactors. If that happens, from a realist perspective, the US government might breathe a sigh of relief that it isn’t China. The Czech government might take the same approach if it so chooses.
MBS has shown with his so-called “deal” on oil production with Russia that he doesn’t do alliances. He makes decisions on a transactional basis in terms of what is good for his country’s interests.
WEC also has a problem it that it has plans to source major long lead time components for the Poland reactors from South Korean heavy industry firms. In the current environment of it lobbing hot legal potatoes at South Korea, it could run into responses that are not in its best interests with this part of its supply chain. It is another reason for the two parties to seek mediation, and a solution, and not allow the case to go to trial.
The Road Ahead Has a Few Potholes
The timing of the Polish decision to award the first three reactors to WEC followed in very close proximity time wise to Brookfield shifting its equity in Westinghouse off its books and on to that of a wholly owned subsidiary plus bringing Canadian uranium miner Cameco into the deal with promises of uranium sales. That doesn’t look from here like its is a coincidence. However, the giant private equity firm does not have infinite deep pockets.
The Bloomberg wire service reported on 11/7 “Poland wants US partner in its first nuclear power plant to have a bigger stake than it offered, Rp.pl reports, citing unidentified person close to the government. According to Rp.pl, Westinghouse offered to take 10% stake in the company building the plant, while Poland would like that share to increase to 49%”
These kinds of contractual negotiations are common, but the leap from 10% to a 49% equity stake may not be what WEC’s owners have in mind to make a deal.
Poland had some internal issues to resolve. Some of the main issues are obvious without the government ever saying a word officially about them. First and foremost, where will it get the money for its 50% share of the cost of the Westinghouse reactors? Polish officials were noncommittal about this topic in response to media questions when the WEC deal was announced.
Just calculate any price in $1000/Kw times the electrical ratings of the three AP1000s and four APR1400s Poland has signed MOU’s for, and what you get is more money than Walt Disney’s Uncle Scrooge McDuck ever had in his treasury.
Does the Polish government have the money, the sustained political will, and the management capability to undertake the effort, to control it, and to avoid becoming captive to the vendors which raises the risks of schedule delays and cost overruns. It’s not been made public how much financial support the US is offering Poland for the WEC reactors, but one thing is sure. It won’t be a nearly 100% free financial ride like the one Russia is giving Egypt.
On the KHNP side, its bid to Poland offered a much higher level of equity investment to build its reactors than Westinghouse did for theirs. It sweetened with an offer to sell high tech military gear to Poland which it wants given Russia’s ongoing invasion of Ukraine. These kind of side deals for major infrastructure and energy tenders are also not uncommon.
Saudi Arabia has Larger Nuclear Ambitions
Saudi officials have told the US that it reserves the right to enrich uranium and to reprocess spent nuclear fuel. Both actions are nonproliferation issues that the US avoided with the United Arab Emirates (UAE). That country used the WEC technology KHNP licensed to build four reactors there. The UAE has a 123 agreement, and has committed itself to the provisions of the agreement which ban uranium enrichment and spent fuel reprocessing.
Also, Saudi Arabia has extensive domestic uranium deposits and contracted with China in August 2020 to build a hard rock uranium mill to process the ore into yellowcake, which is the first step in making nuclear fuel or the bomb making cycle or both.
Lurking in the background is the question of whether Saudi Arabia is pursuing these actions as part of a long term deterrent effort relative to Iran’s nuclear program. Current negotiations with Iran to reinstate the nuclear deal are on hold due to extensive unrest in Iran over its domestic policies.
If China is selected to sell its reactors to Saudi Arabia, it is one more way that country will have influence over the world’s largest oil producer. Note that China is Saudi Arabia’s biggest customer and depends on that supply of fossil fuel to keep it enormous economy energized.
South Korea Inches Toward a Solution
The South Koreans are publicly annoyed over the WEC lawsuit. In a policy paper released in Seoul, and reported by the news media there, the government said that the lawsuit will add complications to the ongoing trade dispute caused by the USA Congress passing Inflation Reduction Act and calling for the exclusion of Korean-made electric vehicles from tax incentives.
In May, Korean President Yoon Suk-yeol and US President Joe Biden had agreed to strengthen cooperation to jointly advance into overseas nuclear reactor markets. However, “the “nuclear reactor alliance is facing hurdles due to Westinghouse’s self-centered trade policy.”
The Korea Times cited an unnamed industry official who said, “Money trumps alliances. Maintaining amicable diplomatic relations is important, but not as much as financial interests in make-or-break business opportunities that can generate stable sources of income for at least a few years.”
The South Korean news media also reported that the government said it was interested in “minimizing the dispute with the US.”
KEPCO and KHNP said in a joint statement that they will continue efforts to remove any complications in the exports of the country’s nuclear power plants.
“We are aware of the lawsuit. We will outline strategies to respond to the developments in a timely and appropriately manner.”
The people who passed the European taxonomy labeling nuclear energy as “green” probably didn’t anticipate how hard it might be to get to “yes.”
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