Abu Dhabi's South Korean Nuclear Award is Potential Emerging Markets Trendsetter

Everyone Likes an Underdog

The Emirates Nuclear Energy Corporation (ENEC)'s award of a US$20.4-billion contract for four 1,400-MW reactors to a consortium led by Korea Electric Power Co. (KEPCO) has unseated bids from the leading nuclear technology exporters from Europe, United States, and Japan. The consortium—which also includes South Korea's Samsung, Hyundai, and Doosan Heavy Industries, as well as Japan's Toshiba through its U.S. nuclear technology subsidiary Westinghouse—will also be the operator of the project, with the option to double the contract's value through the addition of further reactors and the extension —up to 60 years—of the operational contract term. Abu Dhabi's relatively rapid journey from floating its plans to launch a civil nuclear programme and build nuclear power plants (NPPs) a few years ago to the announcement of more detailed plans of a tender in late 2008 have seen this tender overtake other slower-moving NPP programmes in the Middle East such as those of Egypt and Algeria. Initially, however, it was seen as a contest between the most modern and advanced technologies on the market. A French consortium—consisting of EDF, GDF-Suez, Total, AREVA, Vinci, and Alstom—became the frontrunner almost immediately on account of its advanced European Pressurised Reactor (EPR) technology, despite being significantly more expensive than the other alternatives. EDF, the operator of France's 58 NPPs, only joined the consortium as a leader about halfway through, however, at some cost to the bid's credibility, according to many analysts. The third serious contestant was a consortium between the United States' GE and Japan's Hitachi.

The KEPCO consortium's technology has been under development since the 1978 construction of the country's first commercial reactor, though this was largely based on U.S. designs. The large expansion of nuclear power generation capacity in the country since then has nevertheless given the companies in the consortium a chance to develop their technologies, resulting in a strong domestic nuclear industry that has developed modern reactors of its own design—–the first of which came into service in 1995. South Korea today operates 20 nuclear reactors, with six more under construction and plans for another 12 by 2030 in the natural energy resources-starved nation. The South Korean design is as yet untested, but is more of an enhancement to the most advanced reactors in operation in the country, in contrast to the 1,650-MW French EPR solution, which is under construction in both France and Finland but represents a completely new design.

The four reactors are expected to come online between 2017 and 2020 and will be built under a fixed-cost contract—a measure Abu Dhabi is likely to have put in place to insure itself against the cost overruns that are becoming the norm within the industry and are indeed reaching new records, especially in the case of the Finnish EPR construction.

The Wider Relevance

The United Arab Emirates has a good chance of claiming the title as the wealthiest state among those looking to develop or expand a civil nuclear power capacity, making its choice of the South Korean option a telling one on many levels. The perceived tendency among Gulf States to choose the most expensive solution and most modern technology underlines the implications of the choice even further.

The South Korean alternative is cheaper partly because its designs are less safe against outside threats than the French and U.S./Japanese alternatives. The EPR, for example, has been pointedly designed to withstand even a large aircraft crashing straight into the reactor building. The obvious implication of the Abu Dhabi choice—and an interpretation many have made since—is that such safety concerns were deemed too excessive and not cost-efficient by the ENEC and the U.A.E. leadership. This is likely to be representative of many other countries, especially emerging markets, where the economic calculation is paramount given far smaller financial reserves to call upon than in the United Arab Emirates and its main emirate Abu Dhabi, and a more pragmatic view on nuclear safety. The South Korean solution has an excellent track record for operational safety, which for most countries outside of Japan, Europe, and the United States will be satisfying enough, as safety fears over nuclear power are less of an emotive public issue. Most emerging markets have a significantly weaker culture of public safety consciousness, and the popular input and debate surrounding large projects or technologies—where fears and anti-campaigns could spread—is often less developed, whether due to restrictions on civil society gatherings and conversations or just a general lack of fora to discuss such issues. They may consider that the economic drawbacks of exceeding a certain level of nuclear safety might outweigh the perceived benefits.

The Threat from Below—and Politics

While strong on economy, the South Korean alternative is also likely to stand up to the commercial threat from the traditional dominant power of the nuclear market's lower end, Russia. Russia's nuclear exporter Rosatom has recently teamed up with Germany's Siemens, in an effort by the German firm to make sure that it was not entirely shut out of the emerging global nuclear revival despite its home country's negativity towards nuclear energy over several decades. Still, Russia's safety track record is marred by historic incidents such as the 1986 meltdown disaster at Chernobyl in what is now Ukraine. While a significant number of old Soviet-bloc and Non-Aligned Movement (NAM) nations—for instance, Egypt and Algeria—retain nuclear research reactors built with Soviet and Russian technology, even with Siemens' participation Rosatom might find it hard to shed doubts over the safety and quality of its technical solutions. Moreover, economic hardship during much of the 1990s means that it might have fallen behind other players in its upgrade and research work. Indeed, its construction of the first Middle Eastern nuclear plant, Iran's Bushehr, is not a particularly attractive advertisement these days, despite the massive delays quite obviously being caused by political reasons.

In addition, the U.A.E. choice might pave the way for politics to be seen as less of an influence on choice of technology, something that has hitherto rendered the nuclear market quite similar to the international advanced arms market. This is likely to be counteracted by increased diplomatic lobbying from Western states, but given the costs involved, it would be expedient for most emerging markets to do away with the political connection in this regard.

Outlook and Implications

South Korea's KEPCO-led consortium has burst onto the narrow global nuclear technology market, securing a project that has the potential of being one of the best showcases for its technology going forward among all international projects in emerging markets currently being mooted. Its cost-efficiency will also be highly attractive to those other countries that may have far less funding means than the United Arab Emirates, and less popular pressure for the massive security measures incorporated in the latest U.S., European, and Japanese reactor designs.

At the same time the Koreans have a brilliant operational track record, placing them above the Russian offering, which despite improvements remains tainted by its historical association to safety deficiencies and the world's largest nuclear disaster. With the number of emerging-market countries looking to nuclear as a solution to meet growing power demand, the South Koreans might have placed themselves in a strategic niche, just below the latest-generation Western offerings in technology and price, but above the rest with regard to cost and quality.

Related Articles

• South Korea: 29 December 2009: South Korean Consortium Awarded US$20.4-bil. Nuclear Contract in Abu Dhabi
• United Arab Emirates: 11 December 2009: French Nuclear Consortia's Position Slips in Abu Dhabi Power Plant Bidding
• France: 30 November 2009: French Companies Have High Hopes for US$40-bil. Nuclear Deal in Abu Dhabi
• United Arab Emirates: 16 November 2009: Three-Horse Race Emerges as Bidding Heats Up for Nuclear Plant in Abu Dhabi
• United Arab Emirates: 15 September 2009: Abu Dhabi Delays US$41-bil. Nuclear Award for Further Evaluation