South Korea's global nuclear ambitions

Recent successes by South Korean firms in securing massive contracts to  build nuclear reactors in some Middle Eastern countries signal the emergence of South Korea as a major force in the nuclear energy business and an intensification of competition with established firms from the US, EU and Japan in emerging markets.

David Adam Stott

'We had been building nuclear power stations for 30 years but had failed in repeated attempts to break into international markets.' - South Korean President Lee Myung-bak in a January 2010 radio address

DECEMBER 2009 was a historic month for the South Korean nuclear industry. In winning two bidding competitions to design and construct nuclear power plants in the Middle East, it dramatically signalled its arrival as an international force in the sector. The opening announcement concerned Jordan's first nuclear research reactor whilst the second, and most important, was a massive contract to build at least four nuclear power plants in the United Arab Emirates (UAE). The South Korean team was one of nine original bidders and beat off competition from France and an American-Japanese consortium from the final shortlist of three. As the USA, France and Japan account for almost half of the world's total nuclear reactors, this was an impressive achievement, especially since it will be the first nuclear power plant that Korea has exported.

The initial deal with the UAE to construct the reactors is worth around $20 billion to Korea Electric Power Corporation (KEPCO) and its partners, whilst Seoul estimates that Korean firms will reap a further harvest of $20 billion over the 60-year lifespan of the reactors by way of maintenance, servicing and fuel supply contracts. With a total value estimated at around $40 billion, this was the largest contract awarded in the Gulf last year, and the biggest single contract that South Korean firms have ever secured overseas. Indeed, aside from military hardware, it is likely also the biggest contract ever signed in the Gulf region. Moreover, both sides view the landmark contract as a stepping stone to a much deeper economic relationship in which both countries pour greater foreign investment into the other. Indeed, Abu Dhabi has recently endowed South Korean firms with numerous large contracts to upgrade its petrochemical infrastructure.

Data from the International Atomic Energy Agency (IAEA) indicates that 436 nuclear reactors are presently operating in some 30 countries. However, with more than half of these 436 reactors due for retirement by 2030, countries which export nuclear infrastructure will likely be competing for a bounty of new contracts in the next decade. Indeed, worldwide another 53 nuclear reactors are currently under construction and a further 136 are in the planning stages. Emerging markets in the Middle East are keen to introduce nuclear power into their energy portfolios, and South Korean consortia have been at the forefront of Arab moves to diversify both their economies and energy portfolios by adopting nuclear power.

Given the increasing concerns over global warming and peak oil theory, nuclear power has been championed as a clean and sustainable alternative for producing electricity. Nuclear power does indeed emit comparatively low levels of carbon dioxide, and can generate a large amount of electricity from a single plant. Nevertheless, the drawbacks are many. Notably, nuclear waste is so hazardous that it has to be carefully managed for several thousand years. The environmental consequences of accidents or attacks can be catastrophic, as seen from the Chernobyl disaster of 1986, and it is a relatively easy step to move from peaceful power generation to weapons development. Moreover, nuclear energy is itself derived from uranium, a finite resource albeit one which the IAEA expects to last for at least 80 more years even without new discoveries in technologies or deposits.

Korea's nuclear energy

South Korea seems set to become a major force in the global nuclear energy business, exporting technology and expertise around the world. With few fossil fuel resources, like Japan, South Korea has sought to harness nuclear energy as a means to secure the country's rapid economic development. Over the last three decades, South Korea has averaged an 8.6% annual GDP growth, with a corresponding leap in electricity consumption. In 1980 the country consumed some 33 billion kilowatt hours (kWh), which had risen by 2006 to around 371 billion kWh. Today 20 reactors account for 28.5% of South Korea's total capacity but actually provide 36% of the country's electricity. A further 12 plants are in the construction or planning phases, which will further increase the nuclear share in the country's electricity consumption, which is projected to reach 59% of electricity supply by 2030. All of South Korea's nuclear power plants are operated by Korea Hydro & Nuclear Power Co Ltd (KHNP), a subsidiary of state utility KEPCO.

The genesis of the South Korean nuclear industry can be traced to 1957 when the country became a member of the IAEA and immediately implemented a nuclear research programme. The country's first nuclear reactor, a small research unit, achieved criticality in 1962. Thereafter, its first commercial power plants were developed by foreign contractors, with Kori 1 being the first to supply electricity from April 1978. This was followed by a further eight reactors being constructed in the 1980s. Kori 1 and Kori 2, the first two commercial nuclear power stations, were built under contract by an American consortium, whilst Wolsong 1, the third plant, was bought from Atomic Energy of Canada (AECL). The next six, Kori 3 & 4, Yonggwang 1 & 2, Ulchin 1 & 2, again featured foreign-designed reactors but with a much greater involvement in the construction from local firms, particularly Hyundai. By the end of the 1980s, Korea had six nuclear power plants conceived by American firm Combustion Engineering (now part of Westinghouse Electric), two from France's Framatome (now AREVA Nuclear Power) and one from AECL.

As in Japan, which imported its first turnkey plants from the UK in the 1960s, the indigenisation of the Korean nuclear power industry quickly gathered pace, and strove for greater self-sufficiency by standardising nuclear power plant design. To this end, in 1987 Korea began a 10-year reactor technology licence agreement with Combustion Engineering, a collaboration which yielded the Korean Standard Nuclear Plant (KSNP). This agreement was subsequently extended in 1997, and since 1995 all nuclear plants in South Korea have been built almost exclusively with local technology.

The KSNP is now an internationally recognised design, and has progressed to KSNP+, which was re-branded in 2005 as OPR-1000 (Optimised Power Reactor) for export to emerging Asian markets. In South Korea eight OPR-1000 units are now in operation, whilst a further four are under construction and should be supplying electricity between 2010 and 2012. The KSNP+ project features numerous design improvements for enhanced safety and lower construction costs, and their advanced design, low operating costs and enviable safety record have positioned Korea at the forefront of the global nuclear power industry.

The next evolutionary stage in Korean nuclear technology is represented by the Advanced Pressurised Reactor-1400 (APR-1400), on which work began in 1992 and whose basic design was finalised in 1999. With a 60-year shelf life, it is anticipated that costs will be 10-20% under those incurred by OPR-1000 units, due to design advancements and enhanced construction techniques. It is these OPR-1000 and APR-1400 units that KEPCO has been marketing in the Middle East and North Africa.

Given its progress in developing the KSNP, in 2007 KHNP opted not to renew its technology transfer scheme with Westinghouse. Instead, the two firms agreed that either could market technology which they have developed together and implicitly not compete against each other for overseas contracts using APR-1400 units. Whilst Westinghouse still retains the patents for a few necessary technologies in the APR-1400 from its acquisition of Combustion Engineering, South Korea aims to become fully self-sufficient in this sector by 2012. Indeed, it is reported that Korean companies have already become proficient in the design and manufacture of all APR-1400 components. Whilst KEPCO has also offered APR-1400s in other territories such as Poland and Belarus, it is thought that Westinghouse is unlikely to let it compete in lucrative markets such as the US and China unless KEPCO purchases in full the design's intellectual property. Therefore, the cooperation agreement also specifies that KHNP is to develop its own components to replace those in the APR-1400 which require licensing from Westinghouse. This would enable Korean firms to meet the Ministry of Education, Science & Technology's target for the country to develop its nuclear industry into one of the world's top five by 2011, and allow it to compete even more forcefully in the global market.

A major step towards accomplishing this aim was made when the UAE selected the APR-1400 as the standard for its nascent nuclear power programme, with the first four reactors scheduled to be on line by 2020, and a further 10 envisaged thereafter. Whilst there are no APR-1400 plants presently in operation, the first two units currently under construction in South Korea, Shin-Kori 3 and 4, are slated to be finished in 2013-14 and will act as a reference point for the UAE plants. The chief designer of these APR-1400 units is Korea Power Engineering Company (KOPEC) with Doosan as the lead manufacturer. Whilst Shin-Kori 3 and 4 are expected to take 51 months to be completed, construction of the UAE plants is scheduled to take 48 months.

Other nuclear markets

The UAE deal has given rise to an outpouring of confidence in South Korea and ambitious government targets after years of trying to kickstart nuclear exports. Seoul is hoping that the deal will showcase its nuclear power industry throughout the world, especially in developing markets where KEPCO's units should be cost-attractive. This would be crucial to diversifying South Korea's economy, particularly in heavy industry, which seeks to move away from declining sectors. In the short term, Kim Young-hak, Vice Minister of Knowledge Economy, has said that South Korea is aiming to sign deals to build a further six reactors overseas by 2012, in addition to the four UAE reactors. In the longer term, the Ministry has set a goal of exporting 80 nuclear reactors by 2030. It estimates that these would be worth around $400 billion, making South Korea the third largest nuclear exporter with a 20% share of the global market. The Ministry sees nuclear power as integral to its approach as Korean firms offer increasingly customised export strategies to suit individual countries.

Consequently, KEPCO is targeting new markets in India, Indonesia, Vietnam, Thailand, Malaysia, South Africa, Turkey, and elsewhere in the Middle East to meet this goal. In doing so, it will face strong competition from the USA, France and Russia, however. Indeed, a KEPCO director has admitted that at present there are no other specific export deals on the table. 'There are not many deals open to international bidding. But the UAE contract will help us win more deals as we now have a track record and some international recognition. Nuclear deals are often big national projects worth billions of dollars. So, strong national power and effective diplomacy are needed.' KOPEC is also aiming to expand its reactor business and has targeted the European market in particular.

To consolidate their reactor exports, South Korean firms also have ambitions to provide services for the operation, maintenance and repair of reactors, in particular to overhaul and extend the shelf life of heavy water reactors. This market is worth an estimated $78 billion per annum worldwide, and in order to compete Vice Minister Kim has stated that South Korea will train 2,800 new nuclear experts by 2011.

The most recent nuclear energy cooperation deal signed was with Turkey on 15 March 2010. KEPCO and the Turkish state power company Elektrik Uretim AS inked a joint feasibility study into deploying the APR-1400 in Sinop, a city near the Black Sea. If this collaboration bears fruit, a full nuclear cooperation agreement between Ankara and Seoul will be signed to facilitate reactor development. Whilst no formal bidding process has been mentioned as yet, KEPCO seems to be in a strong position and a decision might even be forthcoming by the end of 2010. However, Turkish Energy Minister Taner Yildiz has stated that Ankara is still open to alternative proposals from other foreign firms if any offer more attractive terms for the proposed Sinop plant. Moreover, whilst KEPCO estimates the scheme's preliminary stages will take up to two years to complete, the Turkish authorities are keen to shorten this timeframe. This is because Turkey is looking to establish three nuclear power plants, and previously signed a similar deal with Russia's Rosatom for a nuclear power plant at Akkuyu on the Mediterranean coast. The Turkish government is aiming to have nuclear reactors operating in two regions by 2023, and thus wants the Akkuyu and Sinop projects to carry on simultaneously. Ankara has stressed that the South Koreans will have to take onboard a local partner if any reactor project emerges.

KEPCO and its subsidiary KHNP have in place a similar agreement with the Indonesian state electricity firm PT Perusahaan Listrik Negara (PLN) to undertake a feasibility study for the archipelago's first nuclear power plant. Moreover, in July 2007 KEPCO and KHNP also signed a memorandum of understanding with private sector energy firm PT Medco Energi Internasional to conduct another feasibility study into building two power plants for around $3 billion. Rather than the APR-1400, it is thought that any scheme with Indonesia would more likely involve the older OPR-1000 design. Korea Atomic Energy Research Institute (KAERI) has also designed an economical dual-use nuclear power plant with a daily production capacity of 40,000 m3 desalinated water and 90 MWe of electricity. The first of these was envisaged for Madura Island, close to Indonesia's second largest city of Surabaya. It was originally forecast that this plant would be operational by 2015 but this now appears doubtful.

The Indonesian central government previously approved in principle the construction of four 1,000 MWe units on the Muria peninsula on the north coast of Central Java. Whilst a commissioning date was provisionally set for 2016, the central government National Power Master Plan (RUKN) for 2008-2025 notably makes no mention of a nuclear power plant, despite the 2007 RUKN doing so. This climb-down by President Susilo Bambang Yudhoyono is related to opposition since September 2007 by the local branch of Nahdlatul Ulama, Indonesia's largest Islamic organisation, to the Muria peninsula nuclear scheme. This was followed by a large protest in Central Java against the proposed power plant in April 2009 when the President was on the campaign trail seeking re-election. Indeed, during the 2009 election campaign, no candidate spoke in favour of Jakarta's nuclear plans.

Elsewhere in the region, Malaysia, Thailand and Vietnam have each informed the IAEA of their interest in harnessing nuclear power, and Korean firms will be among the favourites to construct and operate any such plants that materialise in the Association of Southeast Asian Nations (ASEAN). In February 2009, the Deputy Secretary General of ASEAN stated that most of its member countries were open to the idea of developing nuclear energy in future.

Whilst KEPCO's plans in Indonesia are in jeopardy, in August 2009 it signed an agreement in Mumbai to conduct a joint study with Nuclear Power Company of India (NPCIL) to assess the 'licensability and constructability' of APR-1400 reactors in India. Since the de facto nuclear trade embargo against India was abandoned in 2008, there have been a string of suitors looking to sell nuclear reactors to such a potentially huge market. Seoul is now competing with Russia, France and the US to export power plants to India. Other memoranda exchanged at the Mumbai meeting between NPCIL and KEPCO covered a wide range of nuclear services and India is reportedly interested in establishing up to 50 nuclear power plants. However, no commercial deals can be sealed until both governments sign a bilateral nuclear cooperation agreement.

Potentially the most lucrative market in the Asia-Pacific for South Korean nuclear contractors is the People's Republic of China (PRC), which is looking to construct more than 100 nuclear power plants in the coming decades. Nuclear energy is especially attractive for China given that most of its industry is located in fast-growth central and southern coastal areas very far from its main coal reserves concentrated in the north and northwest. Transporting coal causes huge logistical problems, and consumes almost half of China's rail capacity, whereas nuclear power plants can usually be constructed relatively near to high-demand areas.

After securing the UAE deal KEPCO stated it was now focused on winning new reactor deals in Turkey, Jordan and China. Back in July 2004 KEPCO announced it was planning to establish four nuclear power plants in China, but progress since then has been scant. KEPCO has, however, since established a stronger reputation in China as the largest foreign wind power generator in the country. Interestingly, Seoul's Ministry of Knowledge Economy has recently gone on record as saying that it is now considering tying up with other global players to penetrate major markets such as China and the US. In all likelihood this would mean Westinghouse and its parent company Toshiba, given their longstanding business ties.

So far, KHNP has only secured contracts to sell nuclear components and support facilities to both China and the US. However, with China having ambitious plans for at least a 600% increase in nuclear energy capacity by 2020, South Korean firms will be keen to join the French, Russian, Canadian and American reactor manufacturers already active in China in commissioning some very advanced reactor designs.

Despite a wealth of new projects in the pipeline, KEPCO's president and CEO, Kim Ssang-su, has hinted at the difficulties of opening up new nuclear markets. 'Countries like Turkey and India have preconditions like the extent of technology transfer, mandatory use of local parts and components, and financing issues that need to be resolved.' Similar conditions prevail in China, too. Kim also revealed that Seoul has to engage both New Delhi and Beijing in substantial bilateral negotiations before any commercial breakthroughs can be made. Moreover, many prospective customers require outside financing to pay for their nuclear reactors, and some countries have been offering their mineral resources in partial exchange for KEPCO reactors.

Conclusion

The UAE power plant deal is the biggest single contract that South Korean firms have ever secured overseas. Seoul claims that the deal makes South Korea the world's sixth largest exporter of nuclear reactors by contract value, and it hopes to launch itself into the top three in the next 20 years with new demand from emerging markets where its price-competitive units are expected to be particularly attractive. It will face strong competition from the USA, France and Russia. Nevertheless, in a very competitive bidding process for the UAE's nuclear power plants, KEPCO was able to outshine the French and US-Japanese consortia both financially and technically. Jordan is also looking to embrace nuclear energy, and a KEPCO consortium is one of five bidders being considered to construct and operate its first nuclear power plant. Given Seoul's recent success in negotiating the UAE deal, and that another South Korean consortium has already signed a contract to build Jordan's first nuclear research reactor, the KEPCO bid must be considered among the favourites.

Indeed, with more than half of the world's inventory of 436 nuclear reactors scheduled for retirement by 2030, South Korean companies will likely be competing for a bounty of new contracts in the next decade, especially as China and India are keen to establish around 150 new nuclear power plants between them. In fact, KEPCO has been trying to enter the Chinese nuclear reactor market without success since at least 2004, and now recognises that a different approach is necessary. This will likely involve Seoul massaging its diplomatic relations with Beijing whilst KEPCO collaborates with more established nuclear reactor exporters such as Westinghouse which already has a presence in the Chinese market. This approach seemingly reflects Seoul's realisation that the key to success in the reactor export market is the ability to offer increasingly customised nuclear energy packages to suit individual countries. Developing economies are likewise keen to introduce nuclear power into their energy portfolios, especially since reactors do not emit greenhouse gases and help reduce dependence on fossil fuels. With demand for nuclear technology likely to grow rapidly, along with the role that high-level lobbying plays in such deals, governments in nuclear power exporters will have to be increasingly proactive in their nuclear diplomacy, as both Seoul and Paris were with regard to the UAE deal.

If South Korean nuclear contractors can replicate their domestic success overseas, South Korea stands to become one of the world's pre-eminent reactor exporters. At present, its domestic build times are some of the fastest in the world but the country's nuclear power industry is unproven on foreign soil. Even though its engineers have forged a convincing technical reputation, project management has been something of an Achilles' heel, which KEPCO is attempting to address by bringing in foreign engineering consultancies. Nevertheless, South Korean firms have certainly made great strides in the last decade as previously oil and gas developers were reluctant to award them large contracts due to a perceived lack of experience. Since then South Korean firms have established a solid reputation overseas for successfully completing major projects on time and within budget.

Moreover, China's relentless rise is likely focusing attention in the Middle East and beyond towards East Asia as a whole. Whether this will indeed become a genuine 'Look East' economic policy is not yet clear, however. Nonetheless, the UAE-South Korea nuclear deal does indicate that this is a distinct possibility and seems to be already providing new opportunities for South Korean firms. For instance, since the bidding was opened for the UAE's nuclear plants South Korean firms have secured numerous other big-ticket contracts in the Emirates. Given that it is still heavily dependent on oil and gas supplies from Abu Dhabi, Seoul is therefore hoping that nuclear cooperation with the UAE, and potentially other Gulf states, will also have a positive spill-over effect into stable and secure oil supplies.

The above is extracted from an article which first appeared in The Asia-Pacific Journal <www.japanfocus.org>. David Adam Stott is an associate professor at the University of Kitakyushu, Japan and an Asia-Pacific Journal associate. His work centres on the political economy of conflict in Southeast Asia, Japan's relations with the region, and natural resource issues in the Asia-Pacific. From April 2010 he is on research leave at the University of Adelaide.

*Third World Resurgence No. 235, March 2010, pp 25-29