Exporting Disaster

~ The Cost of Selling CANDU Reactors ~

Chapter 2

China, Indonesia, Romania, Korea, Turkey

written by David Martin
of Nuclear Awareness Project
for the Campaign for Nuclear Phaseout

November 1996

For a copy of the complete report ($10 + shipping) write
Campaign for Nuclear Phaseout
1 Nicholas Street   Suite 412
Ottawa Ontario
K1N 7B7 Canada

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2. CANDU Marketing

2.1. China

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2.1.1. The CANDU Deal

On November 8, 1994, Atomic Energy of Canada Ltd. (AECL) signed a Memorandum of Understanding (MOU) with the China National Nuclear Corporation (CNNC) to begin negotiations on the sale of two CANDU-6 (i.e. 700 MW) reactors. At that time, AECL stated that the deal might take one year to 18 months to complete. A new round of negotiations had begun between AECL and CNNC in the spring of 1993. [11] In the past, nuclear deals between AECL and China have been on-again, off-again. In the spring of 1980, an eight-person delegation from AECL visited China, after interest had been expressed in possibly purchasing two CANDU-6 reactors. Serious Chinese consideration of nuclear power was a shift in policy since the Chinese had apparently had sober second thoughts about nuclear power in the wake of the 1979 Three Mile Island accident. [12] In 1980, an AECL official stated, "The odds now are high we will get a chance to participate in the [Chinese nuclear] program." [13] However, by February 1981 the CANDU deal was off, as the Chinese shifted again, this time to a policy of developing their own reactor system.[14]

The MOU was signed shortly after Chinese Premier Li Peng and Canadian Prime Minister Jean Chrétien had signed a Nuclear Cooperation Agreement (a bilateral agreement on nuclear weapons proliferation) in November 1994. The site being considered for the reactors is at the Qinshan facility (site of an existing 300 MW reactor), on the coast at Hangzhou Bay in Zhejiang Province, 126 km south-west of Shanghai.

About one year later, on October 13, 1995, a second phase of the CANDU deal with China was signed in Ottawa during the controversial and much-protested visit Premier Li Peng (AKA the "Butcher of Beijing"). Documents were signed by Li Peng and Prime Minister Jean Chrétien , as well as AECL President Reid Morden, and his counterpart in the China National Nuclear Corporation (CNNC), Jiang Xinxiong. AECL and the Canadian government have not made clear the exact nature of this second-phase agreement, but Morden stated that "we are now essentially ready to complete work on a commercial contract". [15]

In February 1996, AECL President Reid Morden stated that "the Chinese terms are onerous" and that price and financing "are the key issues and we have not crossed these hurdles yet". Morden went on to say,

"The Canadian government alone has committed $1.5 billion in financing for this Qinshan project, and AECL had obtained commitments for additional financing from external partners, (but) the Chinese still require more to make this viable according to their terms." [16]

Although current negotiations were only being conducted for purchase of two reactors, Morden claimed that the Chinese were considering the purchase of two additional CANDUs.

However the Chinese have clearly driven a hard bargain. On February 17, 1996, in a desperate attempt to save the deal, AECL Vice President for Commercial Relations Garry Kugler (AECL's top representative in China) asked Canadian CANDU subcontractors to cut their bids by a further 15%. [17] In early March, AECL President Reid Morden called the ten-person negotiating team back from Beijing to Ottawa. Nuclear industry insiders speculated that AECL was willing to sell the CANDUs at cost in order to secure the contract. [18] It is widely suspected that due to tough negotiation on the part of the Chinese, the Daya Bay plant made little or no profit for the French manufacturer Framatome.

By April 1996, it was reported that AECL and the Chinese were still wildly apart on the price for two CANDUs ~ reportedly $1.8 billion. An anonymous nuclear industry representative was quoted as saying "Atomic Energy of Canada Ltd. wants $4.2 billion, and the Chinese are offering no more than $2.4 billion". [19] The Liberal government of Jean Chrétien pulled out all the stops to save the CANDU deal. Long-time Liberal politico and nuclear power supporter Roy Maclaren visited Beijing on April 29th to flog the CANDU. Maclaren was formerly a Liberal Minister of International Trade, and is now serving as a special advisor to Prime Minister Jean Chrétien . On May 21, 1996, Anne McLellan, Canadian Minister of Natural Resources, was in Beijing meeting with top level Communist Party officials. McLellan stated, "This is very important to the Prime Minister". [20] Lending her support to the CANDU marketing effort, Dr. Agnes Bishop, President of the Atomic Energy Control Board (Canada's nuclear regulatory agency) signed an information exchange protocol with the director general of China's National Nuclear Safety Administration in June 1996. [21]

On July 12, 1996, a "Project Award Agreement" was signed by President Jiang Xinxiong of CNNC, and Reid Morden, President of AECL. According to AECL, the agreement

finalizes the price and commercial terms for Qinshan Phase III CANDU nuclear power project as well as the fees, the financing scope and conditions from the Export Development Corporation and other export credit agencies. [22]

Despite this rather deceptive statement, the PAA did not pin down the financing arrangements. Also part of the deal are HITACHI Ltd. (of Japan), and Bechtel Power Corporation, who will provide engineering and equipment for the conventional parts of the nuclear station. The Itochu Corporation is also involved. In addition it has been reported that AECL has given a letter of intent to Korea Heavy Industries and Construction Company (Hanjung) for big-ticket heavy components such as steam generators, pressurizers, heat exchangers, and feed header assemblies ~ reportedly worth more than $120 million. [23] As Korea's first major nuclear export order, inclusion of the Korean company may have been an added enticement for AECL's current attempt to sell more reactors to Korea, and/or it may have been a way of attracting Korean financing for the deal. Hanjung is a subsidiary of the Korea Electric Power Company (KEPCO).

The signing of the July 12 agreement was apparently prompted by an impending change in the Consensus rate of the Organization for Economic Cooperation and Development (OECD) ~ a change which increased the internationally agreed minimum interest rate for loans for nuclear power plants. An industry insider stated,

A few months ago EDC and other potential finance sources locked in the interest rate that was then on the table until July 12, and told AECL that if they did not have a deal by that date then the interest rate being offered to the Chinese would change to whatever the current rate is. [24]

In August 1996, Allen Kilpatrick, AECL Vice-President for Marketing, stated,

"We expect to finalize on details on October 12 and to sign a firm contract on November 12. Subject to government approval, we hope to put a shovel in the ground in China in January for two CANDU-6 reactors. With these first two units, we have a real good shot at another two or three." [25]

It has been reported that "if negotiations continue well, the parties hope to sign the final contract next January. The two units would then come on stream in December 2002 and September 2003." [26]

It is unclear whether the Chinese will purchase heavy water or fabricated fuel bundles for the reactors (the Chinese have their own fuel fabrication and heavy water production capability). Of the total cost, it has been speculated that about one third would remain in China for construction and the possible manufacture of some plant components. In 1995 AECL suggested that Canadian companies might receive up to $2.7 billion worth of business. [27] However, this amount was dramatically exaggerated, since the reported $1.5 billion of Canadian financing undoubtedly represents the extent of Canadian content in the deal (it could actually be less). The amount of money coming to AECL would of course be much lower. AECL President Reid Morden has suggested that gross revenue coming to AECL would be "close to the lower end" of $200 to $800 million over several years. [28] Presumably most of this amount would be paid out to private sector consultants. The amount of money actually received by AECL in the Chinese deal would come nowhere close to compensating for the total Canadian taxpayer subsidy to AECL of $14 billion. [29]

From the start of negotiations, it is clear that China has demanded concessions from AECL. It was admitted that the AECL/CNNC agreement "...almost did not take place because of last-minute concessions demanded by the Chinese government". [30] AECL has refused to disclose the concessions that have already been promised on price and financing, however the Canadian government proposes to finance about one-third of the deal ($1.5 billion) through its Export Development Corporation (EDC). This would be one of the largest loans ever handled by the EDC.

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Natural Resources Minister Anne McLellan has stated that financing for the sale of reactors to China would be through the Export Development Corporation (EDC) "at a non-concessional interest rate as set under the International Consensus Agreement by the Organization for Economic Cooperation and Development." [31]

With regards to the claim that Canadian financing is on a "commercial" basis, it must be also be emphasized that while the EDC would administer the loan to China, the funds will actually come from the Government of Canada. Like other export credit agencies, the EDC has a risk limit for China, which is obviously exceeded by a mega-project such as AECL's two-reactor CANDU sale. When this occurs, special deals must be cut by channelling loans through the EDC's "Canada Account", as opposed to the "Corporate Account", which is carried on the EDC's own books.

The EDC's "Canada Account" loans are carried on the books of the Department of Foreign Affairs and International Trade. The government would have to make the loan for two reasons: it would be far too large a loan for the EDC to handle, and longer-term sovereign loans to Third World countries are too risky for the private sector financial community. Since Mexico defaulted on loans in 1980, the private sector has been very wary of this type of business. In other words, the taxpayers of Canada will be forced to accept the risk of a multi-billion dollar loan that the private sector would not even consider. As a crown corporation, the Export Development Corporation's mandate is to promote Canadian export trade and foreign investment. Although the EDC operates on a financially self-sustaining basis according to commercial principles, it does borrow money at the low fixed rates of the Canadian government, and therefore can lend less expensively and for longer periods than commercial banks, and at fixed rates.

. . . back to [ Table of Contents ~ China ] OECD Consensus Rules ~ Will they be observed?

Natural Resources Minister Anne McLellan has stated that the China deal will be under the OECD Consensus Rules. AECL Vice-President Allen Kilpatrick has suggested that the EDC loan of $1.5 billion to the CNNC will be financed at the OECD consensus rate of 7.5%. [32] The OECD consensus rules also stipulate that the maximum term length for the loan is 15 years. The OECD consensus on minimum rates is intended to promote fair competition. However, it should be noted the consensus rate is non-binding, and is easily breached ~ typically by so-called credit mixte of aid and loans. The credit mixte approach has been used extensively by the French, and it is widely suspected that Framatome's Daya Bay plant was financed in this way. Since the French are AECL's primary competitors, it is reasonable to demand full disclosure on the financing arrangements for the CANDU deal. Such information has not been forthcoming. The overall cost of the two reactor deal may be $3.5 to $4 billion. [33] While it has been suggested that $1.5 billion of the financing will come from EDC, it has not been revealed where the other two thirds of the financing will come from.

There is strong reason to believe that the CANDU deal will not be conducted on the basis of the OECD Consensus rules. One of AECL's subcontractors in the CANDU deal is Hanjung (Korea Heavy Industries and Construction ~ a subsidiary of KEPCO). HANJUNG is also a subcontractor in the Qinshan Phase II deal in which CNNC is building two 600 MW PWRs using technology transferred from the French reactor vendor Framatome. In October 1996, the Banque Nationale de Paris revealed that Korea (which is not a member of the OECD) has violated the OECD consensus agreement by agreeing to finance 100% of capitalized interest for the station, rather than 15% as stipulated by the agreement. Faced with this decision by the South Koreans, France and the other financing parties simply violated the agreement as well. [34] Financing of local costs and capitalized interest can be a tremendous incentive to the China, which is starved for capital, and is then able direct its scarce capital elsewhere in the short term. However, depending on construction time, the potential cost to the financing parties is huge.

It has also been disclosed that French financing for the Daya Bay plant included 30% financing of capitalized interest -- a doubling of the OECD consensus rate. [35]

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AECL has confirmed that the Canadian loan to China would have neither political risk insurance, nor an Enhanced CoFinancing (ECO) guarantee (essentially a guarantee of the guarantee). [36] Political risk insurance is provided by most export development agencies, including the EDC. The Multilateral Investment Guarantee Agency (MIGA) of the World Bank, formed in 1988, is another popular source for political risk insurance. Political risk insurance typically covers areas such as currency transfer/foreign exchange; expropriation; breach of contract; and war/civil disturbance. Insurance for these contingencies would seem to be prudent in the case of Canada's proposed $1.5 billion nuclear investment in China.

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It is virtually certain that AECL has agreed to some degree of technology transfer in order to promote a sale, or agreed to a greater amount if a subsequent deal for more reactors is negotiated. Typically, there would be less technology transfer in an initial reactor sale, with a correspondingly greater benefit to the vendor. AECL has already proven itself willing to part with CANDU design information for modest fees. CANDU technology transfer (unlike the transfer of other reactor designs, which are controlled by large, integrated private sector corporations such as GE, Westinghouse or Siemens) is in the hands of a number of private sector component manufacturers as well as AECL. As a general rule, these suppliers have sought the sale of at least two CANDU units before licences for manufacturing technology are granted. [37]

South Korea is the only country that has actually bought more than one CANDU reactor [38], and with a buyers' market in effect for so long, Korea was able to negotiate increasingly greater technology transfer for the second, third and fourth reactors. Only Wolsong-1 was a turnkey project. For example, the last two reactor sales to South Korea created only $250 million each worth of business for Canadian-based companies. AECL hopes that amount will be quadrupled for the sale of two reactors to China. However, AECL is under tremendous financial and political pressure at home to come up with sales, and there is intense competition for the Chinese reactor market. China is therefore in a very good position to demand generous terms for a loan, and to obtain technology transfer as part of the deal for the first two reactors. With AECL's seven-year funding agreement due to expire in 1997, both it and nuclear power supporters in the federal government are undoubtedly prepared to make large sacrifices in order to obtain the public relations victory of another reactor sale.

The question of CANDU technology transfer raises another issue in AECL's dealings ~ the Chinese are notorious for their disregard of copyright and licensing agreements. The Canadian nuclear industry has already been the victim of Chinese nuclear espionage. In the early 1980's Chinese nuclear establishment approached AECL to expressing interest in the purchase of a Slowpoke reactor. AECL obligingly provided them with detailed information on the reactor. Chinese scientists had already worked at the Slowpoke reactor at the University of Toronto, so it should have been no surprise when University of Toronto Professor Robert Jervis discovered on a trip to China in 1985, that the Chinese had stolen and exactly duplicated the Slowpoke reactor. [39] Adding insult to injury, it has been reported that the Chinese have succeeded in selling their Slowpoke knock-off to Ghana, Pakistan, Syria, and Nigeria, while AECL has succeeded only in selling one Slowpoke (to Jamaica). [40] The International Atomic Energy Agency lists China with 3 "MNSR" reactors (their Slowpoke knock- offs), and outside of Canada shows one Slowpoke/MNSR reactor in each of Ghana, Iran, Jamaica, and Pakistan [41]

(there are six Slowpoke reactors in Canada).

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Another question about the CANDU deal with China is whether AECL will be providing performance guarantees of any kind. As in the case of proposed "BOOT" (build-own-operate-transfer) deals with Turkey and Indonesia, will AECL have to guarantee a 75% capacity factor on the reactors its sells? For how long will AECL guarantee station components, and what liability will subcontractors share? In multi-billion dollar nuclear mega- projects, such considerations can involve hundreds of millions, even billions of dollars.

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From the public interest point of view, disclosure is really the bottom line. If AECL's CANDU deal with China really is a straight commercial agreement, the Government of Canada should be willing to disclose its terms. The agreement is after all being made by a publicly owned crown corporation, with funding and backing provided by the Government of Canada. Under the OECD Consensus Agreement, parties are required notify all other participants ten days before a final decision, and provide the following information.

This information will be disclosed to AECL's partners and subcontractors in Canada, Japan and South Korea, as well as the governments of Japan and South Korea who will probably supply financing for the deal through their export credit agencies. The same information should be disclosed to the Canadian public, who have been the involuntary investors in the CANDU reactor.

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Canadians must whether our foreign policy may also be falling victim to the CANDU sales campaign. Is Canada supporting China in international fora, in order to In May 1996, Art Eggleton, Canadian Minister for International Trade praised China's tariff reductions in April supported China's "early accession" to the World Trade Organization. He also noted that Canada was "will continue to work closely with China" in APEC (the Asia Pacific Economic Co-operation forum). [43]

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2.1.2. The Chinese Nuclear Industry

As part of a move to increase domestic nuclear capability, the China National Nuclear Corporation (CNNC) was established in 1986. The CNNC (with whom AECL has signed its Memorandum of Understanding for the sale of two reactors) has responsibility for both civilian and military nuclear activities at all levels of the nuclear fuel chain. It has over 200 subsidiaries and about 300,000 employees, including a significant research and development capability.

Two nuclear power facilities have been constructed in China: a 300 MWe PWR at Qinshan (Zhijiang Province); and two 900 MWe PWRs at Daya Bay in Guangdong Province (known as Daya Bay plant or Guangdong-1). The Qinshan plant, owned by China National Nuclear Corporation (CNNC), began operation in 1991. Its components were 70% Chinese in origin, and 30% imported. It has since been shut down for extensive modifications. Daya Bay, on the coast 52 km northeast of Hong Kong, was a joint Anglo-French venture between GEC and Framatome, made possible because of a deal to sell electricity to nearby Hong Kong. An earlier commercial partnership between GEC and CNNC had collapsed when the US refused to allow CNNC to use the Westinghouse PWR licence because of Chinese aid for the Pakistani nuclear weapons program. The first unit was connected to the grid in 1993, and the second in 1994. Daya Bay is 75% owned by CNNC, and 25% by China Light & Power (a Hong Kong utility). Although Framatome has denied losing money on the sale of the Daya Bay reactors, it is widely assumed that at best, profit was negligible. [44] The station has already run into some serious technical difficulties, when control rods at Daya Bay-1 failed to drop in the required time. Framatome's first repair attempt, which involved complete replacement of the rods, only worsened the problem. [45] It is recognized that due to capital shortage, the one reactor at Qinshan and two at Daya Bay are the only nuclear plants that will be in operation in China by the year 2000.

In October 1995, China signed another deal with Framatome and GEC-Alsthom for two 900 MW reactors at Lin Ao ~ a replica of the Daya Bay plant, just a few kilometres away. It is expected that the two reactors will go into operation in 2002 and 2003. [46]

China is proceeding with two 600 MW PWR reactors at Qinshan, known as Qinshan Phase II. [47] In December 1995, CNNC signed a deal with the French reactor company Framatome for "reactor internals and instrumentation". South Korea will likely provide reactor vessels, and other components will be imported. The reactors were designed "with western assistance". [48] China is also negotiating with Russia for construction of two VVER-1000 reactors ~ the Russian version of a Pressurized Water Reactor ~ at Liaoning.

China already has a complete range of nuclear fuel cycle activities to serve its military nuclear industry, including uranium mining and milling, uranium enrichment and fuel fabrication. China has already committed to a policy of reprocessing ~ i.e. a so-called 'advanced fuel cycle', which would extract plutonium from spent reactor fuel. Construction began on a 25 tonne/yr reprocessing facility at Lanzhou (in the northwest province of Gansu) in 1970. The facility is expected to be operational by 2000. Two full scale reprocessing plants are reportedly planned ~ one in Zhejiang province to service Qinshan and Guangdong (Daya Bay), and the other near China's nuclear weapons test site at Lop Nor in Xinjiang province. [49]

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2.1.3. China and the Bomb

The Chinese nuclear weapons program was established in 1955, initially with the help of the Soviet Union. Despite the Soviet withdrawal of aid in 1959, China exploded its first atomic bomb in 1964, and its first hydrogen bomb two and a half years later. At that time, China had several plutonium production reactors, a plutonium reprocessing facility and a uranium enrichment facility. China is one of the five declared nuclear weapons states under the Nuclear Non-Proliferation Treaty. From 1964 to the end of 1995, China had conducted 43 nuclear weapons tests (23 atmospheric and 20 underground), and exploded two more bombs in 1996. Despite international pressure, China continued atmospheric bomb tests until 1980 (long after the last atmospheric tests by France in 1974). [50]

In September 1992, the United States, Britain, Russia and France joined together for a moratorium on nuclear weapons testing. Immediately before the testing halt, eight tests were conducted in 1992 ~ six by the US and two by China. Originally set to expire in July, 1993, President Clinton announced at that time that he would extend the moratorium until October 1994 on the condition that no other nation conducted a test. [51] On October 5, 1993 (just 12 days after losing its bid to host the year 2000 Olympic games) China conducted an underground nuclear explosion at the Lop Nor test site in the north-western province of Xinjiang. The test was China's thirty-ninth since 1964. In June 1994, Canadian Foreign Affairs Minister André Ouellet appealed to the Chinese to halt their imminent nuclear bomb test. A week later, the Chinese exploded their 40th bomb at Lop Nor. A Canadian seismic station at Yellowknife placed the explosion at 40 kilotonnes ~ about twice the explosive force of the Hiroshima bomb. [52] The Chinese exploded their 41st bomb in October 1994, shortly before the visit of Prime Jean Chrétien to China to promote the sale of CANDU reactors. Instead of criticizing the October nuclear test, Canada's Minister for International Trade, Roy MacLaren (a long-time supporter of nuclear power) lavished praise on China. MacLaren called Canada an "old friend" to the Peoples' Republic, noting that Canada "has accorded China unconditional most-favoured-nation status for over two decades. Today [Canada is] among the most enthusiastic supporters of China's re-entry to the GATT and to membership in the new World Trade Organization." [53]

The 42nd Chinese nuclear test came on May 15, 1995, a few days after the conclusion of the extension of the Nuclear Non- Proliferation Treaty. [54] Although Foreign Affairs Minister André Ouellet had been strangely silent about the Chinese test just before the Canadian trade visit, he criticized the May test, saying, "This latest Chinese test clearly violates the positive spirit that led to the indefinite extension, supported by China, of the NPT just three days ago. Canada calls on China to cease all further testing and to adhere to the nuclear testing moratoria observed by the other nuclear weapons states." [55]

China's 43rd nuclear weapons test came on August 17, 1995. Careful to emphasize that Canada was not alone in criticizing China, André Ouellet said "China should respect the recent call for an end to nuclear testing made at the ASEAN regional forum meeting in Brunei on August 1." [56] It is not surprising that Canadian criticism was muted, and as usual carried no real force in the form of sanctions. Less than two months later, on October 13, 1995, a second phase of the CANDU deal with China was signed in Ottawa by Premier Li Peng and Prime Minister Jean Chrétien , as well as AECL President Reid Morden, and the President of the China National Nuclear Corporation (CNNC), Jiang Xinxiong.

In January 1996, Chinese Foreign Ministry spokesperson Chen Jian vowed that China would press on with its nuclear weapons tests, in defiance of the ban by Russia, US, the UK, and after six more tests in the South Pacific, France. [57] On June 8, 1996, China conducted another test at Lop Nor ~ its 44th. The test was condemned around the world, but China muted some of the criticism by stating that it would end testing after exploding one more nuclear bomb. [58]

China exploded its 45th nuclear bomb on July 29th, 1996, putting China in a tie position with Britain, which conducted its 45th test in 1991. Canadian Foreign Affairs Minister Lloyd Axworthy said, "Canada is deeply disappointed that China felt compelled to test yet again. However, we hope that what we witnessed today is the world's last nuclear test... we welcome China's announcement that is will now put in place a moratorium on nuclear testing." [59]

In 1995, Chinese testing was in defiance of what was then an effective world ban. The 25-year-old Nuclear Non-Proliferation Treaty (NPT) was under review in a controversial "Extension Conference", in New York in April 1995. The five declared nuclear weapons powers sought, and despite strong opposition, obtained an indefinite extension. China's flouting of the voluntary test-ban further eroded the credibility of the NPT. [60]

Through the United Nations Conference on Disarmament and the Test Ban Amendment Conference, attempts to transform the 1963 Partial Test Ban Treaty into a comprehensive treaty culminated in 1996. [61] Chinese weapons tests, however, were also a significant stumbling block to progress on the Comprehensive Test Ban Treaty (CTBT). Chinese testing helped to create the 'political space' for France to resume its nuclear testing in the South Pacific through into the spring of 1996. China's 45th nuclear explosion on July 29th, 1996, came just a few hours before delegates sat down to negotiate the final stage of the CTBT at the United Nations Conference on Disarmament in Geneva. Chinese negotiator Sha Zukang had the effrontery to tell delegates that they should welcome the test, because it would be China's last. [62] With CTBT negotiations in the 11th hour, China continued to block progress on the question of verification. Although a compromise was eventually worked out, China argued that a two-thirds vote should be required (rather than a simple majority) before a site inspection could be conducted to determine if an illegal test had been conducted. [63]

The Chinese claim that their nuclear bomb tests were needed to confirm the safety and reliability of its weapons, and that they needed to make these tests prior to the likely implementation of a Comprehensive Test Ban in 1996. The [64] Natural Resource Defense Council has described the likely purposes of the recent Chinese tests as "warhead miniaturization, better yield-to-weight ratios, and improved safety features". [65] There can be no question that Chinese nuclear weapons testing in 1995 and 1996 were provocative and destabilizing at a very sensitive time.

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2.1.4. China's Role in Proliferation: Nuclear Trade with Pakistan

China has recently done the basic minimum in order to facilitate its entry into the world of international "civilian" nuclear power. It joined the International Atomic Energy Agency (IAEA) in 1984, signing some voluntary safeguard measures in 1988, and it signed the Nuclear Non-Proliferation Treaty in 1992. However, in 1991 the China Nuclear Energy Industry Corporation (CNEIC ~ a subsidiary of the CNNC) sold a 300 MW PWR based on Qinshan-1 to Pakistan, and construction began in August 1993 at the Chasma (or "Chashma") site, 200 km south west of Islamabad. By 1996, China had supplied the turbine-generator; the 60 metre concrete dome had been completed; but nuclear components had not yet been supplied. Pakistan optimistically hopes to complete the plant in 1999. [66]

Chairperson of the Pakistan Atomic Energy Commission, Ishfaq Ahmad Khan, has stated that knowledge from the Chasma plan and the KANUPP reactor (sold to Pakistan by Canada), will enable Pakistan to launch an indigenous nuclear power program, although foreign assistance will be needed with "a few more nuclear power plants". [67] In late 1995, the World Bank and Overseas Economic Co-operation Fund of Japan informed Pakistan that the $300 million Chasma plant was not part of a "least cost" solution for meeting the country's electricity requirements, and recommended an alternate development approach. [68] Despite this recommendation, Pakistan has maintained funding for Chasma, estimated to cost over Rs 31 billion ~ about US $900 million. [69]

A primary issue with Chinese/Pakistan nuclear dealings is the fact that Pakistan has been actively pursuing nuclear weapons capability for many years. Pakistan is in an unofficial sub- continental nuclear arms race with India ~ another "undeclared" nuclear weapons state. Along with human rights violations, Chinese dealings with Pakistan (and other states such a Iran and North Korea) have been the cause of a US nuclear trade boycott of China. After the Tiananmen Square massacre in 1989, the US Congress passed further restrictions on nuclear trade with China. In 1992, allegations were raised that China was transferring ballistic missile technology to Pakistan. There have also been allegations that China is helping Pakistan build a plutonium production reactor at Khusab, and an associated plutonium separation facility. [70] In October 1993, the US negotiated a nuclear exports agreement with China that eased tensions when China agreed to restrict exports. [71] In order to weaken the impact of the US nuclear trade boycott, the Chinese strategy has been to establish solid nuclear trade relations with companies from other western countries ~ notably Framatome (France) and now AECL from Canada.

In January 1996, evidence collected by the US Central Intelligence Agency (CIA) was released that indicated Chinese aid for Pakistan's uranium enrichment program at Kahuta. Similar allegations had been made in the mid-1980s. China has reportedly sold 5,000 magnetic bearing assemblies to Pakistan for use in gas centrifuges used to enrich uranium for nuclear bombs. [72] The Kahuta complex was originally built using technology stolen from the Urenco corporation in the mid-1970s. This illicit trade was clearly a violation by China of the Nuclear Non-Proliferation Treaty , which allows trade of such technology only to states which have full-scope safeguards under the International Atomic Energy Agency (IAEA). China acceded to the NPT in 1992, but Pakistan is not a signatory.

However, the US nuclear industry is pressuring its government to end the boycott of China, and other US corporate interests eager to enter the Chinese market. The Clinton administration has therefore backed off from imposing trade sanctions, in exchange for a commitment from the Chinese that the nuclear sales to Pakistan would not be repeated. Congress, however, was not pleased with the President's actions, and on May 14, 1996, Congress amended the 1997 defense authorization bill saying that sanctions should have been imposed on China. [73] Despite President Clinton's vacillation, it is clear that the US boycott on nuclear trade with China will remain in place over the short to medium- term. Adding more fuel to the fire, US intelligence sources disclosed in September 1996 that Pakistan was building a medium- range missile factory in Rawalpindi using Chinese designs and equipment. [74] The factory is to build the Chinese M-11 nuclear- capable missile, with a range of about 200 miles. The missile deal is a violation of China's repeated pledges to observe the Missile Technology Control Regime ~ an agreement among about 30 countries.

China has also signed a contract with Iran for a 2X300 MW plant, and has also sold missile technology to that country. [75] In addition, China has also exported a number of "research" reactors as noted above. These foreign sales have validated and strengthened China's reputation as a renegade in the dark world of nuclear weapons proliferation.

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2.1.5. China: A Risky Business Proposition

With a largely untapped market of 1.2 billion people, China has had a magical allure for international capital. In 1995, Canada was China's 5th largest trade partner, and that level of trade is expected to increase with the Chinese takeover of Hong Kong in 1997. However, investment in China is a high-risk proposition. In 1994, the Chinese national government decided that foreigners could not have a majority ownership of power projects. [76] China has also apparently decided to limit the rate of return for foreign companies investing in power projects ~ limits ranging from 12 to 15% have been discussed. [77] Even well-known power project developers such as Gordon Wu have abandoned China for deals in Pakistan and India that are presumably safer and more lucrative. [78] This is extremely revealing, since through Hopewell Holdings, Wu pioneered power investments in China. [79]

There are a number of other danger signs ~ Chinese state enterprises have defaulted on $600 million in loans from Japanese, German and Italian banks; the China International Trust & Investment Corp. (CITIC) refused to pay a $40 million debt to the London Metal Exchange; and two other state companies are refused to pay $100 million in trading losses to Lehman Brothers Inc. [80] In a survey of Canadian businesses with an interest in China, the Conference Board of Canada found that less than half of businesses surveyed that invested in China in the last five years had made money on their investments. [81]

For several years, a serious trade disagreement has been simmering between the USA and China over the copyright protection of intellectual property rights in Chain ~ in particular Chinese pirating of western video's, music recordings and computer software. A trade war was narrowly averted in February 1995. [82] However, the reconciliation was short-lived, as a new trade disagreement was triggered when China failed to live up to a 1992 Memorandum of Understanding to lift import controls, licence requirements and quotas on a variety of products. [83] By May 1996, the US government was again threatening to place 100% tariffs on $2 billion worth of Chinese imports, such as textiles and electronics, to the US. China for its part threatened to place retaliatory tariffs on US exports to China. The US imported about $46 billion worth the US of goods from China in 1995, and exported about $12 billion to China. [84] However, on June 17 1996, the US pulled back from the brink of a trade war, when it announced that sanctions would not be placed on China, since it was taking steps towards cracking down on illegal compact disk manufacturers. [85] Given past history, it seems unlikely that we have seen the last of the "intellectual property" issue. This will remain a concern for potential investors in China, who may see their interests affected by international trade problems with the US.

Adding to the economic and political uncertainty of China's future is the impending death of national leader Deng Xiaoping. The 90 year-old Communist Party leader has been in control since 1978, and has been the architect of China's recent mix of brutal repression and market liberalization. A recent Pentagon report has given only even odds for the maintenance of stability following Deng's demise. [86]

Corruption in China remains an endemic problem. In 1995, almost 100,000 people in China were charged with corruption ~ an increase of 8% from 1994. [87] The German organization Transparency International, has ranked China as the second-most corrupt country, behind Indonesia, among the world's 41 major trading nations. [88] In December 1995, a guide book published by Canada's Foreign Affairs Department warned that Canadian business people "may receive requests for agency fees or kickbacks" in China. [89] The guidebook notes that kickbacks are illegal in China.

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2.1.6. CANDU Sales and Human Rights in China

In its summary report for 1995, Amnesty International summarized the state of human rights in China as follows:

"Hundreds of political activists and members of ethnic and religious groups were arbitrarily arrested during the year and scores were detained without charge or trial or sentenced to prison terms after unfair trials; many were prisoners of conscience. Thousands of political prisoners detained in previous years, many of them prisoners of conscience, continued to be held. Torture and ill-treatment of prisoners were widely reported. At least 3,110 death sentences and 2,190 executions were reported." [90]

On November 7, 1994, in a momentary aside during commercial discussions, Prime Minister Chrétien mentioned to Chinese Premier Li Peng that Canada wants to maintain a dialogue with China on the question of human rights and then quickly reassured the Premier that Canada would not link trade and human rights. [91] Li Peng is a former electrical engineer known to be a nuclear power supporter. He is also widely assumed to be the main planner and instigator of the Tiananmen Square Massacre in June 1989, and has been labelled the "Butcher of Beijing" for that reason. Li started his climb to the top of the Chinese communist hierarchy with an appointment as vice-minister of energy in 1979, and energy minister in 1981. He spent seven years as an engineering student in the former Soviet Union. In 1982, Li joined the Central Committee of the Communist Party and became vice-premier in 1983. He became Premier in 1988. As Vice-Premier had visited Canada previously in 1985. [92]

The Chinese simply ignored Chrétien 's feeble overture on human rights, and a spokesperson for Li Peng denied that human rights had even been raised. Nova Scotia Premier John Savage also could not remember Chrétien raising the issue.

Just one month after Prime Minister Chrétien and the provincial premiers had left China, a group of non-violent pro-democracy activists in Beijing received prison sentences of up to 20 years. The group, known as the "Beijing 15" were arrested in 1992, after they had planned to distribute leaflets on the anniversary of the Tiananmen massacre. [93] The sentences were undoubtedly timed to come after the Canadian trade delegation.

China continues to officially defend the Tiananmen Square massacre, in which several hundred people are assumed to have perished. In the opinion of Amnesty International, repression has continued since that time...

"Despite rapid economic changes in recent years, which have led to increased freedom and some relaxation of social controls, there has been no fundamental change in the government's human rights policy. Dissent in any form continues to be repressed and serious human rights violations continue." [94]

On the occasion of the sixth anniversary of the Tiananmen massacre, Canadian Secretary of State (Asia-Pacific), Raymond Chan, acknowledged that

"... the human rights situation with regard to human rights advocates in China has not improved significantly since 1989... China continues to violate international standards of human rights...."

However, Chan went on to defend trade with China as a positive force for the promotion of human rights...

"Trade is also a powerful tool. It encourages co-operation, and co-operation leads to understanding and appreciation, with which we can better manage concerns such as human rights development." [95]

One month before Chan addressed the Chinese community in Vancouver, Canadian Foreign Minister André Ouellet was more candid when he said that Canada could no longer afford to be a "boy scout" while other countries made profit by trading with dictatorial regimes. [96]

On October 12-14, 1995, Premier Li Peng of the People's Republic of China visited Canada to discuss trade and political issues. As Prime Minister Chrétien stated, "This visit builds on the momentum of last November's successful Team Canada Trade Mission to China". [97] Chinese-Canadian organizations asked provincial premiers to boycott a state dinner in Montreal with Li Peng, calling him the "Butcher of Beijing". [98] Protests greeted Li Peng across Canada, in Halifax, Montreal and Ottawa. Even Canadian Labour congress President Bob White denounced trade relations with China, saying, "Is it not shocking that as Canadian corporations sign deals with China, we have failed to confront China and demand that they respect basic human rights?" [99] Li was so incensed by the demonstrations that he complained personally to Prime Minister Chrétien and threatened to boycott a state dinner in Montral. Furthermore, Li cancelled subsequent visits to Germany and Mexico because of the protests. [100]

China's brutal disrespect for human rights continued. On November 21, 1995, Chinese democracy activist Wei Jingsheng was formally arrested and charged with attempting to overthrow the Chinese government. He had been held incommunicado by the Chinese security forces since April 1, 1994. Wei had spent all but seven months of the previous 16 years imprisoned for his beliefs. [101] On December 13, 1995, Wei was sentenced to a 14 year jail term. Ottawa did nothing but notify Beijing of "its concerns". [102] Pitman Potter, Director of Chinese legal studies at the University of British Columbia stated, "...this case shows the Chinese regime's complete contempt for human rights and the rule of law."[103] The brutal 14 year sentence for Wei Jingsheng was a blow the credibility of western countries such as Canada arguing that trade relations will give leverage to improve human rights. This policy has been referred to as "constructive engagement", and Prime Minister Chrétien has strongly rejected trade sanctions against states that violate human rights, saying that "Isolation is the worst recipe in my judgement for curing human rights problems". [104] Even Preston Manning, leader of Canada's right-wing Reform Party, supports the Liberal government's human rights approach. During a visit China in July 1996, Manning stated, "If you are going to change minds here, you have to start from their perspective". [105] Ed Broadbent, President of the International Centre for Human Rights, used the occasion of Li Peng's visit to Canada in October 1995 to denounce the federal government's policy of "constructive engagement"...

"...since China opened its door to international trade, the rights of the Chinese people have gone in reverse. The growth in trade advocated by the Chinese government has not been accompanied by a general increase in human rights." [106]

Canadian quiet diplomacy on human rights has clearly been an abject failure. In January 1995 a three man Canadian delegation went to China headed by Foreign Affairs director for human rights and justice, Ross Hynes. The delegation reportedly raised Wei Jingsheng's jail sentence; the Chinese government's imposition of its own choice for the reincarnation of the Panchen Lama in Tibet; and the alleged deaths of orphans and handicapped children in a Shanghai orphanage. [107] There was no indication that the delegation accomplished anything meaningful.

The allure of trade with China has all but silenced truly effective government-to-government pressure on China to improve human rights. In the lead-up to the meeting of the United Nation Human Rights Commission in Geneva in April 1996, Qiao Shi, President of the National People's Congress visited Canada. Protests were muted because Quiao, although a former head of China's secret police, is widely seen as an economic liberal. [108] For the sixth year in a row, China succeeded in defeating a critical resolution at the United Nations Human Rights Commission, which expressed concern about "severe restrictions on the rights of citizens to freedom of assembly, association, expression, and religion as well as to due legal process and to a fair trial". The motion was sponsored by Canada, the European Union the United States and Japan. The Chinese vote calling for "no action" on the resolution carried by a vote of 27 in favour, 20 against, and six abstentions. [109]

June 4, 1996 saw an impressive celebration in Hong Kong of the anniversary of the Tiananmen massacre, when over 20,000 gathered for a candlelight vigil. [110] In July, Amnesty International condemned the new spate of executions in China, known as the "Strike Hard" campaign initiated on April 28th. In the first two months of the campaign, 1,000 people were executed. [111] More people are executed annually in China than in the rest of the world put together.

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2.2. Indonesia

2.2.1. CANDU Sales Efforts

AECL made a bid on construction of what was to be Indonesia's first nuclear power plant in 1987. This was a "build/own/operate/transfer" (BOOT) proposal whereby Canada would not only provide financing, but AECL would build and own the plant for 15 years, and recover costs by selling electricity. [112] AECL signed a Memorandum of Understanding with the Japanese companies Marubeni and Hitachi for the proposal. [113] AECL was competing against three other companies, including Framatome (the state-owned French company); Mitsubishi Corp. of Japan; and Kraftwerke Union (then a subsidiary of Siemens AG of the Federal Republic of Germany). However, it appears that Indonesia's nuclear ambitions foundered on the high cost of the project, and it was shelved.

In 1991, AECL President Stanley Hatcher and Chairman Robert Ferchat were in Jakarta, again proposing to build a reactor. This time, as a sweetener, they announced that they were establishing a program to send Indonesian nuclear personnel to Korea to gain experience on CANDU reactor operating there. [114] In 1992, AECL announced a program to send Indonesian nuclear personnel to study at Canadian CANDU stations. [115] In 1992 AECL submitted technical information on the CANDU to BATAN ~ Badan Tenaga Atom Nasional ~ Indonesia's National Atomic Energy Agency. [116]

On November 14, 1994, in Jakarta, Prime Minister Jean Chrétien himself flogged the CANDU to Indonesian President Suharto. Chrétien was promoting trade in Asia and attending the Asia- Pacific Economic Cooperation (APEC) summit. Chrétien announced that the Atomic Energy Control Board (Canada's regulatory agency) would provide another sales sweetener for AECL, by training four Indonesians per year in the use of CANDU technology. [117] While Chrétien met with Suharto and other Asian leaders, popular demonstrations took place throughout Indonesia, which were brutally repressed by the Indonesian military.

In January 1996, Prime Minister Chrétien again visited Jakarta, heading a trade delegation of politicians and business persons ("Team Canada"). $565 million in contracts were signed and deal worth a further $2.2 billion were discussed. [118] It was Chrétien 's fifth personal meeting with the Indonesian strongman, Suharto.

Canadian media made only passing reference to discussions about CANDU sales, mentioning a "technical cooperation agreement" between AECL and BATAN, and the possibility of the sales of one or two reactors at $2 billion each. [119] However, independent sources have suggested that Canada may have an inside track on the bidding for construction of a nuclear station in Indonesia. According to the International Forum on Indonesian Development (INFID), on January 30 1996, the Indonesian Minister for Research and Technology, Baharuddin ("Rudy") Jusuf Habibie, stated that Indonesia would accept without tender the offer which Prime Minister Chrétien had made two weeks earlier. The reason was that reportedly due to a promise of generous, even extravagant, terms for financing. [120] The announcement was apparently premature, but Prime Minister Chrétien 's enthusiasm for nuclear power have evidently led him into personal negotiations for the Canadian nuclear industry.

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2.2.2. Proposed Indonesian Nuclear Program

Despite huge reserves of oil, gas, and coal, Indonesia has again decided to launch a nuclear program. Nuclear advocates are arguing against all evidence that Indonesian fossil fuel reserves are inadequate, and that nuclear power will be needed within ten years. Energy demand is predicted to grow at a rate of about 6 or 7% per year. Coal reserves alone are estimated 20 billion tonnes, and coal currently accounts for less than 1% of electricity generation. [121] Indonesia is currently negotiating a cooperative international project to build a $21 billion natural gas pipeline from the Indonesian island of Natuna to Thailand, Malaysia, Singapore and possibly Viet Nam. [122] Nuclear proponents argue that fossil fuels should be reserved primarily for export, in order to generate foreign cash.

In 1991, BATAN (the National Atomic Energy Agency) retained the Japanese consulting firm NEWJEC to perform a feasibility study for the nuclear power option in Indonesia. NEWJEC was instructed to select the a site on the Muria Peninsula, on the northern shore of Central Java. With about 90 million of Indonesia's 200 million population, the island of Java is one of the most densely populated areas in the world.

NEWJEC narrowed the list of possible reactor vendors to:

Djali Ahimsa, Director General of BATAN has stated that Indonesia will proceed with a 1,800 MW nuclear station, with construction starting in 1998 or 1999, and the station entering service between 2004 and 2007. The station would consist of three 600 MW reactors or two 900 MW reactors, to be located on Java's Muria Peninsula. [124]

Indonesian NGOs have identified a number of serious problems with the proposed Indonesian nuclear program. Indonesia has about one third of the world's active volcanoes, and earthquakes have been identified as major risk with operation of nuclear reactors in the nation of 13,000 islands. [125] Mount Muria itself on the Muria Peninsula where the first nuclear station is planned, is a dormant volcano. NGOs have also protested that the Suharto regime has repressed and prevented any public debate on nuclear power. [126]

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2.2.3. Corruption in Indonesia

Corruption in Indonesia is so extensive that the Berlin-based group, Transparency International, classed the country last year as the most corrupt among 41 nations surveyed. [127] Nepotism is a particularly widespread problem. Suharto's sons and daughters own and operate businesses that dominate almost every economic sector in Indonesia. [128]

In the nuclear arena, there is widespread suspicion of corruption. In 1981, Interatom, a subsidiary of the German reactor firm Kraftwerk Union (KWU) was given a US $92 million contract to build a 30 MWe multi-purpose research reactor for the national science research centre at (Puspitek) in Serpong, southwest of Jakarta. This price was reportedly twice as expensive as the one offered by its chief competitor, General Atomic of the USA, which had previously supplied a Triga Mark II research reactor to Bandung University. [129]

Nepotism is also at work in Indonesia's fledgling nuclear industry. Djali Ahimsa is the Director General of BATAN (the National Atomic Energy Agency). Ahimsa's sons, Arwan and Argon Ahimsa are major shareholders in Perkasa SteriGenics, an irradiation firm licensed by BATAN. The company is a joint venture with SteriGenics International of the USA. [130]

As Indonesian Minister for Research & Technology, and the Chairperson of the Technology Assessment and Development Agency (BPPT), Rudy Habibie, is perhaps the most important political advocate and supporter of nuclear power. His nepotism is legendary. As one critic has noted...

"Nearly fifty companies owned by brothers, sisters, in-laws and sons of the German-educated engineer [Habibie] are involved in business deals with the numerous agencies headed by the Research & Technology Minister. Some of these companies have formed joint ventures with conglomerates owned by President Suharto's children and their spouses, thereby increasing their political clout." [131]

Reports in 1996 about the Calgary-based mining company Bre-X Minerals Ltd. indicate the risks of doing big business in Indonesia. Bre-X owns 90% of the massive gold deposit known as Southeast Busang, reputed to hold 50 million ounces of gold ~ possibly the world's largest deposit. Lawsuits from two Indonesian companies claim 40% of the find, and the Indonesian government is refusing to allow the development to proceed until the matter is resolved. [132] In a concession to Indonesian corruption, Bre-X has given 10% of their deposit and $40 million to a company controlled by the son of President Suharto, in the hope that "red tape" will be cleared up. [133]

It seems improbable that AECL will be able to avoid corrupt practices and bribery in a reactor deal, given the widespread corruption and nepotism in Indonesia, and the suspected bribery that took place with the KWU sale of the Serpong research reactor. Since 1976-77, AECL has been required to report the total aggregate figure for "sales agent fees" (see Table 1 in Section 4). While these may include fees for legitimate public relations, these fees have also been used in the past for bribery. AECL Annual Reports show that payments have already been made in a number of years to two companies based in Indonesia. In 1976-77 and 1977-78, payments were made to Amtraco Corporation, Indonesia. During the years 1983-84 to 1992-93 inclusive, payments were made to a company identified as P.T. Sanga Kencana International, Indonesia.

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2.2.4. Human Rights in Indonesia

Indonesia has a long history of gross human rights violations. President Suharto, a former general, took power in 1968 following a coup in which the military executed as many as 500,000 suspected members or sympathizers of the Indonesian Communist Party (PKI). Thirty years after the genocidal mass executions of 1965, millions of Indonesians are still subjected to discrimination on the basis of being "ex-tapol", i.e. those suspected of association with the PKI, or their offspring and close relatives. Amnesty International has reported that 24 political prisoners first arrested in 1965 are still imprisoned. Five of these prisoners have been sentenced to death after 30 years in prison. [134]

Labour rights in Indonesia worsened in 1995. The leadership and members of the Indonesian Prosperous Workers Union (SBSI) have been harassed and imprisoned. Strikes have addressed failure to pay minimum wage; holiday allowances; health and safety issues; and the right to establish independent trade unions. Womens' rights and child labour continue to be major problems. [135]

Freedom of expression has been extensively repressed. In June 1995, three journalists Ahmad Taufik, Eko Maryadi and Susanto Siswowihardjo were arrested and have been given sentences of 20 months to three years on charges of "insulting the President". They were associated with the Alliance of Independent Journalists (AJI). The government journalists' association, PWI, has told eight publications to fire journalists thought to be affiliated with the AJI. After being charged with insulting the government, Dr. George Aditjondro fled the country to Australia. Aditjondro has criticized Indonesian government policy on East Timor and its proposed nuclear power program. The Indonesian police have also banned public speaking for Abdurrahman Wahid, a Muslim leader; Megawati Sukarnoputri (leader of the opposition Indonesian Democratic Party); and writer Emha Ainun Najib. [136] Suharto is staging a national election in 1998, but election rules and the omni-presence of Suharto's Golkar Party in the government, the economy and the military, virtually guarantee him another victory.

Since April 1995, there have been allegations of serious human rights abuses in Irian Jaya, particularly in the area of the Freeport Indonesia Mine, where tribal peoples (the Amengme, Dani, Komoro and Ekari) have been driven from their ancestral lands. The government's own National Commission on Human Rights (Komnas HAM) has confirmed reports of that the army executed 16 people; that 4 had disappeared, and that there was torture and arbitrary arrests. The Australian Council for Overseas Aid reported the killing of 22 civilians and 15 members of the Free Papua Movement (OPM) between June 1994 and February 1995. The Catholic Bishop of Jayapura, Bishop Muninghoff has reported the massacre of 11 people by a Trikora battalion of the Indonesian military in the village of Hoea, in the region of Panai, on May 31, 1995. [137]

Perhaps the most serious human rights violations by Indonesia in recent times have taken place in East Timor, a former Portuguese colony. East Timor declared independence in 1975, but was invaded by Indonesia in that same year. Estimates of those killed by the Indonesian military range from 60,000 to 200,000. There are currently 10,000 or more Indonesian troops stationed in East Timor. Two church leaders from East Timor who visited Canada in 1995 confirmed that "the human rights situation is worse than ever". [138] Indonesian authorities are intentionally provoking religious conflict with the Roman Catholic majority of the East Timorese population, and encouraging assimilation of the native population. In 1995, there were summary arrests, executions, torture, and imprisonment. Public health has seriously declined, with as much as 80% of the population of the East Timor capital of Dili suffering from tuberculosis. The Canada-Asia Working Group has stated that "[foreign] governments, including Canada, are exerting no real pressure on Indonesia... As the recent Team Canada visit illustrated, Indonesia's offer of rich prospects for business is making major powers at the UN timid." [139]

The most recent disturbances in Indonesia occurred in July 1996. Following government interference in the Indonesian Democratic Party (PDI), led by Magawati Sukarnoputri, her supporters occupied the party headquarters. Riots erupted in Jakareta after police stormed the PDI headquarters. In the wake of the riots, Muchtar Pakpahan, leader of the SBSI, was arrested again, and the military issued a shoot-to-kill order at the same time for demonstrators. [140] Four people died in the Jakarta demonstrations. Ten members of the People's Democratic Party (PRD), including leader Budiman Sudjatmiko, were arrested and have been charged with subversion, which carries the death penalty. [141] Canadian member of parliament Warren Allmand called the Indonesian government "totalitarian, corrupt and anti- democratic", and urged the Canadian government to "start playing hardball" with Jakarta. [142]

The brutality and injustice of Indonesia's was emphasized in October 1996, when the Nobel committee awarded it 1996 Peace Prize jointly to East Timorese Roman Catholic Bishop Carlos Filipe Ximenes Belo, and exiled activist Jose Ramos-Horta. Ramos- Horta expressed his support for East Timorese guerrilla leader Xanana Gusmao, who was captured by Indonesian troops in 1992, and sentenced to 20 years in prison. Ramos-Horta was Foreign Minister during East Timor's brief independence before the Indonesian invasion. [143]

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2.3. Romania

2.3.1. The CANDU Sales Campaign ~ Cernavoda-1

Several Canadian attempts had been made to sell reactors to Romania, starting in the late 1960s. In November 1977, a licensing agreement was initialled between AECL and Romanergo, the state trading company. This gave the design of the CANDU-6 (i.e. 600 MW reactor) to Romania. The licensing fee was to be $5 million per reactor for Romania's first four reactors, decreasing to $2 million per reactor thereafter for the last of a total of 16 reactors that were anticipated. [144] By July 1978, the engineering services agreement for the first reactor had been initialled for the first reactor, and by October, the procurement agreement had been initialled. On this first reactor, the Canadian content was estimated at $100 million of the total $800 million cost, or 12.5%. Canadian content for the second, third and fourth reactors would fall to 6%, 4%, and 4% respectively.

In April 1979, a financing agreement of up to US $1 billion was announced by Canada's Export Development Corporation (EDC). EDC loaned $680 million (US) and a consortium of banks loaned US $320 million. [145] It was the largest long-term loan of all time for EDC in a single export sale. The financing agreement was for four 600 MW reactors, but detailed agreements had only been signed for one reactor. It has been suggested that a $1 billion line of credit was easier to justify for four reactors than to admit that the loan was really for one reactor with an estimated Canadian content of only 12.5%. [146]

In 1980, Romanian President Nicolae Ceausescu asked for a 'countertrade' agreement whereby Romania could export goods instead of paying cash. The simple reason for this is that Romania simply could not afford nuclear power. Apparently in an attempt to promote the countertrade arrangement, the Romanians agreed to a second reactor [147] , and higher Canadian content in both of them. By 1981, AECL President James Donnelly said that the deal was worth $750 million and that Canadian content would be up to 85% for a first reactor and 75% for a second.

However, in March 1982, the deal collapsed when Romania, which had been borrowing heavily, found itself unable to meet its debt payments. Canada refused to enter into a barter agreement, and in June 1982 the EDC stopped payment on all goods and services, along with the US Export-Import Bank. The suspension lasted over a year. However, the $320 million from the bank consortium had already been disbursed. Adding to the complication of the situation, in September 1982 Romania entered into a deal with the Soviet Union for three VVER-1000 reactors ~ another agreement that never came to fruition. In an effort to pay off Romania's $12 billion debt, food rationing and restrictions on energy consumption were implemented. By 1988, the debt had been cut in half, but popular unrest had mounted. [148]

In August 1983 AECL made another attempt to salvage the CANDU deal, when it convinced the Canadian government to offer a $2 billion line of credit for two reactors ~ half from EDC to finance countertrade for CANDU suppliers. It has never been made clear what arrangements were finally made, but it has been reported that AECL and a small number of companies received cash for their contributions, but a larger number of suppliers, about 50, were left to make barter deals with the Romanians. Reportedly involving steel; textiles; and tractors. The import of Romanian steel plate apparently led to charges of dumping from Canadian producers. The value of the deal has never been clear, although it has been reported in the media to be worth about $700 million. [149] The New York-based Hungarian Human Rights Foundation has charged that countertrade for CANDUs led to food and energy shortages in Romania. [150]

Throughout the 1980s, 15 to 25 AECL personnel remained on the project in a supervisory capacity, while construction floundered because of poor management and widespread lack of quality control. Construction was interrupted by the 1989 revolt in Romania in which Ceausescu was deposed and executed. At that time the Canadians and many Romanian personnel abandoned the project.

During the 1980s, forced labour was used by the Ceausescu regime at the Cernavoda plant. Workers from factories and collective farms were apparently transferred to Cernavoda, and military conscripts were used as forced labour as well. The so-called "black battalions" were composed of military conscripts who were not trusted with weapons and were assigned to work duty at Cernavoda and other locations. [151] The New York-based Hungarian Human Rights Foundation presented extensive evidence of forced labour at Cernavoda. Forced labour at Cernavoda and other locations in Romania was one of the issues that sparked the 1989 revolt in Romania. AECL manager Irwin Rummel admitted that he was aware that army conscripts were used as unskilled labour on the site, but dismissed reports of "slave" labour. [152] In 1989, in an attempt to speed up construction at Cernavoda, Ceausescu increased the work force 5,000 to more than 14,000. Cernavoda workers received starvation wages and little food, and lived in appalling conditions in unheated, poorly serviced barracks. By May 1990, Donald Lawson, President of AECL's CANDU Operations admitted charges of forced labour and poor conditions, saying "This was a communist regime ~ you did not choose where you worked"... "We knew that people had very limited food rations. We knew they had limited heat". [153] Canadian opposition MPs called unsuccessfully for a parliamentary inquiry. Federal Member of Parliament Svend Robinson stated, "It is inconceivable that the Canadian government did not know" [about conditions at Cernavoda] "AECL engineers drove past the worker housing every day, and AECL ... had an office in the Canadian embassy". [154] Although conditions were marginally improved after the first disclosure of the situation in December 1989, forced labour continued to be used. [155]

In September 1991, the Canadian government announced a new agreement to form the AECL/Ansaldo Consortium (AAC) to salvage the initial reactor. The salvage package included: a loan of $315 million (CDN) through the EDC; takeover of project management by AECL and Nuclear Construction Managers; and provision of services and components from other Canadian companies. The other partners in the consortium included Ansaldo of Italy (balance of plant), and the Romanian utility RENEL. The Italians apparently came up with $150 million in funding (through the Medio Credito Centrale), [156] and the Romanians had only confirmed funding five years later in an undisclosed amount of "something less than $100 million". [157] By April 1995, $222 million (US) of the 1991 Export Development Corporation loan was still outstanding on the Cernavoda reactor, and costs had mounted to $2.2 billion ~ on a reactor that could have been bought as a turnkey project in 1995 for about $1.4 billion. [158]

AECL typically represents Romania as desperately needing more electricity. In fact, demand for electricity has fallen by roughly one-third since the 1989 revolt ended many of Ceausescu's state-sponsored make-work projects. [159] With installed generating capacity of over 22,000 MW, one or two CANDU-6 reactors will not make a huge difference. RENEL has a relatively well-balanced generating system that is about 30% hydraulic, with the remainder a mix of coal, oil and gas-fired capacity. [160] About 8,000 MW of RENEL's capacity is used to cogenerate heat as well as electricity. [161] In 1995 the Romanian utility RENEL was in a state of crisis. The utility is not paid for much of the electricity it is presently providing to industrial and residential consumers, and it is being pressured by the World Bank and the International Monetary fund to privatize, and to raise electricity prices. [162] In March 1995, the utility's president, the head of its nuclear division, and its entire Board of Directors were fired by the government. [163]

The Cernavoda-1 reactor achieved first criticality on April 16, 1996 ~ almost 20 years after the first agreement was signed, and more than a decade after the initial target start-up date of December 1985. [164] It is expected that the commissioning process will be complete in the fall, but the AAC consortium will remain in charge of the reactor for 18 months after commissioning ~ presumably sometime in 1998. Stopping over in Romania on his way to the G-7 Nuclear Summit in Moscow, Prime Minister Jean Chrétien was present for the start-up of the reactor. He stated, that "everyone knows that [CANDU] is the best system... Romania has made the right decision. Your children will thank you for your decision." [165]

As noted above, it has been suggested that the cost of the reactor is about $2.2 billion. [166] However, this vastly underestimates the true cost of the CANDU boondoggle at Cernavoda. It is estimated over the 20 year period since the Romanian CANDU/nuclear power program was initiated in the late 1970s, Romania spent a staggering US $10 billion in a bid to establish an independent nuclear system [167] ~ an amount comparable to the $14 billion subsidy that Canadian taxpayers have been forced to provide to Atomic Energy of Canada Ltd. since World War II. Originally Romania had plans for 15 to 20 CANDU reactors. After Ceausescu was deposed in 1989 however, much of the infrastructure disappeared as trained personnel left the country, and 80% of corporations dissolved or got out of the nuclear business. Out of 150 companies and organizations originally involved, there are now about 20 left. [168]

The original Romanian CANDU investment included an oversized program to make CANDU fuel as well as heavy water. Although Romania did not purchase AECL's or Ontario Hydro's heavy water production technology, there were allegations by Romania defector Mihai Pacepa, that a Romanian spy had infiltrated a Canadian heavy water facility and stolen technical specifications for the plant and its technology. [169] Apparently, however, as with other aspects of Romania's nuclear program, the Romanians had trouble implementing the technology. By 1992, AECL had stated that it would lease the heavy water for Cernavoda-1, apparently because Romania is broke. AECL will also help to make Romania's heavy water plant operational, with the intention that the Romanians would eventually produce their own heavy water to replace the leased heavy water. In addition, AECL has promised to make Romania a "qualified supplier" of CANDU fuel. [170]

In September 1994, Ontario Hydro reported its "disappointment" that the Romanian electrical utility RENEL had decided to purchase the heavy water for the Cernavoda reactor from the India's Department of Atomic Energy (DAE). The Cernavoda reactor will require about 500 tonnes of heavy water. Ontario Hydro stated that it had been in negotiations for the sale, but "RENEL objected to the legal terms Hydro required in order to cover the risks involved in the proposed contract". [171] By November 1994, however, Romania had reconsidered the deal and Ontario Hydro reported that it would lease the heavy water for the reactor "with an option to purchase". [172] Both Ontario Hydro and AECL have roles in the deal, valued at "up to $110 million" for 350 tonnes of heavy water, but no information has been disclosed on the terms. [173] Romania may supply the balance of the heavy water itself from its plant at Halinga, 200 km west of Bucharest. AECL, despite having its own stockpile of heavy water, gave a large percentage of the potential heavy water sale for Cernavoda to Ontario Hydro. Revenues from any heavy water sale could have been used by AECL to compensate for the billions of dollars of subsidies provided by Canadian taxpayers.

The start-up of Cernavoda-1 has been plagued by a number of problems. Perhaps most serious were the various managerial and quality assurance problems caused and aggravated by the Ceausescu regime. AECL staff had condoned the situation for many years, and claim that in 1988 they had threatened to pull out of the project. [174] AECL's resolve was never tested however, since the 1989 revolt intervened, and the project was subsequently restructured. After the restructuring in 1991, AECL says that 25- 30% of the welds in the reactor had to be repaired. [175]

There are a number of endemic design problems with Cernavoda-1, not the least of which is that it is a reactor with 1960s technology being started-up in 1996. Also, because of earlier grandiose plans for 5 reactors, the control room is segregated into five sections and oversized. The Interim Station Manager for AECL, John Sommerville, has noted that the plant is overstaffed at 1,000 employees, and that the workforce suffers from overspecialization and low productivity. [176]

In July 1996, it was reported that availability of spare parts for Cernavoda was a serious concern. Notably, the reactor's main process computer is a 1960s-vintage Univac data system, which has not been sold for over 15 years. Parts have been taken from the computer purchased for Cernavoda-2, as have some valves and other hardware. The CANDU Owners Group (COG) is aiding RENEL with its spare parts problem, despite the fact that RENEL was unable to pay its minimal dues in COG (AECL and Ontario Hydro provide the bulk of funding for COG). [177]

An extremely serious allegation has also been made as a result of an ongoing probabilistic risk assessment (PRA) that the risk of a catastrophic accident at Cernavoda-1 is significantly higher claimed. Romanian officials say that the risk of core damage is ten times the reference value that is assumed by AECL for a CANDU-6. The crucial difference is the risk posed by the possibility of a station blackout ~ a significant threat with Romania's fragile grid. The PRA at Cernavoda indicates a severe accident probability in the range of 10-4 to 10-5 per reactor per year, as compared to AECL's claim of 10-6. The Romanian risk study has yet to include other possible external factors, which increase the estimated severe accident risk even more. [178]

. . . back to [ Table of Contents ~ Romania ]

2.3.2. The Campaign to Sell Cernavoda-2

Despite the nightmarish history of Cernavoda-1, AECL has been working intensively to arrange Canadian financing for a second reactor at Cernavoda. AECL is in a consortium with the Italian firm Ansaldo, and the French engineering company Bouygues has also been involved. The Italian and French companies have also been trying to arrange financing in their countries. [179] In the third week in April 1995, the parties apparently initialled, but did not sign an agreement to do some work on the second reactor. [180]

RENEL has declared that it wants to complete Cernavoda-2 by the year 2000, but this looks very uncertain. Much of the equipment was supplied earlier for Cernavoda-2, but because of problems with the first reactor, many components were borrowed, with the result that only about 40% of the plant can be considered complete. [181] RENEL estimates that about US $750 million will be needed to finish the plant. [182] RENEL officials have suggested two structures for the deal. First, Romania would put in US $250 million, and arrange for foreign financing of US $500 million. Presumably mostly from Canada, with the balance from Italy if the AECL and Ansaldo partnership were recreated. The second model is the establishment of a joint venture company involving RENEL and a foreign investor who would provide financing. In order to meet a year 2000 deadline, Romania would have to make a serious financial commitment in its 1997 budget. [183] Any possible joint venture will be dependent on market reforms in Romania, which have so far been minimal. RENEL in particular has exhibited no inclination to loosen its monopoly or to lower its artificially low prices.

RENEL has suggested that Cernavoda-3 might be completed by 2010, and that the fourth and fifth reactors would follow, but this is highly speculative. It is clear that Romania has neither the financial capability or the electricity demand to justify additional nuclear plants.

. . . back to [ Table of Contents ~ Romania ]

2.3.3. Romania and the Bomb

Former Romanian spy-master Ion Mihai Pacepa, who defected in 1978, has accused the former regime of Romanian dictator Nicolae Ceausescu of initiating a nuclear weapons program. Pacepa was with the Romanian secret police, the Securitate, for 27 years before defecting. He also alleged that Romania was cooperating with Pakistan. [184]

There was clearly some truth to the report. In 1992, the (post- Ceausescu) Romanian government contacted the International Atomic Energy Agency (IAEA) to report its discovery of 100 milligrams of plutonium that had been separated in December 1985 at the Pitesti Nuclear Research Institute. The plutonium had been separated from fuel irradiated in a Triga research reactor supplied by the US. [185] While the amount of plutonium separated was small, the act was a clear violation of Romania's commitments made under the Non-Proliferation Treaty. A more extensive nuclear weapons program may have been covered up.

There is also irrefutable evidence that Romania had black-market nuclear trade relations with another 'threshold' nuclear weapons state. In 1990, the post-Ceausescu Romanian government disclosed that 12.5 tonnes of heavy water it had purchased from Norway in 1986 had been secretly diverted to India ~ a country that has not signed the Nuclear Non-proliferation Treaty. [186] Again this transaction was in violation of NPT commitments.

These proven violations of Canadian and international proliferation regimes indicate the relative ineffectiveness of those protocols in the face of an unscrupulous and determined regime.

. . . back to [ Table of Contents ~ Romania ]

2.3.4. Corruption and Human Rights in Romania

Seven thousand people were killed in Romania's 1989 revolt, which saw the execution of former communist dictator Nicolae Ceausescu and his wife Elena. [187] The current President Ion Iliescu is the former head of Romania's Young Communist League, who gradually fell out of favour with Ceausescu. He took power in a 1990 election as the leader of the National Salvation Front, which converted itself into the Party of Social Democracy.

The dreaded secret police of the Ceausescu regime, the Securitate, has been renamed the Romanian Intelligence Service and a new police force has been created known as the Public Guardians, now also known for their brutality, particularly towards the country's Gypsy minority that comprises about 10% of the population. The government has apparently done little stop violent outbursts against the country's Gypsy and Hungarian minorities [188] , possibly because it is dependent on the political support of a minority nationalist group called the Party of Romanian National Unity.

Corruption is reportedly widespread in the government and the political system. Early in 1996, national police chief Ion Pitilescu resigned, complaining that the government did not let him prosecute organized-crime and corrupt officials.. Pitilescu said that corruption reaches to "the highest levels of power". [189]

. . . back to [ Table of Contents ~ Romania ]

2.4. South Korea

2.4.1. CANDUs for Korea The Wolsong-1 Power Reactor

In January 1975, AECL and the Korean Electric Power Company (KEPCO) signed a deal for a 600 MW CANDU that came into force on January 26, 1976. [190] The deal was odd, insofar as Korea had not issued a call for international bidding. Korea's first nuclear power reactor had been a Light Water Reactor built by Westinghouse five years earlier. [191] It came out later that in December 1974, AECL President Lorne Gray had agreed to pay an "agent" (Shaul Isenberg of Tel Aviv) a fee of $17 million plus another $3 million at a rate of $500,000 a year for six years. [192] Despite the public outcry over this blatant corruption, Eisenberg's "commission" was only reduced to $18.5 million, and AECL retained him to negotiate the sale of a second reactor.

Under the financial contracts signed in May 1975, the total cost of the reactor was $576.5 million, of which $430 million was arranged by the Export Development Corporation. This included a $250 million loan under Section 31 of the Export Development Act and $180 million under Section 29. [193] The interest rate on the loans has never been revealed, so the extent of subsidy for this deal by Canadian taxpayers remains hidden. The loans were to be repaid in 30 semi-annual repayments over about 15 years, starting in October 1982. [194]

. . . back to [ Table of Contents ~ South Korea ] The Wolsong-2/3/4 Power Reactors

In December 1990, AECL signed a contract with Korea for a 680 MW CANDU (Wolsong-2). It was the first deal since the abortive agreement with Romania in 1979. Since the deal to salvage Cernavoda-1 would not be confirmed until 1991, this was the first real sale since Wolsung-1 in 1975. Of the total plant cost of $1.2 billion, the AECL contract reportedly accounted for about $600 million, of which about $200 million went to Korean sub-contractors; $200 million to Canadian manufacturers; and about $200 million to Nuclear Project Managers Canada Inc., Canatom and AECL-CANDU. [195]

In September 1992, AECL announced another sale to South Korea, this time for two CANDUs. AECL contracts amounted to $950 million, of which $450 million went to Korean subcontractors, with about $500 million coming to AECL and Canadian suppliers. [196] In other words, as compared to the Wolsong-2 deal two years earlier, the percentage of Canadian content (in dollar terms) of the Wolsong-3 & 4 deal was about 40% less. The dollar amount of contracts finding their way to the private sector may have been about $300 million. In order to achieve a short-term sales objective, AECL gave South Korea the knowledge and skills to build its own CANDU reactors. It has been reported that Korean content in Wolsong-3 & 4 is now "close to 75%". [197] If future CANDU deals are even considered, Korea will certainly negotiate even lower Canadian content.

Following the 1992 sale to South Korea, AECL officials optimistically predicted a "nuclear renaissance" for the CANDU, and claimed there would be further CANDU sales to South Korea. [198] By 1995 however, AECL Vice-President Robert Keating was no longer confident about sales... "they [South Korea] bought American technology, and they have absorbed it more than they have ours...". [199] South Korea made an early commitment to the PWR and has since moved to domesticate its production. With the Yonggwang 3 & 4 reactors (also known as KNU 11 & 12), Korean companies took over the prime contracting role with licensed technology transfer from foreign subcontractors. Three reactor companies (ABB/Combustion Engineering for nuclear components; General Electric for turbine/generators; and Sargent & Lundy for architecture & engineering) have given charters to South Korean companies for independent production. [200] Nevertheless, AECL is now attempting to sell two 900 MWe CANDU reactors to South Korea in the hope that they would replace two 1000 MWe PWRs intended to go on line in 2005 and 2006. [201]

. . . back to [ Table of Contents ~ South Korea ] Advanced Fuel Cycles (Plutonium et al.)

As part of its sales pitch for the CANDU, AECL is advertising the fact that CANDU has "fuel cycle flexibility". AECL has determined that CANDU can be used with a variety of low fissile fuels that would create an advanced fuel cycle that could function in tandem with PWRs. The advanced fuel cycle proposals are designed to increase uranium utilization and to appeal to countries without significant uranium reserves. Unfortunately, as with the most common advanced fuel cycle (reprocessing to separate plutonium) there are increased proliferation, safety and environmental risks.

For example, the Recovered Uranium (RU) advanced fuel cycle for the CANDU uses the waste product from LWR spent fuel reprocessing after the plutonium has been removed. It could also be mixed with plutonium to form a mixed oxide fuel. These technologies have significant proliferation risks.

Also promoted is the "DUPIC" cycle, which stands for "Direct Use of Spent Fuel in CANDU". This technology would at its simplest introduce LWR spent fuel elements into CANDU fuel channels, or the spent fuel could be re- fabricated into CANDU fuel. While the DUPIC cycle would not involve 'wet' chemical reprocessing, the refabrication (involving as it does highly radioactive spent fuel) would require much of the remote robotics and other technology necessary in reprocessing, and would thus carry some proliferation risk. Clearly the reprocessing of spent fuel will also involve safety and environmental risks.

In early 1991, AECL and the Korea Atomic Energy Research Institute (KAERI) signed an agreement to jointly develop the "CANFLEX" CANDU fuel bundle. [202] A modified version of the standard CANDU fuel bundle, the CANFLEX has outer elements that are smaller in diameter, necessary for the more extended burn-up time for the use of Slightly Enriched Uranium (SEU), as opposed to the Natural Uranium (NU) that is typically used in CANDUs. In November 1991 AECL and KAERI signed another agreement to jointly explore the DUPIC fuel cycle.

. . . back to [ Table of Contents ~ South Korea ] The HANARO Reactor

HANARO is the Korean word for unification, and is also an acronym for "Hi-flux Advanced Neutron Application Reactor". HANARO is a 30 MWt research and isotope production reactor which is actually a MAPLE reactor designed by AECL (Multipurpose Applied Physics Lattice Experimental). The MAPLE reactor has an open-tank assembly and uses low-enriched uranium (LEU)-silicide fuel particles dispersed in aluminum rods. The reactor uses light water cooled and moderated, but uses heavy water as a "reflector" to create very strong neutron fluxes in the core.

The HANARO reactor began in 1985, and it went critical in February 1995. The reactor is operated by the Korean Atomic Energy Research Institute (KAERI). Kaeri has simply stated that HANARO was built with AECL "help". [203] The HANARO reactor is clearly a MAPLE design, and it has not been disclosed if AECL was paid for the design, or if it was an "incentive" to help along CANDU negotiations.

In 1988, the Export Development Corporation announced that it was providing "financing support of up to US $16.509 million for a sale by AECL of equipment and services for a 30 MW multi-purpose nuclear research reactor to be built by KAERI". The EDC noted that a commercial contract, signed in February 1988 "is valued at Cdn. $28 million" and "AECL will design and supply the regulating and protection systems and the relevant computer system for the reactor, and will supply specific equipment components to be manufactured by the nuclear industry in Canada." [204]

. . . back to [ Table of Contents ~ South Korea ] Canadian Incentives for CANDU Sales

There have been a number of financial and other 'in kind' incentives offered by AECL and/or the Canadian government in order to promote the sale of CANDU reactors to South Korea. The most obvious of course has been outright bribery. Over $18 million was paid to an agent, who in turn bribed Korean officials to secure the initial CANDU sale to South Korea. This bribery almost certainly continued at least until 1994.

In December 1994, AECL's Korean agent, Park Byong-chan, of the Samchang Corporation was sentenced to 18 months in prison for corruption and bribery. [205] To forestall public criticism, AECL fired Samchang Corporation. In the fall of 1991, Park had given $350,000 in bribes to Ahn Byong-wha, then the President of the Korean Electric Power Corporation (KEPCO). [206] In December 1990, AECL had announced the contract for Wolsong-2, and less than a year later in September 1992, AECL announced with much fanfare the sale of two more reactors to South Korea. Ahn was sentenced at the same time as Park to three years in prison for corruption. [207] AECL President Reid Morden has denied any knowledge of the bribery, although Samchang Corporation has been listed as a recipient of AECL agent fees since 1991, and AECL continues to operate its Korean office out of the same Seoul office building as Samchang. AECL has made no attempt to retrieve funds from Samchang that were used illegally for bribes. Former Auditor General Kenneth Dye has stated,

"I've seen examples where agents have been hired by countries, and I think the strategy there is to deal with the agent so the Canadians don't have to know what goes on behind the facade... I always thought it would be salutary in our country if directors of corporations were sent to jail for things that they could have stopped but failed to...." [208]

AECL continues to retain an agent in South Korea, and there seems no guarantee except the assurance of AECL that these corrupt practices have not continued. Needless to say these assurances have been worth nothing in the past.

In addition to outright bribery, in the case of Wolsong-1, the deal was secured through concessionary financing by the Canadian government. As noted above, the financing of Wolsong-1 was clearly concessional, i.e. it was not a commercial loan, but in effect, subsidized the deal.

As noted above, with each successive CANDU sale, there has been increasing technology transfer. Since South Korea has now succeeded in 'localizing' production of the American-style Light Water Reactor, AECL can only hope to achieve additional sales by going further down this road. With South Korea already accounting for about 75% of Wolsong 3 & 4, there are obviously rapidly diminishing returns ~ either/or AECL must rely on a package of other 'under the table' incentives that are not overtly tied to a CANDU sale.

For example, AECL has promised to give the Korean Electric Power Company (KEPCO) (and possibly other Korean companies) a piece of future possible CANDU exports China and Turkey [209] , thus even further reducing the economic value of reactor sales to Canada. It was reported in July 1996 that the Korean firm Hanjung, a subsidiary of KEPCO, has received a $120 million contract as part of a proposed sale of two CANDU reactors by AECL to China. [210] As noted above, AECL has also already given South Korea R&D and technology relating to advanced, tandem fuel cycles for use with CANDU. Even more significant is the transfer of the MAPLE reactor design to South Korea. There has been no indication that these dealings took place on a commercial basis.

Another incentive offered by AECL (and by Ontario Hydro) is the CANDU Owners Group (COG) Organization. COG provides technical infrastructure and information sharing for CANDU purchasers. COG activity areas include: safety & licensing; fuel channels; CANDU Technology; waste management; health & safety; and Station Services. AECL and Ontario Hydro pay the bulk of COG costs. For example, in 1993, KEPCO paid $99.9 thousand out of a total budget of $186,099.9 thousand, or about one-half of one percent. [211]

Perhaps in another hidden incentive for CANDU sales, it was reported in March 1996 that Canada had joined the Korean Peninsula Energy Development Organization (KEDO). KEDO is a multilateral organization set up in March 1995 by the US, South Korea and Japan to finance construction of two 1,000 MW LWRs in North Korea. Under the KEDO agreement, North Korea agreed to abandon its military nuclear program in exchange for the financing and construction of the reactors, and provision of oil. [212] The Korea Electric Power Corporation (KEPCO) has been selected as the prime contractor by KEDO. It has not been disclosed how much money Canada is contributing to the US $4.5 billion project. [213]

. . . back to [ Table of Contents ~ South Korea ]

2.4.2. South Korean Nuclear Program

In 1996, South Korea (the Republic of Korea) has 10 Pressurized Water Reactors (PWRs - American-style light water reactors) as well as one CANDU in operation. There are two 1000 MW PWRs under construction at Ulchin and three 650 MWe CANDUs at Wolsong under construction. The reactors are located at four nuclear sites: Kori, Ulcin, Wolsong, and Yonggwang. South Korea's first reactor at Kori (a 587 MWe PWR) went into operation in 1978. The most recent additions are Yonggwang 3 and 4 which went on line in March 1995 and January 1996. They are 1000 MWe PWRs of a Korean design based on Combustion Engineering's System 80 reactor. Up until 2010, South Korea plans to build 12 more reactors, including eight more 1000 MWe PWRs and four "evolutionary" 1300 MWe PWRs.

. . . back to [ Table of Contents ~ South Korea ] Radioactive Waste Management

In September 1996, it was announced that the responsibility for the selection of a radioactive waste facility for both low and high level waste had been transferred from the Korea Atomic Energy Research Institute (KAERI) to the Korea Electric Power Corporation (KEPCO). The decision followed ten years of unsuccessful efforts to find a waste site. [214]

In 1990, the selection of a site on AnMyun Island caused serious riots, and led to the dismissal of then - Minister of Science & Technology Kun Mo Chung. [215]

In December 1994, South Korea announced that it had chosen a small island called Kurop-do to become its first radioactive waste disposal site. Kurop-do is about 65 km off the west coast port city of Inchon. The island was chosen after a highly controversial selection process that saw widespread demonstrations by anti-nuclear groups and community organizations. [216] Although construction of the site was slated to begin in 1996, the plan was abandoned due to intense local opposition and the discovery of geological faults in the area. [217]

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2.4.3. South Korea and the Bomb

In 1978, the House International Relations Committee of the US Congress conducted an investigation of Korean-American relations known as "Koreagate". The committee documented that in the early 1970s, South Korea decided to launch a nuclear weapons program. South Korea initiated discussion with France for purchase of a reprocessing facility and with Belgium for purchase of a mixed- oxide (i.e. uranium and plutonium) fuel reprocessing facility. Canada was also involved with the transfer of sensitive technology. [218] Adding to the seriousness of the threat, it was also disclosed that South Korea had already amassed much of the necessary technology for weapons production, and was mainly lacking the plutonium. [219] It is assumed that only strong American pressure behind the scenes forced the South Koreans to abandon their nuclear weapons program. Ironically it was the explosion of India's nuclear bomb, made with plutonium from the Canadian CIRUS reactor, that focused attention on the South Korean situation.

The Korean Peninsula remains one of the last flash points of the cold war, and relations between North and South Korea remain tense. There is little doubt that nuclear technology in both countries serves to heighten tensions by raising the spectre of nuclear weapons. Recent North Korean nuclear efforts have been the focus of a massive international effort (see comments on KEDO above).

. . . back to [ Table of Contents ~ South Korea ]

2.4.4. Corruption and Politics in South Korea

In December 1995, the government of President Kim Young Sam arrested two former Presidents, (former) General Roh Tae-woo and (former) General Chun Doo Whan. The arrests followed special legislation to bring to justice those involved with an alleged military coup and a subsequent massacre of civilians at Kwangju in 1980. Roh Tae-woo was charge with receiving bribes, and has publicly admitted receiving almost $900 in "donations" from Korean businessmen, and keeping $300 million for himself in secret bank accounts. Some sources estimate that Chun and Roh took in $2 billion between them while in power.

Following the 1950-53 Korean War, South Korea had a long tradition of military dictatorship. The Korean 'economic miracle' was based on brutal repression of labour rights and basic human rights. After the assassination of President Park Chung Hee by his own security chief in 1979, Chun Doo Whan staged a coup, and brutally smashed a popular revolt in Kwangju in May 1980, killing over 200 civilians, and injuring over 2,000. Chun stepped down only to be replaced by his friend and crony Roh in 1988.

Kim Young Sam is the first President without a military background in over thirty years. He was elected in 1992 on a platform of democracy and human rights, but his election was supported by Roh and Chun. The corrupt, dictatorial legacy of the past has not been erased ~ Kim Young Sam has been accused of receiving $390 million from Roh for his 1992 election campaign. [220] More than 30 leaders of Chaebols, Korean business conglomerates, have also been charged with corruption by providing more than $300 million in bribes to Roh while he was in office from 1988-1992. [221]

On August 26, 1996, courts in South Korea handed down a death sentence for Chun Doo-whan for mutiny and treason in his 1979 coup, and Roh Tae-woo received a sentence of 22 and a half years. They were also fined $370 million and $480 million respectively. [222] Perhaps just as shocking sentences were handed down also to a number of top bosses of family-run Chaebols. [223] It remains to be seen if democracy and respect for human rights can take root in South Korea.

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2.4.5. Human Rights in South Korea

In its international report on human rights in 1995, Amnesty International noted that over 200 people were arrested under the notorious National Security Law, for the non-violent exercise of basic human rights. These people included students, political activists, writers, publishers and academics. Over 150 others remained in prison from previous years. [224]

Torture and ill treatment of detainees continued in 1995 and 1996. Sleep deprivation and beatings to extract confessions are reported to take place during long periods of detention ~ up to 50 days under the National Security Law - before charges are laid. [225]

In 1995, trade union leaders continued to face arrest and imprisonment under Article 13(2) of the Labour Dispute Mediation Act, which prohibits a "third party" (someone with no immediate connection to a workplace) from intervening in a dispute. In November 1995, Kwon Young-gil, President of Minju Nochong, the Korean Confederation of Trade Unions, was arrested under Article 13(2) for supporting striking workers, and criticizing government policy. Minju Nochong was declared illegal. Soh Son-won,of Chongihyop, an unauthorized trade union of railroad workers, was sentenced one and a half years in prison after an appeal hearing in June 1995. [226]

. . . back to [ Table of Contents ~ South Korea ]

2.5. Turkey

2.5.1. Turkish Attempts to Go Nuclear

The Turkish flirtation with nuclear power began in July 1955, when it signed a bilateral agreement with the USA to cooperate in the "peaceful uses of nuclear energy". In 1956, the Turkish Atomic Energy Commission (TAEK) was created. Construction began in August 1959 on the Turkey's first research reactor ~ a pool- type reactor at the Kucukcekmece Nuclear Research and Training Centre. The 1 MW reactor, known as TR-1 (Turkish Reactor-1) went critical in 1962 and was reportedly shut down in September 1977, but was upgraded to 5 MW by Belgonucleare in 1980. [227] The upgraded 5 MW reactor, known as TR-2 first went critical in December 1981. A second research reactor, the ITU-TRR, at the Technical University in Istanbul, is operated by the Institute for Nuclear Energy. It is a 250 KW Triga Mark II reactor that started construction in March 1975, and first went critical in March 1979. [228] Fuel for these reactors originates and is enriched in the USA. Fuel for the TR-2 is fabricated by Cerca, in France. Fuel for the ITT-TRR is fabricated by General Atomics in the USA. [229]

Nuclear advocates in Turkey have made a number of unsuccessful attempts to initiate a nuclear power program. In 1965, the Electricity Survey Institute proposed construction of a 300-400 MWe PHWR (a Pressurized Heavy Water Reactor such as the CANDU). Due to political and economic conditions in the country this attempt was a failure. [230]

Following its establishment in 1970, the Turkish Electric Authority (TEK) initiated feasibility studies for a 600 MWe nuclear power plant. Site selection was narrowed down to Akkuyu Bay on the Mediterranean coast, 43 km southwest of Silifke. TAEK actually issued a site licence for Akkuyu Bay in 1976. Negotiations began in 1977 with ASEA-Atom of Sweden and Stal Laval. [231] However the deal collapsed in mid-1980 following a military coup, and a failure to reach an agreement on financing.

. . . back to [ Table of Contents ~ Turkey ]

2.5.2. CANDUs for Turkey?

By 1983, however, bids were invited, now on a 900 MW plant, and three letters of intent were issued to: (a) Atomic Energy of Canada Ltd. (AECL); (b) Kraftwerk Union (KWU) ~ both for the Akkuyu site, and to General Electric (GE) for a second site ~ Sinop on the Black Sea coast. However, the Sinop site proposal was eventually dropped. Negotiations with AECL and KWU extended into 1984, by which time Turkey had decided to adopt a "build- own-operate-transfer" (BOOT) model for its first nuclear power plant. This BOOT approach required the reactor vendor to be responsible for building the plant and operating it for 15 years, through a "Joint Venture Utility" (JVU) set up by the vendor and TEK. TEK would then purchase and distribute the electricity produced. After 15 years, AECL would sell the plant back to TEK.

At this point KWU withdrew its bid because Turkey was unwilling to give a sovereign guarantee on loans required to finance the project. AECL, however, was willing to accept the high financial risk, and agreed to the BOOT scheme, signing a preliminary agreement in 1985. [232] As usual, AECL did not release details of the negotiations and simply announced "the start of detailed negotiations and proposals for the construction of a CANDU unit in Turkey". [233] The AECL proposal was facilitated by Nuclear Project Managers, a joint venture between AECL, SNC, Lavalin, Montreal Engineering and the Foundation company. The AECL Annual Report 1985-86 referred only to "a proposal to supply a CANDU 600 system to Turkey" and to "prolonged negotiations for the construction of a CANDU station in Turkey". [234] At this time AECL established an office in Ankara, the Turkish capital. [235] Under the BOOT scheme, AECL was required to build the nuclear station, finance its construction and recover its costs by selling electricity back to TEK for 15 years, at which point TEK would become owner of the plant with no further payment. AECL

In 1985, concerns were also raised in Canada about the possibility of corruption in the Turkey deal. "Finders fees" ~ a euphemism for bribes, have apparently been an accepted practice in Turkish megaprojects. [236] James Donnelly, then president of AECL stated, "We have a representative in Turkey, which is the only way to do business in Turkey". Donelly said that AECL's agent in Turkey gets "a consultant's fee and he will get a percentage of the deal". [237]

It is not clear if the proposed structure of the CANDU deal changed from when its was first discussed, however, in 1983 the media reported that Turkey required financing by the EDC of 80 to 85% of the total cost of the plant. It was also reported that Korea Heavy Industries, and another supplier of the turbine/generator would be partners in the deal. [238] By 1987, partners in the AECL deal were identified as NEI Parsons of Britain (turbine/generator set), and the Turkish engineering company Enka Insaat. [239] In 1985, it was reported that Turkey would own 40% of the proposed plant and AECL would own 60%. It was not clear if the proposed level of Canadian financing had changed. [240] It was later reported that as part of the deal, AECL would have to accept the risk of poor performance - reportedly a minimum 75% capacity factor. [241] Clearing the way for a possible sale to Turkey, a Nuclear Cooperation Agreement was signed with Canada in 1985. [242]

However, despite AECL's payment of agent fees, and despite three years of steady media reports about probable closure on the CANDU deal, the Canadian government apparently recognized a bad deal when they saw it, and prudently required that Turkey guarantee the loans. Turkey rejected this requirement and in October 1986, it was unofficially reported that Turkey had suspended the project. [243] Despite some contrary messages, Turkey's nuclear program was put on a back burner for several years. [244]

In January 1993, Turkey issued a request for bids for consultancy services on a nuclear project with 100% financing. AECL reported that in response to a letter from TEK, it had submitted in 1993 a "preliminary proposal establishing the basis of an offer" ... "for one or possibly two" CANDU-6 reactors. The TEK plan called for the first plant to be in service by 2000. [245] AECL formed a consortium with John Brown Engineers and Constructors BV Europe, from the Netherlands, and two Turkish construction firms, GAMA and GURIS. [246] The consortium apparently re-established an office in Ankara and prepared to supply a bid for a CANDU-6 on short notice, once the actual request for bids on the project was issued. [247]

In the summer of 1994, the Turkish Electric Authority (TEK) was divided into two companies ~ the Turkish Electricity Generation and Transmission Company (TEAS), and the Turkish Electricity Distribution Company (TEDAS). These companies are slated for privatization. [248] Turkey again intends to promote a BOOT arrangement for its next attempt at a nuclear program. Under the current BOOT scheme, the reactor vendor and TEAS would form a joint venture company, selling the electricity to TEDAS. [249] Turkey now hopes that the first nuclear plant will be in operation by the year 2002-2003. As one commentator has stated,

"The BOT [build-operate-transfer] model will be the preferred option, but other "creative financing" approaches will also be considered." [250]

In March 1995, it was revealed that Turkish plans to award a consultancy contract for its nuclear plant were delayed following protests by residents around the Akkuyu site and by Greenpeace. The Mayors of 24 towns in the vicinity of Akkuyu were protesting the government's nuclear plan, arguing that it would damage tourism as well as agriculture. [251] However, the consultancy was finally awarded as expected to the Korea Atomic Energy Research Institute (KAERI) in partnership with two other Korean companies ~ Hidec and HEC ~ and the Turkish company GAMB. TEAS is apparently still preparing bid specifications based on the KAERI- GAMB documents. [252] AECL is reportedly bidding a single CANDU-6, and the German company Siemens AG is expected to bid a with a 1400 MW PWR. In this competition, it seems unlikely that AECL will be able to match the cost of the German plant. [253] It is expected that Turkey will make a decision on the bids in 1998, and that construction would start in the same year. [254]

The AECL bid for a Turkish deal has seen an expansion of partners. The AECL 1995-95 Annual Report notes that the Turkish "consortium" consists of "AECL, John Brown (Europe) and three Turkish contractors, GAMA, GURIS, and Bayindir... Nuclear Project Managers and Canatom are providing support to the initiative." [255] According to AECL's 1996 annual report, the consortium has expanded even further, to include KEPCO and HANJUNG of South Korea. [256]

. . . back to [ Table of Contents ~ Turkey ]

2.5.3. Turkish Energy Situation

Turkish electricity generation in 1993 was mainly from hydraulic (41.5%) and coal and lignite (33.6%). [257] Turkey is also located at the immediate centre of transport routes between the vast oil and gas reserves in the Middle East, Central Asia and Europe, and is thus in a unique position to benefit from low-cost fossil fuel. With relatively abundant domestic hydraulic and fossil resources, as well as proximity to the world's largest reserves of oil and gas, it is hard to imagine why Turkey would want to invest in an expensive nuclear power program. It should be noted that the coalition government of Prime Minister Erbakan's Islamic Welfare Party controls the energy ministry among others. [258] Despite American opposition, Erbakan's government recently signed a $23 billion/20-year natural gas deal in August 1996 with Iran. The deal was even supported by former Prime Minster Tansu Ciller, who is deputy Prime Minister and Foreign Minister in the new coalition government. [259]

. . . back to [ Table of Contents ~ Turkey ]

2.5.4. Human Rights in Turkey

Turkey has a long history of human rights abuses. In 1996, Amnesty International urged the United Nations Commission on Human Rights to take action against "gross violations" of human rights in Turkey, and summarized human rights abuses in 1995 as follows:

"Hundreds of prisoners of conscience were held during the year. Torture of political and criminal detainees in police stations continued to be routine, and there were at least 15 deaths apparently resulting from torture in police custody. At least 35 people "disappeared" in security force custody and scores of people were killed in circumstances that suggested that they had been extrajudicially executed by members of the security forces." [260]

The Toronto Star has described the socio-economic and human rights situation in Turkey as follows:

"...corruption, high employment, 80 per cent inflation. a deficit of$15 billion and a debt of $100 billion; widespread violations of human rights, especially of the minority Kurds; and a dictatorial secularism that violates religious and other basic freedoms." [261]

Since 1990, the human rights situation in Turkey has seriously worsened. Amnesty International has noted:

"To the problems of torture and prisoners of conscience must now be added the recently developed patterns of extrajudicial execution and "disappearance". "Disappearance" in police custody was virtually unknown in Turkey until 1991, but by 1994, the UN Working Group on Enforced or Involuntary Disappearances made the startling observation that it had received more allegations of "disappearance" from Turkey than from any other country in that year." [262]

Turkey is in a virtual state on civil war with Kurdish separatists fighting for an independent homeland ~ more than half of the world's 25 million Kurds reside in Turkey. In 1995, state of emergency legislation remained in force in 10 south-eastern provinces, where fighting with the Kurdish Workers Party (PKK) claimed 2,000 lives in 1995 alone. [263] Under Article 8 of Turkey's Anti-Terror Law, "separatist propaganda" is an imprisonable offence. Political killings, many of which may have been extra-judicial killings, numbered nearly 100 in 1995. The PKK was responsible in 1995 for at least 60 "deliberate and arbitrary killings". [264]

In 1995, Ottawa was initiated discussion with Turkey to sell 39 surplus Canadian C-5 military aircraft, and a possible upgrade of 200 Turkish F-5 fighters by Winnipeg-based Bristol Aerospace. The proposed deals have been protested by peace and human rights groups. and Foreign Affairs Minister André Ouellet has admitted a contradiction between the sales and Canada's alleged commitment to human rights and disarmament. [265] In April 1995, Canadians protested the proposed Turkish sale on Parliament Hill. [266]

The military has traditionally played a central role in Turkish politics. There have been several coups d'état in recent years, notably in 1971 and 1980. Following an inconclusive election in December 1995, a coalition of the second and third place secular parties took power. However, in June 1996 that coalition collapsed, and a new coalition, headed by the Islamic Welfare Party under Prime Minister Necmettin Erbakan. The unprecedented election of an Islamic government in the traditionally secular Turkey has introduced a new element of uncertainty into the fragile politics of Turkey and the Middle East as a whole.

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