By George Borovas, Pillsbury Winthrop Shaw Pittman LLP
While investigations into what went wrong at Fukushima Dai-ichi Nuclear Power Station after the March 11 earthquake and tsunami continue, the first priority should be to contain the radiation and safely shut down all operations. Once the situation stabilizes, the principal focus will shift to understanding and incorporating the lessons learned from this accident. After the Three Mile Island (TMI) accident in the United States in March 19791, numerous extensive investigations were conducted by the U.S. government and nuclear industry groups. These investigations led to a number of improvements and changes which have since shaped the U.S. nuclear industry. No doubt, comprehensive investigations will occur in Japan and the lessons learned will be incorporated not only there, but also adopted by nuclear plants and nuclear regulators around the world, helping to shape the global nuclear industry in the future.
However, one of the fundamental issues that most emerging programs faced pre-Fukushima, and will continue to face post-Fukushima, is the issue of financing and risk allocation. The majority of the countries of the Association of Southeast Asian Nations (ASEAN) have announced intentions to pursue commercial nuclear power. Irrespective of the financing model that these countries eventually opt for, investors and lenders need to examine and assess the main risks associated with these new build projects. The events in Fukushima will certainly impact this risk assessment and the ASEAN countries will benefit from cross-border cooperation and collaboration in order to address and minimize these risks—in particular those associated with nuclear liability, public acceptance of nuclear power, and regulatory/legal uncertainties.
Establishing an internationally acceptable nuclear liability regime has always been a prerequisite to attracting vendors to participate in new nuclear power programs and ensuring adequate compensation for victims in the event of a nuclear accident. In general, vendors judge the adequacy of a nation's nuclear liability regime in the following aspects:
After the events in Fukushima, no doubt vendors and service providers will pay renewed attention to the issue of nuclear liability. They will carefully examine the protections afforded to them and their potential exposure to claims in- and outside of the country. A lack of a robust nuclear liability and insurance regime may become the one deciding factor for some suppliers as they consider participation in a new program.
To a substantial extent, the protection that a nuclear liability regime gives to vendors of nuclear components, materials, and services closely relates to a nuclear liability regime's ability to ensure the payment of claims. Many vendors are concerned that an inadequate amount of mandatory financial protection may result in actions against them in countries in which they do business. Even if vendors establish special purpose vehicles (SPVs) to perform contracts involving nuclear power stations, such concerns remain since claimants may allege that the "parent" corporation was involved in providing the services. U.S. vendors, for example, routinely assess the risk of lawsuits filed against them in the United States even if an incident occurred at a nuclear power station outside the United States that used their components, fuel, or services.
If the Convention on Supplementary Compensation (CSC) is adopted by most countries that have nuclear power programs and/or whose vendors help construct or operate such power stations, vendors' concerns that they will be sued in their home country or countries other than the country where their components, fuel, or services are used may eventually be reduced. CSC parties agree that a single forum (normally the courts of the CSC party where the nuclear incident took place) should have exclusive jurisdiction over all claims. And indeed, the events in Fukushima will likely provide renewed interest and momentum for the universal adoption of the CSC. However, pending such universal adoption most vendors will remain concerned about regimes that have relatively low amounts of mandatory financial protection.
The ASEAN countries can substantially reduce these risks by collaborating in the development of their national nuclear liability legislation and by establishing a regional nuclear insurance pool to maximize the available insurance capacity.
The events of Fukushima have already brought renewed debate with respect to the use of nuclear power. Governments of countries that are interested in developing nuclear power programs will have to detail to their citizens, plainly, simply, and truthfully the comparative benefits and risks of all forms of energy production. However, this risk and benefit debate and analysis will have to include the wider societal, national security, and geo-political implications of the use of any form of energy so that the public can make an informed decision.
For example, while the wide use of "clean" wind and solar power has the benefit of not producing carbon dioxide emissions or other waste products, their intermittent nature and need for large geographical footprints—with potentially serious implications on the agricultural production and other capabilities of the country—are crucial factors that need to be taken under consideration. Alternatively, while coal may be abundant in many parts of the world, the facts that 10,000 people die from coal mining and related activities each year and its wider use results in increased carbon dioxide emissions clearly may influence the level of public acceptance.2 Finally, to adopt the wider use of natural gas and oil means the public would have to be willing to accept the geopolitical implications of depending on oil and gas producing regions and countries as well as accept an increase in serious gas pipeline accidents (over the past 20 years, 1,087 serious gas pipeline accidents occurred in the U.S. alone according to the National Conference of State Legislatures3, and in 2010 more than 14 major oil spills and refinery explosions were reported worldwide, with human casualties and serious environmental consequences).
For nuclear power, governments should clarify that in the 60 years since commercial nuclear energy facilities have been in operation and after 14,400 cumulative reactor-years of commercial operation of nuclear power plants in 32 countries, so far, Chernobyl (reflecting a severely flawed Soviet-era design) was the only time that radiation-related fatalities occurred—56 at the time of the accident—while the United Nations’ Expert Group concluded that there may be up to 4,000 additional thyroid cancer deaths among the three most exposed groups over their lifetime. At the same time, governments should educate the public about the real risks of radiation and how the governments intend to address the issue of short-term and long-term radioactive waste disposal. Most importantly, as the lessons learned from Fukushima become known, governments will have to describe how these lessons will be incorporated in their own legislation and regulations so that a similar event will not be repeated and, in fact, will result in an even safer and more efficient nuclear power industry.
Investors will take comfort in countries where there is a significant public acceptance of the use of nuclear power and will remain weary of an ambivalent public, which may result in changing governments or government policies with respect to the use of nuclear power. And although public education campaigns about nuclear power tend to be national initiatives, regional cooperation on public acceptance and confidence building can be very effective and ASEAN countries are well-positioned geographically and politically to promote and implement cross-border programs.
The establishment of a nuclear regulatory regime in areas such as licensing, safety, nuclear liability, decommissioning, and waste management provides investors with comfort and certainty. And although there are many good examples of existing regulatory structures from countries with developed nuclear programs, these cannot be simply copied or adopted. Putting together such a comprehensive regulatory regime is a lengthy and difficult process and must reflect the particular needs, as well as the particular governmental, legal, and regulatory structures of each country.
Following Fukushima, the ASEAN countries will have to demonstrate to investors that not only will their regulatory system incorporate the short-term changes that will be implemented in other developed nuclear programs but also that their regulatory system will have the foresight and flexibility to adopt the long-term lessons that will eventually come out of Fukushima.
Just as the Three Mile Island incident resulted in a dramatic improvement in the safety and performance of the U.S. nuclear industry, the events at Fukushima will likely shape the global nuclear industry in the future. In the long term, this may lead to a much safer and efficient global nuclear industry. However, aspiring nuclear power entrants, such as the ASEAN countries, will have to illustrate to the financial community and any potential investors that they have the determination, capability, political will and resources to address the significant challenges that the development of a nuclear power program presents post-Fukushima.
George Borovas is the head of International Nuclear Projects at Pillsbury Winthrop Shaw Pittman LLP and concentrates his practice on international nuclear energy projects, and new nuclear power plants. He is currently advising governments on the development of nuclear power programs. He has worked on projects and transactions in the U.S., Europe, the Middle East, Japan, South Korea, Southeast Asia, China, Russia, and South Africa and frequently lectures in conferences worldwide with respect to the global nuclear industry. Before becoming a lawyer he was a chemical engineer for a power plant engineering firm. He can be reached at firstname.lastname@example.org.
1Pillsbury represented the licensed operator of the Unit 2 reactor at Three Mile Island (TMI) and its corporate parent General Public Utilities (GPU) in the various legal proceedings stemming from the 1979 accident, including a range of civil, criminal, and administrative litigation and investigations conducted by NRC Staff, NRC's Special Inquiry Group, President Carter's Kemeny Commission, numerous committees of Congress, the Commonwealth of Pennsylvania, and the Department of Justice. Pillsbury also represented GPU during six years of proceedings to win permission to restart the undamaged TMI Unit 1. Since being granted permission, Unit 1 subsequently went on to win NRC awards and set world performance records.2 George Johnson, Radiation's Enduring Afterglow, The New York Times, March 26, 2011.
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