Newbuild: Behind Riyadh's Exclusion of Westinghouse and EDF

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CCS Gets a Lift in Washington

Riyadh's recent decision to exclude Westinghouse from the formal reactor selection process for its mooted large power reactor program promises to jolt geopolitical calculations in Washington, which has long insisted that Riyadh formally abandon its nuclear fuel cycle ambitions before signing any bilateral nuclear cooperation agreement (NCA).

Riyadh's decision advances Russia's Rosatom, and China's China National Nuclear Corp. — companies owned by Washington's two key geopolitical adversaries — alongside Korea Electric Power Co. (Kepco). France's EDF appears to have been excluded alongside Westinghouse, although there is at least one report to the contrary. To keep US-based Westinghouse in the mix, Washington may be forced to back down from previous intellectual property and export control considerations it has asserted for any Kepco supply.

"This is not sending two middle fingers to Washington, DC, but it’s certainly sending one," one US industry source told Energy Intelligence. It's not clear how Washington might respond, but if US President Joe Biden proceeds with a planned visit to Saudi Arabia later this month or next, the technical Bid Invitation Specification (BIS) process for the nuclear program will almost certainly be on the agenda.

In some ways the Saudi exclusions can be justified on commercial grounds: US-based Westinghouse and to a lesser extent France's EDF appear to have been increasingly unresponsive to the King Abdullah Centre for Atomic and Renewable Energy (Ka-Care) as it developed the BIS process, and both vendors are in commercial disarray. EDF is hemorrhaging money thanks to its troubled French operating fleet, while Westinghouse has been put up for sale by its Canadian private equity owner.

While multiple sources agree that Westinghouse was excluded from the BIS, the situation with EDF is less clear. One Korean newspaper reported May 31 that EDF had received the BIS, while EDF executive Xavier Ursat said in an early May post on LinkedIn that EDF was "positioning" itself for the sale of two EPRs to Saudi Arabia. EDF declined to comment when asked by Energy Intelligence about the Saudi tender.

Back to the 123

Assuming Riyadh has indeed excluded both Westinghouse and EDF, most sources agree that commercial considerations alone wouldn't be worth the political blowback Riyadh has likely already incurred. Instead sources all point to the years-long stalemate over a US-Saudi Arabia NCA, known in Washington as a 123 Agreement. That stalemate centers around two key Washington demands: that Saudi Arabia commit in the NCA to not pursuing a domestic uranium enrichment or reprocessing program and that it sign and ratify the International Atomic Energy Agency's Additional Protocol (IAEA AP), which would allow fuller access of nuclear inspectors to the Saudi nuclear program.

The exclusion of Westinghouse "may be a message to the United States to get on the stick and accelerate negotiations toward an agreement that would permit the US to have nuclear cooperation with Saudi Arabia," Mark Hibbs, a nuclear expert with the Carnegia Endowment for International Peace, told Energy Intelligence. "Even at this point, I would not conclude, based on the invitation that we hear about, that the United States is out of this."

But Riyadh is committed to maintaining its nuclear options and probably more so with every hawkish announcement from Tehran regarding its growing nuclear enrichment program, so it's hard to envision either side backing down on their nuclear fuel cycle demands.

"The $64,000 question is whether anything has really changed, particularly in the region, that would satisfy the Saudi Arabians to the extent that they would be willing to go forward with an agreement that would tie their hands on the future of their nuclear fuel cycle?" asked Hibbs. To the extent that the answer to this question is no, the BIS exclusions might have a more subtle goal than forcing through a US-Saudi NCA on Riyadh's terms. Saudi planners may be instead focused on forcing Washington to accept a Saudi deal with Kepco and South Korea.

A Solution From Seoul?

Without any obvious geopolitical reasons to exclude EDF and annoy Paris — particularly given that a Saudi-French NCA has been in place since February 2011— Riyadh may have excluded any possibility of French supply to assure Washington it still has a hand to play. In this reading of the situation, Riyadh may be signaling Washington that if it wants to keep this incredibly sensitive nuclear supply arrangement from going to the Russians or the Chinese, it must back the South Korean bid.

It's worth noting that in the previous 2017 request for information process, which saw all five hopeful vendors supply generic information about their offerings to Ka-Care, the Kepco offering was widely viewed as the most commercially attractive.

Still unresolved, however, is the issue of the APR1400+ that Kepco is offering to Saudi Arabia. While Kepco and Seoul argue that this is a fully indigenous offering, completely developed in South Korea, both the US government and Westinghouse contend it is not. They say it is derived from a design originally supplied by Combustion Engineering (a US company long-since engulfed by Westinghouse) and that there is key US-origin technology and Westinghouse-owned intellectual property in the APR1400.

If Riyadh were to award Kepco a contract with this issue still unresolved, Westinghouse could theoretically push it into arbitration while Washington insists on a 123 Agreement. "There are a thousand things the US can do" to pressure against a Saudi Arabia-South Korea deal, said Henry Sokolski, executive director of the Washington-based Nonproliferation Policy Education Center.

But if the Biden administration wants foremost to prevent Riyadh from falling into the arms of Beijing or Moscow, and depending on talks with Riyadh and Crown Prince Mohammed bin Salman, it's conceivable that Washington could back down on a South Korean supply arrangement to Saudi Arabia.

Some resolution of the APR1400+ dispute may be in sight: on Wednesday, Jun. 8, the CEOs of Kepco and Westinghouse agreed to "develop a cooperative model for joint entry into the foreign-large nuclear power plant market," according to a Jun. 9 statement from Kepco. This made no reference to the APR1400+, or of any specific third country markets, but it does show the two firms are at least speaking to each other. Should this result in an agreement on the intellectual property within the Korean reactor offering — and its relative indigenousness — then a compromise between Washington, Seoul and Riyadh might be possible. Washington might overlook a 123 Agreement with Saudi Arabia in favor of a Kepco supply deal, for instance, if Riyadh signs and ratifies the IAEA AP.

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