Diplomacy: Unwinding the Seoul-Washington Nuclear Dispute

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US-based Westinghouse and South Korea's top nuclear firms have launched settlement negotiations over their legal and commercial dispute as to whether Seoul's reactor export drive impinges on both Westinghouse's intellectual property rights and Washington's nuclear export controls. But any compromise will be a heavy lift, particularly given the US government's worries that any backing down by the US side might pave the way for Korea Electric Power Co. (Kepco) to supply Saudi Arabia with APR1400 reactors without US export controls. The thinking goes that this would undermine Washington's efforts to convince Riyadh to sign a "gold standard" nonproliferation agreement committing Saudi Arabia not to pursue uranium enrichment or reprocessing.

Westinghouse and Kepco, alongside Kepco subsidiary Korea Hydro & Nuclear Power (KHNP), have until Mar. 17 to resolve the current legal dispute. If negotiations are unsuccessful, the lawsuit filed by Westinghouse in October last year resumes and Kepco/KHNP will continue their effort to shift the venue for adjudicating the dispute from the US District Court for the District of Columbia to the Korean Commercial Arbitration Board.

The origins of the dispute were baked into the US-Korean civil nuclear relationship decades ago, when an agreement to transfer Combustion Engineering reactor technology to Korea's nuclear firms came even as Seoul planned a reactor export industry. But the current legal dispute took shape in the months and years after October 2017, when Riyadh issued a request for information to five vendors: France's EDF, Russia's Rosatom, China National Nuclear Corp., Kepco and Westinghouse, now the owner of Combustion Engineering's nuclear business and intellectual property. Kepco pitched a modified version of the APR1400 that it says is sufficiently free of US technology, and Westinghouse called foul. Fast-forward to today, and the dispute has followed both vendors as they pitch to prospective newbuild clients in Poland and the Czech Republic.

A Commercial Clash

On the commercial level, Westinghouse simply does not want to compete against Kepco or KHNP as they offer what it views as a version of Westinghouse-owned technology.

The Korean firms don't accept this premise; Kepco and KHNP say that “ever since the introduction of nuclear power plants within its borders,” they have endeavored “to develop independent and distinctive nuclear technology,” which they contend was accomplished “by utilizing independent research and development, verification tests, and accounting for recent safety and design requirements” to develop a modified APR1400 free from US intellectual property.

Perhaps more importantly Korean nuclear planners don't want to give Westinghouse or Washington a veto over which export markets they can access. Moreover South Korean President Yoon Suk-yeol has made nuclear a pillar of his energy and trade policies: Yoon's government last month doubled spending on nuclear energy, and it aims to export 10 reactors by 2030.

To that end, Kepco and the Abu Dhabi's Emirates Nuclear Energy (Enec) are touting new financing arrangements and their nearly complete Barakah nuclear plant in the push to jointly deliver APR1400 technology to a third country. This week the UAE pledged a $30 billion investment in South Korea "strengthening strategic cooperation in the four core cooperative sectors of nuclear power, energy, investment and defense," President Yoon said in a Jan. 15 statement, and as Yoon and UAE President Mohammed bin Zayed Al-Nayhan toured Barakah, Yoon argued that both countries must now pursue "joint advancement into third countries."

The commercial possibility here is that Abu Dhabi's money might backstop a Korean nuclear export drive — possibly through equity or debt investments in Korean-supplied newbuilds — in a way that makes Kepco and KHNP frightening competition for Westinghouse, the owners of which have made clear they're not interested in accepting any construction risk on nuclear newbuilds.

Not only does Westinghouse see a commercial necessity, therefore, in blocking Kepco and KHNP from competing for newbuild business in Poland, the Czech Republic and Saudi Arabia, it wants to reassert its dominance in the global nuclear export market. And for Washington, that leverage sounds useful -- particularly in a country like Saudi Arabia.

Diplomatic Impasse

Saudi Arabia is one of the only competitive nuclear newbuild markets where financing considerations may be secondary, and it's also the one market in which the Korean firms and Westinghouse are no longer competing head-to-head: Westinghouse was excluded from Riyadh's large reactor newbuild tender at the beginning of last year.

This surprising exclusion was possibly in part due to the ongoing impasse over Washington's diplomatic demands. For years non-proliferation advocates in Washington have pushed the US government only to pursue bilateral nuclear cooperation agreements with a "gold standard" in which the other country signs a legally-binding commitment to not pursue uranium enrichment or reprocessing. This wasn't achieved in agreements with countries such as Vietnam, but given Washington’s nonproliferation concerns that Riyadh will pursue domestic uranium enrichment, and given the heightened sensitives around regional Mideast proliferation, Washington has not budged. Neither has Riyadh.

In a world in which US nuclear vendors are the sine qua non of a new nuclear program, Washington's position might sway Riyadh, but that world changed years ago, and a Korean offering without any US strings attached might completely undermine Washington's previous self-perceived leverage. This may explain some of Washington's thinking behind a 2021 bilateral agreement with Seoul that committed both South Korea and the US to only export reactors to countries adhering to the International Atomic Energy Agency's Additional Protocol, which provides for stepped-up agency safeguards.

That agreement would still be in place even if Washington conceded to Seoul that Kepco/KHNP reactor offerings don't require US export controls, meaning there might still be some incentive for Riyadh to sign and ratify the Additional Protocol in order to obtain Kepco APR1400s. But this would be unlikely to satisfy many nonproliferation maximalists in Washington, and it would also do nothing to untangle the broader commercial dispute between Westinghouse and Kepco/KHNP.

If settlement negotiations aren't successful, one option for Seoul would be for Kepco and KHNP to continue to pursue reactor exports despite the legal challenge and potentially suffer the commercial and legal fallout from Westinghouse and Washington. On the legal front, Washington has no obvious enforcement mechanism to make sure non-US companies comply with US Part 810 export control restrictions. And Westinghouse's primary commercial relationship with South Korea at this point may be the significant South Korean-based supply chains for any future AP1000s.

But Warsaw and Prague might be reluctant to move forward on Korean-supplied reactor deals if the US government applies enough pressure, so Poland and the Czech Republic may be the place to watch if no compromise emerges. For the moment the negotiations continue.

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