EXCLUSIVE! China agrees to build new nuclear reactors in Karachi

August 6, 2013 by Vaughan Winterbottom

China is to finance and build two of its self-developed ACP1000 nuclear reactor in Karachi, Pakistan, in direct violation of its obligations to both the International Atomic Energy Agency and the Nuclear Suppliers’ Group (NSG), according to a well-connected source in Beijing’s diplomatic community and a second industry source.

The two new reactors are to be known as Karachi 2 and Karachi 3 and the deal is costed at $9.6bn.The decision, so far unannounced, will undoubtedly lead to a massive backlash from the international community – particularly from the United States and from neighbouring nuclear power India – over its exporting of nuclear technology to Pakistan, where security against Islamist fundamentalists is a major concern.

China joined the NSG in 2005 and agreed not to sell Pakistan additional reactors beyond its contractual obligations at Chashma, a nuclear facility in Punjab Province built and run with Chinese support. Pakistan is not a signatory to the Treaty on the Non-Proliferation of Nuclear Weapons and has a proven nuclear weapons capability.

China had previously announced the first foreign contract for its self-developed ACP1000 reactor in April. At that point, The Times of India reported Foreign Minister Hong Lei tacitly confirming Pakistan was the destination when he said, “I want to point out that relevant cooperation between China and Pakistan does not violate relevant norms of the NSG.” China further argues that new plants are ‘grandfathered’ by previous agreements on Chashma.

But the reactors in to be built at Paradise Point, 25 miles west of Karachi and 700 miles from Chashma, will go beyond those agreements.

“It is completely illegal,” said the source. “As a member of the NSG, China should have respected the approval process. The official announcement on Karachi will come soon, and there are five nations already preparing to bring serious diplomatic consequences to China in international institutions.”

Analysts say the move is a belated response to a US-Indian civil nuclear energy deal signed in 2008. But that deal was forged with support from both the IAEA and the NSG; China has sought the approval of neither organization for its Karachi plans. The move raises wider questions about China’s long-term attitude towards American-dominated post-2WW stability.

Rapid change

The move also comes at a time of rapid change in China’s nuclear power industry. Nuclear station construction was halted for 20 months after the Japanese Fukushima disaster in March 2011. Following safety reviews and the introduction of passive cooling technology into Generation-II plants, China’s nuclear industry building boom recommenced in October 2012, coinciding with the release of a white paper on energy policy.

While the country only has 15 reactors currently online, another 30 are to be built by 2016. Fifty-one are in planning stages and another 120 are proposed. Its nuclear capacity target for 2020 was downgraded from 80 gigawatts (GW) to 58GW as a result of the post-Fukushima construction halt, though the 2030 target of 200 GW remains unchanged.

All in all, Chinese firms plan to invest close to Rmb one trillion in nuclear by 2020. In that year the government aims for nuclear power to provide four percent of the country’s electricity needs.

China’s first Generation-III reactor is expected to be commissioned in 2014. Located in Sanmen, Zhejiang Province, the station will feature two AP1000 pressurized water reactors developed by US-based Westinghouse Electric Company.

The agreement on construction at Sanmen was signed between State Nuclear Power Technology Corporation (SNPTC) and Toshiba-owned Westinghouse, with its consortium partner Shaw Group in July 2007. Westinghouse beat out France’s Areva and Russia’s Atomstroy, a subsidiary of Rosatom, in the bidding.

“There were some issues on the redesign action during construction,” said Zou Xuxin, a nuclear engineer at the IAEA and former section head at the China National Nuclear Corporation (CNNC). “There were new requests to upgrade safety mechanisms from both the National Nuclear Security Administration in the US and the Chinese side.” Despite the issues, SNPTC maintains it will begin loading fuel later this year. And if these photos are anything to go by, it appears to be on track.

The deal between SNPTC and Westinghouse included provisions for extensive technology transfer. Based on Westinghouse’s AP1000 design, SNPTC has subsequently developed the CAP1400 reactor, for which it holds independent intellectual property rights. The design for the reactor is finished and is to be reviewed by a third party in Europe.

“Currently SNPTC is doing equipment testing with all the domestic companies involved in supplying parts and services for the CAP1400. A big push at the moment for China, besides self-developing reactor technology, is internalizing supply chains. Westinghouse is helping,” says Arnaud Lefevre-Baril, CEO of Dynabond Powertech Services, a Chinese nuclear power market sales support consultancy.

Once this supply chain is up and running, Westinghouse, in conjunction with SNPTC will look to take it worldwide. Bloomberg reports Gu Jun, general manager of SNPTC as already saying the “exploration of the global market” for the CAP1400 will start in 2013, particularly in South America and Asia.

“Expect China to start putting itself in any and all overseas bidding processes with its self-developed reactors. It may go it alone in developing markets and provide financing, as CNNC is doing in Pakistan with its ACP1000. Argentina is also in serious negotiations about purchasing ACP1000 reactors pending a third-party general design assessment by an Italian university.

“But if it wants to compete in key markets it will most likely team up with a foreign partner,” Lefevre-Baril adds. While SNPTC is to team up with Westinghouse on foreign bids, another of China’s big industry players, China General Nuclear Power Group (CGNPC), is almost certain to go global with France-based Areva, according to industry experts. The two came close to bidding together on the Horizon British nuclear power project last year, before “suspending their interest.”

In line with the government’s aim to create a globally competitive supply chain, the National Energy Administration is reported to have recently required CNNC and CGNPC to merge their respective reactor designs for the ACP1000 and ACPR1000. Both were based on essentially the same technology. The merger is ongoing, but the end result will be a single cheaper, more competitive reactor for export.

Lefevre-Baril estimates that 60% of foreign companies involved in the nuclear supply chain in China will lose their business by 2020 as China develops overall independence in the industry.

But Chinese nuclear may still be beholden to foreign companies in one aspect: uranium processing. The cancellation of a proposed Rmb37bn joint CNNC-CGNPC processing plant in Guangdong made global headlines in July. Local environmental protests led to the local government backing out of the project. The plant was planned to process 1,000 tones of uranium annually by 2020, accounting for fully half of China’s expected nuclear fuel needs.

Currently China produces 800 tones of fuel a year. CNNC and CGPNC have stakes in uranium deposits in Namibia, Niger and Kazakhstan. But without added processing capacity from the Guangdong plant, they will need to up imports of enriched fuel from foreign suppliers. While analysts say the government will quickly find another site for the processing plant, the delays – and monetary losses – from the Guangdong debacle will be significant.

Lefevre-Baril says what happened in Guangdong was a good thing. “If China is going to be a nuclear leader in the future, all sectors of society need to be on board. [Guangdong] was a valuable lesson in communication for the CNNC and the CGNPC. If the companies are going to convince the public that nuclear is the answer to the country’s energy challenges, they need to engage with the public better.

Guangdong showed that the government can no longer just tell the people: “this is what is going to happen, whether you like it or not.”

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