"Sales Slashed to One-Tenth as a Basic... On the Brink of Starvation Due to Direct Hit from Nuclear Phase-Out" [Collapsed Nuclear Ecosystem②]

Nuclear Phase-Out Drive Leads to Industry Shutdowns... Technology Development Stagnates
KHNP Nuclear Expert with 36 Years Experience: "Had Much to Say but Nowhere to Share"
"Supply Chain Collapsing from the Roots... Ecosystem Recovery Will Take Significant Time"

[Asia Economy Sejong=Reporter Lee Junhyung] "Domestic nuclear power companies are on the brink of collapse. An acquaintance who ran a nuclear power parts company even took an extreme step last year. The morale of younger employees at Korea Hydro & Nuclear Power (KHNP) has also been greatly diminished."

L, the head of the division at power equipment company Y headquartered in Geumcheon-gu, Seoul, is a nuclear power expert who worked as an engineer at KHNP from 1977 to 2013. From Korea's first commercial nuclear power plant, Kori Unit 1, completed in 1978, to the export of the Barakah nuclear power plant to the United Arab Emirates (UAE) in 2009, L witnessed the history of Korea's nuclear power industry up close during his 36 years at KHNP. Regarding the Moon Jae-in administration's nuclear phase-out policy, he said, "I have a lot to say, but there was nowhere to express it." This is because he could only watch as the domestic nuclear power ecosystem, which had secured world-class technological capabilities, collapsed like dominoes.

When the government pushed forward with the nuclear phase-out policy in 2017, peripheral nuclear power companies like Geumseong High-Tech saw their sales plummet, and the number of companies closing one by one increased. In November last year, an acquaintance who was the head of an excellent partner company of KHNP even took an extreme step due to debt.

Direct Hit from Nuclear Phase-Out Policy Causes Sharp Decline in Orders

The situation of mid-sized company Y is also challenging. Although this company had major energy public enterprises such as Korea Electric Power Corporation (KEPCO) and KHNP as clients, it had to focus on survival rather than growth over the past five years. Contracts with KHNP, which once accounted for one-third of sales, have virtually disappeared. The order amount in the nuclear power sector, which reached 17.3 billion KRW in 2013, shrank to 1.4 billion KRW in 2018 when the government's nuclear phase-out policy was fully implemented. Although orders slightly increased to 3 billion KRW last year, the core nuclear power business has been stagnant for several years.

Technology development has also stagnated. Y was recognized for its technological capabilities, having received the highest safety grade, Q (Quality), among KHNP partner companies. However, as the nuclear power business shrank, the company began expanding into renewable energy fields such as energy storage systems (ESS) and power equipment testing and maintenance services. Consequently, most of the R&D personnel in the nuclear power sector were transferred to other departments.

Staff attrition was unavoidable. The number of employees, which exceeded 200 during the peak growth period of the nuclear power business, has now decreased to about 120. L explained, "Since the construction of Shin-Kori Units 5 and 6 was halted in 2017, there have been almost no orders from KHNP," adding, "Many people voluntarily quit, judging that there is no hope in the nuclear power industry itself."

Subcontractors Face Mass Closures

Y's situation was relatively better. Diversifying its business portfolio allowed it to survive amid the nuclear phase-out trend, which is a considerable achievement. Smaller companies with less sales volume than Y lacked the capacity to diversify their businesses and inevitably collapsed helplessly.

Subcontractors working with Y closed down one after another, and some parts were discontinued. Raw material and logistics costs have increased two to three times compared to the time of contracts with KHNP, but there were limits to reflecting cost increases directly in contracts. L lamented, "We have to maintain related personnel from the time of contract, but labor cost burdens during delays cannot be compensated," adding, "If contracts are breached, we end up on a blacklist and suffer losses, but we have to resolve it nonetheless."

The blow to the Gyeongnam region, including Changwon, known as the mecca of the nuclear power industry, was even greater. According to the office of Yoon Han-hong, a member of the People Power Party, the sales of about 270 nuclear power partner companies in Gyeongnam plummeted from around 16 trillion KRW in 2016 to about 10 trillion KRW in 2018. For example, nuclear power parts company A located in Changwon completely replaced its nuclear power production line with a general industrial line last year and effectively ceased its nuclear power business. The CEO of A said, "With the delivery of Shin-Kori Units 5 and 6 almost completed, domestic nuclear power orders have effectively ended," adding, "There are dozens of companies near Changwon that have since switched industries."

The first commercial nuclear power plant in Korea, Kori Unit 1. Permanently shut down in 2017.
[Photo by Asia Economy DB]

Since the nuclear power ecosystem has been destroyed from the roots, other companies inevitably face supply chain disruptions. A single nuclear power plant contains about 2 million parts, and many small and medium manufacturers are organically intertwined to form the supply chain. Nuclear power technology has a high entry barrier, and experts diagnose that it will take considerable time to restore the ecosystem that collapsed over the past five years.

Currently, many nuclear power personnel at KHNP have been dispersed to other departments. Over the past five years, while steadily expanding renewable energy businesses such as wind and solar power, the nuclear power business has been downsized. It is also reported that KHNP has transferred most of the domestic nuclear power personnel, who became 'surplus staff,' to overseas export teams such as the Egypt project team.