[Why&Next] Controversial US Westinghouse, Czech Prime Minister Also Says "No Problem"

Expert: "Korea Should Not Get Involved in the Public Opinion Battle...
We Must Watch Closely to Allow Negotiations Without Rushing"
Similar to Apple-Samsung Design Patent Lawsuit

Regarding Korea Hydro & Nuclear Power's (KHNP) contract win for the Dukovany nuclear power plant in the Czech Republic, U.S. nuclear company Westinghouse filed a complaint with the Czech antitrust office on the 26th of last month (local time). Domestic nuclear experts have evaluated this as a 'public opinion campaign by Westinghouse' and advised that negotiations should not be rushed, as pressuring KHNP could actually put them at a disadvantage in the talks.

Professor Jeong Dong-wook of the Department of Energy Systems Engineering at Chung-Ang University said, "This is Westinghouse's intention to raise their price," adding, "It is better to take time and resolve the issue." Professor Jeong Beom-jin of Kyung Hee University's Department of Nuclear Engineering also emphasized, "The best course is to observe so that the government and KHNP can successfully conclude the negotiations."

Despite Westinghouse's objections, high-ranking local government officials, including the Czech Prime Minister, have expressed support for KHNP, stating "there is no problem."

Three Intentions of Westinghouse

The Czech government selected KHNP as the preferred bidder for the construction of two new reactors at Dukovany on July 17. KHNP and the Czech Republic plan to sign the final contract by March next year. In this context, a public-private delegation consisting of Minister Ahn Deok-geun of the Ministry of Trade, Industry and Energy, Kim Dong-chul, President of Korea Electric Power Corporation (KEPCO), and Hwang Ju-ho, President of KHNP, visited the United States in early last month to discuss nuclear power export procedures with senior officials from the U.S. Department of Energy (DOE) and Westinghouse. However, the delegation returned without any significant achievements.

According to the guidelines of the Nuclear Suppliers Group (NSG), which includes 48 countries worldwide including South Korea, when transferring nuclear technology to a third country, approval from the country owning the technology is required. South Korea received technology transfer from the U.S. in the 1980s to build nuclear power plants. Korean nuclear reactors based on U.S. technology must undergo export control procedures by the U.S. Department of Energy. However, when exporting to countries like the Czech Republic that have nuclear agreements with the U.S., only notification is required. The problem lies in Westinghouse, the notifying party, being uncooperative. The U.S. government is also reportedly reluctant to intervene actively in disputes involving private companies. This explains why the Korean public-private delegation returned without results.

Meanwhile, on the 26th of last month, Westinghouse filed an appeal with Czech authorities regarding KHNP's selection as the preferred bidder and publicly disclosed this fact through a press release. This has become an issue in both Korea and the Czech Republic, exactly as Westinghouse intended.

The nuclear industry sees Westinghouse's strategy as having three main intentions.

First, it aims to internationally portray KHNP, its competitor in the nuclear power market, as lacking independent nuclear export capabilities. Globally, energy security has become a priority following the Russia-Ukraine war, ushering in a 'nuclear renaissance.' With new nuclear projects expected worldwide, Westinghouse must continue competing with KHNP. By damaging KHNP's image, Westinghouse intends to gain an advantage in future bidding wars.

Second, Westinghouse's major shareholder, the private equity firm Brookfield, appears intent on increasing the company's valuation. Westinghouse was acquired by Japan's Toshiba in 2006 but faced financial difficulties after the 2011 Fukushima earthquake caused a downturn in the nuclear market. In fiscal year 2016 (April 2016 to March 2017), it suffered losses exceeding 7 trillion won. Brookfield, a Canadian private equity firm, acquired Westinghouse in 2018 for $4.6 billion. Given the nature of private equity, Brookfield needs to maximize Westinghouse's value before reselling it.

Third, there is analysis that Westinghouse is continuously raising objections to secure a portion of the Czech nuclear contract. When KEPCO won the Barakah nuclear power plant project in the United Arab Emirates (UAE) in 2009, it agreed to pay Westinghouse technical consulting fees and assign key equipment sectors such as generator turbines to Westinghouse.

Westinghouse's Apple Imitation

Regardless of the reasons, the key question is whether Westinghouse's claims are convincing, and the nuclear industry is skeptical. They also point out that the situation now differs from 2009 when Westinghouse's demands were accepted.

In a press release on the 26th, Westinghouse stated, "Bidders participating in the nuclear power plant tender must prove that they hold the rights to transfer nuclear technology to the Czech side and provide secondary licenses," and claimed, "KHNP's APR1000 and APR1400 reactor designs utilize Westinghouse's patented second-generation System 80 technology." They further asserted, "KHNP does not own the underlying technology and does not have the right to sublicense the technology to third parties without Westinghouse's permission."

However, these claims omit information unfavorable to Westinghouse. Although South Korea initially received significant assistance from the U.S. to build nuclear plants, most of the technology has since been localized.

KEPCO signed a technology transfer agreement with U.S. nuclear company Combustion Engineering (CE) in 1987 for the construction of Hanbit Units 3 and 4. In 1997, KEPCO renewed a technology use agreement with ABB-CE, the renamed company. The nuclear technology held by ABB-CE at that time was the System 80 technology referenced by Westinghouse.

Notably, KHNP reportedly secured the rights to sell Korean-type reactors to countries other than the U.S. when it signed a license agreement with Westinghouse, which acquired ABB-CE in 2007. Professor Jeong Beom-jin explained, "It's similar to a Korean company obtaining a license from Nike to manufacture shoes and then selling them to third countries," adding, "Westinghouse omits facts unfavorable to themselves."

Westinghouse's use of the vague term "underlying technology" without specifying concrete technologies reflects that South Korea has localized most core nuclear technologies.

KHNP has succeeded in localizing three core nuclear design technologies in collaboration with domestic nuclear companies: the nuclear design core code, coolant pumps, and the nuclear power plant instrumentation and control system (MMIS). The design code is a program necessary for designing the reactor core, the coolant pump supplies coolant to cool the reactor, and the MMIS oversees the entire nuclear power plant.

The APR1000 reactor to be supplied to the Czech Republic incorporates these localized technologies. Unlike the 2009 UAE Barakah project, KHNP does not simply accept Westinghouse's claims because it has the capability to build overseas nuclear plants using its own independent technology.

Accordingly, Westinghouse is reportedly asserting fundamental patents on the nuclear plant configuration itself rather than claiming infringement of specific technologies. A nuclear industry insider explained, "This is similar to Apple filing a patent lawsuit against Samsung over the rounded rectangular design of smartphones." Such patent lawsuits are often contentious and can drag on for a long time without resolution. The Apple-Samsung design patent dispute lasted seven years, from 2011 to 2018.

Experts advise against pressuring KHNP to quickly resolve the issue for this reason. When claims are evenly matched, the side eager to conclude quickly often has to concede. The Apple-Samsung lawsuit was ultimately settled out of court.

KHNP and Westinghouse are conducting litigation and arbitration respectively. In October 2022, Westinghouse filed a lawsuit claiming that Korean-type reactors KHNP intends to export to Poland and the Czech Republic use its technology and requested that exports be prohibited without U.S. government approval. Last year, a U.S. court dismissed the case in the first instance, ruling Westinghouse had no right to sue. Westinghouse immediately appealed.

In October 2022, KHNP also filed for international arbitration with the Korean Commercial Arbitration Board (KCAB), asserting that the overseas export of the independently developed APR1400 is legally unobjectionable. KHNP's contract with Westinghouse reportedly includes a clause stipulating that disputes are to be resolved through KCAB arbitration rather than litigation.

Czech Government: "Reviewed by 200 Experts... No Problem"

Westinghouse's appeal is unlikely to be a major variable in the final negotiations with the Czech Republic. Westinghouse raised the same claims during the bidding process, and the Czech government is already aware of them. Before selecting the preferred bidder, the Czech government reportedly requested explanations from KHNP and conducted thorough reviews.

According to Czech news agency CTK, on the 27th of last month, Prime Minister Petr Fiala said, "The cabinet is aware of the dispute between KHNP and Westinghouse and is taking measures," adding, "It will not be a problem." The Ministry of Trade, Industry and Energy explained that 200 experts from legal, economic, and energy fields participated in this bidding process and conducted in-depth reviews.

Meanwhile, not only Westinghouse but also France's EDF, which competed with KHNP until the final stages, filed a complaint. EDF has not disclosed the specific background of its appeal, only stating concerns about fairness and transparency.

In response, a Czech government spokesperson said, "It is common for bidders who lose to raise objections," adding, "This will not jeopardize the bidding." Ladislav Kritz, spokesperson for Czech Electricity Company (CEZ), explained, "Under security exception regulations, bidders who lose cannot raise objections."

Within the Czech Republic, there is also a sense of expectation for cooperation between KHNP and Westinghouse. Dana Drabova, head of the Czech Nuclear Safety Authority (SUJB), appeared on a radio broadcast (iROZHLAS) in July and said, "All pressurized water reactors, even French reactors, have origins linked to Westinghouse," adding, "We hope KHNP and Westinghouse will cooperate in the Czech Republic as they did at the UAE Barakah nuclear power plant."