[Why&Next] What Happened on August 7, 2024... Behind-the-Scenes of KEPCO, KHNP, and U.S. WEC Negotiations

Unfair Terms of Nuclear Export Deal Revealed in Parliamentary Audit
Right After Czech Preferred Bidder Selection
Argonne National Laboratory Briefing at U.S. Department of Energy
"Westinghouse Technology Found in Korean Reactor"
Judgme

The details of the nuclear power plant export agreement signed last January between Korea Electric Power Corporation (KEPCO), Korea Hydro & Nuclear Power (KHNP), and Westinghouse Electric Company (WEC) of the United States are coming to light. At the time, KEPCO and KHNP emphasized that they had restored their cooperative relationship with Westinghouse by ending a patent dispute.

However, recent National Assembly audits have revealed that KEPCO and KHNP promised Westinghouse substantial technology usage fees, project assignments, issuance of letters of credit, and concessions in market access. This has sparked controversy over what is being called an unfair contract.

Ruling party members have criticized the agreement as a "traitorous contract" and an "unfair contract." In contrast, the parties involved have stressed that there was no other choice but to act in the national interest.

Decisive Blow from the U.S. Department of Energy

Initially, South Korea had claimed technological independence in nuclear power. The APR1000 reactor model, exported to Dukovany in the Czech Republic, was said to be independently developed and unrelated to Westinghouse technology.

However, in the confidential agreement signed with Westinghouse last January, KEPCO and KHNP agreed to pay Westinghouse a technology fee of 175 million dollars (approximately 240 billion won) per reactor. Separately, they also guaranteed Westinghouse a supply and service contract worth 650 million dollars (about 920 billion won) per reactor. This means that more than 1 trillion won would flow to Westinghouse for each reactor built.

In addition, to ensure contract performance, a guarantee letter of credit from a bank amounting to 400 million dollars per reactor was to be issued. This clause remains in effect for 10 years after the contract is signed.

The appendix to the agreement also specifies the markets each side can enter. In the United States, Canada, Mexico, the European Union (excluding the Czech Republic), the United Kingdom, Japan, and Ukraine, only Westinghouse will be able to secure nuclear power plant orders in the future. South Korea is limited to exporting nuclear power plants to countries in the Middle East, Southeast Asia, Africa, and South America. The agreement is valid for 50 years and is automatically extended every five years unless both parties agree to terminate it. This is why it is being referred to as a "slave contract."

KHNP and KEPCO explained that the reason South Korea, which had long emphasized "independent technology," suddenly made significant concessions to Westinghouse was largely due to the decision made by the U.S. Department of Energy (DOE) in August of last year.

According to a confidential briefing that KHNP recently provided to members of the National Assembly's Trade, Industry, Energy, SMEs, and Startups Committee, on August 7, 2024, a briefing was held at the U.S. Department of Energy in Washington, D.C., attended by senior officials from the DOE, South Korea's Ministry of Trade, Industry and Energy, KHNP, and KEPCO. The subject was whether U.S. corporate technology was included in the Korean nuclear reactor design.

The Argonne National Laboratory, under the DOE, stated on that day that Westinghouse technology was included in the Korean reactor. Argonne reportedly reached this conclusion after obtaining and analyzing the reactor's blueprints.

For South Korea, which must comply with U.S. export controls to export nuclear reactors to the Czech Republic, Argonne's determination was highly disadvantageous. KHNP and KEPCO explained that, as a result, South Korea had no choice but to accept Westinghouse's various demands.

The full text of the agreement between the two sides explicitly states, "The Korean nuclear reactor was developed using Westinghouse technology." It also stipulates that when exporting nuclear reactors abroad, South Korea must cooperate with Westinghouse to comply with U.S. export control procedures. Furthermore, when exporting next-generation reactors, such as small modular reactors (SMRs), South Korea must obtain "technology independence verification" from Westinghouse.

During this year's National Assembly audit, Assemblyman Heo Sungmoo of the Democratic Party requested materials regarding the circumstances of the DOE and Argonne National Laboratory's determination, but KHNP and others did not submit them. Assemblyman Seo Wangjin of the Innovation Party argued, "It is reasonable to view this determination as the decisive turning point that suddenly led to a 'permanent slave contract' in the dispute over the Czech reactor order," and added, "It is crucial to examine why and how this determination was made and the process leading up to it."

However, it is difficult to accept that South Korea simply retreated in negotiations based solely on Argonne's determination. Regarding nuclear power plant exports, South Korea has signed two major agreements with the U.S. in the past.

In 1997, South Korea signed a technology usage agreement with ABB-CE, which had acquired Combustion Engineering (CE). In 2009, when exporting the APR1400 reactor to the United Arab Emirates (UAE), South Korea signed another agreement with Westinghouse, which had again acquired ABB-CE. While both agreements included technology usage fees and project assignments for exports, they did not include clauses restricting market entry or effectively permanent contract terms.

KEPCO and KHNP: "Unavoidable for the Czech Contract"

August 7, 2024, the date of the DOE briefing, was less than a month after South Korea was selected as the preferred bidder for the Czech nuclear power project on July 17. In order to finalize the contract with the Czech Republic, South Korea needed to resolve its dispute with the U.S. as soon as possible. On September 19, 2024, President Yoon Suk-yeol visited the Czech Republic.

Jeon Daewook, Acting President of KHNP, acknowledged at the National Assembly audit by the Trade, Industry, Energy, SMEs, and Startups Committee on the 20th, "There were many shortcomings in the contract," but added, "It was a matter of choice for the Czech export." He said, "We believed we could jointly enter the European market, and we judged that it could be beneficial in the long term, such as the possibility of entering the U.S. market."

Kim Dongcheol, President of KEPCO, also stated, "Compared to the 1997 agreement, it may appear on the surface to be less favorable," but added, "If the legal obstacles with Westinghouse were not resolved, we could not move forward at all. There were unavoidable aspects, and I ask for your understanding."

While the political community is calling for renegotiation by KHNP and KEPCO, it is realistically a difficult situation.

If the agreement with Westinghouse is terminated, the contract to export reactors to Dukovany in the Czech Republic could be voided immediately. It is also uncertain whether Westinghouse would agree to renegotiate. Assemblyman Heo Sungmoo stated, "If we file a lawsuit to nullify the agreement with Westinghouse, exports, including to the Czech Republic, will inevitably be postponed indefinitely," adding, "We are currently in a checkmate situation."