The Qinshan CANDU Deal:
On November 26, 1996, Atomic Energy of Canada Limited (AECL) signed a contract with the China National Nuclear Corporation (CNNC) for the sale of two CANDU-6 reactors (known as Qinshan Phase III). The two 678 megawatt (net) reactors are valued by AECL at over $3 billion (CDN). The government originally approved a $1.5 billion loan through the Canada Account of the Export Development Corporation (EDC), which means that the funds would come directly out of the Consolidated Revenue Fund, the main operating fund of the federal government. Only about 80% of the $1.5 billion will go to Canadian companies. The EDC has since confirmed that the loan was for $1.47 billion (CDN) and $350 million (US), or $1.94 billion (CDN).
Several weeks before the deal was signed, the Canadian cabinet met on November 6, 1996 in a hastily arranged night-time session to make changes to regulations under the Canadian Environmental Assessment Act. As they stood, the Projects Outside Canada Environmental Assessment Regulations would have required that a preliminary screening, and a comprehensive study (environmental assessment) be carried out on the proposal by AECL to build two CANDU reactors for the Chinese government at Qinshan. The revised regulations were given the force of law the next day, without the normal publishing in the Canada Gazette for a 60 day comment period. The revised regulations were only published on November 27, 1996, the day after the CANDU agreement with China was signed. The regulations were triggered by the federal government authorization of the $1.5 billion (Cdn) loan guarantee through the Canada Account of the Export Development Corporation (EDC). This required the approval of Cabinet.
On November 8, 1996, the Minister for International Trade (then Art Eggleton), with the concurrence of Minister of Finance Paul Martin authorized the EDC to provide the loan of up to $1.5 billion (CDN) to the State Development Bank of China (SDB).
On January 20, 1997, the Sierra Club of Canada filed an Application for Judicial Review with Federal Court of Canada-Trial Division. The government has argued that the EDC loan emanated from the EDC, and not from the government, and refused to release background documents.
In November 1997, minutes of an April 1997 cabinet were leaked to the public. The document was primarily dealing with the financing of the proposed sale of two CANDU reactors to Turkey, but it commented extensively on the Sierra Club court case...
AECL has subsequently engaged in a lengthy series of delaying tactics, while work has continued on the reactors in China. It has argued that Chinese environmental reviews are as good as a Canadian environmental assessment, but has also argued that these Chinese documents should remain secret for reasons of commercial confidentiality. AECL was defeated in two prior attempts, first before the Federal Court of Canada (October 1999), which stated that the court was "not satisfied that the need for confidentiality exceeds the public interest in open justice." AECL's subsequent appeal of this decision before the Federal Court of Appeal in May 2000 was also defeated.
Despite these losses, the Supreme Court of Canada granted AECL leave on January 18, 2001 to again appeal disclosure of the Chinese documents. In an attempt to speed up the process, Sierra Club applied to expedite AECL's appeal, so that it would be heard in June 2001 instead of late 2001. On March 23, 2001, Chief Justice McLachlin of the Supreme Court of Canada dismissed Sierra Club's motion to expedite AECL's appeal. AECL's appeal will be heard before the Supreme Court of Canada on Tuesday November 6.
The AECL actions have delayed the main legal proceeding, so that the question of environmental assessment is becoming increasingly moot, as construction on the Chinese reactors proceeds. AECL originally estimated that the first reactor at Qinshan would first become radioactive in October 2002, and the second in July 2003. In March 2001, AECL said the reactors would be "completed" in February 2003 and February 2004 respectively.
The $1.5 billion (Cdn) government guarantee and loan for the Qinshan reactors was the largest loan in Canadian history, and as an EDC Canada Account transaction, it will remain a liability on the federal government's accounts until paid back. If China defaults, then Canadian taxpayers are on the hook. The loan was far too large and risky for either private sector banks or the EDC to handle on their own. However, few details about the deal have been revealed. The government claims that the $1.5 billion EDC loan for Qinshan was not "concessional", with the contract allegedly meeting the terms of the OECD Consensus Agreement. However, the interest rate was reportedly 7.49% -- a lower rate than any normal commercial deal. Although AECL originally claimed that the deal was worth $4 billion (Cdn), it has since stated that it was "over $3 billion" (Cdn). There have been other concessions.
During the visit of (then) Minister of Natural Resources Anne McLellan to China May 19-22, 1996, CNNC President Jiang Xinxiong identified four areas where they were seeking concessions: "economics, financing, heavy water lease, and the training and simulator". On the question of price, the CNNC President stated "There was still a big gap, roughly 10 per cent or $300 million [presumably US$]. So each side should take a step." McClellan responded saying it was impossible for AECL to cut $150 million, but on the financial question she said that "there could be further discussion on financing fees. Movement is possible."
On the question of heavy water supply, it seems likely that by leasing the heavy water, Canada made a significant concession to avoid the impact of an outright sale of the expensive commodity. It is well known that CANDU reactors are more expensive than Pressurized Water Reactors (PWRs, the dominant type of reactor worldwide) mainly because they require about one tonne of heavy water per megawatt of capacity. The Qinshan reactors require about 1,000 tonnes, at a purchase cost of over $200 (Cdn) per kilogram.
When Liberal politico Roy MacLaren visited China in April 1996, his mission at least in part was apparently to offer a concession in the form of a CANDU training package, including a computerized CANDU simulator. CAE Electronics Ltd. of Montreal stated that value of the simulator it would supply for Qinshan was $20 million (Cdn).
Finally, it is no coincidence that on the same day as the CANDU agreement in November 1996, the then Minister of International Trade Art Eggleton announced that the EDC would grant a concessional line of credit to China for up to $75 million, noting at the same time that the EDC was providing commercial lines of credit for business in China of up to $430 million. This was a barely concealed flouting of the OECD consensus agreement.
1. "Prime Minister announces final sale of CANDU-6 to China", Prime Minister's Office News Release, November 26, 1996.
2. Letter from D. Ward, EDC, to D. Martin, Sierra Club of Canada, May 16, 2001.
3. Letter from Elizabeth May, Executive Director of the Sierra Club of Canada, to the Hon. Paul Martin, Minister of Finance & the Hon. Art Eggleton, Minister of International Trade, November 26, 1996.
4. "Sierra Club Files for Court Review of CANDU Deal", Sierra Club of Canada News Release, January 21, 1997.
5. Record of Cabinet Decision, Cabinet Committee on Economic Development Policy, April 24, 1997.
6. AECL, Project Update: Qinshan Phase III People's Republic of China, July 1999.
7. Affidavit of Bill Hancox, Vice-President of AECL, In the Supreme Court of Canada (On Appeal from the Federal Court of Appeal), Between AECL and Sierra Club of Canada, March 2, 2001.
8. Ray Silver, "AECL, CNNC ink contracts for two CANDU-6s at Qinshan", Nucleonics Week, November 28, 1996, pp. 9-10.
9. Affidavit of Bill Hancox, Vice-President of AECL, In the Supreme Court of Canada (On Appeal from the Federal Court of Appeal), Between AECL and Sierra Club of Canada, March 2, 2001.
10. Memo to Natural Resources Deputy Minister Jean McCloskey, from ADM Energy Michael Cleland, Report on Minister's Trip to China (notes by Bob Morrison), June 18, 1996, "Meeting with CNNC President Jiang Xinxiong", May 20, 1996. (ATI p. 000228).
11. Ibid., (ATI p. 000230)
12. "CAE Selected by AECL to Supply Simulator for Chinese Nuclear Power Plant", CAE News Release, June 4, 1998.