Nuclear industry and globalization
At a time when plans for the construction of new nuclear power plants are multiplying throughout the world - in Europe, Asia, Russia and the Middle East - the nuclear industry is evolving: French restructuring, Toshiba’s financial difficulties, Rosatom's international expansion, participation of the Chinese industry with the British EPRs in Hinkley Point. All this shows that the nuclear industry, although very specific due to a very high capital intensity and a long-term duration, is undergoing transformations linked to globalization and the emergence of new powers.
From this point of view, the nuclear industry is affected by two distinct phenomena: the emergence of the BRIC countries (Brazil, Russia, India and China) and the need of a contractual negotiation guaranteeing the long-term economic balance of a nuclear project.
The emergence of the BRICs has been a major economic factor in the past decade, making China the second largest world economy. Even today, despite the financial crisis of 2008, emerging countries account for 60% of global growth and China expects a growth of 6.5% in 2017. In fact, the BRICs have reached the "turning point" of Lewis, a concept forged by Arthur Lewis, winner of the Nobel Prize for Economics in 1979. This turning point is defined as the moment when the cost of labour increases in a developing economy, leading to a contraction in corporate margins and a decline in investment. The BRICs will therefore inevitably see their long-term growth slow down to match that of the developed countries. However, despite this structural growth slowdown, emerging countries have a tremendous need for electricity, and therefore for nuclear power, to develop their industry and support the growth of their middle classes. According to the IAEA, between 90 and 350 new reactors will be built in the world by 2030, most of them in the biggest emerging countries, for a $ 1 trillion investment market. Among them, 8 reactors in Russia and 34 reactors in foreign countries are built by the Russian Rosatom, which gets overseas orders for 10 years for an amount of more than $ 133 billion.
Moreover, the liberalization of economies, undertaken since 1947 under the GATT and then the WTO, has been driven by the unprecedented growth in international trade. Between 1947 and 2008, international trade growth was on average twice as high as global economic growth. This led in practice to the reduction of tariffs and competitive tendering, although the latter remains a stumbling block in the trade agreements under negotiation. The United States still bitterly defend their Buy American Act, voted in 1933, which protects access to American markets with the obligation to produce in the United States.
On this subject, two models are opposed in the nuclear industry. States with a national nuclear industry protect access to their markets. It is thus the incumbent operator who builds nuclear power plants, without tender, in the context of a monopolistic market, such as EDF in France, Rosatom in Russia or Westinghouse in the United States. For States that do not have a national nuclear industry, competition is theoretically possible.
In fact, in the nuclear industry, international tenders cannot be totally effective or adequate for two reasons.
First, the sovereign character of the nuclear industry means that contracts are negotiated between states. Negotiations between states are strengthened by the fact that almost all electric and nuclear operators are public enterprises, with the exception of Westinghouse owned by Toshiba. Large nuclear contracts are thus often associated with long-term political partnerships between states.
Second, the nuclear industry is of specific nature. First, to guarantee a multi-billion dollar investment spanning over several decades, and requiring a guaranteed price of electricity, the contract requires political and public guarantees that cannot be sum up in a technical notebook in an invitation to tender. Second, the technical exclusivity clause allows the direct award of a contract to an undertaking in cases where, for technical reasons, it is the only one that could perform the work. These points explain the choice of Hungary to conclude an OTC contract with Rosatom to build a new nuclear power plant in Paks. This project was accepted by the European commission in its decision on March 6th 2017. After the first tender launched by the Czech Republic for the Temelin plant was cancelled, Prague is currently considering redefining the contractual framework for its nuclear project by moving towards an over-the-counter negotiation. Hungarian authorities relied on the EU Commission's decision toward France in the case of Flamanville, which states that the contract awarded directly to Areva by the French Government was justified by the concept of 'technical exclusivity', which is included in the public procurement directive.
In conclusion, the nuclear industry, which is actually considered as one of the most effective ways to reduce carbon emissions and expanding due to the development of emerging countries, is nevertheless of very specific nature. To ensure cost control and long-term performance, governments want to control contract negotiations and technical aspects to ensure the sustainability of these energy projects.
Laurence Daziano, Senior Lecturer in Economics at Sciences Po Paris, is a member of the Scientific Council of the Foundation for Political Innovation