CANADA LOOKS TO CHINA FOR NUCLEAR REACTOR SALES

UNCLAS SECTION 01 OF 02 OTTAWA 000402 SIPDIS SENSITIVE STATE FOR WHA/CAN, EB/ESC/IED, AND EB/EPPD NRC FOR INTERNATIONAL PROGRAMS: ROSALES-BUSH DOE FOR IA: PUMPHREY, DEVITO, DEUTSCH STATE PASS USTR: CHANDLER E.O. 12958: N/A TAGS: ENRG TRGY CA CH AECL SUBJECT: CANADA LOOKS TO CHINA FOR NUCLEAR REACTOR SALES REF: A. CALGARY 067 ¶B. OTTAWA 382 ¶C. VANCOUVER 161 ¶D. OTTAWA 228 ¶1. (U) Sensitive but unclassified. Not for distribution outside USG channels. ¶2. (SBU) Summary: Along with interest in joint development of petroleum and mineral resources (reftels),Canada and China have also pledged to deepen their ties in nuclear energy. During Prime Minister Martin's January visit to China, the two governments promised to expand commercial partnerships in nuclear energy and to jointly develop advanced nuclear technologies. A reinvigorated relationship with China would be a welcome tonic for Canada's government-owned nuclear technology company, Atomic Energy of Canada Limited (AECL). End summary. ¶3. (SBU) AECL exclusively designs and markets Canadian nuclear energy technology, and has built reactors for customers in Canada, South America, Eastern Europe and Asia. Although wholly owned by the Government of Canada, AECL operates independently, and a non-government Board of Directors oversees its operations. The company has recently suffered a series of setbacks, however, including an ongoing investigation by Canada's Nuclear Waste Management Organization regarding allegations that AECL has been improperly storing low-level nuclear waste. ¶4. (SBU) More importantly, in January 2005 Dominion Resources of Richmond, Virginia, announced its withdrawal from a cooperative effort with AECL to obtain a U.S. license for AECL's 700-megawatt "Advanced Candu Reactor," or ACR-700. Dominion was AECL's only potential customer in the United States for the ACR-700, a "next generation" light water reactor. Dominion's decision to drop the ACR-700 was a serious blow to AECL's plans, and may have even killed the design, as AECL announced soon afterwards that it would accelerate development of a newer and larger reactor, the ACR-1200. ¶5. (SBU) With no other potential sales in sight in the United States or Canada (where AECL's likeliest customers, the provincial governments, are focused on expanding alternative and renewable energy sources),China may well represent AECL's best hope for new orders for the foreseeable future. AECL has previously built two nuclear reactors in China, twin conventional, heavy water Candu-6 units at the Qinshan complex, each with a gross capacity of 768 megawatts each. During Prime Minister Martin's visit to China in January, in tandem with a joint government statement pledging cooperation on nuclear energy research, AECL announced several cooperative development programs with the Shanghai Nuclear Engineering Research and Design Institute (SNERDI). ¶6. (SBU) Significantly, the agreement with SNERDI includes participation in development of AECL's ACR technology. The agreement will thus give SNERDI input into the design of the ACR-1200, and will presumably increase AECL's prospects of selling its new reactor in China. Post interlocutors in the nuclear industry have previously voiced concern that with a 700 megawatt capacity, the ACR-700 was simply too small to attract customers, a flaw which AECL has corrected with the 1,200 megawatt capacity ACR-1200. ¶7. (SBU) An Embassy contact with the Canadian Nuclear Association, a group of mostly private sector companies, told us that the agreement with SNERDI is in part the result of renewed Government of Canada political support for AECL. In the past, Federal backing for AECL has ebbed and flowed according to the attitude of the incumbent Minister of Natural Resources. According to our contact, the GOC has apparently decided to redouble its efforts to promote AECL, in part because of its setback in penetrating the U.S. market. ¶8. (SBU) Comment: Although AECL is staking its future on the ACR design, post contacts opined that the company may, as in interim measure, attempt to sell additional Candu-6 reactors to China. Whatever the future course of China's nuclear power industry, it will find an eager partner in AECL. End Comment. Visit Canada's Classified Web Site at http://www.state.sgov.gov/p/wha/ottawa CELLUCCI