Identifier
Created
Classification
Origin
05TAIPEI1640
2005-04-06 05:42:00
CONFIDENTIAL
American Institute Taiwan, Taipei
Cable title:  

TAIWAN'S FOURTH NUCLEAR POWER PLANT - HURDLES

Tags:  ECON ENRG KNNP SENV PREL TW 
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This record is a partial extract of the original cable. The full text of the original cable is not available.

060542Z Apr 05
C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 001640 

SIPDIS

STATE FOR EAP/RSP/TC, NP/NE FOR ALEX BURKART, PLEASE PASS
TO AIT/W

E.O. 12958: DECL: 04/01/2015
TAGS: ECON ENRG KNNP SENV PREL TW
SUBJECT: TAIWAN'S FOURTH NUCLEAR POWER PLANT - HURDLES
REMAIN

REF: A. 05 REFTEL TAIPEI 01072


B. 05 TAIPEI 00846

C. 04 TAIPEI 01217

D. 03 TAIPEI 01980

E. 02 TAIPEI 03912

F. 05 TAIPEI 00061

Classified By: AIT ACTING DIRECTOR DAVID J. KEEGAN,
REASON: 1.4 (b/D)

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 001640

SIPDIS

STATE FOR EAP/RSP/TC, NP/NE FOR ALEX BURKART, PLEASE PASS
TO AIT/W

E.O. 12958: DECL: 04/01/2015
TAGS: ECON ENRG KNNP SENV PREL TW
SUBJECT: TAIWAN'S FOURTH NUCLEAR POWER PLANT - HURDLES
REMAIN

REF: A. 05 REFTEL TAIPEI 01072


B. 05 TAIPEI 00846

C. 04 TAIPEI 01217

D. 03 TAIPEI 01980

E. 02 TAIPEI 03912

F. 05 TAIPEI 00061

Classified By: AIT ACTING DIRECTOR DAVID J. KEEGAN,
REASON: 1.4 (b/D)


1. (C) Summary. While the chances of completing the Fourth
Nuclear Power Plant (FNPP) have improved under the second
Chen Administration (refs a and b),serious challenges
remain. Contractors for the project describe its management
as beset by mass confusion and poor planning. While the Chen
Administration has indicated its renewed support for
completion of the FNPP, that policy shift has not translated
into a wholesale re-examination of the Administration's
anti-nuclear policies and programs. The Atomic Energy
Commission, Taiwan's nuclear regulatory agency, is still
slated to lose its research arm, a move that could hinder its
capacity to assess complex safety concerns. Thus, while
prospects for completing the plant have improved, the Chen
Administration's ability to ensure smooth and safe operation
of the FNPP remains in question. End Summary.


2. (C) AIT Commercial and Econ sections met with several
representatives from Stone and Webster Asia, Inc. (SWAI) on
March 22. SWAI is one of the major architectural and
engineering firms contracted to work on the Fourth Nuclear
Power Plant (FNPP). SWAI raised many concerns about the
management of the project.

No Single Manager
--------------


3. (C) SWAI is particularly concerned that the state-owned
Taiwan Power Company (TPC),which is responsible for the
overall project, does not have a single project manager.
There are currently more than a half dozen TPC internal
organizations involved directly or indirectly in the
management of the Lungmen Project. Those TPC organizations
do not routinely coordinate among themselves. Compounding
this problem is a major lack of coordination among the large
number of subcontractors who also do not report to a common

project manager. As a result, there is a major lack of
efficiency. According to SWAI, TPC often pressures SWAI to
perform engineering work before other contractors provide it
with all of the necessary interface data to complete the
project. When this happens, SWAI must rework the same
project after the required data becomes available.

No Integrated Work Schedule
--------------


4. (C) Both SWAI and General Electric (another major
contractor) also report that there is no single integrated
time schedule for the project. They both claim that each
major subcontractor has put together its own time line in
isolation from the others. This also creates difficulties in
timing work schedules for interdependent projects that are
carried out by disparate contractors.

Fixed Base Price
--------------


5. (C) Many of the contractors for the FNPP are operating
under fixed-price contracts that were originally signed in
the late 1980s. Over the course of time, the costs of many
of the inputs for the project (i.e., rebar and concrete) have
sharply increased threatening the solvency of some of the
contractors (ref c). This problem was exacerbated by the
3-month shut-down of plant construction in late 2000- early

2001. The work stoppage and restart is estimated to have
increased costs of the project by USD 30 million (ref d). GE
is one of the few contractors that included a suspension
clause in its original contract. As a result, GE has been
able to obtain most of its compensation claims from the
2000-2001 shut-down. Most other contractors, however, did
not have suspension clauses in their contracts and are
continuing to fight to recover the costs incurred. This has
exacerbated the financial problems of several of the
project's contractors, including its two major architecture
and engineering firms, SWAI and New Asia.

Major Delays
--------------


6. (C) There is widespread agreement that the project is way
off schedule and will not be close to ready for operation by
TPC's official anticipated completion date of July 2006.
SWAI predicts that the actual date will be closer to
2009-2010. GE provides an optimistic estimate of late 2007
and a more realistic estimate of second quarter 2008. These
delays will further increase costs, amplifying the financial
strain on contractors with fixed-price contracts.

Corruption
--------------


7. (C) During their March 22 meeting with AIT, SWAI also
alleged unscrupulous TPC business practices that might
involve corruption. SWAI indicated there have been several
instances where top TPC management, including TPC Chairman
Lin Ching-chi, have tried to pressure SWAI to influence the
selection of bids. One of SWAI's responsibilities is to
provide the specifications for contracts before they are put
out for bids and to assess the technical competencies of
bidders. SWAI described at least two instances where
Chairman Lin and others in TPC, prompted by pressure from LY
members (including Lin Feng-hsi),have pressed SWAI to
variously include or exclude bidders from the process. SWAI
claims it has refused to acquiesce to such practices.

Incompetence
--------------


8. (C) SWAI points out that, prior to the FNPP, TPC had no
experience in managing the construction of a nuclear plant.
Taiwan Nuclear Plants 1, 2 and 3 were all contracted out to a
single bidder which was responsible for all aspects of
construction. TPC has split the design of FNPP among
multiple contractors with no single project manager or system
of oversight. In addition, according to SWAI, when
evaluating cost estimates, TPC often fails to follow contract
requirements, which specify that the contract is a
cost-reimburseable arrangement. Despite this, SWAI claims
that TPC expects SWAI to absorb or assume costs that are
outside of its scope of work. SWAI is also currently in a
dispute with TPC over TPC ceiling prices that SWAI believes
are lower than what is required to perform the work.

Comment on Safety
--------------


9. (C) SWAI did not raise the issue of safety in discussions
with AIT. However, without proper oversight and supervision,
safety issues could be a concern. Such concerns would be
minimized as long as Taiwan maintains its strong and
independent nuclear regulatory agency, the Atomic Energy
Commission (AEC). Unfortunately, AEC has not enjoyed the
same resurgence of support as the FNPP in recent months (refs
a and b). In a meeting with AEC Minister Ouyang Min-shen on
March 30, Ouyang noted that plans to separate the Institute
for Nuclear Energy Research (INER),the research arm of AEC,
from the AEC and to "privatize" INER remain intact (ref e).
So do plans to move AEC from being an independent agency to
becoming a subsidiary under a new Ministry of Natural
Resources (ref f). According to Dr. Wu Ruey-Yau (formerly
AEC's Director of Planning and now Deputy Director of the
Environmental and Energy Technology Center at INER
(PROTECT)),these moves could undermine AEC's ability to
regulate the safety of Taiwan's nuclear plants. Wu points
out that INER has traditionally played a support role in
researching safety questions for AEC. Wu believes that AEC,
on its own, does not have the necessary staff and technical
capabilities to do the in-house studies required to hold TPC
to the highest standards of safety.

Conclusion
--------------


10. (C) While both GE and SWAI have confirmed a shift in the
Chen's Administration towards supporting the completion of
the FNPP, that shift has not translated into a wholesale
re-examination of the Administration's anti-nuclear policies
and programs. SWAI's comments suggest TPC is not properly
managing the construction of FNPP. The AEC's long-term
ability to regulate the safety of nuclear power plants is
also uncertain. These weaknesses stem from the Chen
Administration's nuclear free homeland policies, which sought
to minimize the role of nuclear power, included plans to
decommission the first 3 nuclear plants on an accelerated
schedule, and left in doubt Taiwan's commitment to complete
the FNPP (ref e). Thus, as prospects for completing the
plant have improved, the Chen Administration's ability to
ensure its smooth and safe operation have been called into
question.
KEEGAN