AFTER 23 YEARS, BRAZIL RESUMES WORK ON ANGRA III NUCLEAR

UNCLAS SECTION 01 OF 02 BRASILIA 000533

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: KNNP ENRG TRGY FCS BR
SUBJECT: AFTER 23 YEARS, BRAZIL RESUMES WORK ON ANGRA III NUCLEAR
REACTOR

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(U) THIS CABLE IS SENSITIVE BUT UNCLASSIFIED AND NOT FOR INTERNET
DISTRIBUTION.


1. (SBU) SUMMARY. More than two decades after halting
construction of Brazil's third nuclear reactor at Angra dos Reis,
the Brazilian Government has resumed work. The estimated cost for
completing the construction of Angra III has jumped from USD 1.8
billion in 1986 to USD 3.3 billion. The government has decided to
use the same contractor - Andrade Gutierrez - that won the contract
initially in 1983. Areva and Siemens will provide the
instrumentation and control equipment. END SUMMARY.

REVIVED AFTER 23 YEARS


2. (SBU) On April 29, the President of the state-owned nuclear
power company Eletronuclear, Othon Luiz Pinheiro da Silva, confirmed
to the Environment, Science and Technology, and Health (ESTH)
Counselor that Brazil has resumed construction of Angra III. This
is the third reactor to be built at Angra dos Reis, State of Rio de
Janeiro, at the Central Nuclear Almirante Alvaro Alberto (CNAAA)
complex. In 1983, the contractor, Andrade Gutierrez, won the bid to
build Angra III, which was expected to cost USD 1.8 billion to
complete when work was halted in 1986. Today, the cost is estimated
at about USD 3.3 billion. The reactor is expected to come on line
by 2014, and it is projected to generate about 1,350 MW.


3. (SBU) Construction of the first reactor (Angra I) began in 1972,
and the reactor went on line in 1985 producing 657 MW. Work on
Angra II began in 1976, but the government scaled down its efforts
to complete the reactor in 1983 due to budgetary problems. In 1991,
however, the Brazilian Government resumed construction of the
reactor, and it went on line in 2001 producing 1,350 MW. In 1984,
construction on Angra III began, however, work was halted in 1986
due to doubts surrounding the safety and viability of nuclear power,
as well as the high cost of the project. Since then, the government
reportedly has paid about USD 20 million a year to maintain the
reactor's construction site, equipment, and storage facilities.


4. (SBU) The Brazilian Government envisions a significant increase
in electricity generated from nuclear power plants. In its National
Energy Plan 2030 and also its 10-Year Energy Plan 2016, the
government calls for an increase in nuclear generating capacity from
2,007MW today to over 3,000MW with Angra III, and then adding 4,000
to 8,000MW more by 2030. There is already a scramble among the
states of the Northeast for hosting one or more of the future
reactors.

THE CONTRACTING


5. (SBU) In September 2008, the National Council on Energy Politics
(Conselho Nacional de Politica Energetica CNPE) decided that
Eletronuclear could use the original contractor - Andrade Gutierrez
- to resume construction of Angra III. Avera and Siemens will
supply the instrumentation and control equipment for the plant.
Areva is the result of the merger between the German company
Siemens-KWU and the French company Framatome. The total cost to
complete the reactor is estimated at USD 3.3 billion. In March
2009, the Brazilian environmental protection agency IBAMA approved
the reactor's building licenses, completely opening the road for
construction to begin. Earlier, the National Commission on Nuclear
Energy (CNEN) had determined that the permission granted in 1983 to
go forward with Angra III was still valid.


6. (SBU) During the first phase of construction in the 1980's,
Eletronuclear purchased millions of dollars in reactor parts such as
tanks, tubing, and valves, which have been in storage and will now
be used as construction restarts. Eletronuclear intends to
renegotiate the original contract with Areva and Siemens for
instrumentation and control systems. Pinheiro said that the
suppliers had not provided the instrumentation and control equipment
before construction was halted, which means they can just obtain
modern versions rather than be forced to choose between out-dated
equipment and paying twice. Almost all the other equipment and
supplies were purchased during the original building phase (and used
or stored),or will be provided by Brazilian producers. While there
does not appear to be opportunities for U.S. firms to bid on work on
finishing Angra III, there should be other openings as Brazil
implements its plan to build new reactors.


7. (SBU) The issues of the reactor's costs and contract agreements
have sparked debate. As part of CNPE's decision to allow
construction to resume, the Brazilian Government Accountability
Office (Tribunal de Contas da Uniao, TCU) decided to revalidate the
original building contracts signed back in 1983 between contractor
Andrade Gutierrez and then Brazilian dictator Joao Baptista
Figueiredo, rather than open the construction job back up for

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rebidding. Further, the press notes the close ties between Andrade
Gutierrez and President Luiz Inacio Lula da Silva's party - the
Workers' Party (PT). Andrade Gutierrez reportedly is a leading
donor to the PT. In response, Brazilian officials claim that
honoring the original contracts is an important aspect of
maintaining the rule of law in Brazil and following good business
ethics. The press also has questioned whether antiquated equipment
and construction plans could lead to hazardous working conditions
and problems with the general safety of the reactor. Pinheiro told
ESTH Counselor that the equipment they have already purchased, such
as pumps and valves, has retained its value, while the equipment
they had not yet received was the more sensitive instrumentation and
controls. In that case, Eletronuclear will use a proven, modern
version of this equipment, though he wasn't looking for the absolute
latest or cutting edge versions.


8. (SBU) COMMENT. It appears that the Brazilian Government now has
an open path to completing Angra III. Obtaining the IBAMA license
to construct and getting permission to revive the initial contract
mean that substantial progress can be made this year. Building the
other future reactors will be more challenging. This will require a
CNEN license, an environmental license from IBAMA, and completing
the procurement process. It is noteworthy that despite Environment
Minister Carlos Minc's strong anti-nuclear sentiments, his agency -
IBAMA - gave the green light for Angra III. END COMMENT.

SOBEL