Introduction: The Atomic Age
There is a paradigm shift in nuclear development: developing Southeast Asian countries such as Vietnam, Indonesia and the Philippines are at the forefront of harnessing nuclear power into a safe, efficient and sustainable energy source. In this article, we consider these three countries in relation to their legal development, official plans to build reactors and investment opportunities in order to determine their positions in the Southeast Asian nuclear development.
History of Nuclear Development in Southeast Asia
Since March 2010, Vietnam has taken significant measures to develop the legal framework upon which to build its nuclear capabilities. The country’s first four projects are estimated to have a life expectancy of 60 years, and its energy development plan to build 14 nuclear reactors by 2030 should be celebrated as an encouraging sign for both foreign and domestic investment.1
Indonesia’s nuclear history began well-before Vietnam’s, and with 40 years of infrastructure experience behind it, it may soon start to show its potential. For example, in 2010, Indonesia introduced the Presidential Regulation No. 5 to implement a policy for the mid-term national development plan relating to nuclear power plants (NPP) during 2010-2014, and has designated three nuclear sites in Banten, Bangka and the Muria Peninsula.2 However, Indonesia is still in the early stages of developing NPP’s in comparison to Vietnam.
The Philippines having built the Baatan plant in 1984, which fizzled out after political conflict, is a prime example of the importance for promulgating governmental support and action in developing nuclear programs.
The question is, what has sparked the renewed interest in these countries, and will there be a race to the top? All three are members of the World Trade Organization (WTO), with Vietnam only recently acceding in 2007, and all three are committed International Atomic Energy Agency (IAEA) members. Asia is one of the fastest growing regions for nuclear development so it comes as no surprise that emerging countries such as Vietnam, Indonesia and the Philippines, which rely heavily on foreign investment, are eager to have a slice of the pie.
The Role of Governments
Governments should be significantly involved in the process of nuclear development, so that energy policy grows in tandem with the development of NPPs.
Statistically, emerging markets have a high energy output; Southeast Asia is currently experiencing deficits in its energy capacity, with Vietnam expecting a power shortage of approximately 128bn kWh in 2020. As a result, emerging countries are spending a higher percentage of their GDP on funding for alternative energy sources. Even with their high initial capital costs, NPPs can generate cheaper electricity on a long-term basis than more conventional energy generation, depending on the reactors employed. Operating NPPs in Vietnam would ensure that 10 percent of the total national electricity capability by 2030 would derive from 15,000 MW of nuclear power.
Ultimately, the responsibility will fall on each country’s government to ensure that the financial risk involved in nuclear investment will be reasonable. Vietnam is currently experiencing financial drawbacks from the devaluation of its currency, high inflation and reduced credit rating resulting from recent poor investments. The International Nuclear Energy Development of Japan Company (JINED) has expressed an interest in providing the Vietnamese government loans for its Ninh Thuan Power Project, yet details of the loan facility are currently unknown.
Public Policy Concerns
Significant public policy concerns still need to be addressed. For example, it remains to be seen whether future NPPs in Southeast Asia will develop plans for the safe handling of uranium and for confining nuclear usage to peaceful means.
Between Indonesia, Vietnam and the Philippines, Vietnam has the only official plan to build an NPP that has secured foreign partners for development—the “Ninh Thuan Project.” Indonesia is struggling with seismic activity in the proposed vicinity for building NPPs as well as the souring of public opinion, causing it to abandon its plant in the Muria Peninsula.3 Indonesia’s temperamental public attitude is at odds with the government’s stance on developing nuclear plants. The Philippines’ plans to build an NPP near earthquake fault lines and dormant volcanoes were abandoned after officials deemed construction to be unsafe.
The safe storage of uranium and nuclear rods as a main public policy concern has recently been highlighted by the explosion at Japan’s Fukushima Daiichi plant. Despite the events in Japan, both the Indonesian government and Ministry of Foreign Affairs in Vietnam issued statements declaring continued advancement with their respective nuclear development plans.4
Vietnam’s Law on Atomic Energy stipulates a financial cap on liability in the event of a nuclear disaster (XDR 150 million for NPP accidents and XDR 10 million for transporting radioactive materials), and the country’s Master Plan, governed under Decision 906, sets out three main objectives of the nuclear reactors—one of which emphasizes safety by establishing a nuclear safety agency. Furthermore, Vietnamese and foreign organizations involved in nuclear-related activities in Vietnam are regulated under Decision 45, listing the prohibited uses of such activities which are subject to criminal and civil liability.
Importantly, to promote international compliance due to Vietnam’s WTO commitments, Decision 906 ensures that Vietnam’s nuclear energy will be used solely for peaceful purposes. In line with Decision 906, the Philippines, Indonesia and Vietnam are all signatories to the Southeast Asian Nuclear Weapon Free Zone treaty (SEANWFZ) and Non Proliferation Treaty (NPT) ensuring peaceful use of nuclear power.
Financing NPPs is undoubtedly one of the most challenging aspects for project implementation. The technological know-how, raw material and personnel may exist, but without investor funding, development of NNPs is not a viable option for most developing countries. The pressure of adhering to timelines and costs is tight, especially in an industry that has a history of delays and tendency to run over budget. The costs of the Ninh Thuan project were estimated in 2008 to be $3.4 billion but this estimate has since escalated to $10.5 billion The Philippines took nearly 30 years to pay off its debts from the political collapse of the inoperable Baatan plant.5 With these experiences in mind, a clear financial strategy is required.
The commercial question on investors’ minds is “who will ‘assist’ the Southeast Asian enthusiasm to develop nuclear power?” China’s Guangdong Nuclear Power Group, the United States’ Westinghouse, Russia’s AtomStroyExport and France’s nuclear giant Areva have all approached Vietnamese officials looking for the opportunity.
For foreign investors, concern will arise regarding the ability of Southeast Asian governments to liberalize the nuclear markets. Indonesia is ahead of the trio, encouraging an open market subject to the State having a right of first refusal to buy all power. Vietnam is still a question mark in terms of opening its doors to more private investment in this sector. China’s Guangdong Nuclear Power Group recently signed a memorandum of understanding with the Vietnam Atomic Energy Commission for cooperation in its nuclear power sector and to aid Vietnam in nuclear technology transfer. The Vietnamese government’s Master Plan, issued in June 2010,6 aims to achieve self sufficiency for the future maintenance of NPPs. For this to be realized, foreign investment must play a key role in the manufacture and supply of modern and tested technology, which local manufacturers can source at a later date. According to government policy, foreign organizations will directly contribute to sourcing the fuel needed for the nuclear plants until 2030.
Currently, the financing of the Ninh Thuan Project is based on a sovereign model where funding originates from governmental sources, in this case the state-owned utility EVN. Russia’s Rosatom has agreed to construct the first plant under the Ninh Thuan Project with two 1,200 MWe pressurized water reactors.7 The second plant will be commissioned by JINED. In accordance with Vietnam’s Master Plan, the Vietnamese government has a target of issuing 20-30 percent of construction contracts to be sourced locally, increasing to 30-40 percent by 2030, encouraging further domestic participation.
It remains to be seen whether nuclear financing will become more commercially focused with increased participation from private investors via an Export Credit Agency or providing actual commercial debt which may be more cost effective.
The IAEA suggests that, because of the volatile nature of nuclear development, emerging economies should closely cooperate with nations having relevant technical know-how.8 It also recommends bilateral assistance for dealing specifically with spent fuel and radioactive waste. The results of previous successful performers such as Brazil, Argentina and Sweden, demonstrate a plausible argument in favor of approach. In this context, it might be beneficial for countries like Vietnam to seek advice from experienced countries with already operating NPPs such as Japan or Russia.
One potential area of bilateral assistance to Vietnam, as evidenced in Decision 1558, is the established training facilities in nuclear advanced countries. Recognizing its lack of skilled technicians for nuclear energy operation, Vietnam has now injected VND 3 trillion (about USD 150 million) to facilitate training. Further demonstrating its commitment to develop its nuclear capabilities, the Vietnamese government has agreed to provide large financial incentives for “senior experts” to join the training program.
Indonesia also has shown an interest in its human resources preparation and has recognized the need to cooperate with countries developed nuclear programs, such as Japan, Korea and France.
Vietnam’s Decision 1558 is meant to establish favorable conditions for foreign investment as the government aims to send a large number of trainees overseas for education and employ foreign experts to train technicians in Vietnam. The legislation highlights, in particular, investment in training at universities and training of professional engineers and experts in nuclear power, nuclear power management, application and security.
The three Southeast Asian countries addressed in this article have each expressed an interest in developing their nuclear capabilities with the aim of sourcing renewable energy. Although faced with many challenges, three are particularly significant. The first challenge is concerned with employing skilled technicians—addressed in Vietnam by implementing a training program in accordance with its Decision 1558. The second challenge is public policy concerns relating to geographical challenges in locating NPPs away from seismic zones and potential natural disasters. The third challenge is the availability of funding for NPPs, focusing on encouraging foreign investment with previous NPP construction experience. How these challenges are met and overcome will determine the pace and breath of development of NPPs in these countries.