AECL woes could spell end of Canada's reactor business

By any account, the past year was a rough one forAtomic Energy of Canada Ltd., even before thereactor disaster in Japan cast a pall over the atomic power industry.

In May 2010, CEO Hugh MacDiarmid was hauled in front of a Senate committee to explain his Crown corporations billions in taxpayer subsidies and plead for more.

In July, after lambasting the company publicly, New Brunswick ditched AECL in favour of a French rival for the construction of a new nuclear plant there. In October, the provinces decision seemed oracular when it was revealed the AECL-led refurbishment of NB Powers current reactor, at Point Lepreau, was three years behind schedule.

'We underestimated the technical challenge and we overestimated our capabilities.' Hugh MacDiarmid, CEO AECL

The next month brought news of more delays at yet another Candu refurbishment project, this time at the Bruce generating station on the shores of Lake Huron in Ontario.

Then as the year wound up, speculation emerged that the federal governments efforts to sell AECLs reactor division were in the doldrums, with only two bidders showing a hint of interest in the Candu business. That was confirmed in January, whenCBC News reported that sale talks had collapsed. In early March, Federal Natural Resources Minister Christian Paradis said the government isnot looking at a "fire sale"to get rid of Atomic Energy of Canada Ltd., even though the Crown agency has been on the market for two years with no buyer and Ottawa is still pumping millions of dollars into it. Quebec-based giant engineering firm SNC-Lavalin Group, which has partnered with AECL in the past to bid on reactor construction projects, is reportedly still interested in buying at least part of AECL, but after months of negotiations there's still no deal.

All in all, not a great year for AECL and its 4,800 employees. Nor for the estimated 30,000 construction workers, parts manufacturers, scientists, utility employees and technicians in the wider Canadian nuclear industry who depend on it.

So what gives? How did Canadas atomic flagship hit such heavy waters? And what does it mean for the future of home-grown nuclear power technologyin this country?

Point Lepreau: A tug of war

ThePoint Lepreau refurbishment, which will extend the operating life of Atlantic Canadas only nuclear reactor by 25 to 30 years, began in March 2008. It was planned to last until fall 2009 and cost $1.4 billion.

Its revised completion date is fall 2012. The project is already $1 billion over budget and the New Brunswick government has considered suing AECL.

CEO MacDiarmid says the company has learned some "expensive lessons" at Point Lepreau the first ever refurb of its kind that will enable it to deliver on-time and on-budget elsewhere. That includes the planned overhaul of a reactor in Argentina and possibly 10 more projects in Ontario.

"We underestimated the technical challenge and we overestimated our capabilities to deliver against the schedule and costs that were negotiated in the original contract," MacDiarmid told the Senate finance committee in May. But he insisted "that contract was negotiated with good faith and with the best of intentions."

AECLs main engineers union has a different perspective.

In an interview with CBC News earlier this year, top officials at the Society of Professional Engineers and Associates said management engaged in a "tug of war" with scientists over the Point Lepreau refurbishment. The company, seeking to keep the projects budget down so that New Brunswick wouldnt reject it as too pricey, planned for as little contingency time as possible for unforeseen hitches, the union said. Ever-cautious engineers had warned that such an unprecedented undertaking could suffer all sorts of unpredictable difficulties.

"Managements response was that if we leave too much slack in the schedule, the cost in replacement electricity goes up - and that's the cost that the province is going to see and that will determine whether or not they decide to go with that project," union president Peter White said. "So they say you've got to go to the minimum, cut that lax time to the minimum, because it has such a big impact on the price."

The upshot is that now anyone contemplating refurbishing a Candu reactor, or buying a new one with the intention of refurbishing it later on, must think long and hard about the true final cost.

Ontario doesnt have much choice: The province relies on nuclear for half its energy needs and wont be able to wean itself off it anytime soon, so it set aside $33 billion to overhaul 10 reactors and build two more. While it has considered foreign bids for the new plants, Queens Park will almost surely elect to go for the economic boost of working with Ontario-based AECL.

But other provinces that need new sources of electricity, namely Alberta and Saskatchewan, have seen the price tags and ruled out funneling any public money into nuclear technology. New Brunswick chose French company Areva for a possible new reactor near Saint John. And Quebec has delayed the planned refurbishment of its lone nuclear reactor, the Gentilly-2 plant near Trois-Rivires, until its clear it can be done on time and on budget.

Chalk River: Incensed over isotopes

Meanwhile, at AECLs research facility in Chalk River, Ont., the companys isotope business has run into trouble with global repercussions. The Crown agency supplies most of the worlds stock of several radioisotopes used in various medical tests. But the reactor that produces those elements, called NRU for National Research Universal, is ancient (it was built in the 1950s) and problem-prone.

AECLs $350-million attempt to build two new replacement reactors was two times over budget and eight years behind schedule when it was cancelled in 2008. Without the new so-called Maple reactors, the company wont be able to sell isotopes after NRU is shut down sometime beyond 2016. It can barely keep up now: The Chalk River plant has gone offline twice in the past four years, with the most recent shutdown choking the international isotope supply for more than a year until repairs were completed in August.

Theres considerable irony in the NRU saga, according to the Society of Professional Engineers and Associates. The entire Maple project was hatched, union vice-president Michael Ivanco says, to settle a lawsuit stemming from the previous Tory governments sale of part of AECLs isotope business in the early 1990s. That privatization, of a division called Nordion, netted $165 million.

The failed Maple endeavour has cost far more, with the final price tag still to come because Nordion is suing Ottawa for $1.6 billion.

"The original privatization of Nordion was done to save the government money, and it ended up costing them way more in the long run," Ivanco affirms.

The evident concern is that selling another tranche of AECL will have a similar result.

Starved for new business

Another of the unions concerns is with how it says Ottawa has hamstrung AECL during the privatization of its Candu division. Ivanco alleges the Conservatives, not wanting to have too many liabilities on the companys books, have imposed strict limits for the last year and a half on how much business it could take on while it's being sold. That has made it less lucrative to potential buyers.

"We're not allowed to bid on any projects in excess of $7.5 million, and all the bidders have said, 'Well, you're only worth whatever business is on your books. There's no business on your books, so we're not going to bid anything.' " Ivanco said. "So it's a Catch 22."

The Crown corporations suppliers have complained that the lack of new business is hurting them, too, even while jurisdictions like Argentina and Ontario seem keen to contract with AECL.

The truth of the matter isnt entirely clear. AECL president MacDiarmid told the Senate committee that, "in a sense, we are open for business." The company spurned several CBC News requests for interviews to clarify what that cagey wording means.

And the Natural Resources Ministry, rejecting an interview, would only say in a terse email that "there is no" $7.5-million limit on new AECL business. It refused to answer the obvious follow-up question: Was there a limit of any amount?

All that leaves the company, and Canadas nuclear situation, on ambiguous ground. Theres enough Candu reactors that would need refurbishing in Ontario, Argentina and, eventually, Korea, Romania and China to provide work for years to come to thousands of engineers, scientists, technicians and parts manufacturers. But AECL has yet to prove conclusively that these life-extension undertakings are cost-effective.

As for new plants, AECL missed the boat in New Brunswick and might have done so in Argentina. Ontario, though, is still keen for new Candus, provided its patience doesnt wear thin as the federal government persists in its attempt to have the company chopped up and sold off. Ultimately, its the privatization of AECL that will seal its fate in Canadas energy future. Its refurbishment business holds promise of a steady revenue stream for a potential buyer. But only the boldest of private-sector suitors would want to pursue the uncertain venture of completing development on the companys two newest reactor designs the ACR-1000 and the Enhanced Candu 6 then hawking them around the world.

And with sale negotiations apparently moribund, the alternative, the engineers union fears, is that Ottawa will simply "allow AECL to die."