The CANDU Syndrome:

Canada's Bid to Export Nuclear Reactors to Turkey

by David H. Martin
of Nuclear Awareness Project
for the Campaign for Nuclear Phaseout

© copyright September 1997

Campaign for Nuclear Phaseout
Campagne contre l'expansion du nucléaire

1 rue Nicholas Street, #412
Ottawa, Ontario, Canada K1N 7B7
tel: 613-789-3634        fax: 613-241-2292

Printed copies of
The CANDU Syndrome:
Canada's Bid to Export Nuclear Reactors to Turkey

are available from the Campaign for Nuclear Phaseout.

ISBN: 1-896863-03-5

Part Three

8.6. 100% Turnkey or BOT Financing

There have been conflicting reports about Turkey's demands for financial arrangements in the current bidding process. It is clear that Turkey is demanding 100% financing of the project, including the local costs. Depending on the terms of the contract, the current deal may present an even higher risk to AECL and the Canadian government than the BOT arrangement which the Canadian government turned down in the 1980s. It is not entirely clear if a BOT arrangement has been ruled out as an option. It has been reported that Asea-Brown Boveri-Combustion Engineering (ABB-CE) decided not to bid on the current Turkish project because it was

. . . not well founded and involved too much political and economic risk, in part because Turkey seeks 100% foreign financing . . .[132]

Despite the fact that AECL has received over $15 billion in subsidies from Canadian taxpayers since 1952, and continues to receive an annual subsidy, AECL will keep the terms of its bid secret, on the grounds of commercial confidentiality. However, AECL's attempt to sell a reactor to Turkey in the 1980s reportedly foundered on the requirement of a BOT arrangement and the refusal of the Turkish government to give a sovereign guarantee of the Canadian loans.

Traditional international lending is based on the covenant of a credit-worthy corporation or nation to repay, as well as the worth and income-generating capacity of the assets acquired with the loan. However, many developing countries have a shortage of capital and are trying to develop their electricity infrastructure through various types of project financing. Project financing has either 'non-recourse' to the traditional covenant (the project is the sole source of repayment) or 'limited recourse' (the 'sponsor' will have only partial liability for certain payments).

The BOT (Build, operate, and transfer) approach supported by Turkey[133] is a variation on a BOOT model (Build, own, operate and transfer). The Turkish BOT model reportedly originated with former Turkish Prime Minister Turgut Ozal.[134] BOT is often interpreted to mean "Build, own, and transfer", but the Turks have modified this formula through the creation of a joint venture entity between the private sector company and TEAS. Neither TEAS nor the Turkish government provide any financing, even for local costs. As part of the negotiations in the 1980s, Turkey required AECL to be responsible for building the plant and operating it for 15 years, through a "Joint Venture Utility" (JVU) set up by the vendor and TEK (now TEAS). TEK would then purchase and distribute the electricity produced. Under a BOT contract, ownership of the facility is transferred back to Turkey at no cost, at the end of an agreed period -- typically the construction period plus 15 to 20 years of operation.

The main advantage for Turkey of both the 100 percent financing arrangement and the BOT model is clear: Turkey obtains the asset with no upfront costs, and therefore no impact on its borrowing capacity. Moreover, Turkey is the beneficiary of significant technology transfer and training in how to use it. Both types of arrangements could require a guarantee of performance from AECL. Both types of deal ultimately depend on cash flow financing from the sale of electricity, and poor performance of the nuclear station would be disastrous. Good performance by a CANDU reactor is by no means guaranteed -- two reactors at the Pickering "A" Nuclear Station were only 12 years old when they had to be shut down for retubing following a major pressure tube rupture. The average capacity factor of Ontario Hydro's 19 reactors in 1996 was only 66 percent.

Sovereign/government support from Turkey for a reactor deal is certainly not a given -- the absence of such a guarantee was reportedly the reason for the Canadian government withdrawing its support for a CANDU sale to Turkey in the 1980s. If it were offered, however, sovereign support from Turkey could take several forms: guarantee of the obligations of purchaser; guarantee of the debt; or a 'softer' guarantee to provide funds in the currency of payment (i.e. foreign currency, typically US dollars). Naturally, vendors would prefer a safer traditional guarantee, while purchasing countries negotiate to make softer commitments. It is not clear if Turkey is even willing to provide a 'softer' guarantee, for example, to provide funds to TEAS or its distribution companies.

8.7. Public Disclosure

From the public interest point of view, transparency and disclosure are very important. If AECL's CANDU deal with Turkey is truly a straight commercial agreement, the Government of Canada should be willing to disclose its terms. The agreement is after all being made by a publicly owned crown corporation, with funding and backing provided by the Government of Canada. Under the OECD Consensus Agreement, parties must notify all other participants ten days before a final decision, and provide the following information:

    a) cash payments;

    b) repayment term (including starting point of credit, frequency of instalments for repaying principal amount of credit, and whether these instalments will be equal in amount);

    c) currency and value rating of the contract;

    d) interest rate;

    e) support for local costs (including the total amount of local costs expressed as a percentage of the total of goods and services exported, the terms of repayment, and the nature of the support to be given);

    f) portion of project to be financed, with separate information for initial fuel load, when appropriate;

    g) any other relevant information including references to related cases.[135]

This information will be disclosed to AECL's partners and subcontractors in Canada, Turkey, Japan and South Korea, as well as the governments of Japan and South Korea who will probably supply financing for the deal through their export credit agencies. The same information should be disclosed to the Canadian taxpayers, who (however involuntarily) are AECL's shareholders.

Furthermore, AECL should disclose: the names of all participants in its consortium; the goods and/or services being provided by all participants; and a list of the agencies/banks providing financing, along with the amounts provided, rates of interest, and other terms.

9. Human Rights in Turkey

Turkey has a long history of human rights abuses. In 1996, Amnesty International urged the United Nations Commission on Human Rights to take action against "gross violations" of human rights in Turkey, and summarized human rights abuses in 1995 as follows:

Hundreds of prisoners of conscience were held during the year. Torture of political and criminal detainees in police stations continued to be routine, and there were at least 15 deaths apparently resulting from torture in police custody. At least 35 people 'disappeared' in security force custody and scores of people were killed in circumstances that suggested that they had been extrajudicially executed by members of the security forces.[136]

The Toronto Star has described the socio-economic and human rights situation in Turkey as follows:

...corruption, high employment, 80 per cent inflation, a deficit of $15 billion and a debt of $100 billion; widespread violations of human rights, especially of the minority Kurds; and a dictatorial secularism that violates religious and other basic freedoms.[137]

Despite 50 years of ostensible democracy in Turkey, the security forces continue to dominate politics. The combined strength of the Turkish army, navy, air force, and Gendarmerie was 573,800 in 1996, including 410,200 conscripts (military service is compulsory) -- one of the world's largest standing armies.[138] There have been three military coups d'état in 1960, 1971, and 1980. Events of the last year may be considered a quasi-coup. On May 27, 1960, the military ended the rule of the Democratic Party under Prime Minister Adnan Menderes, and executed him and two of his cabinet ministers. On March 12 1971, a second coup was aimed at parliament and a "radical movement of intellectuals, students and trade unionists".[139] Following a period of political violence in the late 1970s, another coup took place in 1980. Martial law was declared throughout the country, and there was no democratic political activity until 1983, when a general election returned the Motherland Party to rule, with Turgut Ozal as Prime Minister. However, General Kenan Evren, the leader of the military coup stayed as President until 1990. Since 1960, elected national governments in Turkey have had little or no control over the Interior Ministry (police), the Defence Ministry (the army), the intelligence agencies, or the regional governors. The military junta's 1982 constitution gives the security forces a great deal of power through the National Security Council (MGK). As Amnesty International has stated,

Martial law courts have hanged a prime minister and two other ministers, tried members of parliament and imprisoned thousands of civilians, some of whom have been in jail since the 1980s. Army officers still prosecute and judge civilians in State Security Courts.[140]

In August 1984, the Kurdish Workers' Party (PKK) initiated armed attacks against government military installations in south-east Turkey, where most of the country's estimated 12 million Kurds live. There are about 25 million Kurds in total in Turkey, Iraq and Iran. The original goal of the PKK was the establishment of an independent Marxist Kurdish state, but that goal has been reduced to a degree of autonomy for the southeast. Turkey is in a virtual state of civil war with the PKK, and this has resulted in widespread abuses of human rights, by both the government forces and their proxies, as well as by the PKK. It has been estimated that the conflict has resulted in more than 20,000 deaths, and the displacement of more than 2 million people in the Kurdish provinces of the southeast. According to the Human Rights Foundation of Turkey, more than 400 prisoners or detainees died in custody from torture-related causes during the 14 year period between the coup of 1980 and September 12, 1994.[141] The use of brutal torture by security forces remains widespread and systematic...

The most common methods of torture are being stripped naked, beating, falaka (beating on the soles of the feet), hanging by the arms tied behind the back or bound to a pole, hosing with cold water at high pressure, sexual assault of both men and women, and electric shocks to the mouth, fingers, toes and genitals.[142]

Since 1990, the human rights situation in Turkey has worsened. The number of extra-judicial executions by death squads clearly associated with government security forces have been documented at more than 1,000 between 1991 and 1996.[143] In March 1995, 23 people were shot dead by plainclothes police officers at an Istanbul demonstration against death squad killings. To this horrific record has been added the terror of disappearances. In 1991 and 1992, there were only a few reports, but in 1993, there were at least 26, in 1994, more than 50, and in 1995, at least 35.[144] The UN Working Group on Enforced or Involuntary Disappearances received more allegations of disappearance from Turkey than from any other country in 1994.[145] Mothers and other relatives of disappeared persons began a weekly Saturday vigil in Galatasaray Square in Istanbul in 1996.[146] The PKK has also been responsible for human rights violations, including the killing of civilians and prisoners. In particular, teachers have been a target, with more than 90 killed by the PKK since 1984.[147]

Turkey has established a so-called security zone in northern Iraq, in an attempt to prevent cross-border raids by the PKK. There has been periodic fighting and attacks on local Kurdish populations since that time. Most recently, in May 1997, Turkish security forces mounted a major invasion, estimated at anywhere from 10,000 to 50,000 troops, with tanks, artillery and air support. The Iraqi side of the border is generally controlled by the Kurdistan Democratic Party of Kurdish chieftain Massoud Barzani, a rival of the PKK. Northern Iraq was established as an independent Kurdish area following the 1991 Persian Gulf war.[148]

Free speech is also an ongoing human rights issue in Turkey. In 1983, during the direct rule of the military junta, Law 2932 made the use of the Kurdish language (used by about one fifth of Turkey's population) effectively illegal. After the end of military rule in 1984, most prisoners of conscience were prosecuted under the infamous Articles 141, 142, and 163 of the Turkish Penal Code, which specified long prison terms for advocating communism, Kurdish separatism, and religion-based government. By 1990, after six years of nominal democracy, however, pressure for basic democratic norms had increased. In April 1991, Articles 141, 142 and 163, as well as Law 2932 were repealed. Kurdish newspapers and books were allowed, although education and broadcasting in Kurdish remained illegal.

Unfortunately, at the same time as these reforms, the Anti-Terror Law (Law 3713) was enacted. Under Article 8 of the Anti-Terror Law, any expression of separatism, whether peaceful or violent, was made punishable by long prison terms and heavy fines. In 1993, as fighting in the southeast intensified, the prime minister and the military called for "total war" against separatism. Prosecutions and detentions increased, not just of political activists, but of lawyers, doctors, trade unionists journalists, academics and publishers. At the same time, incidence of torture, death in detention, death squad killings, disappearances, and deaths in armed conflicts between the security forces and the PKK all increased. On March 26, 1994 several villages in the Sirnak area were bombed by jet aircraft. In October 1994, security forces burned 17 villages near Tunceli in eastern Turkey using American-supplied helicopters. Fighting with the PKK claimed 2,000 lives in 1995 alone.[149] When martial law ended in 1987, a state of emergency was declared in the ten provinces of the southeast where fighting was most intense. The state of emergency has been lifted only in Mardin province at the end of November 1996.[150] The state of emergency gives the regional governor wide power over the security forces, police and civil administration in the area.

Reform of Turkey's 30 day detention period was a major campaign of human rights organizations, in order to reduce the incidence of torture and murder of those in custody of the security forces -- particularly those being held for offenses within the jurisdiction of the State Security Courts (i.e. those courts operated by the military). On March 6, 1997, a legal amendment was announced by the Turkish government which shortens the maximum 30 day detention period to ten days in the nine provinces under a state of emergency, and from 14 to seven days in the rest of the country. However, the law still allows prisoners to be held four days incommunicado, without access to a lawyer. Former Deputy Prime Minister and Foreign Minister Tansu Ciller claimed at the time of the law amendment that "from now on, Turkish norms conform with European norms on detention periods".[151] However, neither European or international human rights law would allow four days' incommunicado detention without access to a lawyer.

10. The Current Political Situation in Turkey

10.1. Corruption

The Kurdish conflict is intertwined with corruption in Turkey, as state funding has flowed to right-wing militias in eastern Turkey opposing the PKK, and the government has ignored the involvement of militia chiefs in international drug smuggling. The issue received major public profile when an automobile accident in Turkey on November 3, 1996, resulted in the death of Husseyin Kocadag, former deputy security chief of Istanbul; an internationally wanted criminal, Abdullah Catli; and the injury of Sedat Bucak, a militia chief and member of parliament for Tansu Ciller's True Path Party. The car also contained unlicensed machine guns, silencers, police identification cards, forged passports and traces of cocaine. Catli was wanted by Interpol for 18 years, for the 1978 torture and murder of seven left-wing Turkish students; for involvement in the 1981 assassination attempt on the Pope; and for his 1990 escape from a Swiss jail on heroin charges. Bucak, the politician who survived the accident, reportedly receives over $1 million per month from the government to run his personal section of the Kurdish militia known as the Village Guards, which has opposed the PKK since 1985.[152] The Village Guard system was created by the government in the mid-1980s as a paramilitary force, and it now numbers about 55,000.[153] Originally intended to 'defend' villages from the PKK, the Guards have been used in operations against other villages, in roadblocks, in interrogations, and even for incursions into Iraq.

10.2. The Quasi-Coup

An inconclusive election on December 24, 1995, left the Islamic Welfare Party (Refah -- headed by Necmettin Erbakan) with 21% of the vote (158 seats in the 550 member parliament); the Motherland Party a close second with 19.65% (headed by Mesut Yilmaz); and the True Path Party (headed by Tansu Ciller) with 19%;[154] the Social Democrats took 15%; and the Peoples' Republican party took 11%. Following the election, a coalition headed by Mesut Yilmaz took power briefly. However, in June 1996 that coalition collapsed, and a new coalition, headed by Refah, under Prime Minister Necmettin Erbakan took power. In return for the support of True Path, Tansu Ciller was to alternate on a yearly basis with Erbakan as Prime Minister, and her party held influential positions in control of foreign affairs, and defence and interior -- giving True Path control of the security forces. It was the first Islamic government to ever take power in Turkey, since the foundation of the modern secular Turkish state by Kemal Ataturk in 1923. The unprecedented election of an Islamic government in the traditionally secular Turkey sent shock waves through the military leadership in Turkey and through western countries. Turkey (a NATO member) has supported the western alliance by competing for influence with Iran in the newly independent Turkic states of Asia and the Caucasus. The Turkish military -- strongly secular in outlook -- had effectively banned Erbakan from politics from 1980 to 1987.

After taking power, several moves by Erbakan made western powers (and presumably the Turkish military) nervous. He made a trip to Libya to meet with Moammar Ghaddafi, as well as to Iran, where in August 1996, a $23 billion gas deal was signed; he urged the construction of several new mosques in the heart of Istanbul; he proposed the repeal of laws forbidding the use of veils and scarves by women in the civil service; and he encouraged the establishment religious schools, and the admission of their graduates into the military.[155] Greek/Turkish relations also worsened as a result of Erbakan's threatened use of force in response to Cyprus' intention to buy Russian anti-aircraft missiles.[156]

In March 1997, rumours of an impending military coup began to circulate.[157] The rumours followed an ultimatum in February from the National Security Council, through which the military has constitutional power over the Turkish government. The Council made the following demands: a ban on the hiring of Islamic activists; closure of Koranic schools; maintenance of a ban on Islamic clothing for women in the civil service; and a halt to funding of Turkish parties by foreign Islamic groups.[158] Following a National Security Council meeting on April 26th, Prime Minister Erbakan agreed to military's demands.[159]

The crisis was further heightened when, on May 11 1997, 300,000 people attended an Islamic rally in Istanbul in support of the Refah government. However, despite Refah's Islamic bias, a defence training pact with Israel was signed in the first week of May, along with an agreement for the upgrading of Turkish jets by Israeli technicians. The agreement has made other Muslim states and even secular Turks nervous, since (unlike European or American aid) Israeli military aid cannot be blocked by concerns about human rights violations in Turkey.[160]

In an attempt to stay in power, Prime Minster Erbakan agreed in early June to make his coalition partner Tansu Ciller the Prime Minister, and suggested that an early election would be called. However, President Suleyman Demirel, supporting the military's position, refused to allow the manoeuvre.[161] The position of the USA was ambivalent... the Americans did not like an Islamic government in power, but also dreaded the public relations problem of a military coup, and reportedly advised the Turkish generals that a military regime might not be tolerated in NATO.[162] US Secretary of State Madeleine Albright called on Turkey to remain both democratic and secular.[163]

Thus, on June 18, 1997, Erbakan resigned, and Demirel subsequently named Mesut Yilmaz, leader of the conservative Motherland Party, Prime Minister.[164] Yilmaz became a parliamentary deputy for the Motherland Party in 1983 under the leadership of Turgut Ozal, following the re-establishment of democracy. He took over the leadership of Motherland after Ozal's death in 1993.

The intense political instability of Turkey in 1996-97 was coupled with economic instability, as multinational corporations became nervous about taking the risk of further investment in Turkey. The Istanbul Stock Exchange was bearish, and Turkey's 80% annual inflation remained constant. The deficit in 1995 was about $15 billion, and the country's debt was about $100 billion. The country's deficit in 1996 equalled 8.2% of the national economic output. The International Monetary Fund has stated that Turkey "remains subject to significant downside risk".[165] It is very unlikely that stability will be achieved in a country that is bitterly divided along political and ethnic lines, and where even conventional democratic norms remain fragile in the face of military domination. The secular versus religious schism further fractures the political system.

10.3. Relations with the European Union

Turkey became a full member of NATO in 1960, an associate member of the European economic block in 1962, and applied for full membership in the European Union (EU) in 1989. A customs union between Turkey and the EU went into effect in January 1996, under which both sides dropped most tariffs, and other trade restrictions. However, despite an intense lobbying campaign in 1996-97, Turkey has not been granted EU membership. A March 4, 1997 meeting in Brussels of the Christian Democratic parties of Europe was unanimous in opposing Turkish membership.[166] Human rights violations in Turkey have been a major stumbling block to EU membership, although Turkish heroin connections, and economic questions have also been raised.[167] German foreign minister Klaus Kinkel stated that Turkey was rejected because of "human rights, the Kurdish question, relations with Greece, and of course, very clear economic questions".[168] In April 1997, Greece announced that it would continue to block $424 million (US) worth of EU aid to Turkey because of its human rights record.[169]

11. Conclusion

There are many good reasons why Canada should not export CANDU reactors to Turkey...

  • It is unconscionable that Atomic Energy of Canada Limited (AECL) and the Canadian government should encourage Turkey to repeat Canada's mistake by investing in nuclear power.

  • Internationally, nuclear power is experiencing a brown-out, as nuclear expansion plans are cancelled, and existing reactors are shut down ahead of schedule.

  • The CANDU reactor has too many unresolved safety, environmental, and technical problems.

  • Turkey, like Canada, would be far better served by a truly sustainable energy future based on efficiency improvements and renewable energy.

  • The financial risks for the Canadian government of financing multi-billion dollar nuclear mega-projects cannot be justified.

  • The risk of a multi-billion dollar long-term nuclear investment is even higher in Turkey, which is politically and economically unstable.

  • The sale of two to four reactors to Turkey cannot possibly recoup the $15 billion subsidy that Canadian taxpayers have given AECL over the years.

  • AECL is obsessed with secrecy, and refuses to disclose even basic financial information about its reactor deals and other operations.

  • There is strong public opposition in Turkey to the initiation of a nuclear power program.

  • The consequences of a catastrophic accident at a CANDU reactor would be devastating. A nuclear power plant should not be built in Turkey, where there is the threat of sabotage resulting from the ongoing civil unrest, or international conflict.

  • There is a real risk of nuclear weapons proliferation from transferring nuclear technology and know-how to Turkey.

  • It is ethically repugnant to engage in trade with a regime, such as the one in Turkey, which routinely condones gross violations of fundamental human rights.

  • AECL has a long history of using bribery to secure reactor sales. In the absence of detailed information about agent fees, there is no guarantee that bribes have not been employed in the Turkish deal.

However, if the Canadian government allows AECL to proceed with the Turkish bid and possible sale of CANDU reactors to Turkey, certain minimum conditions should be placed on the process. This report therefore makes the following recommendations to the Government of Canada:

  1. Because AECL is a crown corporation, supported by public funds, the Canadian government should require full public disclosure of the financial structure and terms of the proposed CANDU export contract with Turkey. The government should also establish an ongoing mechanism for public review and oversight of AECL's business practices.

  2. Canada should not provide governmental financial backing for the export of CANDU reactors to Turkey. Financing by the Export Development Corporation (EDC) should be limited to its Corporate Account.

  3. The Canadian government should require immediate public disclosure of the amounts and the purposes of fees paid and/or contracted to AECL agents in Turkey. Marketing costs should also be itemized and reported by AECL.

  4. Canada should abandon its policy of 'constructive engagement' on human rights, and be prepared to end the nuclear deal and impose comprehensive trade sanctions in response to continued gross human rights violations in Turkey.

  5. Canada should terminate its subsidization of Atomic Energy of Canada Limited (AECL). If reactor exports are as promising as AECL claims, then the industry should be able to support itself.

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Appendix A
CANDU: What is it?

CANDU stands for CANadian Deuterium Uranium reactor -- playing on the North American boast of capability, 'can do'. The CANDU is a Pressurized Heavy Water Reactor (PHWR) using heavy water (deuterium) as both a moderator and coolant. The CANDU reactor core is a horizontal cylinder known as a calandria or reactor vessel. Through the calandria run hundreds of horizontal tubes, inside which are pressure tubes containing fuel bundles. U.S. Light Water Reactors -- including both Pressurized Water Reactors (PWRs) and Boiling Water Reactors (BWRs) -- require enriched uranium fuel at about 2% to 4% uranium-235 and use a relatively poor moderator (ordinary 'light' water); whereas CANDU reactors use natural uranium at about 0.7% uranium-235, but have a very good moderator (heavy water).

Heavy water is very expensive and difficult to manufacture, making CANDU more expensive than other reactor designs. In 1993, Ontario Hydro and AECL sold heavy water to South Korea for over $300 (CDN) per kg (about $225 US/kg). CANDUs require about one (metric) tonne of heavy water for every megawatt (MW) of capacity. Heavy water moderator and coolant slow down neutrons to sustain a chain reaction. In addition, heavy water coolant flows through the pressure tubes past the fuel bundles, to transfer heat to the steam generators.

Appendix B
AECL Corruption and Agent Fees

While agent fees undoubtedly include fees for legitimate public relations and promotional activities, monies allocated as agent fees by Atomic Energy of Canada Ltd. (AECL) have also been used in the past for bribery. The payment of bribes by AECL to secure CANDU sales has been well documented in the cases of Argentina and South Korea.

In 1972, AECL submitted a bid to Argentina's Comision Nacional de Energia Atomica (CNEA), in partnership with the Italian company Italimpianti, for a CANDU 6 reactor. Italimpianti handled marketing and the plant's conventional equipment, and AECL was responsible for the nuclear side. The bid was selected in early 1973, and the contract was signed for the Embalse reactor (also known as Cordoba) in December 1973. The sale of the Embalse reactor was controversial, not only because of a reported loss by AECL on the sale, but also because bribes were paid to secure the contract. As part of the deal, AECL and Italimpianti agreed to jointly pay an agent fee, which was used as a bribe. In April 1974, AECL President Lorne Gray approved the deposit of $2.4 million in a Swiss bank account.[170] An Argentinean investigation in 1985 revealed that José Ber Galbard, then Argentine Minister of Economic Affairs, was the recipient of the $2.4 million, plus another $1.1 million in May 1974, and an additional $300,000 two years later.[171]

In January 1975, AECL and the Korea Electric Power Corporation (KEPCO) signed a deal for a 600 MW CANDU that came into force on January 26, 1976.[172] The deal was odd, insofar as Korea had not initiated an open international bidding process among reactor vendors. The decision was also unusual, since the decision to purchase CANDU technology was inconsistent with Korea's first choice of reactor technology -- it had purchased a Light Water Reactor from Westinghouse five years earlier.[173] It came out later that in December 1974, AECL President Lorne Gray had agreed to pay an agent (Shaul Eisenberg of Tel Aviv) a fee of $17 million (Cdn dollars of the year) plus another $3 million at a rate of $500,000 a year for six years.[174] Despite the public outcry over this blatant corruption, Eisenberg's 'commission' was only reduced to $18.5 million, and AECL retained him to negotiate the sale of a second reactor.

Despite the scandal around this incident, AECL's bribery of South Korean officials continued in the 1990s. In December 1994, AECL's Korean agent, Park Byong-chan, of the Samchang Corporation was sentenced to 18 months in prison for corruption and bribery.[175] To forestall public criticism, AECL fired Samchang Corporation. In the fall of 1991, Park had given $350,000 in bribes to Ahn Byong-wha, then the President of KEPCO.[176] KEPCO owns and operates all of South Korea's nuclear power plants, and is AECL's direct customer for CANDU sales. In December 1990, AECL had announced the contract for Wolsong-2, and less than a year after Ahn delivered the bribe, AECL announced with much fanfare in September 1992, the sale of two more reactors to South Korea. Ahn was sentenced at the same time as Park to three years in prison for corruption.[177] AECL President Reid Morden denied any knowledge of the bribery, although Samchang Corporation had been listed as a recipient of AECL agent fees since 1991. AECL continues to operate its Korean office out of the same Seoul office building as Samchang. AECL has made no attempt to retrieve funds from Samchang that were used illegally for bribes. Former Auditor General Kenneth Dye has stated,

I've seen examples where agents have been hired by countries, and I think the strategy there is to deal with the agent so the Canadians don't have to know what goes on behind the facade... I always thought it would be salutary in our country if directors of corporations were sent to jail for things that they could have stopped but failed to.[178]

Following a report by Canada's Auditor General in 1976 on AECL financial irregularities[179], the federal government authorized a review of AECL by the House of Commons Committee on Public Accounts (1976-77). The Committee found AECL witnesses to be uncooperative -- in particular AECL President Lorne Gray. Subsequently, the government launched an inquiry by the Royal Canadian Mounted Police (1977-78) on AECL use of bribery. The reviews did little to restrict AECL in its marketing practices. However, beginning in 1977, AECL was required to report agent fees in its Annual Reports. The Annual Reports name the companies of the agents, but only provide a total for the monies paid out, i.e. the amount paid to each individual agent is not provided.

In the case of Argentina, almost $4 million was reported to have been spent on bribes in the 1973 to 1975 period. This was prior to the time when AECL was required to report agent fees, so these monies are not reflected in Table 2. In the case of South Korea, over $18 million was paid to an agent, who in turn bribed Korean officials to secure the initial CANDU sale to South Korea. The bulk of this bribe is reflected in the agent fee in Table 2, for the year 1976-77.

From 1977 to 1996, AECL paid out almost $60 million (Cdn dollars of the year) in agent fees -- an average of about $3 million per year (see Table 2). According to AECL's 1995-96 annual report, the company retains agents in the USA, Japan, Turkey, South Korea, and the United Kingdom.[180] There is no guarantee except the assurance of AECL that these corrupt practices have not continued.

From 1993-94 to 1995-96 (inclusive), AECL's annual reports have identified the AECL agent in Turkey as Sumta Sanayi Urunleri Musavirlik Ve Ticaret A.S.

Table 2. Agent Fees Paid by AECL 1977-1996

Fees ($million)
Fees ($million)
Total Agent Fees Paid by AECL 1977-96 = $59.3 million ($Cdn of the year)
Annual Average Agent Fees 1977-96 = $2.97 million ($Cdn of the year)

Source: AECL Annual Reports 1976-77 to 1995-96

NEXT: The CANDU Syndrome, Part Four - Footnotes

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