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Current Nuclear Power: UK and South Africa

UK

UK electricity production is about 400 TWh gross, from 81 GWe capacity. Net imports are about 8 TWh. Annual consumption is 355 TWh, or about 5700 kWh/person.

In 2006 UK nuclear plants generated 19% of UK electricity (69 billion kWh of some 380 billion kWh net), compared with 36% from gas and 38% from coal. There are 19 UK reactors totalling 11 GWe capacity. In addition, about 3% of UK electricity demand is met by imports of nuclear power from France, so overall nuclear total in UK consumption is about 22%.

South Africa

Total generating capacity in South Africa is 41.3 GWe about half of the UK. Generation is mostly coal-fired, and largely under the control of the state utility Eskom. In 2005 electricity generation was 245 billion kWh, with 2 TWh net exports and 198 billion kWh final consumption. Some 94% comes from coal-fired plants and in 2006, 4.4% – 10 billion kWh – was from nuclear.

South Africa has a single nuclear power plant. The Koeberg plant was built by Framatome and commissioned in 1984-85. It is owned and operated by Eskom and has twin 900 MWe pressurised water reactors (“PWR”) the same as those providing most of France’s electricity.

While there had been no intention to build further power stations of this type, the government announced early in 2006 that it was considering building a further conventional reactor, possibly at Koeberg, to boost supplies in the Cape province.

UK White Paper

Following the nuclear consultation in 2006, the UK Government has responded with the White Paper referred to above. It proposes that nuclear power is both safe and a source of electricity generation which has a low carbon dependency. It is clear that the Government sees a role for nuclear power with no cap on the percentage of the country’s energy which can be derived from nuclear power. This is part of the Government’s continuing efforts to reduce the UK’s carbon footprint and to diversify electricity generation in the UK.

“Facilitative Steps”

The White Paper identifies a number of “facilitative steps” to encourage companies to invest in new nuclear power plants which the Government hopes will enable potential operators to make applications in 2010 in relation to specific sites and will permit construction to commence 2013/2014. The facilitative steps include:

• new legislation to impose a duty on operators of new nuclear power plants to cover “the full costs of decommissioning and their full share of waste management and disposal costs”;
• development of criteria for assessing the suitability of potential nuclear sites through a Strategic Siting Assessment (“SSA”) and a formal Strategic Environmental Assessment (“SEA”) to consider the high-level environmental impacts of new nuclear;
• meeting the requirement of European law that the economic, social or other benefits of specific new nuclear power technologies outweigh any health detriments by implementing a process of Justification;
• ensuring that new nuclear plants are treated like other critical infrastructure projects and dealt with effectively through the use of a National Policy Statement;
• strengthening the resources of regulators, especially at the Nuclear Installation Inspectorate (“NII”), and assisting regulators to pursue new build design proposals through a process of Generic Design Assessment to complement the existing site-specific licensing process; and
• improving the EU Emissions Trading Scheme (“EU ETS”) to give investors confidence in a “long-term multilateral price signal”. The Government is also keeping open the option of further measures to reinforce the operation of EU ETS in the UK if this is necessary to provide greater certainty for investors.

Response from Operators

Nuclear operators welcomed the White Paper and announced plans for at least four new reactors. British Energy, which already runs eight UK reactors, said it was "positioned to move quite rapidly" to get plants running by late 2017. Observers have pointed out that there will be tough competition from other countries, including South Africa, trying to attract a limited number of nuclear operators to build new plants.

There are currently more than 30 reactors under construction around the world and over 90 in the pipeline.

Hutton said he expected several new plants to be running by the mid-2020s and France’s EDF said it aimed to build four reactors in the UK.

Britain’s Centrica, France’s Areva (already shortlisted in South Africa) and Germany’s RWE and E.ON also said they were keen to get involved.

New Nuclear in South Africa

A draft nuclear energy policy for South Africa was published in August 2007 which addressed growing electricity demand and the country’s 87% reliance on coal. It outlines an extensive nuclear programme to develop all aspects of the nuclear fuel cycle. With uranium mining already well established, conversion, enrichment, fuel fabrication and also reprocessing of used fuel are envisaged as strategic priorities related to energy security. Reactor technology will be PWR, while the Pebble Bed Modular Reactor (“PBMR”) is developed for both electricity and heat.

By 2016 the local manufacturing of nuclear components and equipment should be under way and the PBMR commercialised, all with a view to exports as well as local use. Conversely, export of unprocessed uranium will be restricted and a strategic stockpile will be maintained.

The Nuclear Energy Corporation of South Africa (“Necsa”) expects nuclear capacity to increase to about 27 GWe, supplying 30% of electricity, by 2030, including 12 new large PWR units and an initial set of 24 PBMRs.

Reaction from the Market

Early in 2007 the Eskom board approved a plan to boost output to 80 GWe by 2025, including construction of 20 GWe of new nuclear capacity so that nuclear contribution to power would rise from 6% to more than 25% and coal’s contribution would fall from 87% now to below 70%. The new programme will start with 4 GWe of PWR capacity to be built from 2009-10, with the first unit commissioned in 2016.

The environmental assessment process is under way, considering five sites, and selection of technology will follow in the first half of 2008. Areva’s EPR and Westinghouse AP1000 have been short-listed.

The Future

There are, generally-speaking, few similarities between the UK and South Africa given the myriad differences between the countries: size, population, climate, industry, trading relationship with other countries, to mention just a few. This is probably also true of the UK and South African energy sectors. It is interesting, therefore, that both countries appear to be standing at the crossroads in terms of nuclear development and that the apparent timetable for development of new build nuclear plants is similar in both jurisdictions. The next ten years will make for compulsive viewing.

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• court jurisdiction (i.e. resolution through the courts in a articular jurisdiction);
• arbitration (institutional or ad hoc);
• expert determination; and alternative dispute resolution (“ADR”).

While the quickest (and quite often the cheapest) mechanism for dispute resolution is through “home court” litigation, in international transactions the submission to a foreign court is not often likely to be accepted by either party. As such, arbitration is often preferred as it provides a final and binding resolution but also allows the parties to rely on a mutually acceptable “neutral” process. Alternatively, use of an expert may be the most appropriate method where a decision is required quickly and a dispute is technical in nature (for example, in construction contracts). ADR, on the other hand, is a flexible option as it not restricted by formal proceedings of the courts and arbitration. These mechanisms can be combined in a contractual dispute escalation clause so that if a dispute cannot be resolved between the parties first (for example, through senior management and ADR), it is referred to the next level (arbitration or litigation).

Each of these dispute resolution methods is now considered.

Court Jurisdiction
Resolution of disputes through the courts can be quick and inexpensive. Summary judgment procedures are usually available in court and if there are no enforcement issues (see below), a court jurisdiction clause can provide the best option.
It is important, however, before settling on court jurisdiction as the preferred resolution mechanism, that the relevant parties consider where the respective assets of the counterparties are: potentially a judgment made in one country may not be able to be enforced in the jurisdiction where the counterparties assets are (compare the enforcement benefits of arbitration below). As an example, the US has not ratified any international treaties which would otherwise allow judgments of foreign courts to be enforced in the US.
Aside from the enforcement issues, there are other reasons why court litigation may not be preferred:

• unlike arbitration where parties can contract to appoint arbitrators who have expertise on the matters at hand, complex issues may require an expert tribunal;
• neutrality: in multi-jurisdictional agreements, it is unlikely that one party will agree to have disputes resolved in another country;
• and courts are public forums and therefore parties do not have the confidentiality that can be offered in arbitration or ADR.

Arbitration
One of the principal advantages of arbitration (over court jurisdiction) is the neutrality it offers the parties; they can contract to seat the arbitration in a non-party country. However, certainly the most important advantage of arbitration is the enforceability of an arbitral award. An arbitral decision in any country which has ratified the New York Convention 1958 (there are over 130 Convention states) is automatically enforceable in another such state. There is no requirement to re-examine the merits of the case. Other advantages of arbitration include:

• finality (arbitral award cannot be appealed – although quite clearly this may also be a disadvantage in certain circumstances);
• confidentiality; and
• parties can contract to appoint arbitrators who have necessary experience in relation to the matters being disputed.

Naturally, there are certain disadvantages associated with arbitration:

• there are limitation to the remedies that can be offered by arbitrator, for example, arbitrators cannot make order to bind third parties;
• court proceedings allow consolidation of multiparty disputes – this cannot be ordered in arbitration, quite often making them unwieldy where there are many parties to the dispute;
• often the cost and speed of arbitration is greater than court proceedings (depending on the value of the dispute); and
• ensuring consistency is problematic as one decision does not necessarily bind parties in related transactions.

Parties generally have two choices of arbitration rules: institutional rules (e.g. ICC or LCIA rules) and ad hoc rules (e.g. UNCITRAL arbitration rules). While institutional arbitration, with its more formal administrative procedures generally ensures that the process runs effectively, it can be more expensive. color palette . Ad hoc arbitrations rely on the tribunal and the parties to manage the case.

There are a number of factors to consider when choosing the place of the arbitration. Along with the obvious factors such as convenience for the parties, they should also consider the application of local arbitration laws on the arbitration process: for example, the extent to which local courts will interfere and whether it is possible for an award to be appealed.

Expert Determination
Expert procedures are typically relied on where the dispute is likely to be technical in nature. As expert determination can be quick, it is particularly useful where time sensitive issues (such as the valuation of an asset) are important. There are a number of other benefits of an expert, in particular, the parties can contract to provide that the expert’s decision is final and so, unlike court jurisdiction, finality can be offered in the first instance. Further, parties can also specify that the expert shall have experience in the issues in dispute.
However, enforceability of expert determination can be a problem. As the expert dispute resolution procedures are contractual in nature, the parties ultimately need to rely on the courts to enforce the provisions if a party does not comply with the terms of the agreement.

Alternative Dispute Resolution
There are a number of forms of ADR including mediation, expert opinion and negotiation. Although ADR relies on the parties having a genuine willingness to resolve any dispute, it can offer a range of different remedies to a dispute which are not necessarily available in the more formal proceedings of court or arbitration. ADR is not, however, a binding adjudicative procedure. Ultimately, if ADR is not successful because the parties are unable to agree on a solution, the parties need to provide in an agreement how the dispute will be finally resolved (i.e. through the courts or arbitration).

Conclusion
Dispute resolution methods should be given due consideration when negotiating cross-jurisdictional agreements. Having considered the circumstances in which a dispute may arise and the parties that may be involved in a dispute, an unequivocal choice of dispute resolution process must be chosen. Parties should avoid “mixed provisions” which, for example, provide for both arbitration and litigation (although clearly parties do often begin with non-binding adjudicative procedures and escalating to arbitration or court). If arbitration is the preferred option, provisions shouldn’t mix arbitration procedures such as providing for arbitrators from one country to be appointed in accordance with the arbitration procedures of another.

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