Discreet Subsidy

What's wrong with letting Chrysler go bankrupt?" Though he soon renounced, that statement, Ronald Reagan continue throughout his campaign to rail against any other schemes to "reindustrialize" America with government-backed financing. As Reagan explained, solutions to America's energy and economic woes can all be found by putting more faith in the free market. However, his pledge to support the floundering nuclear industry may run head on into his free-market rhetoric.

Unable to raise either internal or external financing for new nuclear plants, U.S. utilities are dropping or delaying their plans to build new reactors-as a result, the nuclear industry is being left to limp along by filling past orders. Future Reagan attempts to tinker with safety regulations or to bully local public utility commissions into raising electricity rates may not be enough to start up the needed flow of new reactor orders. A massive, government financed bailout may be the only option left.

If that's the case, then we'll all get a chance to see whether the new administration's commitment to the free market is any match for its apparent love of big business.

As a number of public interest groups are now pointing out, the federal government is already trying to prop up the nuclear industry with almost U.S.$7 billion in government-backed financing -a subsidy that has generated far less open discussion than the relatively paltry $1.5 billion Congress is offering Chrysler.

In the obscurity of a financial boardroom, essentially undisturbed by Congressional debate or public disclosure, the U.S. government is quietly administering this nuclear giveaway-all in the name of promoting tradethrough the good offices of the Export-Import Bank of the United States. Lyuba Zarsky of the San Franciscobased Nautilus, an organization formed to stop nuclear exports, says, "Without the subsidized loans from Eximbank, there'd be no U.S. nuclear exports.

Established in 1934, Eximbank is authorized by Congress to promote exports by giving out low interest loans and loan guarantees to foreign countries buying U.S. products. The officials at Exim are fond of declaring that their bank is "self sustaining" and "receives no appropriations from Congress." But this boosterism obscures the facts: Exim's original capitalization came from the U.S. government, and it relies heavily on access to low-interest loans from the U.S. Treasury. Exim then relends to the foreign clients who buy U.S. products.

For fiscal year 1980, Congress authorized Exim to allocate $4 billion directly as soft loans to foreign importers of U.S. goods, and to support an additional $8 billion in private financing with government-backed insurance and loan guarantees.

Next to the aircraft industry, the nuclear industry has received the most help from Exim's programs. In the past four years, nuclear vendors have received from 13 to 30 percent of Exim's overall direct loan. Indeed, Eximbank President John Moore recently observed that the institution he heads "has probably been the nuclear power plant industry's best friend in the U.S. government."

Speaking before the Atomic-Industrial Forum in Washington, D.C. in November, Moore reassured the industry's supporters that the bank will continue to do all it can to support U.S. reactor exports. And Exim spokesman, Art Obester, confirms that point by acknowledging negotiations will probably soon begin for up to $1 billion more in Exim nuclear financing-this time going to back up two nuclear orders from Taiwan.

The corporate beneficiaries of Exim's nuclear largesse are few. The almost $7 billion in Exim nuclear loans and financing have gone to support the reactor exports of only two firms: Westinghouse and General Electric. The other U.S. nuclear vendors - Combustion Engineering and Babcock and Wilcox (of Three Mile Island fame)-have yet to export any of their reactors.

The circle of client countries is similarly small. Originally, some of Exim's cheap financing went to sell reactors to industrialized countries, particularly Japan. But now these countries either produce their own reactors or don't want any. As a result, the export market has shifted to the Third World. Of the $4.3 billion that has already been allocated by Exim for reactor exports to developing countries, Korea has captured $2.4 billion, Taiwan $900 million, the Philippines $640 million, and Brazil $220 million.

This particular line-up of Exim's Third World nuclear clients suggests that Exim's nuclear loans are a major channel for U.S. government aid to authoritarian regimes. But Exim's board has been virtually deaf to human rights criticism in the past. And given President-elect Reagan's unflagging commitment to backing the United States' traditional "friends", there's little real prospect for movement in the near future.

Leaving aside human rights considerations, a growing number of critics, from the pro-free-market right to the anti-state-capitalist left, are beginning to challenge the bank even on its own economic justifications for continuing reactor export subsidies.

Exim's director Donald Stingel and nuclear officials acknowledge that the loans, at between eight and eight and one-half percent, are a bargain, but contend that if the loans are repaid on schedule, then they don't cost anyone anything-a free lunch for one and all. Such a rationale overlooks what taxpayers could be earning if loans were negotiated at something resembling the market rate.

A 1976 study done, for the Arms Control and Disarmament Agency (ACED) suggested the loans far from pay for themselves. It compared Exim's nuclear loans to those that commercial banks were offering U.S. utilities and concludes that fully 19 percent of nuclear loans should be considered direct grants, not loans.

Yet the real subsidy may be much higher than 19 percent. The ACDA study assumed that Third World countries can borrow from financial institutions at the same rates as U.S. utilities, but in fact, Third World countries can't borrow at anywhere near acceptable rates because of the high risks of such investments. As Exim's Stingel explained, private financial institutions might offer developed countries the size loans needed to finance a nuclear project, "but they wouldn't do it for the countries we lend to."

Moreover, Exim's nuclear program is simply another weak link in a generally rusty chain of lending. Various government officials have begun to express doubts about the prudence of Exim's portfolio. Frank C. Conhan, the Government Accounting Office's. Senior Associate Director for the International Division, recently stated in a Congressional hearing that the decline in the bank's reserves, relative to its overall exposure, is "rather serious cause for concern." Even many Exim officials-particularly the old hands - are apparently getting anxious. One recently told the Washington Post, "What has happened over the past 35 years could become undone in one whack if this goddamned foolishness doesn't stop."

If Exim can't cover its bad loans out of reserves, the bank would be forced to come straight to the U.S. taxpayers for its own bailout, turning the nuclear "free lunch" into a costly meal indeed.

These are the costs, both actual and potential, but what of the supposed benefits? Two economic pluses for the U.S. are most often cited: jobs and balance of payments. Neither is very convincing.

In general, the bank's loans do little, if anything, to help the U.S. balance of payments. Stephen H. Goodman, a former vice president for policy analysis at Exim, says that "despite the near universal recognition by economists of every persuasion that these [loans] cannot significantly improve the balance of payments," Exim continues to try to make that argument.

Goodman argues further that Exim's financing may actually be bad for the balance of payments in the short run, because the loans are initially recorded as money going out of the country. Not until eight years later-when the loans begin to be repaid-is any positive effect recorded on the current accounts. As he wrote in the Wall Street Journal, "If other countries want to inflate their government's deficits in order to give away their exports, it's no justification for us to do the same."

The jobs justification is even less compelling. If the government chooses to subsidize industries to create more jobs, the capital-intensive nuclear industry is definitely a poor choice.

A recent British study of alternatives to nuclear power illustrates the point. It found that an energy conservation strategy would generate nearly two-and-one-half times the amount of employment of a nuclear energy strategy.

Moreover, the Rockefeller Foundation-sponsored study, The Viability of the Civil Nuclear Industry,. by Mans Lonnroth and William Walker, points out that nuclear construction teams are primarily made up of less nuclear-specific workers-machine operators, welders, die and jig makers, etc. For these teams the prospects of long term unemployment are slight, "since skilled and experienced workers [are] in demand in the marketplace." In short, however, one chooses to look at it, subsdizing reactor exports is hardly an ideal jobs program.

Exim doesn't always authorize loans simply on the basis of financial considerations. Since the agency is a government bank, it tries to justify its loans also in terms of their impact on foreign policy.

After the downfall of the corrupt regimes in both Nicaragua and Iran, at least one thing should be clear: Over the long run, ignoring wide-scale corruption is not the proper way to win friends and influence people in the Third World. Yet because of the increasing competition to sell reactors and the huge size of the deals as well, it appears that corruption is becoming a standard tactic used by nuclear vendors to sell their wares in the Third World.

Bijan Mossavar-Rahmani, a former energy policy analyst under the Shah, wrote that in pre-revolutionary Iran, "commissions on the initial reactor purchases were slated to run close to an astounding 20 percent of the total contracts, or some several hundred million dollars per reactor." Though those initial sales in Iran were made by the Germans and the French (Westinghouse was still negotiating its deal on future orders when the Shah fell), the U.S. industry might be participating in similar payments elsewhere.

In the Philippines, anti-nuclear activists have accused Westinghouse of paying a Marcos relative up to $35 million for his help in securing a reactor deal there. Corruption may be the main reason why the price of the Westinghouse reactor jumped by over 200 percent in one year-from the initial asking price of $500 million for two reactors to $ 1.1 billion for one when the deal was signed. Westinghouse refused to comment on specific written questions submitted by the author about its handling of the Philippine nuclear deal.

Although concerned about possible corruption, antinuclear groups in the U.S. are more worried about the possibility of another Three Mile Island, or an actual meltdown, taking place in the Third World. They contend that the U.S. is dumping reactors that can't be sold in the U.S. on those Third World countries where people have no say in how their country's money is spent. The least the U.S. should do, they argue, is ensure the safety of the exported reactors.

So far, however, the U.S. government has dodged almost all responsibility for the safety of these exports. When the Philippines government admitted it didn't have "the 'depth of technical expertise or breadth of experience" necessary to do its own safety evaluation, and asked the U.S. Nuclear Regulatory Commission ' (NRC) for help, the commission turned down the request. This summer a number of U.S. environmental and public interest groups filed a suit to challenge that ruling, and a court decision is expected to be handed down early next year. But Virginia Foote of the Center for Development Policy, expressed doubts that the courts would overturn the NRC's ruling.

With the lack of effective government oversight, corporate responsibility is similarly lacking. The Westinghouse reactor sold to the Philippines is being built in a highly-seismically active area-on the slope of a volcano.

Moreover, the design for this particular reactor was never fully reviewed by any nuclear regulatory agency. The first reactor of that design was to be reviewed by the U.S. NRC before it was constructed in Puerto Rico; but when plans to build that reactor were dropped, so was the NRC's review. Nevertheless, a Philippine newspaper reported that Daniel Call, "manager for safety at Westinghouse," told a Philippine commission that the Philippine plant was given a clean bill of health by the U.S. NRC. When questioned on how Call could make such a statement, Westinghouse again refused to comment.

As for G.E., a spokesman for that company, when questioned about the contaminated Tarapur nuclear facility near Bombay, said, "We turned that plant over to the Indians to run years ago." At Tarapur, operators hire thousands of workers each year to rush in, turn a bolt, and rush out before they receive more than a year's allowable level of radiation exposure.

Serious questions have also been raised about seismic and other safety problems at sites chosen for reactors in Korea, Taiwan, and Brazil. But Westinghouse and G. E. leave these and other troubling questions in the hands , of local regulatory agencies that an IAEA report found "with little exception," are "subminimal," being understaffed and under-trained.

Even NRC Commissioner Gilinsky has expressed doubts about operating reactors in a Third World context: "To run reactors takes a certain-if you'll pardon the expression-critical mass of technical talent and management skill, and we've found it wasn't present to a sufficient degree in a utility that falls somewhere in the middle of the U.S. scale. What does that say about the abilities of utilities in some developing countries that are just getting into nuclear power?"

Though most officials at Exim, the U.S. NRC, Westinghouse, and G.E. try to forget about a reactor once the sale has been made, the people living there will have no trouble remembering from where that reactor came-particularly if a nuclear accident occurs.

Clearly, subsidies for reactor exports appear to carry costs in foreign policy and economic terms. Exim and the nuclear vendors, however, tend to ignore these costs, focusing primarily on the need to compete for Third World markets. As they see it, if the U.S. doesn't subsidize its reactor exports now, then France, Germany, and others will. But while the nuclear exporting countries are desperately looking for foreign orders to mop up the overcapacity of their nuclear industries, the countries of the Third World are rapidly abandoning their earlier plans for nuclear power. The grand projections for nuclear power in the Third World of just a few years ago now seem to be mere pipe dreams.

Third world countries are dropping their reactor plans for a number of reasons. Safety-especially after Three Mile Island-has now become an important ' issue in the Third World. City and regional governments in Brazil and Egypt are acting to ban reactors from being built in their areas. In the Philippines, 50,000 people risked being ,arrested by martial-law authorities for signing a petition protesting the Westinghouse reactor there. In Mexico, ` some labor unions and. prominent government officials have expressed their concerns about reactor safety and are against any plans for their country to order more reactors. Religious and other activists in Thailand, Taiwan, and South Korea have also voiced their fears about reactor safety-in the face of heavy repression. Much of the heightened concern over safety has arisen as a result of increasing First World-Third World exchanges of information about nuclear hazards.

But as in the industrialized world, safety considerations may not be the primary reason developing countries are turning against nuclear reactors. There are other factors as well.

For a great many countries, the problem of inadequate electrical grids is an unavoidable barrier to ordering reactors. Because reactors are only economically available in large 600 and 1,000 Mw sizes, if they need to be unplugged from a grid system that has little alternative generating capacity, the sudden surge of load will force the other generating plants in the grid to shut down. Then the whole system is blacked out. India's Tarapur plant has repeatedly collapsed its grid in such a manner and the Philippines reactor, when it comes on line, is expected to -have the same problem.

For other countries-not troubled by inadequate grids-strictly economic Factors are forcing a reevaluation of their nuclear programs. Many of these countries face an international credit crunch that will make financing more reactors-even with low interest loans-increasingly impossible. Brazil certainly fits in this category, as may Korea, which according to Nucleonics Week is expected to pare down sharply its initial plans for 44 reactors by the year 2000.

Lowered growth rates of electricity demand are also important in causing a drop in Third World nuclear orders. Some countries like Korea are facing steep downturns in their economies that will certainly effect electricity demand. But even for countries with more or less healthy economies, the much higher cost of electricity from either oil or nuclear-powered plants will cause their industrial and residential consumers to cut back their use of electricity and build-in more energy efficiency in the future.

As these countries realize they won't have to meet their past rates of extremely high growth in electricity demand, they can stop scrambling to bring every and any source for generating electricity on line. This is already permitting many to take a second look at nuclear power. They seem to be concluding that nuclear is neither their cheapest nor most desirable option.

Almost all Third World countries are moving dramatically to develop their own unexploited resources of coal, hydro, geothermal, or gas. And, with the costs of generating electricity from imported oil and nuclear power rising so sharply, domestic sources are now more than competitive. For example, with the high electricity costs and the additional incentive of a technological breakthrough in high-voltage transmission lines, both Brazil and Argentina are beginning to exploit hydro potential that before was considered too far from population centers to be worth the investment.

Even for countries such as South Korea and Taiwan, which lack domestic sources of energy and thus would seem to be the most tightly wedded to nuclear energy, the future for nuclear power is uncertain. As growth in demand for electricity is dropping, and is likely to drop much further, the lesser demand is likely to be met increasingly by coal: Coal plants require less initial outlays of capital, smaller capacity, and less time: for installation. Moreover, coal is competitive with, if not cheaper than, nuclear power.

Like the U.S. domestic market before it, the nuclear export market has now turned from boom to bust. Brazil is confronted by problems with its existing plants under construction, environmental opposition to possible future sites, and no money to buy new reactors. Consequently, the earlier projections that assumed the country would build upwards of 50 reactors by the year 2000 are now forgotten as its nuclear program grinds to a halt.

Meanwhile, reactor vendors from Europe, Canada, and Japan are desperately trying to pressure their own governments for more subsidies so they'll have a crack at capturing those few remaining orders. It seems that those subsidies are the only thing keeping the nuclear export industry from totally giving up the ghost.

So, even though a G.E. spokesman predicted that nuclear exports "will keep alive the nuclear option for the U.S. when it finally wakes up ...", his hopes appear to be ill-founded. The chairman of Germany's nuclear vendor, Kraftwerk Union, more appropriately assessed the situation when he said, "Competition in the Third World markets has become fierce, with many hungry dogs fighting over a few bones."

The widely respected Lonroth and Walker study effectively summed up the realities facing the international nuclear industry. "As a result of the small potential of export markets, one is forced to the conclusion that the viability of a country's nuclear industry rests ultimately on conditions within the home market."

The U.S. nuclear industry may not be able to make a comeback without a massive and continuing bailout by the federal government. American taxpayers should start to take a hard look at the actual costs and supposed benefits of Exim's ongoing efforts to prop up U.S. nuclear exports to the Third World. It's already time to decide whether the industry is worth the effort and money necessary to keep it alive.

William Christeson is the author of Neither Food Nor Peace: U.S. Food Policy in Bangladesh, Pacific Research, fourth quarter, 1979.

Nukes: A Third World View [The following article, which argues against nuclear reactor exports, was published last summer by the Penang, Malaysia environmental group, Friends of the Earth.] With little public discussion, Asian countries are considering nuclear power as a source of energy. Sahabat Alam Malaysia (Friends of the Earth, Malaysia) is a broad-based citizens' group campaigning against environmental deterioration. As such, we are particularly concerned about the proliferation of nuclear reactors. In Malaysia, too, there were, until recently, strong indications that a 900MW power reactor would be set up. The developing countries use 10 times less energy per capita than the developed countries. We are told that the developing countries are facing severe economic problems as a result of the energy supply crisis. But it is obvious that the switch to prohibitively expensive nuclear energy is not going to solve these problems. Playing a major role in this switch to nuclear energy is the IAEA (International Atomic Agency) which was organized as an "agency for international cooperation." In reality, it appears to be an arm of the major nuclear exporters with its principal aim being the expansion of nuclear power above all considerations. At the 23rd Session of the General Conference of the IAEA held in December 1979, the organization's Director-General, Dr. Sigvard Eklund, expressed surprise that in many countries the nuclear issue has become "the fundamental issue of the day, far surpassing others such as social benefits or taxation." Surely there is nothing to be surprised about. Nuclear energy (which has been described as "by its very nature, potentially dangerous) could have far reaching consequences on the peoples' lives. Today few people can accept the statement that nuclear energy is safe, reliable and cheap without question. The risks are too real for people to remain unconcerned. Dr. Eklund also feels that "it is interesting to note that" there is little debate on the nuclear issue in the developing countries and in those with centrally planned economies. The debate flourishes almost exclusively in countries with affluent economies. The reason for this should be obvious. The majority of the people in developing countries are too ignorant of the dangers of nuclear power and too involved in the daily battle for survival to participate in the nuclear debate. The people in countries with centrally planned economies do not generally oppose government decisions. But in most of the developing countries where people are better informed and more involved in social decisions, there is growing opposition to nuclear energy. There are a host of safe, productive alternatives to nuclear power which we have a duty to prepare for widespread usage. However, if we persist in believing that nuclear energy is the only way for us, we will surely not strive to develop any other alternatives. The decision is critical. Can developing countries take the risks of a nuclear reactor? Are we sufficiently equipped to cope with problems, to handle any disaster? Can we chance the possibility of a nuclear accident? The Americans were lucky with Three Mile Island. Way may not be as fortunate.