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US Seeks an Edge over Rivals for Saudi’s Nuclear Contracts

These translations are done via Google Translate

February 20, 2018, by Bloomberg

Saudis are expected to narrow the field to two or three bidders in the next few months.

At a meeting of the International Atomic Energy Agency in Vienna last September, word spread that Saudi Arabia had identified a handful of countries that could build two nuclear reactors in the kingdom.

The US wasn’t among them – until Energy Secretary Rick Perry buttonholed the Saudi delegates and told them America wanted in.

Within weeks, a mostly US consortium headed by Westinghouse Electric had joined the race. Its executives have visited the kingdom.

So has Perry, whose intervention was described by two people who attended the meeting.

In the next few months, the Saudis are expected to narrow the field to two or three bidders.

A glance at the current list of contenders shows the geopolitical perils that accompany this business opportunity.

American allies South Korea and France are on it – and so are China and Russia, recently designated by the Pentagon as the main US threats.

Reactor-building could become another arena of superpower rivalry.

‘What are we creating?’

For the Saudis, seeking the technical expertise to move beyond oil and compete with arch-rival Iran, the US is undoubtedly the main strategic partner.

But unlike Washington, the kingdom also has cordial ties with the other two giants – and reasons to keep them sweet. China is its best customer, and Russia is increasingly its partner in policing world oil output.

Both countries are improving ties with the kingdom and “sharpening their strategies,” according to Marc-Antoine Eyl-Mazzega, director of the energy centre at the Institut Francais des Relations Internationales in Paris.

The effect is to give the Saudis more options, he said: “Riyadh will try to levy that to reinforce its regional positions.”

Meanwhile, President Donald Trump’s administration sees a chance to revive a moribund US nuclear industry.

The expansion is happening anyway. The UAE has its first reactor going online this year, with three more planned; Egypt has signed a construction deal with Russia, as have Jordan and Turkey; Saudi Arabia’s planned two are expected to grow to as many as 16.

‘Gold standard’

Nuclear energy is a far cry from nuclear weapons but there is overlap. Spent fuel, which can be reprocessed into plutonium for bombs, lasts for thousands of years; enriched uranium needed for the process holds special allure to terrorist groups.

To prevent global proliferation, the US has strict standards for what technology can be sold abroad, and what the buyers can do with it. They must sign a so-called “123 agreement,” named after a section of the US Atomic Energy Act.

The one signed a decade ago by the UAE, whose Korean-built reactor will use some US parts, is stricter than any that went before and has become known as the “gold standard.” The Gulf nation promised there’d be no enrichment or reprocessing of uranium in-country.

But Saudi Arabia has long rejected the gold standard. It has its own uranium underground and wants to be self-sufficient in nuclear fuel preparation over the long term.

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Moreover, the Saudis point out that their enemy, Iran, is permitted under the 2015 international accord signed by the US to enrich uranium for peaceful purposes. “We want to have the same rights as other countries,” Saudi Foreign Minister Adel al-Jubeir told CNBC on Sunday.

‘Couldn’t be happier’

The US is reluctantly preparing to offer the Saudis a deal that falls short of the gold standard, though officials say it would still be stricter than the terms any other potential builder would impose. Diplomats and intelligence officials are due in Riyadh for negotiations soon. It’ll be a balancing act: the US will be seeking the tightest restrictions it can get, while knowing that the Saudis have other options.

The US nuclear industry, in the dumps for years, is thrilled. “I could not be happier with the support from this administration,” said Daniel Lipman, vice president of the Nuclear Energy Institute and a former Westinghouse executive, who recently returned from heading a delegation to Saudi Arabia.

“There is a whole-of-government approach here. I haven’t seen anything like this before.”

Westinghouse is in bankruptcy and in the process of being sold by its Japanese owners to Canada’s Brookfield Business Partners.

The Saudi deal, in which Westinghouse is playing the role of lead negotiator, could be a lifesaver.

Industry sources said the US-backed group also includes Fluor, which will do the engineering, procurement and construction, and Exelon which will sell its operating model and train locals to run the plant. Exelon and Fluor declined to comment.


Any agreement they reach must be approved by Congress, which will have 90 days to weigh in. The process may not go smoothly. Any dilution of the gold standard would be “catastrophic,” Senator Ed Markey, a Massachusetts Democrat on the Foreign Relations Committee, said in an interview last week.

A wild card is Israel. Many members of Congress place special store by what the Israelis say about regional security. It has steadfastly opposed the introduction of nuclear energy into the Islamic world. But lately, Israel has cultivated ties with the Saudis as part of a Washington-sponsored alliance against Iran.

So far, the Israeli government has been notably silent. Experts say it has other priorities (including a possible war to its north and corruption allegations against its prime minister), but will likely get involved behind the scenes as a US-Saudi agreement shapes up.

“We have an interest that the United States and not China or Russia enter the Saudi nuclear market,” said Yoel Guzansky, formerly an Israeli official who focused on non-proliferation, and now at the Institute for National Security Studies in Tel Aviv.

“If Washington is inside, it will be better placed to monitor the program and to have leverage over the Saudis for a rainy day.”

‘Slow-motion proliferation’

“But of course you are opening up a slow-motion proliferation,” he added. “And Israel will have to deal with the consequences.”

Still, a Saudi-American nuclear deal may tie in with efforts by Jared Kushner, President Donald Trump’s son-in-law, to negotiate an Israeli-Palestinian peace deal.

His plan reportedly relies on a large Saudi contribution, so generous nuclear terms for Riyadh could help. Kushner’s a strong supporter of the Westinghouse bid, a US official said.

Whoever wins the Saudi contract will be entrenched in the kingdom for the long-term – one reason why nuclear power is so politically important.

“From the time you shake hands, you have very close to a century-long relationship,” Lipman said.

“From design and construction to operation, servicing, upgrading and then eventually decommissioning and waste management, you are working together. That’s why so much is at stake.”

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