It has been confirmed that to delete the clause on a "letter of credit (LC) in the amount of $400 million (about 560 billion won) per reactor" that Korea Hydro & Nuclear Power (KHNP) agreed to provide in an agreement with Westinghouse (WEC) of the United States, the contract must be implemented for at least 10 years. This only meets the "start of consultations" requirement, making it unclear whether deletion will actually be possible even after 10 years.
According to the National Assembly on the 15th, KHNP recently provided a closed-door briefing to Democratic Party of Korea lawmakers on the main contents of the nuclear power agreement signed with Westinghouse ahead of a parliamentary audit. This followed a resolution by the National Assembly's Act on Testimony and Appraisal in the National Assembly under which the Trade, Industry, Energy, SMEs and Startups Committee (Trade Committee) requested submission of audit materials.
In the agreement, KHNP promised to provide Westinghouse with engineering, procurement and construction (EPC) services worth $650 million (about 900 billion won) per reactor and technology fees worth $175 million (about 240 billion won). It also agreed to issue a $400 million LC per reactor as performance security. The contract period is 50 years.
An LC is a certificate by which a bank guarantees payment. If the terms of the contract are not fulfilled, the bank must pay the consideration in lieu of the counterparty.
According to the offices of Democratic Party lawmakers Heo Seong-moo and Kim Jeong-ho, who belong to the Trade Committee, the agreement requires KHNP to sign a subcontract with Westinghouse within 120 days after entering into a contract for a nuclear project. However, if the size of the subcontracted services falls short of Westinghouse's demand ($650 million per reactor), Westinghouse can draw on the security deposit.
Specifically, if the shortfall is less than $100 million, twice the shortfall can be drawn, and if it is $100 million or more, the full $400 million can be drawn. Westinghouse also has the authority to draw on the security deposit if payment of the technology fee (within 15 business days) is delayed.
A ruling-party official said, "The agreement's penalty is set not as a fixed-amount fine but as a sanction in the form of forfeiture of the security deposit in case of nonperformance." Lawmaker Kim Jeong-ho also criticized during the audit the previous day, saying it was "no different from handing over a blank check."
In addition, the fact that the conditions for terminating the LC are set stringently is also cited as a problem. The LC that KHNP issued per reactor will be terminated only if the agreement is being properly performed and Westinghouse has completed 50% of the services.
To delete the "LC clause" specified in the agreement itself, consultations for deletion can begin only after 10 years have passed since the agreement was signed, or after cooperation has been achieved on three projects, including the current Dukovany nuclear project in the Czech Republic. This is why some call it a "long-term binding structure."
A ruling-party official explained, "The three cases are not a specification of a particular country or project name under the agreement, but a broad expression meaning 'three nuclear export projects to which the Korea-U.S. agreement applies,'" and "Even after 10 years have elapsed, it means that from then on the possibility of deletion can be reviewed."
The Democratic Party of Korea is urging renegotiation, criticizing the agreement between KHNP and Westinghouse, which includes such clauses, as a "hastily concluded deal with a political purpose."
Lawmaker Kim Jeong-ho said it was a "traitorous treaty" that effectively stripped Korean nuclear power of "technological sovereignty," adding, "Renegotiations should proceed toward an equal structure centered on the national interest." Lawmaker Kim Dong-a said, "Judging from the text of the agreement itself, renegotiation looks difficult, but we will wait with confidence in the capabilities of the Lee Jae-myung administration."
However, Minister Kim Jung-kwan of the Ministry of Trade, Industry and Energy said at the Trade Committee's audit on the 13th that "the Czech nuclear export contract is a normal contract." He said, "It is true there are various controversies related to Westinghouse, but despite such limitations, continuing on has been the history of our exports," and added, "There are issues of trust between Korea and the United States and issues related to the Korea-U.S. nuclear cooperation agreement, so please view this from the long perspective of the national interest."
Earlier, in Jul. last year, the Czech government selected KHNP as the preferred bidder for the construction of two units at Dukovany, but Westinghouse filed a petition with the Czech government claiming "problems in the bidding process," and the contract was temporarily put on hold. KHNP then signed a compromise agreement with Westinghouse in Jan. this year to resolve the conflict. The agreement is said to include provisions that limit the regions where KEPCO and KHNP can export nuclear power to the Czech Republic, the Middle East, Central Asia, Southeast Asia, Africa and South America, and that require a "technology self-reliance verification" procedure by Westinghouse when exporting next-generation reactors such as small modular reactors (SMRs).