Natural Resources Committee on March 3rd, 2011

[Paule Brunelle, Bloc, Trois-Rivières, QC]

Good afternoon, gentlemen.

I am the member for Trois-Rivières, the riding where the Gentilly nuclear power plant is located. I would like to ask you a question. The Minister has just told us that the refurbishment of to the Point Lepreau nuclear power plant, in New Brunswick, will cost $830 million and the costs have exploded. I had thought that there was a contract between Point Lepreau and the federal government that had been in force sine 2005. I am not particularly familiar with how that works. You say that the refurbishment of the Gentilly power plant is part of your plans. What are your responsibilities? I always thought the Gentilly site was managed by Hydro-Québec. If the costs explode during the refurbishment, is it AECL and the federal government that will have to pay the overruns or will it be Hydro-Québec?

[Hugh MacDiarmid]

Thank you for the question. I do want to make sure that it is fully understood--some of the changes that occurred in the contracting process and some of the learning that was applied in negotiating the G2 contract with Hydro-Québec.

It is indeed a fundamentally different contract with a very different scope and very different elements of risk, and substantially less risk for AECL and for the Government of Canada in that contract. Nothing in nuclear has no risk, but relative to the previous contracts, we certainly learned and applied those lessons in the way that contract was negotiated and signed.

We have less scope, we have less exposure to very significant areas of cost escalation, and yet of course we obviously have obligations we have to fulfill. So yes, there is risk. If we did not fulfill our contractual responsibilities, we would need to bear responsibility for that, but the degree and nature of risk is very different and much lower than we undertook in other projects.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

You know there is strong opposition to the refurbishment of the Gentilly power plant for all sorts of reasons, including the business decision. The experience with Point Lepreau, which produces the equivalent of 2.3% of the electricity produced in Quebec, tells us that this was not a good business decision. If I understand you correctly, Quebec will have to make its decisions. If it decided not to go ahead with the refurbishment of the Gentilly power plant, is the Quebec government going to owe Atomic Energy of Canada money?

[Hugh MacDiarmid]

Again, that's a complex commercial matter, and indeed our two companies are in the process of re-engaging to consider what the ramifications are of the schedule change and the accumulated lessons learned from all the other projects. It's certainly my intention, and I believe it is the intention of senior officials from Hydro-Québec, that we come together in a mutually agreeable way forward that will allow the project to proceed on a sound commercial, operational, schedule, and cost basis. That remains to be done, and I certainly hope that we will be able to deliver that.

I will say that the life extension of the Gentilly 2 reactor has the same fundamental benefits as all other life extensions for CANDUs. So the business case, the economics of doing so, are quite compelling when you consider that you get an additional 25 to 30 years of life from the expenditure that's relatively small compared to a new-built reactor.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

Do I have a little time left?

[The Chair, Conservative, Leon Benoit]

You still have three minutes.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

You tell us that you currently have 5,000 employees at AECL and the CANDU reactor division will be sold. One of the potential buyers is SNC-Lavalin and we hear that what interests it most is the refurbishment. If that scenario comes to pass, how many employees would be left at AECL?

[Hugh MacDiarmid]

The number of employees at AECL is not going to be determined by who acquires the division but by the success we achieve in the marketplace in the future. So we clearly need to secure major new projects for life extension, we need to secure new-built reactor projects around the world and here in Canada, and we will earn our right to employ more people by growing the business to do that.

I don't mean to be cute about it, but truly, I think it is something that, whomever our future shareholder would be, hopefully will bring value in terms of skills, resources, and financial strength; that will help us succeed, but we still have to earn it on our own.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

Is it correct to say that there are very few buyers in the world when it comes to CANDU reactors and so your order book is empty?

[Hugh MacDiarmid]

As was said earlier when the minister was presenting, we do not have a new-build reactor order at this point. The last reactors we delivered, two projects in the last decade, were Cernavoda 2 in Romania and Qinshan 1 and 2 in China. Both of those projects were very successful. We believe we will sell new reactors in both Romania and China. We also expect that we will have good opportunities in other jurisdictions as well as right here in Canada.

[The Chair, Conservative, Leon Benoit]

You have one minute left, Madame Brunelle.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

If the Chalk River reactor stops again, because it is old, do you have a Plan B?

[Hugh MacDiarmid]

Plan A is certainly where I'd prefer to stay, which is that the NRU has proven to be an extremely flexible and powerful machine.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

It is also very old.

[Hugh MacDiarmid]

It has performed admirably into its sixth decade. We all know it will come to an end at some point. But at this point in time, we are clearly doing everything we can to ensure that the NRU is as reliable as possible through to 2016.

We will see.

What goes beyond that will be the domain of government policy.

[The Chair, Conservative, Leon Benoit]

Thank you, Ms. Brunelle.

We'll now go to Mr. Cullen for up to seven minutes.

Go ahead, please.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Thank you, Chair.

Thank you, gentlemen, for being here.

I want to get into the question on cost overruns. How much is the cost so far to the federal government for the cost overruns at Lepreau, and in South Korea, and at Bruce?

[Hugh MacDiarmid]

It depends on how you do the math, to some degree. I'll talk in broad strokes, and perhaps I'll ask Kent to comment.

In general, when the minister gave the figure of $830 million--

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

He did.

[Hugh MacDiarmid]

--that essentially represents the variance from the planned profit that we were expecting to achieve on those projects.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Sorry, but just to get that right, it's a shortfall of what you expected?

[Hugh MacDiarmid]

That's correct. It's in fact the variance from what we had expected. We do not sign contracts with the intention of losing money.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

I hope not.

[Hugh MacDiarmid]

In totality, those three projects in rough terms were expected to generate about $2 billion in revenue and were expected to make several hundred million dollars in profit. As it turns out, we're going to be about $800 million off that target.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

In your annual report, you had $500 million booked in so-called “off balance sheet” liabilities. Can you give us an outline of what they are? It's a lot of money.