Proceedings of the Standing Senate Committee on
National Finance
Issue 5 - Evidence - May 4, 2010
OTTAWA, Tuesday, May 4, 2010
The Standing Senate Committee on National Finance met this day at 9:32 a.m. to study the estimates laid before Parliament for the fiscal year ending March 31, 2011.
Senator Joseph A. Day (Chair) in the chair.
[Translation]
The Chair: This morning, we will continue our study of the Main Estimates 2010-2011, which were referred to our committee.
[English]
This committee has already held seven meetings in relation to these Main Estimates and we will continue to examine them over course of this fiscal year. However, as honourable senators know, we will be filing an interim report prior to main supply later in June, and that report will form the basis for our dealing with the main supply, which we anticipate about that time.
This morning we will be focusing our attention on Atomic Energy of Canada Limited. We are pleased to welcome from AECL Mr. Hugh MacDiarmid, President and Chief Executive Officer; Mr. Kent Harris, Senior Vice-President and Chief Financial Officer; and Mr. William Pilkington, Senior Vice-President and Chief Nuclear Officer.
Mr. MacDiarmid, I invite you to take the floor now with a few introductory remarks, and I understand that Mr. Pilkington will have a few remarks from the nuclear point of view.
[Translation]
Hugh MacDiarmid, President and Chief Executive Officer, Atomic Energy of Canada Limited: My colleagues William Pilkington, Kent Harris and I appreciate the opportunity to be here today.
[English]
First, I would like to provide the committee with an update on the most urgent priority we have at AECL, which is the repair and return to service of the NRU reactor — the National Research Universal reactor — at Chalk River Laboratories. I will give an overview, and then Mr. Pilkington will provide some additional detail.
As you know, intense repair operations continue around the clock. They involve over 300 highly qualified AECL staff and industry partners. As of today, we are working to repair the last of 10 sites that required repair on the reactor vessel. The process has been painstaking, and our rate of progress has been dictated by the need to inspect, analyze and understand irradiated metal behaviour and to measure and evaluate stress on the vessel structure.
Simply put, what we are doing has never before been done in the history of the nuclear industry. It is probably the most complex, precise and sophisticated welding operation ever undertaken in a radioactive environment.
Our people at Chalk River have met many technical challenges during this outage. They have invented many new and innovative remote tooling systems. These complex tools, which are equipped with vision systems, have to be compact enough to pass through an opening the size of a baseball at the top of the reactor. They are then fed nine metres down into the reactor vessel, where they unfold and align with the vessel wall. The welding operation is controlled by operators with TV screens and joysticks three stories above the site they are repairing. It is a complex undertaking. However, through excellent teamwork among our employees and suppliers, and with the best advice from eminent welding and technical authorities, we are getting the job done.
As we stated publicly just over a month ago, the NRU reactor will resume isotope production by the end of July. That schedule does have built-in prudent contingency that reflects the difficulty inherent in these final repair sequences.
The Chair: That is July of this year?
Mr. MacDiarmid: Yes. That is fair, Mr. Chair.
All of us at AECL feel the pressure every day to get the repairs completed as soon as possible so that medical isotopes from NRU can be used to help patients all over the world. Let me reiterate: AECL is making every effort to return the NRU reactor to service as quickly and as safely as possible.
Before I turn it over to Mr. Pilkington to give you a bit more detail on the NRU repairs, I will refer briefly to the most recent budget. Budget 2010-11 provided $300 million in this fiscal year to support four important AECL priorities: first, to ensure a secure supply of medical isotopes; second, to maintain safe, reliable operations at Chalk River Laboratories, including attention to health, safety, security and environmental priorities; third, to continue development of the advanced CANDU reactor; and fourth, to continue anticipated commercial costs relating to the reactor life-extension projects.
At AECL, we do understand the importance of critical projects that we must execute successfully, the need to control our costs, and the imperative that we prepare for the upcoming restructuring of the company. I will now turn it over to Mr. Pilkington to continue our opening remarks.
William Pilkington, Senior Vice-President and Chief Nuclear Officer, Atomic Energy of Canada Limited: As Mr. MacDiarmid stated, the NRU repair and return to service is making steady progress in addressing the remaining unique repairs. The NRU forced outage began on May 14, 2009, when the unit shut down due to a power outage and a small heavy-water leak was discovered. Remote visual examination identified a number of areas of localized corrosion at the base of the reactor vessel wall, one of which was the leak source.
A progressive series of inspections commenced, including several forms of non-destructive examination and analysis of material samples removed from the vessel wall. This condition assessment was completed in November of 2009. In parallel, repair options were considered; well build-up was selected as the primary repair strategy; remote weld tooling was designed and built; and a combined repair team was formed, including AECL staff and our technology and tooling supplier. Welding processes were developed, procedures qualified and welding specialists trained.
The repair phase of the project began on December 12, 2009. To date, nine of the ten sites have been repaired. Smaller repair sites were completed first to prove the equipment and the procedures and to gain experience. Later repairs have proven more challenging. These repair areas are the largest, increasing the complexity of achieving a lasting repair while managing the stresses on the vessel. Each repair site requires a unique strategy and repair design. The repair team is now employing a combination of welded plates, two types of vertical and horizontal structural welds for plate attachment and, finally, both vertical and horizontal weld build-up. We have now completed the repair design for the last remaining site.
Building on repair experience to date and drawing from Canadian and international experts in specialized welding solutions, reactor technology and outage management, AECL has confirmed that we are using effective repair techniques, that the NRU is indeed repairable, and that our current schedule is realistic. Our advisers also agree that AECL is appropriately balancing the competing priorities of a lasting repair, minimizing the risk of damage to the reactor vessel and minimizing the outage duration.
The process of preparing to complete the final largest repair involves four phases that must be carried out in sequence. The phases are weld development, welder qualification and reliability testing, integration testing and, finally, completing the repair in the vessel.
Weld development is the longest and most difficult phase to plan and schedule since a number of weld trials and engineering analyses must be completed to arrive at the optimum solution. For the final repair site, this process began in January and was successfully completed on April 30.
Next, the specific weld procedures must be developed and the welders qualified to complete them. The repair sequence must be refined to allow welders to train on the techniques to the point that a quality weld can be made repeatedly. This process is referred to as qualification and reliability testing and is currently in progress for the final repair site.
After successful completion of welder qualification and reliability testing, we proceed to integration testing. This is a full rehearsal of the repair from start to finish. All of the remote tooling to prepare the vessel for welding and to complete the repair is used in full-height mock-up to confirm that the teams and the execution of each of the procedures fit together to deliver the required result. When we are in the vessel, we need to get it right the first time.
Finally, when all of these phases have been completed flawlessly, the repair team is ready to go into the reactor vessel. The preparation is extensive and time consuming, but the results speak for themselves. To date, every repair site has passed all required non-destructive examination following the repair.
Activities related to the start-up phase of the NRU return-to-service project continue in parallel with the current repair activities. The multi-stage start-up process is being conducted by a dedicated team working in parallel with the repair team. There are 19 start-up procedures involving more than 1,000 activities required to safely return the reactor to high- power operation following an extended shut-down period.
In addition, AECL will require the approval of the Canadian Nuclear Safety Commission prior to restarting the reactor. To minimize the time required, work on the outage critical path continues 24 hours a day, seven days a week without interruption. Returning the NRU to safe, reliable operation to support medical isotope production remains the focus of the outage team and AECL's primary objective. Thank you.
The Chair: Thank you very much, Mr. Pilkington and Mr. MacDiarmid. We appreciate that background. I was hoping you might draw the parallel between Chalk River's NRU, the National Research Universal reactor in Chalk River, and your CANDU reactor, the first CANDU 6 sold by AECL in New Brunswick. It seems you are going through the same process of learning how to repair or upgrade a product that you sold or manufactured several years ago. There seem to be the same delays. Are you developing an expertise that will be universal in its application afterwards?
Mr. MacDiarmid: Thank you for raising the topic and bridging over to the Point Lepreau project. It is quite a different project, I have to say, in the sense that the NRU was an unplanned outage provoked or caused by an unexpected leak in the reactor vessel. The work we are doing there is in the context of an unplanned outage and requires a set of procedures that had to be developed on a very short time frame.
The Point Lepreau project is the first of the CANDU 6 series of reactors to be refurbished. Again, it is a broader project, because we are disassembling the entire reactor core, cleaning and inspecting the reactor vessel to ensure it is suitable to be brought back to service and then reinstalling all of the core components in the reactor. It is indeed a much more comprehensive remaking, if you will, of the reactor. Of course, as you well know, we have encountered significant scheduling and cost challenges in undertaking this work. The old adage about first-of-a-kind projects applies, and we are learning an expensive lesson, to be sure.
With respect to the CANDU 6, as I am sure you know, we already have a project under way in Wolsong, Korea. We are one year away from the next outage at Gentilly-2 in Quebec, and we are hoping we would have a further refurbishment and life extension at the Embalse reactor in Argentina.
In the Point Lepreau project we are building an experience base that we believe will set the stage for us to have a commercially viable life-extension business for AECL with a revenue stream and a profit margin stream in the future. We do not hope to build such a business from the NRU. No question, many of the technologies that we are developing will have commercial application, and we will see whether there is an opportunity to recoup some costs in the future by deploying those technologies, but we do not think of it in quite the same way.
The Chair: In your opening remarks, you mentioned $300 million in the budget. So far what we have seen in the Main Estimates is approximately $102 million. Should we anticipate another $200 million in supplementary estimates?
Mr. MacDiarmid: No, sir, the $300 million was specified in the federal budget for this year, which is in addition to the $102 million of base funding. It is on top of that. We can only work within the envelope we are given of available funding. At this point in time we are managing the business to achieve the various missions that we have been assigned. Further funding requirements will depend on developments going forward.
The Chair: Thank you. I am sure that exchange will help provoke more questions.
Senator Ringuette: Gentlemen, it is nice to see you before this committee. We have been waiting almost a year for you to appear before us.
How many jobs — probably highly skilled jobs — would the industry in Canada generate?
Mr. MacDiarmid: In total, the nuclear industry is estimated at as many as 30,000 jobs in Canada. That would cover both the generation of power and the various supply chains and suppliers to the industry.
Senator Ringuette: We are looking at highly skilled jobs here.
Mr. MacDiarmid: Correct. These are an extremely highly skilled jobs requiring a highly educated workforce — the kind of jobs we want to preserve and expand in our country.
Senator Ringuette: With respect to refurbishing the CANDU reactors in Korea, Quebec and Argentina, you said you are hoping it will be a commercially viable business for the future. Is that in the prospect of AECL being sold?
Mr. MacDiarmid: I think that irrespective of who will be the future shareholder of AECL, the expectation is that we will run this particular part of our enterprise as a profit-oriented business. AECL today is a marriage of two business units that have fundamentally different objectives. I think this perhaps underlies the rationale and logic of the restructuring. The national nuclear laboratory at Chalk River, which Bill Pilkington has responsibility for today, is a repository of science and technology in the nuclear industry. It is designed to be pre-commercial in nature. It is designed to provide fundamental research that will spawn commercial opportunities, but it is not designed to operate on a commercial basis. The other half of the company, what you might term the commercial operations or the CANDU reactor division that designs and delivers and supports nuclear reactors, is explicitly supposed to be profitable. Presently we have not had the revenue stream from new-built business that we had hoped. That revenue stream would normally allow us to be financially self-sufficient and fund our own development activities and our own work.
Regarding the need for funding support for the ACR product development — the advanced CANDU reactor — in the normal course of enterprise one would expect to fund that research and development expenditure out of residual cash flows, out of profits. Basically it is very clear that the life-extension business and the projects within it should indeed be profitable.
Senator Ringuette: There is a lot of talk in the country about the need for electricity. On the weekend I heard that Ontario is considering an additional CANDU reactor to generate its needed electricity.
It seems that your competition for the time being, AREVA, which is partly owned by the French government, is seriously considering the purchase of AECL. They are one of the very serious bidders. When a company buys out the competition, it usually seeks to further its own homegrown technology. Would that signal to Canadians the end of further CANDU sales?
Mr. MacDiarmid: Senator, I cannot comment on who may be involved at this late stage of the restructuring process, but certainly an important consideration, speaking from where I sit, has to be the net benefit to Canada; and the net benefit to Canada would have to consider the retention and continuation of the employment in this country and the technology base in this country. That is how we create wealth as a nation and why we feel so strongly about the strategy we have embarked upon. We want to continue to be the vendor, the supplier of nuclear technology to the Canadian marketplace. We have been very aggressive in our approach to the Ontario nuclear procurement, and we want to use that base to compete on a global scale. If you look at AREVA'S strategy, that is exactly what it has done. AREVA has a strong domestic marketplace from which it can go and compete successfully around the world. Our vision is very much in line with that.
I would hope and expect that any transaction involving new investors in AECL would fully consider the net benefit to Canada as a primary consideration in striking the deal and the terms and conditions surrounding it.
Senator Ringuette: I am happy that you have highlighted the terms and conditions. You are certainly well aware that the budget bill, Bill C-9, in the House of Commons requests that parliamentarians give a blank slate to the Prime Minister to sell AECL without seeing any financial numbers, nor any conditions and terms, as you say. Canadians have invested billions of dollars over the years into this technology and your organization, so I personally feel that, whatever is done, parliamentarians should have a review of the sale and the conditions of the sale, most importantly because of the high value that Canadians put on the isotope production. The refurbishing at Chalk River is important, and Canadians are sensitive to the isotope situation.
Mr. MacDiarmid: Senator, the isotope production aspect of AECL would not be included in the transaction that is contemplated at this time. I believe the government has been pretty clear in its statement that AECL in effect will be divided into two distinct entities, and the isotope responsibility will remain the responsibility of the nuclear laboratory at Chalk River. Going forward, there are different ways that facility could be operated, but it will continue to be owned, effectively, by the Government of Canada.
Senator Runciman: Are the Bruce reactors in Ontario CANDU 6 or an older vintage?
Mr. MacDiarmid: They are a different version, if you will. The Bruce reactors are larger; they have 480 fuel channels instead of 380 in the CANDU 6, and they have a higher power output. Other elements of the design are different from the CANDU 6.
Senator Runciman: Were the refurbishments that have taken place there done under contract with AECL or were they done using other contractors?
Mr. MacDiarmid: We were a significant contractor to Bruce Power, but we did not take on the overall contracting scope that we did at Point Lepreau. We were more of major subcontractor to Bruce as part of that outage.
Senator Runciman: Your bid with Ontario was for two ACR-1000s?
Mr. MacDiarmid: Yes, sir.
Senator Runciman: I was reading an article, which may be somewhat dated, that said 85 per cent of the design work was done. I am curious about the bid. I guess Westinghouse dropped out and AREVA was the sole competitor, but maybe I am wrong.
Mr. MacDiarmid: I am not quite sure that is the case.
Senator Runciman: Maybe this is typical, but in a bid process you are making a bid for a reactor for which you have only 85 per cent of the design work done. Are your competitors in a similar situation, or are they putting forward a case for a "tried and true'' reactor, if you will? Has their performance been certified?
Mr. MacDiarmid: The major competitors are further along in the development program of their Generation III reactors. The global marketplace is in transition from Generation II to Generation III, and the most obvious manifestation of that generational transition is post-9/11 terrorism protection, including enhanced containment and security. At the same time, there are a number of enhancements to the safety performance and other aspects, so there is a shift from one generation to another.
There has not yet been a Generation III reactor successfully built and commissioned. AREVA has a new build under way. Its first Generation III reactor is being built in Finland, and AREVA has encountered some substantial scheduling cost issues with that project. Its second build is in Flamanville, France, and it has another project just beginning in China. Westinghouse I would argue would be the other major competitive vendor, and it is doing its first Generation III build in China.
Both AREVA and Westinghouse are further along than we are, so I will not pretend that we are neck in neck in the pace of development. It is not that they have proven reactors and we are marketing something that is not there; we are well along. To be sure, we are somewhat behind them in the development process, but at the same time, I think we would argue that we are benefiting from the experience and some of the challenges they are having with their new builds.
After all, the timing of the Ontario process was not of our choosing. The Ontario government decided to launch the nuclear procurement with a structured request for proposals, so we had to decide whether we wanted to go into battle with a reactor that was not yet fully designed. In fact, Ontario did not invite us to submit a bid based on the CANDU 6. They wanted a Generation III reactor. In that regard, our decision was a relatively simple one in the sense that we felt comfortable with where the reactor stood. We still do. I think you will know that we were judged to have submitted the best and the only compliant bid, so we feel positive about our accomplishments in that process.
Senator Runciman: If Ontario's energy needs start to spike in the next few years, given your forecasting and a whole range of areas that have not been terribly accurate, you could lose out by not being prepared to meet the Generation III needs.
Mr. MacDiarmid: We are asking that question. The ACR-1000 project has been managed very successfully against its development schedule. We geared it around the timing of the Ontario nuclear procurement, thinking of the gates we would need to pass through to be ready to deliver a reactor to be in service in 2018 and 2019. We engaged with the Canadian Nuclear Safety Commission in a pre-licensing design review, and we were successful and on schedule in securing both the phase 1 and phase 2 letters that are part of their review process.
We honestly feel that the ACR-1000 development is proceeding on roughly the schedule that it should. It is our goal to complete the basic engineering program by roughly this time next year, and we believe that we can do that. At this point, we are satisfied with the status of that project. There is no question that right now, given all of the other factors that surround us and the first-of-a-kind issues that our competitors are encountering, I think the entire world is nervous about new builds and about schedule and costs associated with a first-of-a-kind project.
Senator Runciman: If Ontario opted to look in another direction, what would the implications be for AECL?
Mr. MacDiarmid: We would pick ourselves up, dust ourselves off and move on. At the same time, if our own home province was not willing to do business with us, it would clearly have a profound effect on our standing internationally.
Senator Runciman: Regarding Point Lepreau, we talked about timelines and cost estimates and so on. I was reading newspaper clippings this morning, and I am sure you could bring us up to date. The initial estimate on the overhaul was $1.4 billion. I read an article that said you are now $475 million over that. That does not incorporate lost revenue, and I am not sure where the New Brunswick government stands. It is apparently quite perturbed about the additional costs it has to assume on a daily basis. Could you bring us up to date on where that stands and what you see happening there?
Mr. MacDiarmid: I would be happy to do so. This project has unfolded in a way that has made it very clear that we underestimated the technical challenge and we overestimated our capabilities to deliver against the schedule and costs that were negotiated in the original contract.
That contract was negotiated in a relatively compressed time frame. We can look back with 20/20 hindsight on everything, but I know it was negotiated with good faith and with the best of intentions. Clearly, we undertook the project on a fixed-price basis with liquidated damage provisions and bearing the lion's share of the economic risk associated with delivering that project. As the project unfolded, it became clear that we were facing obstacles that would not be resolved as quickly as we had estimated. The direct costs of the extra schedule are ours.
The costs that the Government of New Brunswick is referring to relate to the replacement power that the province is required to buy. There is no provision in the contract for us to bear that cost. From AECL's perspective, it is our intention to honour the contract, and that is what we will do.
Senator Runciman: I am a supporter of nuclear power, but if you look at the track record, you can understand why people are skeptical about the delayed start-ups and cost overruns, which seem to be endemic in the industry. Perhaps that is an unfair comment, but from a public perception point of view, that makes it a much more difficult sell.
With respect to Point Lepreau, I gather you have to hire a number of part-time employees. What kind of security clearance are they required to have? Is it comparable to full-time employees, and if not, why not?
Mr. MacDiarmid: My understanding is that everyone to whom we give an AECL badge will go through a security clearance process, and that would be consistent from one person to the next.
Senator Runciman: Can you give us a brief view of how extensive that security process is?
Mr. MacDiarmid: It would be consistent with the policies of the Government of Canada for us as a Crown corporation. Regarding the exact, precise issues that are looked into, I cannot give you a direct answer. I can certainly get back to you with that in detail, if you like. We are consistent with the policies that the government has in place for any Crown corporation.
Senator Runciman: There was an article a while ago about people taking pictures outside of Point Lepreau when coming across the border. I cannot recall the details.
Mr. MacDiarmid: I am not familiar with that incident. We are as respectful of those premises as anyone should be. We work closely with NB Power and Bruce Power on security and all other matters.
Senator Runciman: Is there a perimeter for the approach to a nuclear facility?
Mr. MacDiarmid: Yes. Every nuclear facility in Canada today has an extensive perimeter, totally fenced off with security access. It is quite difficult for anyone to gain access without authority.
The Chair: As a supplementary question on Point Lepreau, are you now at the stage where you can predict with some degree of certainty when your aspect of the work will be finished?
Mr. MacDiarmid: We have not issued any public guidance with respect to the expected completion date of our phase. We have not updated the guidance. The most recent one was issued last September when I met with Premier Graham and Minister Keir. At that time, we predicted mid-October 2010. At this point, we consider that date unrealistic. It will be later than that, but we have not issued guidance for the simple reason that we are engaged right now in technical problem solving for the current phase of the activity, which is the insertion of the calandria tubes. It is well understood in the local community there that until we have a clear line of sight on the completion date of this existing phase, any predictions beyond that would be speculative.
I have certainly committed to our customer, NB Power, that we will be forthcoming as soon as we have a date we can stand behind.
The Chair: Will it likely be months or years longer?
Mr. MacDiarmid: I would prefer not to give a band. Let us say months, not years. As soon as I get into that game, I get boxed in, and it is not helpful for any of us to engage in speculation.
[Translation]
Senator Poulin: First, I want to thank you, Mr. MacDiarmid and Mr. Pilkington, for your presentations. It is extremely important to hear about your business plan and objectives for the coming years.
As you know, when you go from Ottawa to Sudbury, you take Highway 17 through Chalk River.
I have been going through Chalk River for a number of years. When you talk about jobs in Chalk River, it is extremely important. That community and the entire country are depending on your company's success.
You talked about jobs in your business plan. How have these recent challenges affected Canada's nuclear energy expertise? Canada has always been recognized internationally for its nuclear expertise.
Tell us about the impact on nuclear energy jobs that require highly skilled and experienced workers.
[English]
Mr. MacDiarmid: We attach an extremely high value to the human capital at Chalk River Laboratories. Three thousand employees work there every day, a high proportion of whom are highly educated scientists and engineers. They support all aspects of the nuclear industry in Canada, including isotope production, R&D in support of the existing CANDU fleet, support of future-oriented research and development to further the CANDU-type reactor technology, and support of the waste management and decommissioning activities and missions that are important to the management of the entire fuel and nuclear cycle. That includes projects such as the Port Hope Area Initiative, which is important to the citizens of that community. This team of people is very important to Canada's nuclear future.
The challenges that we have had, including the NRU reactor, the decision to terminate the MAPLE development project and the scheduling and cost issues surrounding the life-extension projects, have all raised questions about our organization, our capabilities and our way forward. On the one hand, we are disappointed to be perceived that way externally, but on the other hand it energizes us because we are determined to prove the doubters wrong. We have world-class technology and people, and the nuclear sector is vitally important to Canada. We look at that issue through the same lens.
[Translation]
Senator Poulin: According to reports in recent months and years, you have lost many scientists because of the challenges that your organization has faced. Those reports say that your scientists now have to work from home, on contract. Is that true?
[English]
Mr. MacDiarmid: We have people working on contract for us for various reasons and under varying circumstances. We are cost-effective in the way we do things. However, we have preserved a core of our nuclear and scientific capability at that complex.
Mr. Pilkington: Over the past few years, we have been growing at the Chalk River Laboratories and have been hiring overall. A number of programs have funding associated with them, including the Nuclear Legacy Liability Program, Project New Lease to renew infrastructure and capability at the Chalk River site, and the Isotope Supply Reliability Program to upgrade the reliability of all the facilities in the isotope supply chain. We have actually been hiring over the past several years and bringing in more expertise rather than losing expertise.
[Translation]
Senator Poulin: You talked about the importance of revenue. Our research mentions a significant number of international contracts, agreements with Argentina, Korea, Romania, China, India and Pakistan. I would imagine there are others.
What exactly do you need from the government in terms of funding in order to carry out these large contracts with other countries? How do you see the future given your role in nuclear energy production?
[English]
Mr. MacDiarmid: Our business model is not unlike that of any high technology company, in the sense that you invest large amounts of money in developing leading world-class products and then enjoy a revenue and margin stream over time from the sale and then the servicing of those products. In any major tech company you see a combination of research and development activities, then sales and installation, and then support.
It has been some time since we have had a typical level of revenue associated with new-build projects. Normally, new-build revenues provide some profit margins that help to fund R&D.
The life-extension projects were supposed to fill the gap in the new-build revenue stream by providing us with additional revenues and profit margins. It has turned out to be revenues but not profits.
Today we do need the support of the shareholder to sustain the product development of our new-build reactors. When all is said and done, the future of AECL is dependent upon us being able to compete successfully in the domestic and global marketplace and sell reactors. We need to bring the ACR-1000 and the Enhanced CANDU 6, which is the Generation III version of the CANDU 6, to market readiness, and those projects are under way. They both hold the promise of future revenues. Our preference is to sell a twin ACR to Ontario.
Because of its performance characteristics and size, the Enhanced CANDU 6 is more suitable to markets like Argentina and Romania, where we are already present, and Jordan, Ukraine and a number of other countries where we have active joint development activities under way.
We truly believe that we are a two-technology company, and we need transitional support on product development to reach the stage where we are generating sufficient commercial revenues to fund our own development, and that is no different from any other technology company.
Senator Neufeld: Thank you for being here today. Your opening remarks were helpful.
How many reactors do we have in Canada and how many CANDU reactors are there in the world?
Mr. MacDiarmid: As usual in nuclear, there is never a simple answer. There were 22 CANDU-style power reactors built in Canada. Of those, two have been taken out of service permanently at Pickering, so there are now 20. There are eight at the Bruce facility, six at Pickering, four at Darlington, one at Gentilly-2 in Quebec and one at Point Lepreau. We have built nine reactors: four in Korea, two in Romania, one in Argentina and two in China.
The CANDU design is the basis of the reactor fleet in India, and that goes back 35 years, but we did not build anything other than the earliest reactors there. There are over 20, but virtually all have been built by the Nuclear Power Corporation of India Limited.
Senator Neufeld: I believe Canada generates about 75 per cent of its electricity at present from clean sources. With climate change, there is a greater interest in your type of electricity generation. How successful do you think you may be in the rest of Canada in those jurisdictions that have to look seriously at some of their greenhouse gas emissions, meaning Alberta and Saskatchewan in Western Canada? Are there good prospects there?
Mr. MacDiarmid: Yes.
Senator Neufeld: How far along are you? I follow the news from British Columbia relatively closely as far as nuclear generation goes in Alberta, and it has not been successful so far.
Mr. MacDiarmid: I have not been knocking on many doors in British Columbia, but there is a good base level of support for nuclear and meaningful opportunities in Alberta and Saskatchewan.
The big opportunity, of course, is the oil sands and whether nuclear has a role to play in supporting the fulfillment of the promise of that resource. That matter is somewhat out of our hands. The oil sands industry itself will decide on the main extraction technique that it will employ.
Our sense is that if it continues to be based heavily on the steam-assisted gravity drainage process, nuclear is not the right answer. At least, the scale of nuclear that we operate is not the ideal answer. However, if there is a move towards more electricity-intensive exploitation techniques, that may make a real difference to where nuclear can be. I am positive about that, but it will be determined by the oil sands industry rather than by us.
Senator Neufeld: It is not just the oil sands industry; there are many other things in those provinces where coal is the main generation source. In British Columbia, at least until the province changes the energy plan, which I introduced, nuclear is not part of the energy plan, so I would not imagine you would be knocking on any doors.
What bothers me are the guarantees made by the people of Canada through AECL for these reactors within Canada. I can accept that little bit, but outside of Canada, can you tell me whether the Canadian taxpayers are responsible for those nine reactors around the world for their whole life and their decommissioning? So far I have only seen money being spent. Are we responsible for those reactors, and if something goes wrong, are the Canadian taxpayers responsible?
Second, I would like to know what AECL has done in decommissioning. We know that is a huge issue in the United States. At least, I have heard of that in the United States. I am not an expert on it, but I know there has been a lot of talk about it.
Maybe you could answer those two questions.
Mr. MacDiarmid: All of the projects that we undertook outside of Canada have been profitable. It does get lost in the sands of time and in the current situation, but when we look at the projects that we undertook in China, Korea, Romania and Argentina, we made money, and I believe that we can do so again.
We undertake the typical vendor obligations in our industry, and those are limited and no longer in effect. We do not have any residual liability with respect to nuclear accidents or other matters to do with the operation of those reactors. They are the responsibility of the utilities that operate them in those countries. I can give you very clear assurances in that respect.
Senator Neufeld: The second part of that question is decommissioning.
Mr. MacDiarmid: Decommissioning is more of a business opportunity than a liability. We do not have the responsibility for the decommissioning of those reactors in other countries. We could provide services that would relate to that, but there is no financial obligation or liability exposure that we carry at this point relating to that fleet of reactors outside of Canada.
Senator Neufeld: For the 20 reactors in operation in Canada and the anticipated ones, will the Canadian taxpayer continue to be responsible for a good portion of the operation, maintenance and the unforeseen things that will take place in the future and the decommissioning within Canada?
Mr. MacDiarmid: The Canadian taxpayer is not responsible today. The Canadian taxpayer is responsible for supporting the contractual obligations we undertook as part of the refurbishing work, but the operations and the ongoing activities associated with that reactor fleet are the responsibility of the utilities that own and operate them.
With respect to the continued obligation, it relates to our contractual obligations that we undertake with those customers, not the existing fleet.
Senator Neufeld: Perhaps I am not understanding, but I read recently that the federal government has assumed some of the costs of Point Lepreau as a Crown corporation. Has there been a profit side to that that can offset those total costs? Where would I find information that shows that what has been done in sales and the revenue has actually offset the costs that are experienced now and may be experienced in the future?
Mr. MacDiarmid: The contract was signed with the intent that it would be a profitable undertaking. That clearly has not been the case.
We are fulfilling our contractual obligations. Our first obligation in my mind is to operate safely; the second is to deliver a high-quality end result for our customers that will deliver lasting power for 25 to 30 years for Ontario, New Brunswick and Quebec.
The second consideration, of course, is schedule and cost. In that regard, because of the nature of the contracts we signed and the obligations we undertook, we are incurring costs exceeding our revenues and will therefore show a loss on these projects. I would like to believe that is a one-time event with respect to the learning curve associated with the undertaking of these life-extension projects.
We have contracts in place with Bruce, Point Lepreau, NB Power, Korea Hydro & Nuclear Power and with Hydro- Québec with respect to the Gentilly-2 project.
It is my very clear goal and the clear direction of my organization that we will do the absolute best we can on all of them, but that the projects that at the front end have proven to be expensive lessons will be replaced by and followed by projects that are commercial successes as well.
Senator Neufeld: Thank you, and I appreciate that. I will remember those words, that they will be commercial from here on in. That means that they will not be a cost to the general Canadian taxpayer.
Mr. MacDiarmid: I can assure you I have no desire to keep having the kind of results that we have had.
Senator Peterson: What is the estimated life of the refurbished unit in Chalk River?
Mr. Pilkington: The repair we are doing to the NRU is intended to allow the vessel to complete its expected life. The reactor should operate beyond 2016. The actual date at which the unit would be retired will depend on the results of periodic inspections carried out to determine the rate that the reactor and the vessel are aging. We would currently predict that that would be certainly beyond 2016 and possibly beyond 2021.
Senator Peterson: Would you be losing any market share because of this pending uncertainty that you might not be delivering after 2016, or is there so much demand that it is not a problem?
Mr. MacDiarmid: I will tackle that question, but we are migrating into policy decisions by the Government of Canada as opposed to AECL. We are to return the reactor to service as quickly as we can; we are to operate it reliably to produce isotopes, once back in service; we are to ensure that the reactor is relicensed in October 2011, because our current facility licence expires at that time; and we are to continue isotope production to 2016.
We expect that we have enough capacity to supply the marketplace demand, because in the past year, the marketplace has adjusted substantially. The medical community and the supply chain have all found efficiencies that have allowed the crisis — not to diminish it — to be less severe than it might have been. We must wait to see what the demand will be over this period of time for the isotopes we produce. We expect the NRU will continue to supply a meaningful proportion of the world's isotopes when it is operating.
Senator Peterson: If Bill C-9 is passed and the government decides to sell, would any of the division still belong to the Government of Canada, or will the entire division go on the auction block?
Mr. MacDiarmid: That matter will be decided by the government in negotiations with prospective investors. None of AECL's management will be privy to that.
Senator Peterson: When you sell reactors around the world, do you ever consider a design-build package, or do you just sell the reactor?
Mr. MacDiarmid: We tailor our scope, that is, the amount of work. The proportion of the total project that we undertake will differ from one project to another. Our core expertise is the design of the nuclear vessel and the nuclear reactor itself — the nuclear steam plant or nuclear island, as we call it. Along with the design, we also undertake the procurement and supply of critical components, because that is an important element of the ability of those reactors to perform to their design specifications. We typically work with partners on construction and on the balance of the plan, which is the more conventional turbine generator part of the nuclear plant. For example, in the Province of Ontario, we bid in partnership with SNC-Lavalin as the bid partner on the balance of the plan. Typically, our scope will vary from one project to another. Most of the time, we prefer to be the project manager because we feel that the supplier and the vendor that is managing that core of the technology should manage the project. However, there are certain situations where that would not be the case as well. It differs from place to place.
Senator Marshall: Could you speak to the protocol for nuclear incidents and the involvement that Atomic Energy of Canada Limited has on that? We are all following what is happening in the U.S. with regard to the oil spill and the environmental implications. In the case of nuclear incident, is it stratified between minor and major incidents? What is the protocol, and what is your involvement?
Mr. MacDiarmid: I will let Mr. Pilkington respond. He had site responsibility for Point Lepreau before AECL. He is in the best position to give you that response.
Mr. Pilkington: Every nuclear facility, as part of its licence with the Canadian Nuclear Safety Commission, must have emergency plans in place. Those plans involve how the site would respond were there to be a contingency event, of which there are many kinds. Those plans also identify the communications that need to take place and the other agencies that need to be involved in order to manage the contingency and minimize the damage.
In terms of AECL's role, AECL has knowledge of the design and of each of the plants and provides services. In the initial response, it is unlikely that AECL would be involved. Each of the owners of nuclear plants must have the capability to manage any event that might occur. However, in the subsequent mitigation and restoration part, AECL would likely be called upon in the longer term to play a role because of our knowledge of the design and our capability to do service repairs to the nuclear plant.
Mr. MacDiarmid: We do have responsibility for the Chalk River site.
Mr. Pilkington: In the case of the NRU reactor at Chalk River, we are the owner operator and have that responsibility. We have those contingency plans in place. We exercise them continually and they are effective. We are continually prepared for a contingency event.
Senator Marshall: Who is the overseer, or is it left to the individual facilities? That is, do they look after themselves and there is no overseer or umbrella?
Mr. Pilkington: No, there is a communications fan out from the facility, depending on the nature of an event. That goes to the regulator, the Canadian Nuclear Safety Commission, which then goes to whatever emergency measures organization that jurisdiction has in place.
For the offsite response, the emergency measures organizations for the Province of Ontario has a lead role.
Senator Marshall: To go back to Point Lepreau, earlier you said you did not want to give new information with regard to the new estimated completion date. What is the most recent publicly available estimate? Is it the $1.4 billion?
Mr. MacDiarmid: We would not be updating the financial piece; I was referring to schedule. The most recent public guidance we have given on the schedule was that there would be substantial completion of our scope of work on October 15, 2010.
The Government of New Brunswick is responsible for the financial piece and has taken the action to release updated estimates of its total cost. Our cost is embedded within that, but it is a fixed cost. The costs are not going up because of our contract with them. That is to say, they are not paying us more money.
Senator Marshall: If New Brunswick is not paying for the increased cost, who pays? Would it be you?
Mr. MacDiarmid: At this point in time, AECL is bearing the costs of fulfilling our contract.
Senator Marshall: Does that mean the federal government? The number for the estimates for 2010-11 was around $100 million. I believe you quoted a figure of $300 million in addition to the $100 million. What is coming down in regard to Point Lepreau?
Mr. MacDiarmid: We are keeping a close eye on exactly what our costs are in fulfilling that contract. We are in regular discussion with our board of directors and with the project risk review committee of that board and, ultimately, through them, the Government of Canada. We continue to do revised expectations on a regular quarterly basis. This will come out in the normal machinery of government as the year unfolds.
Senator Marshall: Can we expect another bill in addition to the $100 million and the $300 million?
Mr. MacDiarmid: The $100 million is the base funding for AECL, which is largely associated with the nuclear laboratory. The $300 million was the amount of funding that was granted by the government in the budget. I am not in a position to speculate as to what else might happen. They will provide us the funding and we will live within it.
Senator Marshall: I am interested in the issue raised by my colleague regarding expertise. Some people get the impression that you are losing your expertise in this area because of the cost overruns and delays in the refurbishment and all the problems you have been having over the past few years. Could you comment on that? Do you feel there is an issue with regard to expertise within our organization? Do you feel that, compared to other organizations, you are losing ground? You did indicate that your revenue streams are not as high as what you had initially estimated, so it seems several factors are pointing to a probable loss in expertise.
Mr. MacDiarmid: It is a competitive labour market globally, and we are seen as being a repository of great talent. Without question, we are constantly facing the possibility that some of our people will be attracted away. That is also true even in the domestic market here. It is a free labour market.
I would not link that to a loss of capability and therefore an inability to execute the projects. In fact, the projects are of such enormous technical complexity that, as we do these projects, we are building a knowledge base and building human capital as opposed to losing it, because we are learning how to do these things. You can draw a straight line of improvement from the Bruce project to the Point Lepreau project to the Wolsong project in terms of the duration it has taken us to perform each and every repair sequence, and we expect that will continue. We hope that when we are undertaking the outage at Point Lepreau on behalf of Hydro-Québec or at Embalse on behalf of the Argentine utility, we will have a workforce that is uniquely qualified and experienced. In that respect, I understand the skepticism, because we are sitting here at a point in time when we have seemingly under-delivered or are being forced to meet challenges. It is matter of the expectations that were created and the contracts signed, and we have to accept accountability for where we are.
However, I would urge you not to attach a label to that that suggests AECL does not have the fundamental competence. Indeed, we are world leaders in what we are doing. We are just tackling extremely difficult jobs.
Senator Marshall: Have you recently lost a lot of staff or a lot of expertise? What is your recruitment? Do you have problems recruiting?
Mr. MacDiarmid: I want to be cautious in how I answer this. We have 5,000 employees who show up for work every day, and they work hard and are talented and dedicated. We have the natural attrition that any organization has, and it is single digit numbers, 3 per cent, 4 per cent, 5 per cent, which is normal turnover. We also have something specific to the nuclear industry, which is a bimodal distribution of our employees by age. We have a large cohort of experienced people who were part of the growth of nuclear in Canada in the 1970s and 1980s, prior to Chernobyl and Three Mile Island, and then the nuclear industry went through a hiatus for 15 to 20 years. We have a seasoned group of people that we need to have transfer knowledge to a relatively younger group of engineers. We have been successful in bringing those people in. We have a university and community college network for education with a focus in nuclear engineering, which is tremendous. We compete with Ontario Power Generation and Bruce Power for that talent pool, but we get our fair share of them.
I do not feel that today we are in some sort of mass talent exodus or anything like that. We simply need to compete. We need to show people a vision for growth in the future. They need to see a future in order to stay with us. Clearly, my view is that a bright future awaits. We need to get ourselves aligned and organized and structured in a way that will allow us to achieve it, and the sooner the better. If we have a long, extended period of uncertainty with respect to the future of AECL, then that will undoubtedly create difficulties for us in retaining and attracting people.
Senator Marshall: Could you give us an update on the divestiture, as much as you can provide to us in a public forum?
Mr. MacDiarmid: This is career limiting. No, I am just teasing. Clearly, management is not driving this process; it is a shareholder-driven activity. They are drawing upon us to contribute our knowledge and expertise and to meet with prospective investors so that they get a better understanding of the business.
It has been stated publicly that expressions of interest were invited, and those were indeed submitted, and they were multiple. That field of interested parties has been narrowed. I believe the goal is to convert those informal expressions of interest into more binding offers and to engage in negotiations. In any process like this it is hard to manage a firm timeline. I am afraid I cannot give you that, and it is not my place to. It is an elaborate and sophisticated process that has a lot of time and attention.
Senator Murray: I have several questions, the answers to which I would know had I done my homework, so forgive me. I want to follow up on Senator Neufeld's interest in the guarantees that the government and the taxpayers have given to potential foreign customers.
Am I wrong in my recollection that governments over the years have offered inducements and incentives to various potential foreign customers for the CANDU? One of my problems is that I cannot remember whether it was done with the so-called Canada Account or Export Development Canada or some similar agency.
Mr. MacDiarmid: Export Development Canada is an important financial partner for us. The EDC has been at our side in the conclusion of a number of transactions over the years. There is no question that export credit is an important component of doing business internationally, but it is always tied to Canadian benefit and the participation of Canadian suppliers in those contracts.
Again, this all predates me.
Senator Murray: How long have you been with AECL?
Mr. MacDiarmid: It has been two years and four months, senator.
Senator Murray: As president?
Mr. MacDiarmid: Yes.
Senator Murray: And your colleagues?
Mr. MacDiarmid: Mr. Harris joined us last fall, and Mr. Pilkington has been with us a little over four years.
I was certainly given a mandate by my board to ensure that we have the strongest management team possible at AECL, and I have made a number of changes. Mr. Harris is one of four new executives brought in during the past year.
Senator Murray: Senator Neufeld and others among us are interested in the subject of guarantees and inducements and so on. Perhaps we will need to have Export Development Canada here. I remember that a few years ago there was an agreement, which I thought was at the ministerial level, with the Chinese. My simplistic take on it was that we were giving them the money to buy our technology. You do not have to comment on that.
Mr. MacDiarmid: I will steer clear of that one.
Senator Murray: You answered my question when you answered Senator Marshall. I take it, as Senator Ringuette pointed out, the minister, with approval of the Governor-in-Council, can do pretty much whatever he likes, without even much further reference to Parliament, if I am reading this correctly, with the commercial operations of AECL, right down to dissolving the corporation completely.
The invitation for proposals went out in December 2009. That would be five months ago. You indicated there have been multiple responses. I take it you and your colleagues are involved in the analysis of those proposals?
Mr. MacDiarmid: No, we are not. We are not involved in any way in the analysis of the bids or the negotiation of the bids. We have been asked to present business plans, which would be normal in any commercial transaction, to answer the question, "What am I buying?'' We compiled views of the future, as we best saw it, in terms of what we thought our prospects were, and we also have responded to questions with respect to our operations and our current activities. We have been in a responsive mode.
Senator Murray: The analysis would be done by the minister and his advisers and the central agencies — the Department of Finance, Treasury Board, Privy Council and so on?
Mr. MacDiarmid: Presumably with significant input from financial advisers they have retained.
Senator Murray: Perhaps we should have the Minister of Natural Resources here one of these days, because I do not think it is fair to ask these people.
The Chair: We have Export Development Canada tomorrow evening.
Senator Murray: Good. I will be here.
You talk about business plans. How would you describe your corporate stance at the present time, knowing what you know about the government's interest in disposing of you? Are you in a holding pattern? Is it business as usual? How would you describe it?
Mr. MacDiarmid: In a sense, we are open for business. We want to move forward and continue to pursue the business development and revenue-generating opportunities that present themselves to us. We cannot control what our customers do and how they look at us. I think it is clear that the uncertainty with respect to the AECL's future ownership is a consideration, so we are active and are pushing to conclude transactions, and we want to do so. At the same time, we are realistic about the fact that the sooner we have clarity, the better for us and the better for our ability to move forward.
Senator Murray: Do you have borrowing authority?
Mr. MacDiarmid: No, we do not.
Senator Murray: When you incur a deficit, Parliament picks it up?
Mr. MacDiarmid: Yes, senator.
Senator Murray: The commercial operations of AECL, which are on the auction block at the moment — we are perhaps going to sell or amalgamate, or whatever we are going to do — will be a debt-free corporation; is that it?
Mr. MacDiarmid: I need to be cautious not to overstep my bounds, but I believe it would be fair to say that the Government of Canada has invested, as was mentioned earlier, substantial money in bringing AECL to this point. I think the Government of Canada would like to get a return, to some degree, whatever is possible, on that investment. It would only be natural that they would look to the future investor to share some of the risk, to underwrite some of the costs and to share some of the future benefits. This will all be negotiated, and it will be a commercial deal, because private capital will not come into this situation unless it sees a return.
Eventually we will come forward with an outcome. I believe there is a substantial value in AECL today. I cannot put a number on it, but being realistic, looking at our financial statements today, you have to believe it is in our future. The dominant engine of our value and our future growth is the ability to sell new-build reactors, either the ACR-1000 or the Enhanced CANDU 6. We see a number of opportunities to sell those reactors around the world.
With regard to the life-extension business, which is the refurbishment of the reactors, after we finish the Embalse project in Argentina, the next refurbishments are all back in Ontario. These all come on roughly a 25- to 30-year cycle based on the initial life of the pressure tube. They need to be re-refurbished or life extended at around that 25-year point. The next wave of 10 reactors to be refurbished is all here in Ontario.
We believe AECL has a significant role to play in those projects. At the same time, those reactors are operated by large and sophisticated utilities that have their own capabilities, so we might take on a lesser scope; it depends. We have a business opportunity there.
We generate roughly $150 million a year of profitable business from servicing the existing fleet, and we expect that revenue stream to continue and grow into the future. There is value there in the eyes of a prospective purchaser. Some of that value needs to be translated into the deal that will allow us to make the bridge from where we are to a future commercial business that would be profitable, stand-alone and self-sufficient.
Senator Murray: You are making a good case to a prospective buyer. Of course, you were not taken by surprise by the government's plan, or its heartfelt wish to dispose of AECL.
Mr. MacDiarmid: The latest round of studies began just before I arrived. It was announced in November 2007, and in May 2009 the minister at the time announced that the decision had been taken to move forward. Yes, it has been under study for some time.
Senator Murray: As I understand, the minister has not indicated to you a timeline for when the government expects that this will be settled or what the future will be.
Mr. MacDiarmid: I can imagine that it is difficult to establish a timeline you can keep to in this situation. We are taking steps internally to prepare ourselves to be able to implement the changes required to effect a transaction, and we are taking those steps today. AECL is migrating to a slightly different organization design and accountability structure and other matters that are all internal to us in how we operate the business. We are taking certain steps to ensure that the infrastructure is in place for Chalk River to operate as a more stand-alone entity after the partitioning. Those are all internal mechanics.
Senator Murray: I would have to refresh my memory, but I think that when we privatized Air Canada and CN, it took acts of Parliament to do that, and we laid out the conditions and so forth. I do not know — and I do not suppose you know — whether, in addition to the authority that is given to the Governor-in-Council here, which seems pretty broad, any further parliamentary action will be required.
Mr. MacDiarmid: I simply do not know.
The Chair: Senator Murray, before we finish dealing with Bill C-9, we will have to have the minister in to find out what his position is in that regard, and we can do that at that time.
Mr. MacDiarmid, you mentioned a study started in 2007 that formed the basis for the minister's announcement in 2009. Has that study been made available to the public, and could we ask you to provide us with a copy?
Mr. MacDiarmid: I believe the study has been made public, senator. I believe the first work was done by National Bank Financial, and I believe it was posted. I will be happy to follow up.
The Chair: If there is a website we could go to, you could just give us the address.
Mr. MacDiarmid: We will be happy to point you to that. I believe there was a public release of at least an executive summary of that work.
If there is extra time and interest, we brought some samples of the welding we are doing in the reactor vessel, if anyone is so intrigued that they wish to see that. That is another option to spend the time.
The Chair: I am hoping that these welders are employees of yours.
Mr. MacDiarmid: Employees and some contractors.
The Chair: After the project is done, they will not be going off and working for someone else.
You indicated that you are helping the minister put together a case for potential buyers by creating a business plan. In that business plan, do you include the two MAPLE reactors?
Mr. MacDiarmid: No. The MAPLE reactors would be outside the scope of that discussion in any event, because they relate to the Chalk River Laboratories as opposed to the commercial operations.
The Chair: However, is the production of medical isotopes not a commercial venture on its own, separate from the research being done?
Mr. MacDiarmid: I would say decidedly not, in my opinion, in the sense that the production of isotopes is not compensatory for AECL. We have expended considerably more funds to sustain that production than we will ever get out of the marketplace. That links back to the legal proceedings we have under way with our distributor. In that respect, the desire is to make it as commercial as we can.
Another practical consideration is that the production of isotopes is so integral to the campus at Chalk River that it is not practical to separate that out in any meaningful way. In the simple sense, AECL is being divided between its Sheridan Park campus in Mississauga and Chalk River and the Whiteshell campus in Manitoba. The whole isotope production and the distribution agreements and all the issues associated with that will remain with the Government of Canada.
The Chair: My understanding is it was intended that the two MAPLE reactors at Chalk River would produce medical isotopes.
Mr. MacDiarmid: Yes.
The Chair: Have you made any estimate of how much more it would cost and how long would it take to bring those two MAPLE reactors up to the production level of medical isotopes?
Mr. MacDiarmid: We did a detailed analysis of that at the time we were facing the decision of what to do. This was early in my tenure at AECL. It was probably the first major decision that we took after I arrived, and we researched it thoroughly.
At the time, our view — and clearly it was what underpinned the decision — was that the path forward to bring the MAPLEs into production was expensive, long and high risk. It also took us down a path where the end result was a reactor that was based on highly enriched uranium as opposed to low enriched uranium. We felt — and events in the past few months have borne out the concern — that highly enriched uranium is not a wise basis to invest further money. It is a high-risk technology venture.
The decision was based upon our assessment of risk, cost and technical uncertainty. That was reviewed thoroughly with the expert panel commissioned by the minister. I believe the expert panel's conclusion would support the decision that we took. We have not revisited it because we have not felt the need to, to be honest. There is no element of our go- forward plan that is based around bringing the MAPLEs back into service. We do not believe it would be a wise investment of taxpayer money.
The Chair: You referred to highly enriched uranium. Is the ACR-1000 not using enriched uranium?
Mr. MacDiarmid: Not highly enriched. It uses slightly enriched uranium. There is a large gap between the highly enriched uranium — of the grade and purity used in the isotope production process, and which we take great care to manage because of that high enrichment — versus the level of enrichment in the power reactors. In the ACR-1000, we are talking about 2 per cent enrichment relative to natural uranium, which is about 0.7 per cent to 0.9 per cent enrichment. Light water reactors use roughly 4 per cent — 3.5 per cent to 4.5 per cent. Highly enriched uranium is 80 per cent plus, if I am not mistaken. It is a different commodity.
The Chair: Where in that that spectrum of percentage enrichment do your competitors fall compared to you?
Mr. MacDiarmid: The light water reactors are slightly more enriched. They are in that 3.5 per cent to 4.5 per cent range. The majority of the light water power reactors marketed by AREVA, Westinghouse and GE would use that enriched uranium in that 3.5 per cent to 4.5 per cent range.
Indeed, that is one of the interesting business opportunities. I will do a modest advertorial here. One of the strengths of the CANDU design is that that enriched fuel, when it is spent — in other words when it has been run through the reactor and is no longer useable for a light water reactor — has fissile content of about 0.9 per cent, which corresponds nicely with the fissile content of our natural uranium fuel. We are currently engaged with the Chinese in demonstration projects to use recovered uranium as the input fuel for the CANDU reactor.
I was in China in March initiating a test of an in-reactor eradiation of a recovered uranium fuel bundle. It is compelling to the Chinese that all of a sudden there is the opportunity to produce power with no net consumption of uranium and the ability to take what for them is an expensive waste stream and convert it to fuel.
Forgive me, but again we need to celebrate the good things about CANDU, and this is one of them, the flexibility we have for that kind of fuel strategy. That is appealing to countries like China and India that have a scarcity of uranium.
The Chair: Is that the CANDU 6 reactor?
Mr. MacDiarmid: Yes. The ACR-1000 will as well, but the CANDU 6 is the platform we are using.
The Chair: Along with the naturally occurring product thorium?
Mr. MacDiarmid: Yes. Thorium is perhaps a slightly longer-term opportunity, but the reserves of thorium are three to four times greater than uranium around the world. An expert panel was commissioned by the Chinese government, independent of us, and it concluded that the CANDU reactor was the most efficient means of exploiting China's thorium resource, and it recommended that China proceed with building a new CANDU 6 reactor built and designed for thorium. We are excited about that opportunity.
The Chair: I think the honourable senators and our viewers would be interested in knowing about this potential, because China has announced the construction of over 100 nuclear reactors in the next few years. It is a huge market.
Mr. MacDiarmid: We will not get all of those, but we will get a few.
Senator Ringuette: Thank you. I must say I am impressed with the future potential of AECL, which you highlighted strongly and enthusiastically.
I want to go back to the sale of AECL. Did I understand correctly that currently it is the Minister of Natural Resources, along with Rothschild Investment Banking, that is responsible for the negotiation?
Mr. MacDiarmid: That would be fair, yes. Natural Resources Canada officials and a range of officials are involved.
Senator Ringuette: Plus a private investment bank.
Mr. MacDiarmid: They retained financial advisers. I think it was made public that Rothschild is their adviser.
Senator Ringuette: I would like to point you to Bill C-9, which is almost 900 pages. On page 700, contrary to what you have told us, Chalk River could be part of the deal, according to the bill. I will quote part of clause 2141(1):
. . . (a) sell or otherwise dispose of some or all of its assets;
(b) sell or otherwise dispose of some or all of its liabilities; . . .
(d) reorganize its capital structure; . . .
(j) sell or otherwise dispose of some or all of the securities of a corporation or any other entity that are held by, on behalf of or in trust for, the entity that sells or otherwise disposes of the securities;
(k) procure its amalgamation or the amalgamation of any of its wholly-owned subsidiaries; . . .
Contrary to your belief, the proposed legislation in the budget bill allows the Governor-in-Council to sell any or all of AECL, and that would include Chalk River and the MAPLE technology.
As far as I am concerned, for all the past investment that Canadians have made into AECL, it seems as if you are going beyond research and into profit mode. This is not the time for Canada to sell, in part or wholly, especially without parliamentarians having any word on the issue in regard to the amount and other terms and conditions. We are looking at 30,000 highly skilled Canadian jobs in this industry.
I would like you to revisit Bill C-9 on page 704 and see that no portion of AECL is withheld from the discretion of the Governor-in-Council to be sold.
Mr. MacDiarmid: My earlier comments were not related to the bill, and I will not comment on the bill. I said what we understood the government's intentions to be.
Senator Ringuette: I appreciate that.
Mr. MacDiarmid: I understand the point you are making. I will leave it to others to respond.
Senator Murray: Mr. Chair, perhaps it would be helpful if we got a copy of the call for proposals. I presume there is such a document in existence.
Mr. MacDiarmid: I believe that document was issued under fairly tight confidentiality provisions with respect to the transaction itself.
Senator Murray: That could be, but if the minister and the government are as good as their word on the question of what is included and what is excluded, we would surely be able to get that much information without compromising anyone's commercial business.
Mr. MacDiarmid: That is outside of my domain.
The Chair: If there is anything you feel you can share with us after thinking about our discussions, it would be helpful. You can give it to the clerk and we will circulate it. Otherwise, we will ensure that we have the minister here while we are dealing with Bill C-9. Thank you.
Senator Murray: Assuming it gets second reading in the Senate, and that it has passed the House of Commons first.
The Chair: If and when we deal with it.
Senator Ringuette: We have 20 CANDU reactors in Canada. Among them, the Point Lepreau reactor is kind of your research lab in regards to refurbishing potential for the other 19 CANDU reactors in Canada. It is public that refurbishing costs were established at $1.4 billion without the research portion that has created additional costs that you will have to bear and that New Brunswickers hopefully will get a break on, in regards to the time frame that has elapsed and the additional alternate fuel they have to purchase.
Keeping this $1.4 billion in perspective, given today's construction costs and so forth, and probably new safety and guideline measures internationally for nuclear facilities, and given that, once refurbished, the CANDU reactor at Point Lepreau will have a life span of 25 years, what would be today's cost to build a new facility in New Brunswick or anywhere in Canada?
Mr. MacDiarmid: That is a number I am very reluctant to give in a public forum because I will read it in the paper tomorrow morning, and I do not want to do that. I do not think that is wise commercially for AECL, nor is it wise for the Government of Canada as our shareholder to have us tossing around numbers that can be taken out of context.
I will say that refurbishment is a substantially less-expensive project than building a new reactor — by multiples. It would be multiples of the price you mentioned. If you do not mind, without giving you a specific number, I would say that it is clear from our economic analysis and our sense of the marketplace that the decision to get another 25 to 30 years of life out of a reactor is indeed a very straightforward one because the economics are compelling.
Senator Ringuette: A very expert, nice little bird indicated to me that we probably would be looking at $4.5 billion or $5 billion. That is my guesstimate. Refurbishing a CANDU facility would probably be between 25 per cent and 30 per cent of building new. We are looking at 19 CANDU facilities in Canada. If the sale of AECL goes to the competition, they may not want that kind of reactor in the marketplace competing with their own technology, and so then not only would we lose 30,000 Canadian jobs but we would also end up with 19 CANDU facilities where the refurbishment and maintenance technology for the next 25 years would be gone at a horrible cost to all Canadians.
Mr. MacDiarmid: I really cannot respond to that.
The Chair: No? I understand that.
Senator Runciman: You mentioned earlier the Enhanced CANDU 6, which you describe as third generation. I did not see that in my review. In terms of design work related to your bid for the two ACRs, I am not sure about comparability. Where does the design work stand with respect to the CANDU 6, and why would that not be a consideration if Ontario was looking for a third-generation reactor?
Mr. MacDiarmid: The Enhanced CANDU 6 could indeed be an option that Ontario wishes to pursue. As you may know, the province has terminated the formal process it established, and that has opened up a new era of discussions and the flexibility of looking at different alternatives, because in the regional process we were only invited to submit the ACR-1000.
With the Enhanced CANDU 6 reactor we are not changing the fundamental design of the reactor or the physics of the reactor itself. We are dealing with the containment structure and updating the electronics and control and safety systems, but it is essentially a Generation III manifestation or version of the fundamental CANDU 6.
Senator Runciman: It is a heavy water reactor.
Mr. MacDiarmid: It is a pure heavy water reactor. It uses natural uranium. It produces 740 megawatts of energy. We think it will be a fine reactor because the CANDU 6 has been an excellent performer around the world.
The ACR-1000 is a ground-up new design. It is an evolution of the CANDU technology but with some significant innovations that allowed us to move the power output from 750 megawatts to almost 1,200 megawatts, and it involves a conversion from a pure heavy water reactor to being a hybrid of heavy and light water and to using slightly enriched uranium. It is a different reactor, and on a lifetime basis, it has superior economics.
Senator Runciman: If Ontario ever gets its act together, you may be able to have two reactors that you can perhaps submit as a consideration for that province.
Mr. MacDiarmid: If the province wanted us to engage in a side-by-side comparison of our two reactors, we would like to do that.
Senator Runciman: With respect to that consideration in Ontario, how long did that dance continue? For what period of time were you involved in discussions with the Province of Ontario?
Mr. MacDiarmid: The province announced the process in March of 2008. The bid deadline was postponed several times, so ultimately we submitted a bid almost a year later, in March 2009. Towards the end of June of last year, they announced the outcome and the decision to suspend the process.
Senator Runciman: What costs did you have to eat as a result of that?
Mr. MacDiarmid: They were not unusual in the sense that typical nuclear negotiations can last years and you have to devote a lot of staff to them, but certainly they were in the millions.
Senator Runciman: That all Canadian taxpayers had to pick up.
[Translation]
Senator Poulin: My question has to do with Ontario only, so I thank Senator Runciman for bringing up the subject.
In your negotiations with the Ontario government, what kind of support did you receive from the federal government?
[English]
Mr. MacDiarmid: We have received substantial support from federal officials in the compilation of our proposal. They respect the governance structure that has been put in place with AECL. We have a board of directors and a project risk review committee. The government certainly looks to AECL to make its own commercial decisions. In that respect, it was clear that given the magnitude of the bid just in dollar terms and the significance of the project, it was one that our management and governance structure would not undertake on its own. Therefore, we sought shareholder approval before we submitted the bid, and we were successful in getting that approval. They supported our submission of the bid. Literally, we had 48 banker's boxes of paper. We killed a few trees with the bid, but we had the support of the shareholders when we submitted it.
[Translation]
Senator Poulin: Are you still in talks with the Ontario government, or is the entire decision on hold?
[English]
Mr. MacDiarmid: Ontario's decision to terminate the process did create more flexibility. We had constraints within the process that was set up. I was not able to talk directly to Ontario officials or to Ontario Power Generation as the future operator. Those constraints have been removed, so that has opened up new opportunities for us to have discussions. We have indeed had good interchange technically. We are continuing to discuss different commercial elements of this process, and we are hopeful that the time will come when we can bring this together.
The issues that Ontario expressed publicly still remain. The province believes our price is too high, and it wants to understand the future of the restructured AECL before we go into a binding situation.
[Translation]
Senator Poulin: Then we will see whether everything is negotiable, as they say, and whether that will have an impact on the outcome of the negotiations. It would seem that the delay is benefiting AECL's relationship with Ontario. I wish you luck.
Mr. MacDiarmid: Thank you very much. We are working with the federal government's support, and we are talking about Canadians.
[English]
The Chair: Mr. MacDiarmid, just to clarify the record, I think you said, at least with respect to Ontario and probably other potential sales, that the indecision at the present time as to the future makeup of AECL may be impacting on your potential to do business around the world. Is that right?
Mr. MacDiarmid: Again, I do not want to convey a situation where we are unable to do business. We are able to do business. However, certainly it is a factor, and I argue in favour of moving ahead as quickly as we to can to address and resolve it and get clarity on our future ownership and governance. That will create the basis for us to be successful in the future.
Senator Neufeld: I have a very quick question about Argentina. You have brought it up several times. I assume you are talking about the refurbishment of a plant in Argentina. Is that a contract AECL has with that company or country, and is it a profitable one?
Mr. MacDiarmid: There are refurbishment and new build opportunities in Argentina, and we want both. We do not have a contract at this time, but that process is under way. It has been under negotiation for some time. I can assure you that our intent is that it will be a profitable project.
Senator Neufeld: Thank you.
The Chair: One other question I have on the second round relates to Treasury Board vote 5. This committee is very familiar with Treasury Board vote 5, which is an extraordinary activity of Treasury Board where it advances money for emergency situations before Parliament has spoken and before Parliament approves the allocation. We are a little concerned about this happening too frequently, and we helped to define the rules as to when it would happen.
Looking back over your history, I note that in the last two years, not including this year, there have been advancements of $100 million and then $150 million by Treasury Board vote 5 because there were extraordinary, unforeseen situations and you could not wait for supplementary estimates. Can you tell us what they were? Perhaps we can hear from Mr. Harris on this.
Kent Harris, Senior Vice-President and Chief Financial Officer, Atomic Energy of Canada Limited: I would be happy to respond. Unfortunately, in the last two years and in the last six months since I have been on board, AECL has been required to use the vote 5 process. Basically, it stems from a number of the things Mr. MacDiarmid has already commented on — the unexpected expenditures on our life extension projects. Had those projects proceeded as planned, had they been revenue generating as well as profitable, we would not have been in a position to rely on the vote 5 process.
The nature of our ability to access funds is not like that of a traditional company, which would have access to a line of credit. Ours is a longer approval process. With some of the unexpected expenditures we have had, unfortunately vote 5 has been the rule as opposed to the exception. We are currently in discussions with Natural Resources Canada to see how we can avoid that process.
We have a certain float requirement that we try to maintain so that we can continue to do business, whether it is meeting payroll or paying our suppliers as contracted. We do keep an eye on that float on a weekly basis. The situation has been brought to our attention and we are looking into it.
The Chair: Is that your only source of extra revenue if you need it? Senator Murray asked you earlier whether you have the authority to borrow, and you indicated that you do not. Can you convince a government department to borrow for you, or do you have to go to vote 5?
Mr. Harris: I do not believe we have any other option but to continue to do what we have been doing through the vote 5 process.
The Chair: Any questions from senators on that? Thank you. That was helpful.
Honourable senators, this has been a good session in helping us understand Atomic Energy of Canada Limited's role. I would like to thank Mr. Pilkington, Mr. MacDiarmid and Mr. Harris for being here and being so forthright, to the extent that you could be, in telling us where AECL has been, is now and is going, but we do not know with whom. We will have an opportunity to explore that further with the minister when we see him.
Mr. MacDiarmid: It has been an exciting ride.
The Chair: Thank you very much.
(The committee adjourned.)