Over the past few decades, governments in Canada have followed a steady pattern of privatization of services that were previously considered to be in the public interest.

Trains, planes, and automobiles (Translink buses, to be precise) all are now run by private corporations instead of the federal or provincial government, as is the telecommunication system.

Until this year, the federally-owned nuclear reactor maker Atomic Energy of Canada Limited (AECL) has avoided the privatization push. Now, the Conservative government is pursuing a plan to restructure that corporation, and is expected to sell at least a partial stake in AECL's CANDU reactor business to a new private partner.

As recently as 2002, an auditor general review of the corporation's management describes AECL's mandate as "the keeper of CANDU technology and the custodian of Canada's nuclear option."

If the federal government did not keep AECL operational, it was implied, existing nuclear reactors would be mothballed and no new ones could be built in Canada.

But when provincial governments in Ontario and Alberta started talking about building new reactors, they made it clear that they would be accepting bids from competing companies. AECL is not the only option for new reactors. And even if the company disappeared, a competitor would surely take over the steady (and profitable) business of servicing existing CANDU reactors.

Nonetheless, the federal government is not pushing the restructuring plan as a desire to "get out of the nuclear reactor business" in the same way that Stephen Harper pushed the need for private involvement in medical isotopes. Instead, all official statements describe the changes as a way to make the company more successful.

In announcing the restructuring plan, federal Natural Resources Minister Lisa Raitt said, "The overall objective... is to strengthen the capacity of Canada's nuclear industry to compete for and deliver domestic and international nuclear projects." Raitt repeated that argument, in a recent statement before the House of Commons Natural Resources committee, emphasizing the need to protect jobs. "Our government is acting now to ensure that these highly skilled employees will have every opportunity to actively participate in high-value projects, designing, building, and servicing nuclear energy technology in Canada and abroad," she said

A written statement provided to The Tyee by her department in August argued that "the time is right to build on AECL's recognized strengths and expertise... Restructuring the Corporation will make the industry stronger; more sustainable; more competitive."

How is privatization supposed to make you stronger? It's all about the money.

Paying for a risky business

"To succeed," states the final report of the government review that recommended privatization, "it [AECL's CANDU reactor business] requires a market savvy management approach and access to risk capital."

"Risk capital," in this context, means money invested in long-term projects like the development of AECL's Advanced CANDU Reactor (ACR), money invested knowing that it will only turn a profit if and when the design is perfected through multiple reactors being sold and built.

The problem is that, as a Crown corporation owned entirely by the federal government, AECL is restricted by the federal Financial Administration Act in ways its competitors are not. It cannot raise funds to finance a new project by selling shares on the stock market. And it cannot borrow money, or even redistribute its budget, to meet unexpected costs.

This is especially a problem, argued the review, because AECL is a much smaller company than its competitors, and therefore cannot as easily absorb the financial impact from an over-budget project.

If an AECL project goes over budget or past deadline, the only option the corporation has is to go cap-in-hand to the federal treasury. Since 2004-05, Parliament has assigned more than $230 million for the ACR project in supplementary appropriations (i.e., in addition to the corporation's annual funding for research and operations); another $30 million has been budgeted for this year.

In addition, when those latest appropriations are approved, the government will have given $300 million over the past year to help AECL finish its over-budget projects to refurbish CANDU reactors in Ontario and New Brunswick. Overall, more than half of the money AECL has received from the government in the past six years has come from supplementary appropriations (see table below for details).

That is all despite the fact that AECL's commercial operations -- reactor sales and services -- are supposed to be run on a cost-recovery basis.

The government's plan is to find a private partner who would "share the significant upfront capital costs of reactor development, as well as both the financial risks associated with the commercial nuclear business and the benefits from future revenue streams."

The question that remains is, who should that private partner be, and how much control of the company should they have?

A private consulting document from National Bank Financial commissioned as the basis of the government's review recommended the sale of a 51 per cent stake in AECL CANDU, according to a February article in The Globe and Mail, citing unnamed sources. The publicly-released summary report by Natural Resources Canada, however, does not include that recommendation.

Nuclear physicist Jeremy Whitlock, an outspoken supporter of the Canadian nuclear industry and a 15-year AECL employee, told The Tyee in an interview that he personally hoped for the reverse. He hopes the government will maintain at least a minimum controlling interest in the company, in order to protect a "long-term view of the technology."

In addition, for "patriotic and strategic reasons" he would prefer that the corporation's new private partner be a Canadian company. Although he wouldn't name names, there are only two Canadian companies that have been seriously discussed by industry analysts: engineering firm SNC-Lavalin and reactor operator Bruce Power, and when the president of SNC-Lavalin spoke to a Parliamentary committee earlier this month, his only comments on the sale was to urge the government to complete it expeditiously.

If it's not Canadian, will it still be CANDU?

All the other rumoured buyers for AECL are not only foreign-owned companies, they are major international nuclear firms, and AECL's competitors: the French government-owned Areva, U.S.-based Westinghouse (majority-owned by Toshiba) and GE-Hitachi.

It is not logical to expect the other nuclear companies to invest in the AECL's Advanced CANDU Reactor when they have already invested in their own competing models, says John Cadham, a policy researcher at Carleton University. Cadham recently prepared an analysis of the Canadian nuclear industry for the Centre for International Governance Innovation.

"They [AECL] haven't built one yet, so it's still unproven technology," he said. "For a big complex build, I don't know, I think Areva would be better off building their EPRs [European Pressurized Reactors] on the strength of the school of hard knocks they're going through in Finland and France."

That does not mean those companies wouldn't be interested in buying AECL, Cadham argued, but he doesn't have great expectations for the outcome if they do.

"You can cherry-pick their people, you can talk about continuing to invest in research and development, blah, blah, blah, but the practical reality is you'd be buying up their attractive maintenance business... because AECL will make money in the next few years refurbishing CANDU-6 reactors around the world."

As a result, he says, "To my mind, privatization of AECL is the end of AECL. And my guess is that will probably spell the end of nuclear power in Canada, but that's a controversial statement."

From inside the corporation, Whitlock was no more optimistic about the prospects if AECL is sold to a competing nuclear company. "The obvious first step of a competitor who owns his competitor is to shut it down, or convert it to a branch plant making their own product -- regardless of what rhetoric is said at the time they make the sale, or what promises they've signed on to for a couple of years.

"I just don't see that as a good move."

What do I need a nuclear reactor company for, anyway?

Whitlock argues that there are a number of reasons why Canadians should want AECL to stay in Canada, and preferably continue with significant government ownership. At the most basic, there is the question of protecting the investment already made: "Canadians have paid for AECL, and you should always care about what you've purchased."

Another reason he cites is the value to the economy of the industries that support CANDU development and operation. The Canadian Nuclear Association estimates that the entire nuclear industry (including uranium mining and reactor operation) represents $6.6 billion a year in economic activity in Canada.

In particular, Whitlock says Canadians should care about AECL's future because nuclear power is a high-tech industry in which Canada has achieved unique expertise. "For the same reason Canadians care about the aerospace industry, or the communications industry, and think that's important to keep it going domestically, that's another reason," he said.

Whitlock also argues for the importance of supporting the more fundamental research that led to the development of other nuclear technologies such as the medical isotope business. The research activities could all be continued with the proposed independent, "National Lab" model research facility at Chalk River, but the government would have to decide that type of research was worth paying for.

"You have to accept the value of research and development -- and that's not a given," said Whitlock. "In the past, though, federal governments have strongly supported National Labs -- they do in the United States, they do in other parts of the world, and they have in Canada. Because of financial necessities, the degree to which National Lab-style funding [at AECL] has disappeared over the years, and we're down to a research lab that supports the commercial business, basically, and have been for about 20 years now."

Assets and liabilities

Whitlock may be hoping for new funding for research, but it is clear that the government is more concerned about ridding itself of the "financial necessity" of backing AECL's commercial losses.

But those same losses make AECL a hard sell. Who wants to buy into a company that is spending hundreds of millions of dollars a year to complete contracts that it underbid on?

Then there are the considerable liabilities for waste management and decommissioning of old facilities, all of which will likely remain on the public balance sheet.

The government has been careful not to make any statements about what sort of price they are hoping to get for a share in AECL, or what that agreement will look like. "I think AECL is worth what the market will pay," Raitt told the Natural Resources committee, "and that's the true value of assessment."

What does the company have to offer a new investor? There's the human resources of a highly skilled and in-demand workforce. It's not just political lip-service that leads advocates on all sides of the debate to repeatedly refer to the workers as one of the company's best assets.

But the CANDU reactors that all those physicists and engineers work on are of much less certain value. There are really two reactor technologies. The established CANDU 6 reactor has been built "on time and on budget" -- as AECL executives proudly proclaim -- multiple times internationally in the past decade. But it does not offer the same features and performance as other reactors being considered for new builds in North America and Europe.

Raitt and one of her advisors have both optimistically described the CANDU 6 as a "niche market" product, for sale to countries that are worried about having to rely on imports of the enriched uranium required for other reactor designs.

Although you won't hear the minister mention it, one hoped-for market is India, which currently uses reactors derived from an early CANDU model. However, Canada has not allowed any trade in nuclear technology with India since 1974, when that country tested a nuclear bomb made with plutonium from a Canadian-built research reactor. A new Canada-India nuclear cooperation treaty is under negotiation, but final agreement was not reached in time for the expected announcement during the prime minister's recent trip to India.

The other reactor design AECL has to offer -- the ACR -- has never been built and may still need considerable investment to test and perfect the specifications. It also loses one of CANDU's traditional selling points, since it would use enriched uranium fuel. At the same time, it continues to use expensive heavy water as a moderator, one of CANDU's perceived draw-backs in the international market.

There are currently no firm plans -- let alone contracts -- for AECL to build reactors of either design.

AECL was hoping to build its first ACRs in Ontario, at a planned expansion of the Darlington nuclear generating station. It was bidding for the job against reactors from Areva and Westinghouse. But in June, the Ontario government announced that it was suspending the procurement process.

The lack of a deal for the Ontario reactor will naturally make AECL less attractive to potential new investors, and the lack of domestic orders for the ACR make it harder for AECL to convince foreign buyers to take a chance on the new design.

An Ontario press release explained that only AECL met all the bid requirements but that "concern about pricing and uncertainty regarding the company's future prevented Ontario from continuing with the procurement at this time."

According to documents left behind by Natural Resources Minister Lisa Raitt at a CTV studio in May, AECL management knew its bid was high and that Ontario would likely object, but that they were still concerned about possible cost overruns on the fixed-price bid.

Playing politics with nuclear reactors

A written comment on the Ontario decision from Natural Resources Canada states that the government "continues to stand by AECL" as it pursues the restructuring. "We will be pleased to engage with Ontario in advancing common interests and goals," it continues, but the government will be "look[ing] after the best interests of Canada's nuclear industry and the taxpayer's long-term investment in nuclear energy."

Raitt was much more blunt in her appearance before the House of Commons committee. "The most beneficial thing that could have happened for AECL and for the restructuring, quite frankly, was that the Ontario process not be suspended," she said.

The dispute is a symptom of what John Cadham calls the "fragmented policy space" of nuclear power in Canada. "You've got the feds who are responsible for AECL and nuclear policy in general, but it is the provinces who run the utilities and buy and sell power," he explains.

"It's always the case of one government trying to offset its risk at the expense of the taxpayers of another one."

Now Ontario is playing the waiting game, and the federal government has the next move. For the Canadian public, the options are straightforward, but the choice is not.

Do we stick with the investment we've already made, and keep trying to make AECL successful?

Or do we cut our losses and let a competitor take over the company and any future profits, just so long as we're not on the hook for the continued costs of developing and selling a new nuclear reactor?

Year	Estimates Process	Amount (thousands)	Stated Purpose
'09-'10	Main	$108,691	Facilities and Nuclear Operations, Research and Development
	Supplementary B	$200,000	Funding to support the completion of CANDU reactor refurbishment projects
	Supplementary B	$30,000	Funding for operating costs of the Advanced CANDU Reactor Development program
	Supplementary B	$27,000	Funding to address regulatory and health, safety, security and environmental requirements at the Chalk River Laboratories, Ontario
	Supplementary B	$18,000	Funding for continued isotope production, placing the Dedicated Isotope Facilities in a safe shut-down state and to meet regulatory requirements for extending the license of the National Research Universal (NRU) reactor
'08-'09	Main	$152,273	Facilities and Nuclear Operations, Research and Development
	Supplementary A	$120,000	Funding for operating and capital costs to address regulatory and health, safety, security and environmental requirements at the Chalk River Laboratories, Ontario
	Supplementary A	$100,000	Funding for operating costs of the Advanced CANDU Reactor Development program
	Supplementary A	$80,000	Funding for capital costs of the Dedicated Isotope Facilities at the Chalk River Laboratories, Ontario [i.e., the MAPLE reactor project, which was cancelled a few months later]
	Supplementary C	$100,000	Funding to support the completion of CANDU reactor refurbishment projects
'07-'08	Main	$103,749	Facilities and Nuclear Operations, Research and Development
	Supplementary A	$71,207	Funding for working capital ($25,600) and to address regulatory, health, safety, security and environmental requirements at the Chalk River Laboratories in Ontario ($45,607)
	Supplementary A	$37,500	Funding for the development of the Advanced CANDU Reactor
'06-'07	Main	$103,749	Facilities and Nuclear Operations, Research and Development
	Supplementary A	$8,400	Funding for infrastructure refurbishment projects at the Chalk River Laboratories in Ontario to address health, safety, security and environmental requirements
'05-'06	Main	$98,838	Facilities and Nuclear Operations, Research and Development
	Supplementary A	$60,000	Incremental funding for the continued development and pre-licensing of the new advanced CANDU nuclear reactor
'04-'05	Main	$127,838	Nuclear Research and Development -- Operating expenses
	Supplementary A	$35,000	Funding for the development of a new advanced nuclear reactor to be used to generate power and for potential sales in domestic and international markets (Advanced CANDU Reactor)
Total funds allocated to AECL in Main Estimates -- $695,138,000
Total funds allocated through Supplementary Estimates -- $887,107,000

Source: compiled from estimates documents published by the Treasury Board Secretariat

Notes: The 2009-10 Supplementary B funds will be voted on by Parliament in December, although half of the funding for the CANDU refurbishment projects has already been advanced from a contingency fund. These figures do not include funding to address waste management and decommissioning of legacy projects at Chalk River, which are budgeted through the department of Natural Resources.