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Scrubbed reactor plan may cost AECL millions

Globe and Mail: SHAWN MCCARTHY - June 6, 2008

OTTAWA Atomic Energy of Canada Ltd. faces a penalty of up to $150-million for killing the problem-plagued reactor project designed to supply medical isotopes to a private sector partner, says a newly released government memo.

In internal documents stamped "secret" and obtained by opposition Liberals under the Access to Information Act, Natural Resources Minister Gary Lunn was also warned that AECL's problems both with its Maple reactor and its advanced Candu reactor (ACR) technology could undermine the government's attempt to attract private buyers for the troubled nuclear company.

The Crown corporation's problems became a public embarrassment for Ottawa last December, when the 50-year-old national research unit (NRU) reactor at Chalk River that supplies medical isotopes to the North American market through a processing partner, MDS Inc., was shut down over safety concerns. Maple reactors were supposed to replace the Chalk River reactor to maintain Canada's dominance in the medical isotope market.

But last month, with Ottawa's approval, AECL cancelled the Maple project after tests failed to provide a solution to a serious design flaw that raised the risk of a meltdown.

Mississauga-based MDS complained yesterday that it was not consulted before AECL announced the cancellation on May 16.

To date, AECL and MDS have spent an estimated $640-million on the Maple reactors, including $382-million by the private sector company, and $260-million by AECL.

In a conference call with analysts, MDS chief executive officer Stephen DeFalco said his company plans to hold discussions with the federal government about reviving the Maple. "We're hoping more rational minds prevail here in government and are trying to have that dialogue," Mr. DeFalco said. "In our minds this decision is far from completed."

He said the company's supply contract with AECL is valued at about $346-million, and the company will take "the right steps to protect that asset for our shareholders."

He said, however, that he is not concerned about access to isotopes over the medium term, as the NRU reactor is licensed through to 2011.

Mr. Lunn said yesterday that the government is committed to getting the NRU relicensed for an additional five years in order to ensure the continued supply of isotopes.

Mr. Lunn appeared at a Commons committee yesterday and sought to re-assure Canadians that, despite the damage to its reputation, AECL remains a world-class vendor of nuclear reactors. "We have the ability to create a Canadian champion here," he told MPs, adding that the government is looking at a range of restructuring options and that a sale is not a foregone conclusion.

In fact, many observers expect Ottawa to retain an ownership stake and bring in a private sector partner, particularly if the company wins the competition to build at least two new reactors in Ontario.

The minister said the AECL's problems with the Maple - a 10-megawatt reactor designed to produce radioisotopes - do not reflect on the company's ability to design and construct large-scale power reactors.

Mr. Lunn noted the company has a stellar international record of delivering on time and on budget, though the new ACR technology is untested.

The company has also faced delays with the development of the ACR, which the federal Auditor-General has attributed to underfunding.

In an internal memo to Mr. Lunn last fall, Natural Resources official Jonathan Morris warned that a damning Auditor-General's report that outlined those shortcomings "may have an impact on the AECL restructuring project and reduce interest from private sector investors."

At the committee hearing, AECL CEO Hugh MacDiarmid said his firm believes that the supply contract with MDS is void because it was conditional on the Maples being completed this year. He refused to comment on the question of whether AECL would face a penalty for shutting it down.

Mr. MacDiarmid added that he sees no prospect of reviving the Maple project, and told MPs that AECL would have to write off the assets.

In an briefing note to Mr. Lunn made prior to the cancellation, deputy minister Cassie Doyle said AECL loses roughly $50-million a year supplying the isotopes to MDS, and would likely continued to lose money on the Maples.

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