Turkey’s Troubled Nuclear Regulator

P24 organized a “How to Cover Nuclear Energy Workshop” on May 8 at the Galata Campus of the Bahcesehir University. As a follow-up to the discussions at the workshop, we present a closer look into Turkey’s unlegislated and unregulated progress towards nuclear energy.
 
The author Aaron Stein is an Associate Fellow at the Royal United Services Institute, a doctoral candidate at King's College, London and a researcher specializing in proliferation in the Middle East at the Istanbul-based Center for Economics and Foreign Policy Studies. He blogs at Turkey Wonk and Arms Control Wonk. You can follow him on twitter @aaronstein1.
                                           
 
  
As Turkey continues to deal with the fall-out of its worst ever-mining disaster, questions are now being asked about the country’s dependence on coal for power production. To address Turkey’s growing energy needs, the ruling Justice and Development Party (AKP) has an ambitious plan to have a foreign vendor, build, operate, and own two nuclear power plants in Mersin and Sinop. Yet, as the recent mining disaster in Soma demonstrates, the government must ensure that proper regulatory legislation is put in place to minimize the risk of accident. Despite the government’s enthusiasm for the development of nuclear energy, the drafting and passage of much needed nuclear regulatory legislation has lagged, even though preparations for the building of two nuclear power plants continues.
 
Turkey’s current nuclear program, like most developing countries, has its roots in the American Atoms for Peace program.  The United States and the Turkish Republic began negotiations for the supply of a small research reactor in 1954 – just a few months after President Dwight D. Eisenhower’s 1953 Atoms for Peace speech. Turkey and the United States agreed to the draft text in April 1955 and the two sides officially signed the world’s first Atoms for Peace nuclear cooperation agreement on 10 June 1955.
 
Shortly thereafter, Turkey created the Turkish Atomic Energy Commission (TAEC) to oversee the development of nuclear energy. TAEC was placed under the control of the Prime Ministry and tasked with overseeing the country’s early efforts to develop a civilian nuclear program. The close linkage between the Prime Ministry and Turkey’s nuclear regulators has since raised questions about independence, as Ankara presses ahead with ambitious plans to generate nuclear energy. 
 
However, Ankara’s problems procuring a reactor during the 1970s, 1980s, and 1990s overshadowed the continued necessity to make changes to ensure that Turkey’s nuclear regulator was independent. Despite the decision to replace TAEC with Turkish Atomic Energy Authority (TAEK) in 1982, the subsequent legal changes have not gone far enough to ensure independence.
 
İzak Atiyas and Deniz Sahin note that there is  “a consensus in Turkey on the view that TAEK does not bear the characteristics of an independent regulatory authority according to international norms.” The fundamental problem is that TAEK is tasked with overseeing every aspect related to the development of nuclear energy: including negotiating with foreign vendors, inspecting the construction of the reactor, and then inspecting the facility once completed.
 
This arrangement has some obvious conflicts of interest. First, the regulator’s commercial interest in the project could prompt TAEK to elevate financing over safety when selecting a reactor. Second, once exclusive bilateral negotiations begin, the commercial side of TAEK has an incentive to hasten the start of the project, rather than simply focus on the technical side of the negotiations. Third, once concrete starts to be poured, TAEK has an incentive to make sure that the project is finished on time, whilst at the same time conducting safety inspections.  And finally, the close ties between the Prime Ministry and TAEK could subject the regulator to undo political pressure to ensure that projects are completed on time.
 
To complicate matters further, Turkey plans to use the Build, Operate, Own (BOO) model to finance the construction of nuclear power plants. Turkey, in 1983, formalized this vendor-financing requirement and instituted a hitherto unheard of nuclear financing model known as Build, Operate, Transfer, or BOT. The BOT model is ideal for a developing state seeking to defer paying the upfront costs associated with major infrastructure projects. However, the fundamental problem with the Build, Operate model is, according to Robert L. K. Tiong, that “it is commercial and financial considerations, rather than the technical elements, that are likely to be determinants in a successful proposal for a BOT project.”
 
And indeed, financing appears to have played a major role in the selection of Russia’s Rosatom to construct a nuclear reactor at the Akkuyu site. In 2008, Turkey passed a complicated nuclear law, designed to entice foreign vendors, without having to do away with the Build, Operate format. Law No. 5710 empowered TETAS to oversee the bidding process and to select the most competitive offer. The vendor would then be required to negotiate a bilateral arrangement to sell a certain amount of energy produced at the site for up to fifteen years directly to TETAS, which would then distribute it to the country. (The law is a variation on the 1984, 1986, and 1999 Build, Operate, Transfer/Build, Operate, Own related legislation.)
 
However, in a sign of the continued concerns about Turkey’s financing terms, only one firm, Russia's Atomstroyexport (ASE) in partnership with Ciner Holding, opted to submit a bid for Turkey’s nuclear reactor tender. No Western, Japanese, or South Korean firm was willing to accept Ankara’s financing requirements. TAEK began to review the Russian proposal in October 2008 to ensure that the bid met the tender specifications. TAEK approved the Russian bid in December, prompting TETAS to begin to review the financial and commercial bidding documents in January 2009. The Russian bid, however, offered 21.16 U.S. cents per kilowatt-hour.
 
In February, Atomstroyeksport revised its bid, dropping its price to 15.35 US cents per kilowatt-hour. In August, Russian Prime Minister Vladimir Putin visited Turkey to help finalize the deal. The deal remained contingent on Russia lowering its price per kilowatt-hour (kWh). And after some legal challenges, Taner Yildiz, Turkey’s energy minister, opted to forego the tender process, in favor of direct bilateral negotiations with a Russian consortium led by Rosatom.
 
On 12 May, the two sides reached an agreement for Rosatom to build, operate, and own four VVER-1200 nuclear reactors at the Akkuyu site. Rosatom agreed to establish a local special purpose vehicle (SPV) to finance and manage the construction and operation, while TETAS agreed to purchase 70% of the electricity from the first two units for a reported guaranteed price of 12.35 US cents per-kWh for fifteen years. TETAS also agreed to purchase 30% of the electricity from the third and fourth unit. After 15 years, the electricity will be sold at market rates with 20% of Rosatom’s net profits being paid as a royalty to the Turkish state.
 
However, the arrangement also has some ingrained conflicts of interest. First, Rosatom, through the local SPV (Akkuyu NPP JSC), pays the contractor, Atomstroyexport JSC, to build the reactor. To fund the build, Rosatom relies on a combination of its own assets, as well as money given to it by the Kremlin. The project is expected to cost some $20-$25 billion. And, in turn, the power-purchasing arrangement – which has yet to be finalized – is geared towards ensuring that Rosatom recoups its expenses within the timeframe of the guaranteed electricity sales. Thus, if the project is delayed, the timeframe in which Rosatom begins to recoup its $20-$25 billion investment is also extended. In turn, this creates an incentive for the project to be completed on time.
 
Rosatom therefore cannot be counted on to be a neutral regulator. TAEK therefore needs to be empowered to conduct inspections and, if necessary, slow down construction to ensure that safety standards are being upheld. However, due to TAEK’s aforementioned conflicts of interest – which actually overlap with Rosatom’s – there is some concern that corners could be cut to make sure that at least one reactor is producing power by 2023. These concerns are exacerbated by the aforementioned fear of political interference and the extent to which Turkey has relied on Rosatom for assistance with the development of its nuclear regulations.
 
In addition to these problems, TAEK has had difficulty procuring technical support services (also known as a technical service organization, or TSO) to review and assess the license application for the VVER 1200 reactor. The tender has been cancelled four times, which in turn raises the possibility of the start of construction being delayed. And if this happens, both Akkuyu JSC – and perhaps TAEK – then will have to balance inspections with both the commercial and political aspects of the agreement. These difficulties – which are not unique to Turkey – have prompted concerns that the Build, Operate, model essentially outsources all aspects of a country’s nuclear program – including regulation – to the foreign vendor.
 
Despite these challenges, Ankara has shown a willingness to work closely with the International Atomic Energy Agency (IAEA) to ensure that its nuclear power plants meet international safety standards. To support a slew of BOO nuclear builds wordwide, the Agency has begun to focus more on the regulatory challenges posed by the Build, Operate financing model. To this end, after a recent visit to Turkey, the IAEA recommended the establishment of an independent regulator to oversee the Akkuyu and Sinop projects.
 
The Turkish parliament is currently considering a Nuclear Energy Draft Liability Law and a new Nuclear Regulatory Authority. However, like in the case of Turkey’s current nuclear regulations, the proposed regulatory authority will remain under the purview of the Prime Ministry, even though bill states that the two entities are to be financially autonomous. Despite the proposed changes, Ilya Smirnov, the Deputy CEO of Akkuyu NGS, notes, “There is a lack of pertinent legislation in Turkey. The existing legislation is very brief and does not address many issues that need to be addressed.” Moreover, Smirnov warns that, “the regulator TAEK is not experienced in licensing nuclear installations and that’s a problem, because in some cases TAEK is not sure what to ask for.”
 
Smirnov’s statements underscore the necessity of Ankara successfully finding a bidder for its TSO tender. Absent a third party, it is unclear if TAEK has the capability to license a nuclear power plant, which underscores the extent to which TAEK remains beholden to Rosatom for assistance with nuclear related legislation and licensing procedures. In April 2014, TAEK announced a new tender for a foreign TSO to review and assess the construction plans for the Akkuyu nuclear power plant. 
 
The announcement came shortly after Rosatom submitted its third environmental impact assessment (EIA) to the Turkish authorities for approval (the previous two EIAs were rejected). If this environmental impact assessment is accepted, TAEK will then spend up to 18 months reviewing the construction documents. And for this task, it will need the foreign TSO. If TAEK stays on this timeline, Rosatom should receive the construction license for Akkuyu in late 2015. In turn, construction at the Akkuyu site would start in early 2016.
 
Thus, the construction timeline, which calls for the first unit in Akkuyu to come online in 2020, and for one reactor to come online each year until 2023, remains contingent on these two processes being completed on time. History suggests that there will be some difficulty finding a TSO, which raises questions about the proposed timeline, and how the project could evolve, should construction be delayed.
 
As Turkey continues to push ahead with its ambitious plan to develop a nuclear power plant, Ankara would be wise to heed the advice of the Agency and take steps to ensure that TAEK is, in fact, independent. In general, the IAEA recommends that new nuclear states take 10 to 15 years to bring their first reactor online. Ankara has sought to shorten this timeline and have the Akkuyu nuclear reactor up and running by 2023. If Ankara meets its self-imposed deadlines, it must be certain to ensure that it also drafts and passes comprehensive legislation intended to address the current concerns about TAEK’s independence.
 
The IAEA has already suggested a practical first step: the passage of a comprehensive nuclear law. It is in Ankara’s best interest to act on it and take its first step towards ensuring that its nuclear regulator is completely empowered to ensure that the legal instruments associated with nuclear energy are in line with other nuclear power generating states. As of now, Turkey still has a lot of work to do in this regard.