Brazil's nuclear power program undone by corruption

Nuclear Monitor Issue: 
#835
4604
06/12/2016
Jim Green ‒ Nuclear Monitor editor
Article

The future of Brazil's partially-built Angra-3 reactor is uncertain in the wake of a wide-ranging corruption scandal that has engulfed the country. Angra-3 was conceived in controversy in 1975 and it may die in controversy.

The turnkey Angra-1 reactor was built by Westinghouse from 1971 to 1982. Angra-1 suffered continuing problems with its steam supply system and its load factor was only 25% over its first 15 years, but since 1999 it has performed "much better" according to the World Nuclear Association.1

Then came the hugely controversial "deal of the century" between Germany and Brazil for the supply of eight reactors, a suite of nuclear fuel cycle facilities and oodles of technology transfer despite Brazil's obvious interest in nuclear weapons. Academic Matthew Bunn explains:2

"In 1975, Brazil and Germany agreed on a nuclear "deal of the century" in which Germany was to provide several reactors and a complete nuclear fuel cycle, including both an enrichment plant and a reprocessing facility, under international safeguards. (The deal was later drastically scaled back, due to delays, economic constraints, and U.S. pressure.)

"At about the same time, Brazil launched a secret, unsafeguarded "parallel program" run by the military, divided into segments run by different services, with the Navy pursuing centrifuge enrichment (ultimately successfully establishing an enrichment facility), and the Army pursuing plutonium production.

"Personnel trained in the safeguarded program with Germany were transferred to the weapons program, and technologies from the safeguarded program are believed to have been used in both the unsafeguarded enrichment facility and a small plutonium separation facility. The weapons program was cancelled under a later civilian government, and following the Brazil-Argentina rapprochement, all of Brazil's nuclear facilities are now under safeguards."

Under the Germany/Brazil agreement, the Angra 2 and 3 pressurized water reactors were to be built immediately, with equipment from Kraftwerk Union (KWU). Work began on Angra-2 in 1976 but was suspended due to a lack of finances and lower than expected growth in electricity demand. Work resumed in 1995 and the reactor came online in 2000. Three years earlier, Eletronuclear was formed as a subsidiary of state energy utility Eletrobrás and assumed responsibility for construction and operation of nuclear power plants.

Angra-3

The development of Angra-3 ‒ a Siemens/KWU pressurized water reactor, identical to Angra-2 ‒ began in 1984 but was halted in 1986 before full construction began. In 2006, the government announced plans to complete Angra-3 and also to build four more reactors beginning in 2015. In 2008, Eletronuclear signed an agreement with Areva for work on Angra-3. In mid-2010, the National Nuclear Energy Commission granted a construction licence and work began on Angra-3 after a 24-year hiatus. In November 2013, a contract was awarded to Areva in line with the 2008 agreement.

And then the Angra-3 project began to fall apart ... again. Funding was a problem. Areva said in April 2015 that progress on the project was "dependent on the securing of project financing by the customer".3 Areva announced in June 2015 that it had reduced its activities at Angra-3 due to delays in securing financing for the remainder of the project.4,5

In August 2015, four Brazilian construction companies stopped work on Angra-3 due to non-payment of millions of dollars from Eletronuclear, and in the context of an escalating bribery corruption scandal engulfing the construction companies as well as Eletronuclear, Eletrobrás, politicians and political parties.6,7

The following month, Eletrobrás suspended work on Angra-3 pending an internal corruption inquiry. Eletronuclear CEO Pedro José Diniz de Figueiredo ‒ newly appointed after the July 2015 arrest of former CEO Othon Luiz Pinheiro da Silva in connection with the corruption scandal ‒ said all building contracts for the project had been frozen for 90 days.8

Over a year later and the Angra-3 project remains frozen. Figueiredo said in April 2016 that several issues needed to be resolved: completion of the internal corruption investigation; setting a new budget for the project, cancelling contracts suspected of being fraudulent and conducting a new tender process, and renegotiating funding for the project.9

When construction began in 2010, commissioning of Angra-3 was expected in late 2015.1 Now, Eletrobrás and Eletronuclear hope to commission the reactor in 2021.10 But that timeline assumes that work will resume, and that it will resume in 2017, and both assumptions are doubtful. According to the World Nuclear Association, the timeline for completion of Angra-3 is "indefinite, maybe 2022"; in other words, it may never be completed.1

Construction of Angra-3 is about two-thirds complete according to Eletronuclear.9 But more funding is required to complete the project. According to powertechnology.com, an additional US$1.8 billion is required in addition to a government loan previously secured.11 In December 2016, Eletronuclear executives will visit China in an attempt to secure new investors to complete Angra-3.12 China might be interested in supporting Angra-3 if it opens up options for the deployment of Chinese reactor technology in Brazil (as with Chinese funding for Hinkley Point C in the UK). But it is doubtful whether new reactors will be built in Brazil in the foreseeable future.

Eletrobrás and its subsidiary Eletronuclear are in no position to be covering the funding shortfall for Angra-3. In November 2015, Eletrobrás booked a 3.39 billion reais (US$980 million) impairment charge on Angra-3.13 In the same month, Eletrobrás announced that it would cut 13,000 jobs over the next two years, around 30% of the utility's staff.10

Then Eletrobrás reported its biggest ever annual loss: a net loss of 14.4 billion reais (US$4.1 billion) in 2015. Economic consulting firm BNamericas reported that the largest write-down was 5 billion reais (US$1.44 bn) for Angra-3.14

The estimated cost of Angra-3 has increased significantly. According to BNamericas, in the late 2000s the estimated cost was US$5.4 billion whereas the latest estimate is 121% greater at US$12 billion.15 According to the World Nuclear Association, the estimated cost in 2010 was US$6 billion and it is now US$7.6 billion.1 Cost increases have arisen due to exchange rate fluctuations, inflation and additional works required to satisfy environmental concerns.15 Eletronuclear reportedly estimates additional losses of US$1.7 million per day if the reactor is not operational by the end of 2018.7

Corruption and crisis

Angra-3 featured in the 'Most Controversial Projects 2015' list compiled by RepRisk, a business intelligence provider specializing in environmental, social, and governance risk analytics.16 Angra-3 was listed at number five in RepRisk's top 10. The award citation read:

"Repeated allegations of corruption have led to the inclusion of Brazil's third nuclear power plant, the Angra 3 Nuclear Reactor, in the MCP 2015 report. ... [I]n May 2015, Eletrobras found itself embroiled in a corruption scandal, when it was alleged that Edison Lobao, Brazil's former Minister for Mines and Energy, had received BRL 1 million (USD 250,000) to help the construction company, UTC Participacoes, win a contract for the Angra 3 Nuclear Plant.

"It was then revealed that the CEO of Eletronuclear had accepted bribes from construction companies involved in the Angra 3 project and in July 2015, he was arrested for allegedly receiving BRL 4.5 million (USD 1.1 million) in kickbacks between 2009 and 2014 from Andrade Gutierrez and Engevix Engenharia (Engevix). A senior energy executive of Andrade Gutierrez was also arrested. Investigators then began to probe the Angramon consortium, charged with constructing Angra 3 ...

"Later in July [2015], hundreds of shareholders of Eletrobras filed charges against the company in New York, claiming that the firm had known about the corruption at Eletronuclear and had hidden the fact for more than a year. One month later, Eletrobras and some of its executives were sued in a class-action lawsuit in a US District Court for violating the US Securities Exchange Act and for providing materially false statements related to the awarding of USD multibillion construction projects, including the Angra 3 Nuclear Reactor.

"In November 2015, the Brazilian Administrative Council for Economic Defense (CADE) launched an investigation into a group of construction companies, including UTC Engenharia, EBE, Construtora Andrade Gutierrez, Construtora Norberto Odebrecht, Construtora Queiroz Galvao, Camargo Correa, and Techint, on suspicions that they had formed a BRL 3 billion (USD 775.3 million) cartel to rig the bidding for the Angra 3 Nuclear Reactor. According to CADE, the cartel was known as the "big group," which held meetings to agree on the prices and winners of each construction tender.

"In December 2015, Brazil's Federal Criminal Court ratified the charges brought by the Federal Ministry of Public Prosecution against Eletronuclear and former executives of Andrade Gutierrez for corruption related to the Angra 3 Nuclear Reactor. The CEO of Eletronuclear, a shareholder of Engevix, and the former president of Andrade Gutierrez Energia were placed under house arrest."

Eletronuclear CEO Othon Luiz Pinheiro da Silva, considered the father of Brazil's nuclear program, was arrested in July 2015. In the same month, Luiz Pinguelli Rosa, a nuclear physicist and Eletrobrás' chief executive from 2003‒2005, said: "The arrest is a tragedy for the industry. The industry was already in crisis, but now the corruption concerns are bound to delay Angra 3 further and cause costs to rise even more."17

The drama has continued this year. In August 2016, Silva was sentenced to 43 years in prison for colluding with executives at Brazilian construction companies to set up an over-billing and kick-back operation for Angra-3.18,20 Investigators alleged Silva skimmed up to 30 million reais (US$8.6 m) from Angra-3 engineering and construction contracts.19

The judge said in his ruling: "The elements of the court findings permit the conclusion that the corruption scheme was structured before, during and after the tenders for Eletronuclear's construction of Angra 3 and consisted in the payment of bribes to public servants and agents" by the construction and engineering companies.18

In addition to Silva, 12 other people, including Silva's daughter, were sentenced in August 2016 for their involvement in the embezzlement of public funds.20

In July 2016, prosecutors announced that Eletronuclear CEO Pedro Figueredo had been suspended from his duties for allegedly colluding with Silva and interfering with the company's internal investigations.19 In the same month, 19 people were arrested for allegedly paying bribes to senior executives of Eletronuclear.22 In return for bribes, Eletronuclear executives allegedly let construction companies inflate the cost of contracts for Angra-3, and politicians and political parties were also beneficiaries of the corruption.22

In May 2016, Brazil's second biggest contractor, Andrade Gutierrez, agreed to a plea deal and will pay one billion reais (US$288 million) to settle the matter. The company was involved in corrupt dealings in connection with Angra-3 and other projects.21

A future for nuclear power in Brazil?

Angra 1 and 2 provided Brazil with 13.9 terawatt-hours or 2.8% of its electricity in 2015, down from a maximum of 4.3% in 2001.23

In addition to Angra 1‒3, plans for an additional 4‒8 reactors have been discussed. However, as the World Nuclear Association notes, "funding is likely to be a problem".1 Claudio Salles, president of Instituto Acende, a Brazilian energy-research group, said in mid-2015: "These [nuclear] plants take 10−15 years to build and as time goes on they become less viable."17

Plans to expand renewable energy have better prospects. The World Nuclear Association states that power from existing nuclear plants at about US$75/MWh is about 1.5 times more expensive than hydropower, and power from Angra-3 is expected to be slightly over twice as expensive as hydro.1

Hydro generates about three-quarters of Brazil's electricity. Plans are in train to add around 40 gigawatts (GW) of new hydro capacity by 2035, primarily from small- to medium-sized run-of-the-river plants which generally have a small impact on the environment and indigenous tribes when compared to some large hydro projects.24

Brazil's Ministry of Mines and Energy says that wind power will make up over 30% of new capacity in the next 11 years, and that at least 25 GW of new wind power capacity will be added by 2035.24

Modest increases of solar and biomass (primarily leftovers from other production processes, such as bagasse from sugarcane processing) are planned. Brazil plans to shut down its coal-fired power plants (2.5 GW) by 2030, and no new permits for coal-fired plants will be granted.24

In mid-2015, Brazil announced its intention to increase the share of non-hydro renewable electricity sources to 20% by 2030.25

References:

1. World Nuclear Association, Sept 2016, Nuclear Power in Brazil, www.world-nuclear.org/info/Country-Profiles/Countries-A-F/Brazil/

2. Matthew Bunn, 2001, "Civilian Nuclear Energy and Nuclear Weapons Programs: The Record", www.academia.edu/737916/Civilian_nuclear_energy_and_nuclear_weapons_prog...

3. AREVA, Press Release, 29 April 2015.
4. WNN, 29 June 2015, http://us1.campaign-archive2.com/?u=140c559a3b34d23ff7c6b48b9&id=7b66592e5d

5. Laura Buckley, 29 June 2015, 'Work slows at Brazilian nuclear plant, says AREVA', www.energylivenews.com/2015/06/29/work-slows-at-brazilian-nuclear-plant-...

6. Reuters, 3 Sept 2015, 'Eletrobras suspends Angra nuclear contract as contractors quit', www.trust.org/item/20150903004211-npgl2/

7. Lise Alves, 13 Aug 2015, 'Brazil's Angra 3 Nuclear Reactor May be Delayed', http://riotimesonline.com/brazil-news/rio-business/brazils-angra-3-nucle...

8. Michael Place, 30 Sept 2015, 'Brazil's Eletronuclear suspends US$4bn Angra 3 project', www.bnamericas.com/en/news/electricpower/brazils-eletronuclear-suspends-...

9. 29 April 2016, 'Brazil's 3rd nuclear plant on track to come online in 2020', www.kallanishenergy.com/2016/04/29/brazils-3rd-nuclear-plant-track-come-...

10. Michael Place, 21 Nov 2016, 'Brazil postpones Angra 3 nuclear project', www.bnamericas.com/en/news/electricpower/brazil-postpones-angra-3-nuclea...

11. 'Angra-3 PWR Nuclear, Brazil', www.power-technology.com/projects/angranuclear/

12. Michael Place, 24 Nov 2016, 'Brazil seeks Chinese investors to kick-start Angra 3 nuclear works', www.bnamericas.com/en/news/electricpower/brazil-seeks-chinese-investors-...

13. Caroline Stauffer and Jeb Blount / Reuters, 13 Nov 2016, 'Eletrobras posts 3rd-quarter loss on Angra 3 nuclear plant impairment', www.trust.org/item/20151113035209-88tsd/

14. Michael Place, 31 March 2016, 'Eletrobras posts record loss', www.bnamericas.com/en/news/electricpower/eletrobras-posts-record-loss

15. BNamericas, 'BNamericas' Angra 3 risk analysis', www.bnamericas.com/en/project-profile/electricpower/angra-iii-nuclear-pl...

16. RepRisk, March 2016, 'Most Controversial Projects 2015', www.reprisk.com/content/5-publications/1-special-reports/3-most-controve...

17. Reuters, 30 July 2015, 'Brazil Nuclear Leader's Arrest May Stymie Atomic Ambitions', www.voanews.com/content/brazil-nuclear-leader-arrest-may-stymie-atomic-a...
18. Reuters, 4 Aug 2016, 'Brazil Eletronuclear CEO gets 43-year sentence for corruption -paper', www.reuters.com/article/brazil-corruption-eletrobras-idUSL1N1AL16E

19. Michael Place, 6 July 2016, 'Lava Jato: Police arrest former Eletronuclear head', www.bnamericas.com/en/news/electricpower/lava-jato-police-arrest-former-...

20. Lise Alves, 4 Aug 2016, 'Eletronuclear President Sentenced to 43 Years for Corruption in Brazil', http://riotimesonline.com/brazil-news/rio-politics/brazils-eletronuclear...

21. Rod Sweet, 10 May 2016, 'Brazil construction giant pays $284m and says sorry to 'all Brazilians' for corruption', www.globalconstructionreview.com/companies/brazil-construction-giant-pay...

22. Jeb Blount, 6 July 2016, 'Brazil police arrest 19 in Eletrobras nuke-plant bribe probe', www.reuters.com/article/us-brazil-corruption-idUSKCN0ZM13N

23. Mycle Schneider, Antony Froggatt et al., 2016, World Nuclear Industry Status Report 2016, www.worldnuclearreport.org/IMG/pdf/20160713MSC-WNISR2016V2-HR.pdf

24. Nov 2016, 'Future Electricity Policy of Brazil & Planning of Energy Projects', www.reddit.com/r/GlobalPowers/comments/5flvgm/event_future_electricity_p...

25. Suzanne Goldenberg and Dan Roberts, 1 July 2015, 'Brazil announces massive reforestation and renewable energy plan with US', www.theguardian.com/world/2015/jun/30/brazil-us-reforestation-forests-re...

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