Supply Chain

A new strategic plan suggests that South Korea’s conglomerates have what it takes to outcompete Europe and America in key growth markets

By Nick Jones

On December 27, a consortium led by Korea Electric Power Company (KEPCO) beat rival French and US teams in a bid to supply the United Arab Emirates with four nuclear reactors - the first nuclear power plants in the Arab world.

For a country that had never sold a reactor abroad, the $20bn price tag was encouraging in itself. But far from resting on their laurels, the authorities in Seoul have launched an audacious drive to shake up the global market in nuclear power technology.

President Lee Myung-bak, the former Hyundai executive who embodies the tight links between Korea’s government and ‘chaebol’ business conglomerates, is leading from the front.

Reacting to the UAE deal, he declared: "We can now stand shoulder to shoulder with the US, France, Russia and Japan in our advance into the international market."

His comments were swiftly followed with a new strategic plan from the Ministry of Knowledge Economy.

Under this blueprint, Korean firms would sell 80 plants abroad by 2030, winning $400bn of sales and 20% of market share. KEPCO and its former subsidiary Korea Hydro and Nuclear Power (KHNP) help their country vault past competitors to become the third-largest source of nuclear technology and services.

Domestic drivers

Helping to propel these plans have been fast growth at home and an almost total lack of fossil fuels. Fearing dependence on Middle Eastern oil, Seoul moved quickly during the 1980s to replace its first generation of plants - bought on a turnkey basis from the US, France and Canada - with home-grown models such as the OPR-1000 and APR-1400.

Korea’s own ‘economic miracle’ gave KEPCO and KHPC the chance to hone their capabilities and develop economies of scale.

Power consumption for each citizen rose from 850 kWh in 1980 to 7,700 kWh in 2006. Another 12 reactors are under construction, as the government seeks to lift nuclear energy from 38% to 60% of generating capacity by 2035.

The export drive partly reflects Korea’s industrial prowess, but according to Aidan Foster-Carter, Honourary Senior Research Fellow in Korean Studies at the University of Leeds, it also responds to deep-seated challenges at home. 

"The Republic of Korea is still very export focused, but needs to diversify both products and markets," he says. "Nuclear power achieves both of these. It opens up a new vista of very valuable and lucrative deals." 

With exports making up 53% of GDP last year, the global slump sent Korea into one of Asia’s sharpest recessions. However, KEPCO and its partners are optimistic that nuclear exports can add a major revenue source that would help shield earnings. 

As advantages, they cite a strong safety record and competitive price structures. Locally developed fuel management systems have helped simplify and streamline the key export models, which are geared for mass production and straightforward service contracts.

On government data, the APR-1400 costs $2,300 per kilowatt-hour to build compared to $2,900 for Areva's EPR reactor.

Market hotspots

While some of the Korean firms act largely at arms-length from the government, Seoul retains a direct stake in KEPCO, suggesting that its diplomatic clout will be added to the companies' industrial prowess in sourcing deals.

Talks have recently taken place with Turkey, Romania and Ukraine, while further Middle Eastern deals may be on the agenda, as suggested by the government’s offer - made in January - to provide 3-5 year training programmes for Egyptian engineers.

KEPCO also appears to be targeting sales to potential ‘first-time buyers’ in Southeast Asia.

Nuclear power proposals are currently pending with the Thai cabinet, whose energy options are caught between limited Gulf of Thailand gas supplies and the unwelcome prospect of depending on Burmese imports.

Vietnam is pressing ahead with plans, while on February 1 Singapore’s Economic Strategies Committee declared that the city-state would consider nuclear energy for the first time.

A particular promising market may be Indonesia. Industrial output is growing by 10% per year, but the main Java-Bali power grid suffers frequent blackouts that put businesses under strain.

Jakarta has earmarked $8bn to develop four nuclear plants by 2025; KEPCO and KHNP are carrying out a feasibility study for two facilities, while a smaller SMART power and desalination plant is also under consideration.

While the government-business links of ‘Korea Inc.’ are less tight than in the past, according to Foster-Carter, government-level diplomacy could move deals forward in each country.

Lee retains links in the Middle East from his Hyundai days, while Seoul has been energetically courting ASEAN countries, including through enhanced foreign aid pledges.

So long as the product is right, Foster-Carter adds, Korea will indeed pose a competitive threat.

“Provided buyers can be convinced that Korean-built is safe, the Koreans will be able to do their usual well-honed act: offering a product that is just as good - or good enough - but cheaper and quicker,” he says.