Nuclear and EU accession

With EU enlargement firmly on the agenda, operational reactors in eastern European states are raising safety concerns within the wider European community. The older Soviet-designed VVER440/230 and RBMK reactors are, in particular, worrisome and as part of the EU entry conditions, applicant states are being required to decommission or at least significantly upgrade the safety features of these reactors. Lithuania, Bulgaria and Slovakia have already agreed to undertake such a programme of work.

The cost of decommissioning is high both in terms of the work itself and the social impact of closure, particularly as the level of dependency on nuclear generated electricity is often extremely high. The use of nuclear power is also important if these countries are to meet their Kyoto commitments. The issue is fraught with a complex interaction of political and economic considerations making nuclear safety a significant hurdle in the quest for EU membership.

By way of example, it is worth noting that 73.7% of Lithuanian electricity is supplied by the two Ignalina units, which are required to be closed, and some 45% of Bulgarian electricity is supplied by six units, four of which are required to be closed. As these countries' economies expand their demand for electricity is only likely to increase.

The conflict between political imperatives and the task of supplying electricity is difficult to resolve and in light of this dependency on nuclear power, the issue of closure is extremely serious. This is especially so as nuclear-derived electricity in some applicant countries is also exported into the EU. Some argue that closure is required more for political than safety reasons and that although western standards have been the unquestioned yardsticks, in fact the more profound differences may be to do with safety culture. This has led to the call for the introduction of transparent and rational EU safety standards rather than insisting on the closure of reactors that have already been substantially upgraded.

Moreover, as the nuclear industry is likely to remain a powerful political and economic force, there is considerable concern that its centre of gravity will increasingly shift towards Russia, China, Japan and possibly Eastern Europe and excluding the EU if care is not taken to protect EU interests in the industry.

Process of enlargement

European economic and political stability and the progress made by the EU thus far have ensured a keen interest in increased membership. In December 1997, 15 Member States of the EU agreed to begin a process of enlarging the Union. To enable that process, the EU will provide the substantial aid and support required to facilitate the economic and social changes necessary for the applicant states to meet the EU's membership criteria and to participate and contribute to the goals of European integration.

Accession of new Member States to the EU is enabled by Article 49 of the Treaty on European Union. Applicants must first adhere to the principles of liberty, democracy, respect for human rights and fundamental freedoms and the rule of law as contained in Article 6(1) of the Treaty and, in accordance with the Copenhagen criteria, they must be politically stable and have a functioning market economy. The European Council must then agree unanimously to open negotiations, after consulting the European Commission and receiving the assent, by an absolute majority, of the European Parliament. The conditions of admission, and any adjustments to the treaties on which the EU is founded will then be the subject of an agreement between the applicant country and the Member States. These agreements must subsequently be ratified by all the contracting States, so as to enter into force.

Accession Partnership Agreements, which co-ordinate the aid provided by the EU and set priorities for each sector in adapting to Community legislation, are entered into with the applicant countries. Europe Agreements that aim to prepare the associated state for accession are also concluded with most applicant countries. These include political, trade, economic, cultural, financial and legislative requirements and support.

Each applicant country draws up a detailed programme for the adoption of the Community acquis: organising the implementation of the set priorities, committing to a timetable and indicating the human and financial resources required. Although this programme can be adjusted, the applicants' adherence to these priorities determines the EU's financial assistance.

The Community acquis is the body of common rights and obligations that bind the Member States together. It continues to evolve and comprises: the treaties; the legislation adopted and the case law of the Court of Justice; the declarations and resolutions adopted by the Union; measures relating to the common foreign policy, security policy, justice and home affairs; and international agreements concluded by the Community and by the Member States between themselves with respect to the Union's activities.

The first step in accession negotiations is to evaluate each applicant country's legislation for compatibility with the Community rules indicating which legislative instruments must be adopted or amended. This evaluation will then constitute the basis for bilateral negotiations and intergovernmental conferences between the EU and each applicant country. Exemptions and derogations from the acquis are rarely granted and are limited in scope.

Ultimately, despite all these criteria, the EU reserves the right to decide when it will be ready to accept any new members and thus, emotive issues such as the nuclear industry can be pivotal.

Accession and nuclear

Any applicant country is required to incorporate and implement the Community acquis. Euratom, one of the four founding treaties of the EU, is one such directly applicable treaty.

Euratom was created to assist the development of a civil nuclear industry in Europe to ensure sufficient supply of energy for Member States and to encourage the peaceful use of atomic energy. Article 1 states that it is the task of the Community to contribute to raising the standard of living in Member States and to the development of relations with other countries by creating the conditions necessary for the speedy establishment and growth of nuclear industries. Article 2 requires, amongst other things, the promotion of research, establishment of uniform safety standards for the protection of workers and the public, facilitation of investment, access to technical facilities and proper usage of nuclear power.

It also sets and enforces binding radiation protection standards. Other relevant legislation includes the "Shipments" Directive that covers transboundary movements of waste; and, under the EC Treaty, the Environmental Impact Assessment Directive covers spent fuel storage, waste disposal and decommissioning.

Following the 1986 Chernobyl disaster the need for uniform minimum safety standards in the nuclear sector became a priority in the international arena. At the Munich G7 Summit in 1992, central and eastern European countries and the former Soviet Union countries were offered a multilateral programme of action to improve safety in their nuclear power plants. In particular the summit called for the speedy closure of the VVER 440/230 and RBMK type reactors. The Chernobyl experience and in particular the implementation of the Shelter Implementation Plan for making environmentally safe the destroyed reactor number 4, is of special relevance as a route map for the contractual and funding structures, procurement methodologies and resolution of issues to be faced in tackling the programme of decommissioning and safety upgrades in the applicant countries.

The EU's strategy has been set out in the following Commission documents:

Commission Communication on nuclear safety in the context of the electricity sector in central and Eastern Europe and in the CIS (December 1993)

The Commission affirmed its support for the Action Plan adopted by the G7 at its Munich summit emphasising the importance of an efficient energy sector for the sustainable improvement of nuclear safety. Nonetheless, it concluded that the immediate closure of less-safe reactors would be economically difficult and that it was thus inappropriate to make rapid closure a definite precondition for assistance, since neither technical assistance nor energy supplies could be guaranteed.

Short to medium-term strategy for the Phare and Tacis nuclear safety programmes, Commission paper for Phare and Tacis Management Committees (June 1996)

The paper proposed that the improvement of safety in nuclear plants be maintained as the major objectives of both the Phare and Tacis programmes in the short and medium term, particularly strengthening regulatory authorities and safety improvements in nuclear plants (design safety, on-site assistance and equipment supplies).

It also highlighted industrial co-operation, nuclear fuel cycle installations, nuclear waste, safety-related research, control of nuclear materials, decommissioning of nuclear reactors and off-site emergency preparedness.

Agenda 2000 - For a stronger and wider Union (July 1997)

Stated that the problem of nuclear safety in some applicant countries caused the EU serious concern and that, even independently of enlargement, it should be addressed urgently and effectively. It expounded closer relations in the context of enlargement to facilitate efforts to strengthen nuclear safety in these countries and, together with the subsequent Accession Partnerships, spelled out which reactors should be upgraded (those in the Czech Republic, Hungary, Slovakia and Bulgaria); which reactors should be closed as they were not upgradeable (Ignalina, Kozloduy and Bohunice V1); and which required further monitoring (those in Romania and Slovenia).

Commission Communication on nuclear sector related activities for the applicant countries of central and Eastern Europe and the New Independent States (March 1998) Confirming the strategy set out in Agenda 2000, it also put forward the Commission's intention to establish a road map for each applicant country that would encompass the whole energy sector and include the development of financial schemes for the countries concerned.

Other issues raised in relation to the New Independent States (NIS) included:

• Nuclear safety being placed as a priority high on the agenda of the Partnership and Co-operation Agreements.

• Addressing the management of radioactive waste.

• Continuing activities, such as providing general operational assistance by EU operators to local operators, regulatory support, safeguards, emergency preparedness and structural reforms.

• Encouraging domestic and foreign investment in the energy sector.

• Supporting the participation in and implementation of international conventions on nuclear third-party liability, nuclear safety, waste and spent fuel.

In 2000 the EU Atomic Question Group and the Working Party on Nuclear Safety began a nuclear safety evaluation process in candidate countries. This culminated in a report adopted in 2001 consisting of a number of recommendations the implementation of which is to be monitored by a Peer Review process.

Despite laying down these strategies and carrying out these reviews there are currently no detailed or uniform EU nuclear safety standards by which to objectively judge accession countries or current EU members. This has been the subject of considerable complaint and consequent debate. Agreement on such standards is particularly difficult given the diversity of technologies involved and the various political stances that have been taken. However draft directives regarding waste management, safety standards and decommissioning funds are expected to be published this month. Whilst such directives may well make the accession process regarding nuclear safety more transparent they are unlikely to make this issue less problematic for accession states.

Progress so far

To date, Europe Agreements have been concluded with 10 countries and accession negotiations for the 11 applicant countries designated by the Luxembourg European Council began on 30 March, 1998. Intergovernmental conferences on the accession of the Czech Republic, Estonia, Hungary, Poland, Slovenia and Cyprus were also formally opened on 30 March 1998 and for Bulgaria, Latvia, Lithuania, and Malta on 15 February, 2000.

Seven of the countries currently involved in negotiations have reactors in operation. Lithuania, Bulgaria and Slovakia currently rely on reactors that are considered non-upgradable while Hungary's and the Czech Republic's reactors require significant upgrading. More specifically, Agenda 2000 and the Munich Convention stated the EU position that some reactors could not be upgraded to internationally accepted levels of safety; a timetable for closure was agreed, together with the promise for financial support. The reactors concerned are Kozloduy 1 and 2 (due to close by next year); Kozloduy 3 & 4 (closure is called for by 2006, but Bulgaria is contesting this); Ignalina unit 1 (to be closed in 2005) and unit 2 (2009); Bohunice V1 unit 1 (2006) and unit 2 (2008).

In light of concerns expressed by the applicant countries that the price was too high in the absence of solutions to the consequences of the decommissioning work these timetables were subsequently amended. Nonetheless significant progress has been made with the EU agreement in 2000 to fund the alternative shutdown system at Ignalina and the subsequent establishment in 2001 of the Project Management Unit for the Ignalina decommissioning and the imminent tendering for the Project Management Unit consultant contract for the Kozloduy Units 1 & 2 decommissioning.

Funding is, of course, central to progress in meeting EU accession conditions. The principal resources at the EU's disposal to implement their strategies are:

• The Phare nuclear safety programme in central Europe and the Tacis nuclear safety programme in the NIS, both of which are managed by the EC.

• The Euratom loan facility which may be used to finance projects to improve the safety and efficiency of nuclear plants or installations in the nuclear fuel cycle in central and eastern Europe and the NIS.

• The EU has also helped to set up and operate the International Science and Technology Centre (ISTC) in Moscow and the Nuclear Safety Account (NSA) administered by EBRD and other community programmes fostering energy sector cooperation.

• And of course the accession negotiations themselves and associated advantages to be gained by EU membership.

The EBRD

The role of the EBRD is increasingly pivotal. The model for the EBRD's operation in this area was largely established by the ongoing Chernobyl Shelter Implementation Plan project, the salient features of which are that the EBRD:

• Provides grant funding for the projects and acts as the administrator of donor money.

• Enters into a framework agreement with the applicant country to create a structure for the grant funding of the project. Care should be taken to ensure transparency in the disbursement of funds and the need for funds to be paid directly to those carrying out the work (free of local taxes and duties).

• Addresses the necessary level of protection that the EBRD requires for itself as the administrator of the funds, as well as any conditions that are necessary for the release of funds - for example, being satisfied that the applicant country has properly incorporated into its domestic law the Vienna Convention on Civil Liability for Nuclear Damage.

• Establishes the rules of the fund, which in turn include the EBRD's Procurement Rules and Policies and Disbursement Handbook for the use and application of funds.

• Pursuant to the framework agreement enters into various grant agreements with the relevant operator within the applicant country for the funding of specific types of contracts, classes of contract or "one-off" events such as insurance premiums.

• In conjunction with the relevant operator, draws up a specification to seek tenders for a project management unit consultant.

• Actively vets specifications, tenders and contracts for work packages prepared by the relevant project management unit and provide its consent to proceed with the tendering process, subsequent negotiation with the preferred bidder and, ultimately, to enter into a contract.

• Reports to the donors on project progress and administers the NSA.

The Chernobyl experience has undoubtedly informed the EBRD's thinking. This is reflected in the approach taken to the ongoing work at Chernobyl and the Ignalina project, and can also be anticipated in the administration of the Kozloduy project. There is an increasing flexibility in the contract strategy reflected in the confidence to fix the scope of work and move towards more fixed price contracts or fixed price elements of contracts rather than accepting cost plus decision based contracts as the norm.

There is also a greater understanding of the role of the project management unit, such that the consultant appointed forms that unit and provides consultancy to the relevant operator, rather than forming a project management unit that is comprised of representatives of both consultants and operators. Greater responsibility for shaping and structuring the project is divested to the operator and the project management unit with EBRD operating in a restricted manner more akin to a traditional funder carrying out necessary bank due diligence.

Contract terms and conditions are being increasingly standardised, particularly in relation to key provisions for indemnity, insurance for non-nuclear liability, liability for third party nuclear damage, local employment, standards of performance and obligations for payment, including the use of contingencies and making and amortisation of advanced payments.

In the circumstances there is a sense that the EBRD is increasingly defining its role and that there is now a much greater understanding within the EU of that role in this area of operation. It is unlikely, because of the overarching need for transparency and accountability in the expenditure of the grant monies, that the EBRD will embrace the type of partnering and alliancing contract strategies now being utilised in the UK decommissioning programme. However, there is a real prospect that progress will gather pace as the EBRD and the applicant countries become more familiar with the process by which funds are made available to fulfil the decommissioning conditions of EU accession.

Legislative reform

The applicant countries have recently made significant progress in the adoption of nuclear liability legislation by the ratification of domestic legislation to incorporate the Vienna Convention on Civil Liability for Nuclear Damage. This has been a difficult and extended exercise for many of those countries.

The importance of such legislation is that it provides a regime for nuclear third party liability that channels a liability to the designated operator. It is of particular relevance in the context of the satisfaction of the conditions for EU accession in that the work involved, whether by way of large scale decommissioning or safety upgrade work, is likely to involve consultants and contractors from the wider international community and in particular from Western Europe, the US and the Far East. They, and the EBRD, will wish to be satisfied that liability for nuclear damage is properly addressed within the domestic legislation of the applicant country where they may be working.

On 12 September, 1997 the Vienna Protocol to amend the Vienna Convention on Civil Liability for Nuclear Damage and the Convention on Supplementary Compensation for Nuclear Damage (CSC) were adopted. These both built on and expanded the existing regime that consisted of two alternative international regimes for providing limited third party compensation (the Paris Convention, Supplementary Brussels Convention and the Vienna Convention) in two particular ways. Firstly, they sought to cover environmental damage, including to the marine environment; secondly, they sought to enable the success of compensation claims for nuclear damage by extending the limitation periods for claims and increasing the compulsory limits of compensation.

Both these conventions were particularly targeted at central and eastern European and NIS countries. There will no doubt be increasing international pressure for the applicant countries to embark on yet further legislative change in incorporating these new conventions into domestic legislation but often in circumstances where the provisions of these conventions may be at odds with the current domestic legal system. The Czech Republic, Hungary, Lithuania and Poland have all signed the Vienna Protocol and the Czech Republic and Lithuania have both signed the CSC. It is interesting that the Czech Republic, Hungary, Romania, Slovakia and Slovenia have all ratified the Vienna Convention as well as the Joint Protocol linking the 1960 Paris Convention to the Vienna Nuclear Liability Regime.

Although both the Vienna Protocol and the CSC have much in common, the emphasis is different in that the Vienna Protocol is specifically aimed at assigning primary liability for nuclear damage, whereas the objective of the CSC is to ensure the availability of supplementary compensation as a final tier of liability to be put in place by the Contracting Parties jointly and severally. However, both have the common goal of extending the scope of the operators' liability.

Although there appears to be considerable activity and enthusiasm among many of the applicant states to embark on the necessary legislative change to embrace the Vienna Protocol and the CSC to date, ratification has been limited. However, there is some irony in the fact that the current members of the EU have been reluctant to embrace either instrument with the notable exception of Italy.