Objections from U.S. nuclear power company Westinghouse were behind the delay in the signing of a Korea-U.S. investment agreement originally expected on the 18th, sources confirmed. The governments of South Korea and the United States had reached a broad understanding on the purchase of a Westinghouse stake and on nuclear cooperation and had sought to conclude the talks, but the schedule was disrupted when Westinghouse applied the brakes at the last minute.
According to political and nuclear industry sources on the 17th, the two governments had been coordinating a nuclear cooperation framework with the aim of signing a memorandum of understanding on U.S. investment on the 18th, but the conclusion of the talks has been delayed as differences with Westinghouse have not narrowed. A person familiar with the matter said, "The two governments planned to wrap up the talks in line with their target schedule, but the final agreement is being delayed because Westinghouse objects."
The two sides are said to be far apart on the size of the Westinghouse stake to be acquired. Korea has sought at least a stake of more than 10% in order to secure a minimum level of management rights. Westinghouse has balked at this and wants to cap Korea's stake at around 5%. Ten percent is the threshold under the current Westinghouse shareholders' agreement for securing the right to nominate a member of the board.
The size of the stake is also tied to how far Korea can take part in decision-making while putting money into U.S. nuclear projects. To use the APR-1400, a Korean-designed reactor, in new nuclear projects to be built in the United States, or to maximize the involvement of Korean companies, Korea needs to secure consent rights over key management decisions. Korea appears to judge that if it first secures a stake in the 10% range as a foothold for taking part in management, it can gradually expand its influence from there.
Beyond nuclear cooperation, the two sides are also said to differ over the operating authority and profit-sharing structure of a special purpose company for the U.S. investment. The existing agreement grouped multiple projects under a single upper-tier investment vehicle in an "umbrella" structure, so that losses at one project could be offset by profits at another.
The U.S. side, however, has asked to switch to a method of settling gains and losses project by project. Under that approach, losses at underperforming projects would be difficult to cover with profits from others, which could limit the risk-spreading function of the investment funds.
Critics also point to the U.S. seeking to lead the operation of the special purpose company. If the U.S. holds all of the company's shares while Korea only pays in funds, Korea would bear the burden without taking sufficient part in decision-making. A political source said, "They are telling us to just put up the money. How does that make sense?"
At the Encinal liquefied natural gas combined-cycle power plant in Texas, seen as a leading candidate for the first project under the U.S. investment program, the conditions for securing profitability were a point of contention until the end, according to sources. Because the power selling price has not been set, the Korean side had difficulty calculating expected revenue and the prospects for recouping its investment.
Meanwhile, the government postponed a briefing to the National Assembly on the U.S. investment, originally scheduled for the 17th, to the 21st or 22nd of this month. As a result, the signing of the Korea-U.S. memorandum of understanding, set for the 18th, was also pushed back. The Ministry of Trade and Industry said of the delay, "We are in close consultation with the United States, but it is taking time to find common ground."
