South Korea and the United States have agreed to set aside as much as $20 billion (about 27 trillion won) as a cushion against cost overruns in building eight nuclear reactors in the U.S. as part of Seoul's strategic investment package in the country. Under the structure being pursued, if the Korean side completes the reactors within the set budget and schedule, the money it does not actually spend would still be credited as Korean investment in the U.S.
According to a closed-door briefing on strategic investment in the U.S. given to the National Assembly's Trade, Industry, Energy, SMEs and Startups Committee on the 22nd, the nuclear framework under discussion with Washington carries a total project cost of about $120 billion. The plan covers eight reactors in all — six AP1000 units from Westinghouse Electric Co. of the U.S. and two Korean-designed APR1400 units.
Of the total, $20 billion is earmarked as a risk buffer against cost increases that could arise during construction. The key point is that even if Korean companies keep the work on track and never draw on that buffer, the U.S. side will treat the amount as fulfillment of Korea's investment commitment. The arrangement is seen as an incentive from Washington aimed at preventing the delays and cost increases that have long plagued nuclear projects. In other words, if the work is completed within $100 billion and the $20 billion risk buffer goes unused, Korea would save that $20 billion.
Conversely, even if cost overruns do occur, the Korean government will not shoulder them in a lump sum. Additional costs would be shared based on a strict determination of fault under the contracts signed between the project operator and the engineering, procurement and construction contractors. Even if overruns exceed $20 billion, the Korean government would be under no automatic obligation to inject funds. The provision draws a lesson from Japan, which ran into trouble in earlier investment talks with the U.S. because responsibility for cost overruns had not been clearly settled.
Based on the basic framework now under discussion, the government plans to review the commercial rationale of each nuclear project as it takes shape and then decide whether to make a final investment.
