HELPING CLIENTS SUCCEED AROUND THE WORLD
Keynote Address by Randolph Mank
Doing (nuclear) Business in Asia
Canadian Nuclear Association Fall Conference
Delta Centre, Toronto
Oct 6, 2016
I want to thank my friend and former ambassadorial colleague, Dr. John Barrett, and the Canadian Nuclear Association, for inviting me to speak to you today. It’s always nice to be back in Canada and in Toronto. This is the capital of a province that certainly knows its share of controversy over electric power generation.
My topic is ‘doing business in Asia’, which I’m assured is of considerable interest to the industry. I’ve also been invited to be anecdotal and expansive in my comments, and I hope you will find my remarks at least mildly interesting for this post-lunch time slot.
I won’t present myself as having any particular expertise on nuclear issues, certainly not in a room of experts like this. Having said that, I know a little bit about energy issues more broadly. You may have seen my op-ed in the Globe and Mail last week about the massive and controversial Pacific Northwest LNG deal that I played a part in attracting to Canada while I was ambassador in Malaysia. More about that later.
Actually, my first professional work was as a junior researcher on a project funded by Energy, Mines and Resources on consumer energy consumption patterns in Canada. It was 1979 and we were enduring the second energy shock of the decade. OPEC had real market controlling power back then.
At the time, I had been finishing up a Master’s thesis on the alarmingly real topic of Nuclear Terrorism, of all things. Less alarmingly, energy conservation and renewables were already hot topics, as well. So I felt good about studying the energy consumption patterns of Canadians, knowing that we desperately needed this information to design policy and programs in support of energy conservation.
I then took some of this data and went on to the London School of Economics to conduct doctoral research on energy policy and federalism in Canada, the details of which I will not inflict upon you. In any case, Foreign Affairs Canada saved me from the LSE and myself by recruiting me into the Foreign Service in 1981.
As you all know, of course, Candu reactor exports were things we still pitched rather proudly and aggressively abroad in the 1970s. But by the time I got my chance to extoll the virtues of heavy water reactors to foreign clients, the industry was already operating under the cloud of the Three Mile Island accident of March 1979.
The Cold War also still had the world on a knife’s-edge at that time because of nuclear weapons’ proliferation, which had begun in the 1950s and was only getting worse. During my first full diplomatic assignment, which was in Stockholm between 1983-85, I was a delegate to the Stockholm Conference on Security Cooperation in Europe, which was all about putting in place confidence-building measures to prevent horrific miscalculation and accidental nuclear conflict. Mutually Assured Destruction, or MAD, was a commonly discussed concept at that time.
Talk about an industry that has faced handicaps! It would be difficult to find another like the nuclear sector. And we all know about Chernobyl and Fukushima, and so on. My hat is off to all of you who have persevered.
And in fact, through all this, nuclear energy has endured. Its renewable and clean benefits have been proven over and over in many countries, Canada included. Its contributions to medical diagnosis and treatment have been nothing short of spectacular, as well. Where would we be without it?
But none of the fears have gone away. In fact, the echoes of the darker nuclear past were certainly still present in the final stages of my government career as well. One of our key post-9/11 initiatives, as Canada assumed the G7 chair in 2002, and I was coordinating our foreign minister’s support group, was helping to advance a ten-year, $10 billion global initiative to decommission nuclear warheads and deal with dangerous nuclear materials that might fall into the wrong hands. Fast forward to five years later, in 2006-08, as Director General for Asia, I was tasked with coming up with a plan to restart the Canada-India relationship, which had been frosty for a long time over, again, the nuclear issue. We decided that a Nuclear Cooperation Agreement, with emphasis on safety, was the best way forward. Immediately after that, while serving in Pakistan between 2008-10, the nuclear issue was again a concern. In this case, AQ Khan’s involvement in exporting nuclear know-how to the wrong countries lurked among the many dire concerns we had for stability in the region.
That’s the unavoidable backdrop for all discussions of nuclear. It is a difficult and at times scary subject. Yet, as I say, despite all this there remains a very strong case to be made for peaceful uses of nuclear energy.
So how strong is that case in Asia? I’m mindful of the Asia Pacific Foundation’s May 2016 report, which sets out the issues in considerable detail. No need to repeat it here. But after being invited to give this address, I reached out to several Asian contacts, including heads of Nuclear Agencies, to test the waters.
I would offer you three key observations gleaned from this, and from my own long experience of doing business and dealing with governments, in Asia. I will then share with you a very specific shortlist of interests from one Nuclear Agency in the region, which hopefully will be indicative.
My key observations:
1. First, Asia still needs more energy: Wood Mackenzie expects Chinese oil demand in 2016 to grow by an average 390,000 barrels per day, while Indian demand is estimated to grow by 200,000 barrels per day compared to last year’s average. China's oil imports have surged, hitting the second-highest monthly level on record in August, according to Reuters. Crude imports jumped 23.5 percent last month from a year earlier to 7.7 mbpd, causing overall imports to rise by 13.5 percent so far this year.
Moreover, ASEAN economies also continue to grow, with energy demand following suit. The Asian Development Bank says:
Energy demand is projected to almost double in the Asia and Pacific region by 2030. There is an urgent need for innovative ways to generate power in a socially, economically, and environmentally sustainable manner. Compounding the problem is widespread energy poverty across Asia, with almost a billion people still without access to electricity.
Asia is a region with three billion people and a combined GDP of $17 trillion. The sometimes-desperate search for a solution to poisonous air pollution opens a very big opportunity for renewables and clean alternatives. The Asia Infrastructure Investment Bank, onto which we have recently signed, should definitely include nuclear power generation in its infrastructure projects. We already know that China has ambitious plans in the sector, which has opened up partnering opportunities for Canada and others. That’s good. But be careful with this. Business risk is considerable. It could be a mistake to put all our eggs in this one basket.
To this point, I recommended to our new government in a policy paper last spring – recently published by the Canadian Global Affairs Institute – that we should approach Asia as an economic opportunity, while doing our very best to avoid entanglements in the region’s complex and fractious security issues. Lesson: Afghanistan.
2. Second, Asia is not homogenous and therefore requires differentiation and presence: ‘Asia’ is in fact a western term that has been applied to a very diverse region. Culturally, linguistically, economically, and so on, India is as different from Japan as China is from Indonesia, and so on. As a market, therefore, Asia is highly segmented and has to be approached with a deep knowledge of each place. If you want to succeed, you have to be present, building allies. You can’t just drop by occasionally. And it’s not only about India and China, as important as these markets are. In fact, as I’ve often counseled Canadian business, both are among the most difficult markets in which to succeed.
As a market for nuclear reactor technology, Asia also happens to be segmented along seismic lines that have to be considered, too. Indonesia, a very large and attractive market otherwise, as the world’s fourth largest country, is part of the so-called Ring of Fire, with lots of seismic danger. I know first hand, having led the Canadian response to the 2004 tsunami there, as well as to the Yogyakarta quake the following year. Disasters are frequent and devastating. On the other hand, just to the north in Singapore, Malaysia and beyond, the ground is relatively stable.
As for efforts to integrate and open up Asian markets, the launch of a common ASEAN Economic Community (AEC) at the beginning of this year, and the pursuit of an even wider Regional Economic Cooperation Plan (RCEP) by next year, will make a difference for intra-regional trade. But it still won’t make it possible for Canadians to approach the region as a single entity. With the Trans Pacific Partnership (TPP) agreement stalled, and never having negotiated a Canada-ASEAN free trade deal, the reality is that we don’t have a single reliable channel into a wider Asian trading bloc. So we do have to know our markets one by one.
3. And third, Canada-Asia is a two way street: China of course has huge pools of capital and is looking for strategic investments. The Hinkley Point nuclear project in Britain is a relevant example of how controversial this can be. China’s foreign ministry said last week that China will be looking for more nuclear energy cooperation projects like this. We had our own dilemma when the Chinese National Offshore Oil Company (CNOOC) bought out Nexen Energy, which caused our government to impose future restrictions on such investments as a result.
Elsewhere, I recall participating in a meeting between a visiting Canadian Cabinet Minister and the CEO of Petronas in Kuala Lumpur when I was ambassador there. Again on the Pacific Northwest LNG deal, my team had been working hard to convince the Malaysian energy giant to invest in Canada and they had finally decided to do so. The target was LNG production, a field in which Malaysia is a superpower. The subject of technical training was raised in the meeting and the Canadian minister reflexively said that Canadians are always happy to train Asians. A pause ensued and glances were exchanged before the Petronas CEO answered politely: Minister, we will be training Canadians in this case.
My point is: not only can enormous capital flow to Canada from Asia – the shale gas project is publicly estimated to cost around $36 bil over 30 years – but also technology transfers can occur in both directions, too. As if to prove the validity of development theory, some of the countries to which we used to give aid, are now investing in us in return. But Chinese investments, especially in strategic or technologically important sectors, will probably be even more controversial than Japanese investments used to be when I was working in and on that country for some nine years during the bubble period. If Petronas decides to sell off an even greater stake in the Canadian LNG project to its Chinese partners, be prepared for the debate in Canada to take a new and even more heated turn.
Are these three points valid for the nuclear sector? I believe they are.
As I said, the Asia Pacific Foundation’s May 2016 report does a good job of addressing the nuclear sector. But I promised to share with you some specifics that I’ve picked up, which I will do now by way of wrapping up my remarks.
At least one Asian Nuclear Agency Head, who brought a team to meet with me last week in Asia, is very enthusiastic to work with Canada to obtain four very specific things:
1. Thorium-based molten salt reactor
technology, especially Small Modular
2. Policy and regulatory development.
3. Thorium, Uranium, and rare earth (RE)
prospecting and extraction, including
development of innovative,
environmentally friendly extraction methods.
4. Collaboration on nano medicine, such as nano protein technology for cancer treatment.
That may go a bit beyond the Advanced Fuel Nuclear Reactor technology that we have worked on with China. Do you see opportunities in this for Canadian business? I certainly do. Frankly, after several attempts to reach out, however, I’ve been having great difficulty, as is far too often the case, in getting replies from Canadian businesses that might benefit. And where is the Canadian government these days in promoting this important Canadian technology? At a minimum, our government needs to put in place a Nuclear Cooperation Agreement with any country with which we want to share nuclear technology, or at least an MOU to get started. Our government has some gaps to fill in this respect – Singapore, Malaysia, Vietnam, and Myanmar in South East Asia. Frankly, nuclear is not mainstreamed in our Global Commerce Strategy either, nor reflected in our embassy trade promotion priorities, as far as I know.
So when Asians approach me for help with nuclear power technology, do I have to turn to the US or Chinese or French or Indian companies to meet the requests?
With that, I’m deliberately poking a stick at an expert audience, so I’ll stop there and let you tell me. Private approaches are of course welcome if you are interested in specific help in Asia.
Thank you very much for your kind attention.