Korea: A Nuclear Bonanza

Bechtel's activities in South Korea are part of a much larger story about the frantic competition for markets in the nuclear industry. Since the mid-1970's, the corporate giants involved in building nuclear power plants have been desperate for business, their expansionary plans crushed under the steamroller of escalating costs, falling electricity demand, citizen opposition, safety regulations, and technological faiure.

By 1978, cancellations of planned nuclear plants had outnumbered or equalled new orders in the U.S. for three consecutive years. Not a single nuclear power plant has been ordered in the U.S. since 1978, the year of the Three Mile Island disaster. Since then, cancellations and deferments have mounted, some involving the loss of billions of dollars and, in one case, a plant that was 99 percent complete.

Feeling the pinch at home and unable to crack the markets in Canada, Europe, and Japan, American nuclear companies led by reactor manufacturers like Westinghouse and General Electric and architect-engineers like Bechtel and Ebasco - began an aggressive push for Third World markets. They were joined in the race by market-hungry firms like France's Framatome, West Germany's Kraftwerk Union, Canada's Atomic Energy of Canada Limited, and Japan's Toshiba. Competition became so stiff that one industry executive described it as "many hungry dogs fighting over a few bones."

The biggest "bones" are the budding nuclear power programs of South Korea, Taiwan, and Brazil, followed by the Philippines, Iran, Iraq Mexico and Argentina. In recent months, the prospect of a large new market in China has sent industry executives from around the world scurrying to Beijing, making lucrative offers in what Westinghouse President Thomas Murrin called "a global shootout."

With the most ambitious nuclar program in the world, South Korea is the "plum" of Third World markets. The country's 1977 announcement of plans to build 21 nuclear plants by the year 2000, representing a multibillion dollar market, drew business-hungy nuclear companies from around the world. Nuclear industry executives "descended on Seoul like a swarm of locusts," said Daniel Charboneau, the former Bechtel official who blew the whistle on the company's questionable practices in Korea during this period.

South Korea's decision in the mid-1970s to undertake such a massive program might have been induced in the first place by the American industry's desperate need for markets. Pressured by the State Department and enticed by the prospect of millions of dollars of ExportImport Bank loans, the debt-burdened nation moved hastily to find nuclear power economically attractive. "When the decision was made," said an official with the Korean Energy Research Institute in Seoul in 1981, "a comparison showed that nuclear had the lowest costs. But I'm not sure if that was a rationalization after the fact. The decision could be the result of industrial companies making an effort to find a market."

The "Big Fist"

The nuclear industry is one of several American industries which have gained a large market-share in South Korea-and which rely significantly on exports to Korea to boost or maintain profitability. Currently the sixth largest market for U.S. exports overall, South Korea is the fourth largest market for U.S. food products. U.S. food exports to Korea totalled over $1.5 billion in 1982, 47 percent of the country's food supply. All of the country's imported grain is purchased from the U.S.; U.S. exporters have grabbed 100 percent of Korea's cotton market and 60 percent of its raw hide and skin market. Korea is also an important market for American logs and lumber.

Besides absorbing U.S. exports, the vast South Korean market has also drawn direct American investment, most of it concentrated in petroleum, food, banking, general trade, and chemicals. Dow Chemical was the largest single American investor in South Korea until its sudden withdrawal in 1982 following a dispute with its joint partner and the Korean government. Other large-scale investors include General Motors, AT&T, Cargill, and Continental Grain.

Both exporters to and investors in South Korea have used the U.S. defense commitment to Korea as leverage to keep the market in American hands. When South Korea announced the purchase of 500,000 tons of rice from Japan in 1981, for example, a representative of the U.S. Rice Millers Association came to Seoul accompanied by a Louisiana congressman who represented a large rice-growing area. According to a Korean official who negotiated with the two men, the Americans "used the big-fist approach." "Their basic message," he recalls, "was `we give you military aid, and you buy our rice.' " The approach infuriated the Korean government-but the Japanese purchases were cancelled.

The American role in the Korean economy is nowhere more evident than in the evolution of Korea's nuclear power program. The U.S. government has been the primary influence-and chief financier-of the program since its inception in the 1950's. American advisors convinced the Korean government in 1956 to establish an Atomic Energy Section in the Korean Department of Education. When Korea embarked on its high economic growth track in 1965, the U.S. Agency for International Development (AID) recommended that South Korea go nuclear "whenever Korea Electric Company's electricity system becomes large enough" to handle high-megawatt nuclear plants. On the basis of an AID-funded study, the Korean government drafted a plan in 1968 for two 500-megawatt reactors, and two U.S. engineering firms were hired to design the program.

The U.S. State Department became even more heavily involved once the program was underway. Upon hearing that Korea would soon order its first reactor, the American ambassador to Korea cabled Washington in 1968 that "from various standpoints, it appears in the U.S. long-term interest that U.S. participate [in] this project." U.S. participation, however, depended on the availability of funds to finance the expensive reactor purchases. Unable to interest private banks, the State Department turned to the public purse, in the form of the Export-Import Bank. After an intense lobbying campaign led by Westinghouse and AID, the Bank agreed to offer loans for nuclear power plants despite misgivings about the long-term viability of the Korean economy. What won the argument, apparently, was South Korea's strategic importance as an ally. The loan offer, says Les Jantz, former Westinghouse project director in Korea, "was part of our defense commitment to the country."

Negotiations for work on South Korea's first reactors were monitored closely by the U.S. government, primarily to ensure that the South Koreans purchased from an American company. In July 1969, Secretary of State William Rogers cabled the U.S. Embassy requesting officials to notify the Korean government that "Eximbank does not intend to allocate equivalent resources to other projects if nuclear power contract is awarded non-U.S. supplier." A few months later, Westinghouse was awarded the first of its six contracts.

"I want to thank you," wrote then Westinghouse President Robert Kirby to Eximbank president Henry Kearns, "for your interest and support... I am sure that your assurances to the Korean government... will enable us to firmly keep this order for U.S. industry."

By the mid-1970s, with the nuclear industry in a downturn, U.S. domestic economic pressures began to dominate Eximbank decision-making. In what can only be termed a gigantic industry bailout, Eximbank invested $4.7 billion in loans and loan guarantees for nuclear exports to Asia between 1973 and 1982 - almost half going to South Korea alone.

Enter Bechtel

One of the prime beneficiaries of these loans was the Bechtel Group and its Power Corporation subsidiary based in Los Angeles.

Bechtel had plunged into what promised to be a lucrative business in the early days of the nuclear age. The first nuclear plant to produce electricity was built by Bechtel for the Atomic Energy Commission at Arco, Idaho in 1951, along with a nuclear fuel reprocessing plant on the same site. With this governmentsupported head start, Bechtel leapt into the commercial nuclear power business, designing or building about 40 percent of the nuclear plants licensed or under construction in the U.S. by the end of the 1970s.

Bechtel first went to South Korea in 1954, in the aftermath of a three year civil war that caused mass destruction to the peninsula and left the country bitterly divided. Over 80 percent of the country's electric power before the division was in North Korea, which had been heavily industrialized under Japanese colonialism.

Eager to help his friend Syngman Rhee, the U.S.-backed ruler of South Korea, as well as to cash in on millions of dollars of U.S. aid, Stephen Bechtel Sr. convinced Rhee to give his company a contract to build four coal-fired power plants. Like most other American projects, these plants were paid for by U.S. AID, which financed the bulk of Korea's imports throughout the 1950s.

During the next decade, however, Bechtel received no major contracts for any of the 16 power projects launched under President Park Chung Hee. Instead, another U.S. firm, Gilbert Associates, firmly established itself in the Korean power sector, and later joined with Westinghouse to construct the first two nuclear reactors ordered by the Park government. When the full-scale nuclear program began in the mid-1970s, Bechtel was on the outside, looking in.

As a nuclear architect-engineering firm, Bechtel also felt the market slump of the mid-seventies. Architect-engineering firms are the repository of vast amounts of technical and management information required to construct a reactor; as work has slowed, their technical competence has slipped. This in turn has hurt the competitiveness of U.S. nuclear equipment vendors like Westinghouse and General Electric, who look abroad to sell reactors in conjunction with U.S. engineering firms.

It was to the Third World, especially to Taiwan and Korea, that Bechtel turned for nuclear business to sustain its ailing Power Division and to reactivate its engineering capabilities.

Bechtel adopted a threefold strategy to snare the elusive contracts with the Korea Electric Company (KECO) for nuclear units 5, 6, 7, and 8. First, says a former Bechtel official, they sold KECO on the idea that the utility "needed their own consultant, someone on their side." Bechtel managed to translate this idea into a contract to evaluate the bids submitted to the utility for nuclear and generator equipment for plants 5 and 6. Bechtel then hired a "special" consultant, Y.S. Cho, who helped Bechtel to ingratiate itself with KECO by undertaking a contract to manage construction of a World Bankfinanced coal-fired plant at Geojong. According to Charboneau, the contract lost money for the company, but helped put Bechtel on the inside track in its successful bid for the architect and engineering contracts for nuclear units 5 and 6.

Third, Cho and Bechel exploited the Korean preoccupation with technology transfer and self-sufficiency by entering a joint venture agreement with Taihan Electric Company, a Korean engineering firm with close ties to the president of KECO. According to a former company official, Bechtel felt safe about transferring its technology to Taihan because the Korean company-like other Korean firms-was relatively weak in the field. Bechtel "figured they would always be ahead in the state of the art," he says.

For Taihan, the joint venture was a bridge to a bright future as the "Bechtel of Asia," as promised by Bechtel's consultant Yoon Sik Cho (who had led Taihan to believe he was their agent). Three months after the agreement was signed, Bechtel received the engineering contracts for nuclear plants 7 and 8. Within a year, however, the two companies were fighting over profit shares in a joint coal project and Bechtel's failure to live up to Cho's promises. With major contracts signed, Bechtel had little use for Taihan and bought out its shares in the joint venture. This led Taihan executives to write a white paper to Bechtel (see Part I) and lodge charges of corruption and double dealing against Cho.

In response, Bechtel sacked Cho. But the gesture was essentially a slap on the wrist because a month later, Bechtel hired him once again. Bechtel took the uncharacteristic risk of rehiring someone whose reputation had been sullied, says a former official, because of the ruthless competition in Korea. While Bechtel's official policy, he says, was "death on any corruption," there was "a tremendous push for results with a whole industry and a whole division collapsing." As a result, Bechtel's agent Cho was able to operate at the "edge of legality" and to convince management that "financial statements weren't necessary, engineering drawings weren't necessary. Quality control? Well, can't we compromise?" Bechtel employees would go along with this, according to the source, "because of the fear that they would lose their jobs."

No Place for Koreans

To gain and retain market dominance, Bechtel had to fend off not only other multinationals but also fiercely competitive Korean engineering companies. In September 1980, Bechtel joined several American nuclear firms in protesting KECO's designation of Daewoo Heavy Industries as the sole supplier to KECO of all nuclear design and construction services, as well as the manufacture of nuclear equipment in Korea. A formerly classified U.S. Embassy cable obtained by Nautilus Research shows that the American firms brought diplomatic pressure on the Korean government to scuttle this move, which would have cut out all American firms except the one affiliated with Daewoo (unnamed in the cable). By the end of 1980, KECO reversed its policy, declaring that nuclear manufacturing would be separated from nuclear design and construction engineering. Most important to Bechtel, KECO reaffirmed its policy of using foreign firms to design and engineer its reactors.

Further problems arose for Bechtel. In early 1981, KECO was angered by Bechtel's engineering cost overruns on the cost-plus contracts for units 7 and 8-Bechtel's bill was twice the original estimate. This overrun was the second such price shock by Bechtel in three years and the Koreans took over two months to approve the extra funds.

Because the overruns were so costly, the Koreans began to demand more favors from Bechtel. One area where they thought Bechtel could help was in gaining foreign markets for the Korean Heavy Industries Corporation (KHIC), a mammoth heavy industrial park on the southern coast of Korea that had been nationalized and taken over by KECO. Operating at less than 20 percent capacity, KHIC was a huge boondoggle with little chance of selling its heavy industrial products (including reactor parts) without outside help.

According to a former Bechtel official, Bechtel began to call in their long-term suppliers to meet with KHIC representatives in Los Angeles. The suppliers were told that "their future business in the nuclear field would be substantially improved if they were to give some subcontract work to KHIC," the source told us. But some. of the subcontractors balked, especially when they learned that KHIC was not capable of high quality, nuclearcertified work. The attempt was a failure, and KHIC remained unused.

With Bechtel's reputation in Korea worsening, Korean engineering firms saw an opportunity to erode Bechtel's envied special position in KECO. In late 1982, Bechtel's high-level contacts led the government to announce that it was close to giving Bechtel a 49 percent interest in the government-owned Korean Nuclear Engineering Company (KNE). This company, in turn, was to be given all future engineering work on the Korean nuclear program, as well as outside contracts.

The announcement caused a furor and Korean engineering companies protested to the government. As explained to us by a KECO official, the companies feared a monopoly of the Korean engineering industry by Bechtel. "The companies told us," said the official, that "you better not allow Bechtel to make the joint venture, because then local engineering companies would have no jobs." The protests were so strong that the government quietly shelved the plan in 1983. KNE has now been renamed the Korea Power Engineering Company and, without Bechtel ownership, will be the prime contractor in future nuclear engineering work.

It is clear, however, that Korean nuclear design engineering capability is very weak, and that KECO will be forced to continue to farm out architect/ engineering contracts to foreign firms until the end of this decade. If new nuclear contracts are tendered, undoubtedly Bechtel will lead the race to corner the deals. But whether they will win the race may depend on how thoroughly the Justice Department investigates possible Bechtel illegal activity-and how willing the U.S. public and Congress are to continue the Eximbank bailout of the nuclear industry.

The Golden Boy As Korean exports began to flow into world markets in the early 1970s and corporate profits grew, South Korea gained the image of the "golden boy" of the Third World - especially to American businessmen and government officials weary from the American failure in Vietnam and tired of Third World calls for a "new international economic order." A new super-race had been found. South Korea is "literally pulsating with unleashed human energy," wrote one Forbes reporter in 1978. "Work as Koreans know it is not a hardship," gushed Roy Rowan in Fortune. "It is a heaven-sent opportunity to help family and nation." Long work hours? "It is a fact," wrote Rowan, that South Koreans are "the worst workaholics in the world, averaging 50.7 hours per week." Pollution? No problem. A young auto worker described in Forbes shows up "at his post on the assembly line, ready to endure noise, dust, and fumes that would keep an OSHA inspector busy writing reports for a month." Human rights? "As flagrant as this repression can be," said Fortune, "it doesn't impinge heavily on the average citizen's life, so long as he's willing to forego certain forbidden activities." But what these business leaders admired most was President Park's "steely determination" and his vows to achieve his economic goals "by whatever means necessary." To Forbes, these factors "made South Korea a model for other less-developed countries, who prefer to sit around blaming their problems on U.S. 'imperialism,' multinational company rapacity or on a lack of raw materials. It is also what makes South Korea's future so favorable." Nevertheless, behind the shiny images of the "miracle" were some appalling facts: the highest industrial accident rate in the world; millions of slum dwellers crowded into big cities; severe pollution; rampant corruption; and savage government repression of civil rights and labor activists. But with the country firmly under the protection of the U.S., these unpleasant realities were, for the most part, unseen by the American business community. For these businessmen South Korea was the new Shangri-La.

Unsafe At Any Megawatt Korean nuclear power plants are being built at twice the speed of plants in the U.S. Caught between a $40 billion foreign debt and a huge military budget, the Korean government has saved hundreds of millions of dollars by pushing for quick turnarounds in plant construction. But in its zeal to become a nuclear powered nation by the 1990s, South Korea appears to be making serious - and potentially devastating - compromises on nuclear safety. Korean construction companies have long been known for their quick work. Korean contractors commonly employ workers on a 55 hour per week basis, often on multiple shifts. Hyundai, the country's largest corporation and a major subcontractor in the nuclear program, build South Korea's first shipyard in less than a year, a world record. Once consequence of the construction speed-up is one of the world's worst safety and environmental conditions. A 1978 International Labor Organization report named South Korea as the country with the world's highest rate of industrial accidents, while an overview of the Korean nuclear program by Arthur D. Little, an American consulting company, said that pollution standards in the country are "virtually non-existent." But the most devastating reports on the Korean nuclear safety record came from two studies written for the World Bank in 1980 and 1982 by Simon Levy, a former nuclear engineer with General Electric. In his first report written after a one week visit to South Korea in June 1980, Levy charged that "too much is being planned to be accomplished on too many fronts," and urged that the government slow down the construction to develop a safer program. Among his findings: the Korean government lacked an adequate regulatory and quality assurance program; too few technicians were being trained, causing severe strain on manpower; trainees who failed exams were allowed to take the exams until they passed; many Korean operators could not understand English and consequently could not read the operation manuals; and the problem of waste storage was being ignored. Levy's report was passed on to the U.S. Export-Import Bank, which asked the Korean government for an explanation. In reply, Korea Electric Company (KECO) told the Bank that they were implementing U.S. Nuclear Regulatory Commission regulatory codes and standards that were "therefore� pretty sure than an acceptable level of safety has been achieved." But in a second report following another trip to Korea in 1982, Levy noted that "it was disappointing to discover that most of the recommendations were still not in place," and repeated many of his previous recommendations. He urged that "the government announce and insist that safety and quality are just as important as meeting schedule requirements." "The organization and the relevant documentation to control safety are still far from being in place in Korea," he concluded. Parts of Levy's 1982 report were published by Multinational Monitor in January 1983, and received front-page coverage in the heavily censored Korean press. But accompanying the story were denials by the government that a safety problem existed. A few days later, however, the Chun government instructed the Ministry of Energy and Resources and KECO to form a special safety committee. But attempts to monitor safety conditions are limited by institutional and political constraints. Open dissent, especially on sensitive topics like nuclear power, is strictly prohibited in South Korea, while the press is under tight control and pressured not to publish articles critical of nuclear power. "This is a police state, one Korean engineer told us, "That makes whistle-blowing impossible." The lack of free speech and the pressures to finish the plants within their scheduled times usually means that safety is given a low priority. "The impression was gathered," wrote Levy in 1982, "that safety and quality personnel were pressured organizationally not to extend schedules." According to an American nuclear engineer with tow years of experience in Korea, KECO "doesn't have the personnel to monitor safety" and the "quality people are never listened to." Even when problems are found, he says, everyone is discouraged from making a report, and nothing is done." Another factor noted by this engineer is the lack of an independent authority to oversee what the Bechtels, the Westinghouses, and Framatomes are up to. "Bechtel and Westinghouse are prime contractors," he says. They have the responsibility of monitoring their own work." One Bechtel engineer who worked on units 5 and 6 didn't try to hide his concerns when we talked to him recently. "I don't mind working over there, he says, "I just wouldn't want to be around when those plants begin overheating." Despite the problems, both American companies and the government have encouraged the Koreans on several occasions to downplay safety: In a 1976 report to the Korean government on reactor siting, Kaiser Engineering and Construction Company recommended against public licensing hearings. In the U.S., Kaiser told KECO, testimony at these hearings "usually represents unfounded fears and prejudices that, until resolved, cause construction and operating delays. During the bidding for reactors 7 and 8 in 1978, the U.S. Embassy in Seoul resisted filing environmental reviews on U.S. reactor exports ordered by President Carter. The review is "particularly unhelpful at this time," the embassy said in a cable to the State Department. "We have enough to contend with without a new cause for concern being introduced." Since the first Korean plant, the Westinghouse-build Kori I began operating in 1978, there have been sporadic - and mostly unconfirmed - reports of accidents and reactor malfunctions. Several Koreans and Americans who have worked in the industry have told us stories of radiation contamination and even deaths of people working in the plants. At the time of the accident at Three Mile Island, the Kori I plant was closed because of a malfunctioning cooling system which resulted in the contamination of the containment structure; last month the Korea Herald, a major Seoul English-language daily, reported "abnormally high" levels of radiation outside the plant. With information so tightly controlled, critics afraid of speaking out, and construction proceeding at a rapid rate, the dangers of a major accident in Korea loom large. Most of the Korean reactors are located close to military and industrial complexes, or on agricultural land. Not only do these reactors replace fishing and farming in a country increasingly dependent on food imports, but they expose large numbers of people to radiation risk unacceptable in the U.S. Population densities around 7 or 8, for example, would lead to Nuclear Regulatory Commission rejection f the sites in the U.S. But the risks don't seem to bother American bankers. In the course of our investigation we asked a senior Eximbank official if the bank might be risking its money in financing nuclear construction in Korea. "Yes, there might be a nuclear accident" in Korea, he replied. "But," he added, that country will continue to exist. And if it wants to maintain relations with the U.S., it will have to pay [the loans] off."

Aiding Repression Eximbank money and loan guarantees were an important source of political support for the military government of Chun Doo Hwan after the former Army intelligence officer seized power during the spring of 1980. Following the assassination of former head of state Park Chung Hee by the head of the Korean Central Intelligence Agency on October 26, 1979, South Korea was in ferment. Anxious to turn away from 18 years of political repression, hundreds of thousands of Korean citizens joined in a mass movement for democracy, trade union rights, and an end to military intervention in politics. The movement culminated in an open rebellion in the city of Kwangju after Chun seized the government on May 17, 1980, and arrested scores of dissidents, including former presidential candidate Kim Dae Jung, a Kwangju native. Over two thousand people were killed in the struggle for Kwangju, which finally ended when U.S. General John Wickham, then commander-in-chief of American forces in Korea, allowed Korean troops under his command to be sent from the border with North Korea to Kwangju to put down the uprising. Chun's military crackdown and the repression in Kwangju presented President Jimmy Carter, who had championed human rights during his administration, with a dilemma: either support the democratic forces-and risk alienating the new military governement-or support Chun and reassure the U.S. business and banking community that their extensive investments and loans in the country were safe. Carter chose the latter course. A week after the rebellion in Kwangju, the president dispatched Eximbank president John Moore to Seoul. The visit, the first by a major American representative after the coup, signalled to international lenders that the U.S. stood behind Chun. On his trip, Moore promised $600 million in new credits to cover cost overruns on the nuclear reactors then under construction. In a cable to the State Department, U.S. Ambassador William Gleysteen reported that "Moore provided top Korean officials much appreciated assurances of continued Eximbank support for Korean development... All of Exim's Korean clients appeared pleased by his warm assurance of continued financial support." Moore is now a vice president with Bechtel. Carter's "stamp of approval" angered a number of American congressional representatives, including Don Edwards (D-California). Edwards gathered twenty-nine signatures on a letter to the President protesting Moore's visit and asking Carter to deny Eximbank loans to South Korea because of "repression of human rights." But Moore's visit was defended by Assistant Secretary of State Richard Holbrooke in blunt business terms. In testimony to a congressional subcommittee, Holbrooke opposed cutting Eximbank loans to Korea "with the almost certain multiplier effect it would have on private lending institutions in New York and elsewhere." The cuts, he said, "would have an overall adverse effect on the economy of Korea."