With energy demand soaring and global temperatures rising, nuclear power is poised to make a dramatic worldwide comeback. Japanese industry could be a huge beneficiary of this trend, but only if it can address a critical capability gap. This is what makes nuclear energy cooperation with Russia so important.

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On May 11, 2009, Russian Prime Minister Vladimir Putin arrived in Tokyo for talks with [then] Prime Minister Tarô Asô. The summit meeting on May 12 may not have yielded clear progress on the key issue of the Northern Territories, but two announcements issued on that day augured important progress for Japan's nuclear power policy, a crucial component of the nation's energy strategy. The first announcement confirmed the conclusion of the Agreement Between the Government of Japan and the Government of the Russian Federation for Cooperation in the Peaceful Uses of Nuclear Energy (Japan-Russia Nuclear Energy Agreement), which establishes a legal framework for the transfer of nuclear materials and technology and other forms of cooperation predicated on the peaceful use of nuclear energy. The second announcement reported the signing of a memorandum of understanding between Toshiba, Ltd., and Russia's state-controlled nuclear power company Atomenergoprom, in which the two companies agreed to begin studying concrete proposals for commercial operations centered on enriched-uranium products.

What do these two developments signify for Japan's nuclear energy policy, and what do they portend for the future? To answer these questions, we first need to examine two trends that have emerged over the past few years. These are (1) the internationalization of Japan's nuclear energy policy in response to nuclear power's global comeback, and (2) the development of a new nonproliferation regime (which is to say, internationalization of nuclear fuel cycle technology), centered on the International Atomic Energy Agency (IAEA) along with Washington and Moscow, in response to growing concerns over nuclear proliferation.

Let us begin, then, by examining these developments, beginning with nuclear power's global comeback and Japan's evolving nuclear energy policy.

Toshiba's Acquisition of Westinghouse

After the 1986 disaster at the Chernobyl Nuclear Power Plant in the former Soviet Union, the development of nuclear power entered a long period of global stagnation. But over the past few years, the tide has turned once again. As the explosive growth of countries like China and India has raised questions about the stability of fossil fuel supplies over the medium and long term, and as global warming has emerged as a serious concern, nations around the world have been taking a second look at nuclear power.

In October 2005, the government of Japan—which ranks third after the United States and France in the number of operating nuclear reactors—adopted the Framework for Nuclear Energy Policy and set about rebuilding its policy in anticipation of a new era. In August 2006, the government released its Nuclear Power Nation Plan.

In the midst of these trends, news of a startling business development raced around the globe. In February 2006, Toshiba, Ltd., which had been partnering with US energy giant GE, bought out US-based Westinghouse from its parent company, the British government-owned firm BNFL (British Nuclear Fuels). It was the culmination of a dramatic bidding war that had pitted Toshiba against such powerful contenders as GE and Mitsubishi Heavy Industries, a longtime partner of Westinghouse.

The strength of Toshiba and other Japanese nuclear plant manufacturers lies in their process-management expertise, which enables them to complete construction without falling behind schedule or going over budget—the product of 30 years of uninterrupted plant construction that continued even during the years of global stagnation. By bringing together that know-how and Westinghouse's cutting-edge reactor technology, Toshiba immediately emerged as a key player in the global nuclear power plant market.

Japan's Weak Link

Despite Toshiba's emergence as a major force, however, Japan's nuclear power industry is still missing an essential strategic tool, without which it will be hard-pressed to compete for major contracts as developing nations and others jump on the nuclear power bandwagon. When it comes to the nuclear fuel cycle, Japan lacks the wherewithal to compete at either the front end or the back end.

Here a brief explanation is in order. The "nuclear fuel cycle" refers to the chain of production, reprocessing, and reuse of nuclear fuel. The "front end" is the part of the cycle covering initial production, from mining and milling of uranium ore to enrichment and fabrication of nuclear fuel. The "back end" is the rest of the cycle, beginning with reprocessing of spent fuel.

What is the current state of Japan's fuel cycle capability? Let's start with the front end. Japan's annual demand for uranium ore stands at 8,000 tons, of which 94% is imported from overseas. When it comes to uranium enrichment—the most technically sophisticated of the fuel-production processes—Japan's current capacity meets only about 10% of its annual demand of 5,000 ton-SWUs (5 million SWUs). Even in the foreseeable future, Japan's enrichment capacity is unlikely to reach more than 1,500 ton-SWUs,, or about 30% of demand.

What about the back end? Japan Nuclear Fuel Limited (JNFL) is in the process of building facilities for reprocessing spent fuel in Rokkasho, Aomori Prefecture, with technical assistance from France's AREVA. But technical problems have caused the facility, originally scheduled to begin full-scale operation in November 2007, to fall far behind schedule. In any case, even if it were to go online tomorrow, Japan would still lack the capacity to reprocess even the total amount of spent fuel currently stored inside the country.

Full-Service Contracts—The Wave of the Future

This is a problem for Japan because, apart from concerns that fuel supplies will tighten in the future, nonproliferation considerations favor full-service contracts that cover not only plant construction but also the nuclear fuel cycle, from manufacture and supply (front end) to reprocessing and reuse of spent nuclear fuel (back end). Such contracts are expected to become the rule farther down the road.

Today one Western nuclear power plant manufacturer, France's AREVA, is already equipped to provide full fuel cycle services, including front-end manufacture and supply, as well as back-end reprocessing to produce MOX fuel. This means that, as things stand now, Toshiba is ill-equipped to go head-to-head with AREVA in the global scramble for nuclear power plant contracts. What are its options?

Toshiba has known for some time that it needed to beef up its front-end manufacturing and supply capability. And given the limitations of Japan's domestic capability, the only choice was to supplement that through partnerships with countries rich in uranium resources and those actively involved in nuclear fuel cycle activities. The two prime candidates that emerged were the Central Asian Republic of Kazakhstan and Russia.

At present only four companies in the world provide uranium enrichment services—the core of the front-end business—on a global scale. These are URENCO, which is jointly financed by Britain, Germany, and the Netherlands; Eurodif, a wholly-owned subsidiary of AREVA; the American firm USEC; and the Russian uranium-fuel producer TENEX (short for Techsnabexport), part of state-owned Atomenergoprom. The largest of the four is Russia's TENEX, with a uranium enrichment capacity of 20,000 ton-SWUs per year, somewhere between 40% and 50% of total global capacity. Furthermore, right on Russia's southern border lies Kazakhstan, which has close political and economic ties to Russia and boasts the world's second largest uranium reserves after Australia.

Energy Diplomacy with Kazakhstan and Russia

In 2005, under the leadership of the Agency for Natural Resources and Energy, Japan entered into negotiations with Kazakhstan to secure uranium resources. The effort paid off, and beginning in 2006, one Japanese company after another secured uranium-mining rights in Kazakhstan with support from the Japanese government. Most were trading companies and electric power companies, but among them was one nuclear power plant manufacturer—Toshiba. Moreover, in a creative business maneuver previously unthinkable for a Japanese corporation, Toshiba transferred 10% of its Westinghouse shares to Kazakhstan's state-owned nuclear power company, Kazatomprom, in return for the right to extract uranium. Following closely on the February 2006 buyout of Westinghouse, the move convinced observers in Japan and around the world that Toshiba was truly metamorphosing from a Japanese firm into a global corporation.

In February 2007, Tokyo and Moscow agreed to enter into negotiations for a nuclear energy cooperation agreement. From the time it launched the Kazakh initiative, the Agency for Natural Resources and Energy seems to have envisioned turning to Russia to enrich the ore extracted from Kazakhstan.

In March 2008, Toshiba and Atomenergoprom announced an agreement to build a strategic, complementary partnership in three areas: design and engineering of civilian nuclear power plants in Russia, manufacture and maintenance of large equipment, and the front-end nuclear fuel business. For Toshiba, needless to say, the focal point was the last item.

Finally, in May 2009, immediately after the Japan-Russia Nuclear Energy Cooperation Agreement was signed, Toshiba and Atomenergoprom announced that they would begin concrete preparatory studies for a joint venture centered on enriched-uranium products. Among the collaborative projects in the pipeline are construction of enriched-uranium storage facilities and (though still at the feasibility-study stage) construction of a uranium enrichment plant.
(Translated from an article in Japanese published on May 14, 2009)