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Former Deputy Energy Secretary Dan Poneman On The Saudis Nuclear Program

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Saudi Arabia wants to build up to 16 nuclear reactors.  Will the United States be the seller?  I asked former Depart of Energy #2 under President Obama –Dan Poneman– to explain:

Audio:

02-22hhs-poneman

Transcript:

HH: I wanted to begin this hour with a story that did not get much of a look because of the tragedy in Florida and then the passing of Billy Graham. No one noticed that the Wall Street Journal reported two days ago that the Kingdom of Saudi Arabia is seeking to build 16 nuclear reactors in an $80 billion dollar program in which the U.S. may or may not participate, depending upon the actions of Congress and the administration. I reached out immediately to my longtime friend, Dan Poneman. He’s been my friend for 40 years since being undergrads together. He was the deputy secretary of Energy under President Obama. He is a senior fellow at the Belfer Center for Science and International Affairs. He’s written extensively on proliferation, and Dan Poneman, welcome, good morning, great to have you.

DP: Good morning, Hugh, nice to hear your voice.

HH: Would you explain the stakes here, because when Saudi Arabia decides to build 16 reactors, and the United Arab Emirates has got a quartet of them next door, it means that nuclear power is alive not in the United States, but in the Middle East. Is the United States in on this?

DP: The United States is in on this, Hugh. There is a competition that is going on right now. The Saudis are talking to a number of players from around the world, from Russia, from Korea, from France, and from the United States, and the stakes are very high, because whoever gets this contract will have a step into a 100 year relationship, because between building and designing and constructing the reactors and the long lifetime of the reactors, it’s an incredibly important geostrategic step.

HH: Now back in the days when Ike had Atoms for Peace, we were the undisputed leader in the world on the construction of safe, secure nuclear facilities. And I believe we advised the South Koreans on the UAE deal. Why would we not be the lead here? What is the potential obstacle that Ed Markey was raising?

DP: Well, the United States was the dominant player for many decades. That’s been changing, Hugh, for the last several decades in the United States, which still has the largest fleet of operating reactors anywhere in the world, we’ve had troubles. We’ve seen the bankruptcy of Westinghouse and the challenges that have been faced by those projects getting built. In the meantime, very aggressively, you have had the Koreans coming along who won the contract to build four units in the United Arab Emirates. You have Russia, which is selling reactors all over the world. All of these countries view the sale of nuclear power reactors as an instrument of geostrategic influence, and therefore, they work very hard to get those reactors sold. They offer very attractive concessionary financing from their state credit agencies. And although there are over 50 reactors getting built around the world, now the only exported reactors being sold by the United States are the four units in China. So we are facing very, very stiff competition from our international competitors.

HH: One of the reasons is we handicap ourselves. Now I want you to explain why that is, and whether or not it’s a good idea. But the Saudis insist their program will be peaceful, but they have refused to rule out the right to enrich uranium. They pointed to their archenemy Iran’s ability to enrich uranium as part of their 2015 accord with the United States, in which you had some hand, aimed at preventing Tehran from producing nuclear weapons. Are we tying our hands behind our backs with our allies and thereby ceding the markets to our adversaries to deal with our allies?

DP: We could be, Hugh, and let me just explain this to you. Back in 1974, India set off what was called at the time by the Indians a peaceful nuclear explosion. And it made everyone realize in the U.S. Congress and more widely that the rules were too loose, right? So that under each reactor contract, you have to satisfy the country’s legal obligations on the selling side to satisfy non-proliferation conditions. In the United States, this agreement is called a 123 agreement under the Atomic Energy Act. So the United States ramped up its own rules in the non-proliferation act of 1978. Then, we spent 30 years persuading the rest of the world to get up to that level of strictness with things like the additional protocol from the International Atomic Energy Agency, etc. By that time, the world rules were pretty tough, and then there was a so-called gold standard, which actually wasn’t gold and wasn’t standard, that was set up in one particular case of the United Arab Emirates. And this is a rule that no one else has accepted either on the buy side or the sell side. And if the United States is the only country in the world that insists on it, no one’s going to buy from the United States. And if that happens, then we lose all of our global influence, because we have the strongest non-proliferation rules in the world. And if our rules are wonderfully strong but nobody accepts them, then they’re not going to do anybody any good on non-proliferation or anything else.

HH: You see, this seems pretty easy, and I’m talking with Dan Poneman, senior fellow at the Belfer Center for Science and International Affairs, former deputy secretary of Energy. It seems pretty easy to me. Saudi Arabia is going to buy 16 reactors from someone. If all of the other potential sellers refused to have this so-called gold standard imposed, whatever the UAE has agreed to, and they will sell to Saudi Arabia under the old rules, then it seems to me we’re taking ourselves out of the competition and thereby out of, as you said, a hundred year relationship with anyone that wants to buy a nuclear reactor, and especially Saudi Arabia that wants to buy 16 of them.

DP: It’s unilateral disarmament. I couldn’t agree with you more. And the painful thing about it, Hugh, is we actually have, the United States has non-proliferation conditions that are second to none. I don’t mean to disparage anybody else. But we have the strongest global non-proliferation rules. The only way those rules get enforced is if somebody works with us. And if we turn ourselves into an anathema for other people to work with us because we insist on something no one else will accept, then it’s just putting ourselves out of the game and basically forcing the world into the arms of all of our foreign competitors. By the way, I would note that the United States itself has not insisted on the gold standard in a number of obvious cases, not least of which are India and Iran. So it really is a self-defeating policy.

HH: Now to close this up, Dan, how soon to the Saudis operate? How soon do they make a decision, do you believe?

DP: Well, look, you’ve mentioned 16 reactors, which is a number that has been talked about for a number of years. I think in the first instance, we’re talking about a couple of reactors. And the Saudis have indicated they would want to make a decision on this first tranche by the end of the year. So there’s a down select process that’s supposed to be happening in the next little while here. After the down select from the maybe five that have been considered, they’ll go down to two or three. And then the idea is by the end of the year, they will make that initial decision, and that is when we will know if the United States is in or is out of the business of expanding its global influence on non-proliferation.

HH: If we don’t get the first tranche, are we likely to get the second or the third? Or is this the first winner wins whatever they build?

DP: Look, different countries approach this differently. Some want to choose a design and stick with it. Some want to have some diversity. I would just say the first two are hugely consequential. And the right thing to do is to play to win, I think, and to try and get in there quickly, because the people who get in there quickly will begin to establish relationships. You know, the people will be exchanging visits back and forth. So you want to really put the emphasis on getting those first two units and then work very hard to get the rest.

HH: Now Westinghouse is technically bankrupt, but that is a legal proceeding. Are they the bidder? Are they the provider from the United States?

DP: Yeah, Westinghouse, Westinghouse will be bidding from the United States.

HH: And the bankruptcy does not prevent that. What is the role of Rick Perry, the secretary of Energy, in this process?

DP: Well, look, all of these situations depend heavily on the support of the government of the state of whichever company is bidding. So when it comes to things like what the non-proliferation conditions are that will apply in this transaction, that would be a matter for the U.S. government. Now typically, the secretary of Energy is the principal interlocutor to the Saudi minister of energy. So Secretary Perry and his department would really be very important, obviously working with the State Department and other parts of the administration. But typically speaking, and when I was at DOE, this was certainly the case at the Department of Energy, the U.S. Department of Energy and secretary of Energy have the principal relationship with the Saudi energy minister.

HH: When it says the Trump administration is pursuing a deal, and then it references opposition in Congress, does such a deal require Congressional approval? And does that Congressional approval, if required, oblige 60 votes in the Senate?

DP: So this is an unusual situation, Hugh. Under elaborate procedures that go back now a number of decades, when you have one of these co-called 123 agreements, which is what’s the legal underpinning under the Atomic Energy Act to permit this kind of transaction to go forward, you have to submit that to the Congress. You submit it with lots of attestations from the secretary of Energy, from the secretary of State, etc., and the Congress has 90 days to review that agreement. If both houses of Congress within 90 days pass identical resolutions that oppose it, then that will not become law. Otherwise, if the Congress just does not act, or they might, I guess, approve it in some circumstances, but typically it just lies there for 90 days, and at that point, it becomes law with legal effect.

HH: Boy, I hope we get this done. It just seems crazy to me not to be at the forefront of this when it’s up to 16 reactors, $80 billion dollars, and a role in the future of the atomic energy program of the Saudis. Dan Poneman from the Belfer Center for Science and International Affairs, thank you, my friend.

End of interview.

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