VZCZCXRO0744
RR RUEHHM RUEHPB
DE RUEHIN #1499/01 1830843
ZNY CCCCC ZZH
R 020843Z JUL 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 5868
INFO RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 6987
RUEHUL/AMEMBASSY SEOUL 8758
RUEHKO/AMEMBASSY TOKYO 8907
RHMFISS/DEPT OF ENERGY WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 001499 
 
SIPDIS 
 
SIPDIS 
 
STATE PASS ALEX BURKART; DEPT OF ENERGY FOR 
INTERNATIONAL-PUMPHREY 
 
E.O. 12958: DECL: 07/02/2012 
TAGS: ECON ENRG KNNP US TW
SUBJECT: GE AND TAIPOWER IN CONTRACT DISPUTE OVER FOURTH 
NUCLEAR POWER PLANT 
 
REF: TAIPEI 00719 
 
Classified By: ECONOMIC SECTION CHIEF HANSCOM SMITH FOR REASONS 1.4 B/D 
 
 ¶1.  (C)  SUMMARY.  On June 27, AIT met with Yao Ching-chuan, 
Taipower Director of Nuclear Engineering, who is overseeing 
the completion of Taiwan's fourth nuclear power plant (NPP) 
at Lungmen, on the northeast coast.  The Lungmen project has 
been under construction for 10 years and was slated for 
completion in 2000.  The Legislative Yuan approved funding 
this year to allow its completion by 2009.  GE's contract 
with Taipower ends July 15.  Both GE and Taipower want to 
extend the contract but are mired in disputes over the cost 
of delays which GE claims are solely Taipower's fault, while 
Taipower claims both are responsible.  Since the start of the 
project, Taipower claims it has paid GE US$250 million in 
late penalties, and is now trying to stave off an additional 
claim by GE of US$160 million in late fees.  Further delays 
could result if both sides fail to reach an agreement by 
mid-July, but it is unlikely that GE's contract will be 
terminated.  END SUMMARY 
 
PROJECT DELAYED MULTIPLE TIMES 
------------------------------ 
 
¶2.  (C)  The 4th NPP project was originally slated for 
completion in 2000, but was stopped by President Chen 
Shui-bian for political reasons and then restarted in 2001. 
The 4th NPP is now scheduled to begin operation in July 2009. 
 GE  engineers have told AIT privately that this date is 
overly optimistic, and a delay of one year or more is a 
strong possibility.  The Council for Economic Planning and 
Development (CEPD) confirmed that an additional NT$44.7 
billion (US$1.35 billion) was added to the total budget by 
the Legislative Yuan this year to allow for the plant's 
completion.  The latest delay was blamed on the late 
completion of generators 1 and 2 at the plant. The total 
budget allocation for the 4th NPP is NT$233.5 billion (US$7.2 
billion) of which about NT$40 billion has not been obligated 
yet.  It is believed that the reasons for the latest delay 
have to do with the changing of subcontractors, failures in 
the bidding process for machinery, and inconsistency or poor 
coordination within the project management.  This marks the 
fourth delay since the inception of the project, which, with 
the exception of the recently completed high speed rail line, 
is the second most expensive public project ever undertaken 
in Taiwan. 
 
WHO'S RESPONSIBLE FOR DELAYS? 
----------------------------- 
 
¶3.  (C)  According to Yao, GE is responsible for the design 
and provision of equipment for the project as well as 
ensuring the project follows safety guidelines.  GE has 
already collected about US$250 million in late fees in 
connection with the first delay in 2000.  Yao said that at 
the time, Taipower had a claim against GE for late delivery 
of equipment, but because of the project's cancellation had 
to pay GE compensation instead.  The current contract dispute 
is again about money.  Yao said GE wants to collect an 
additional US$160 million in fees it says are due to 
additional delays in the project.  According to Yao, GE 
claims that it has to maintain a contractual force of 500 
technical personnel while the Lungmen project stagnates. 
However, those experts have already been put on another 
nuclear project in the U.S. while they wait to be called in 
case the GE contract is renewed.  GE's position is that the 
salaries and fees of those experts have to be paid by 
Taipower, while Taipower claims those costs need to be shared 
since it is not the only cause for delays (Note: Taipower 
claims GE has not been on time with equipment deliveries.) 
 
UNLIKELY THAT GE WILL LOSE CONTRACT 
----------------------------------- 
 
¶4.  (C)  AIT ESTH officer asked Yao whether there was a 
possibility that GE's contract might be given to one of its 
competitors, such as Toshiba or Hitachi.  Yao said the 
nuclear division of GE and Hitachi will in fact merge on July 
1 (Note. Hitachi and GE will in fact enter into a 40/60 
strategic partnership to establish joint companies in Japan, 
U.S. and Canada.  Toshiba, the other player in the nuclear 
power plant market, has already bought out Westinghouse. End 
note).  Yao said this merger with Hitachi will not change 
GE's obligations under the previous contract, and in spite of 
 
TAIPEI 00001499  002 OF 002 
 
 
the disagreement between Taipower and GE, the likelihood of 
GE's contract being terminated is slim.  Taipower is 
committed to completing the 4th NPP, said Yao, and failure is 
simply not an option given the huge investment in this 
project.  Yao added that both parties will try to come to an 
agreement before the July 15 contract expiration. 
 
 
¶5.  (C)  COMMENT.  GE has sought AIT assistance in its 
negotiations with Taipower.  AIT representatives have held 
separate meetings with GE and Taipower counterparts, and have 
advised GE that the matter should be resolved between the two 
parties.  Given the willingness on both sides to see the 
project completed, AIT is optimistic that GE's contract will 
be extended.  END COMMENT 
 
 
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