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FM AMEMBASSY OTTAWA
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UNCLAS SECTION 01 OF 04 OTTAWA 000156 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR WHA, OES, EB, AND ISN 
DOE FOR P&I, NE AND NNSA 
EPA FOR OFFICE OF THE AMINISTRATOR AND INTERNATIONAL AFFAIRS 
COMMERCE FOR 4320/ITA/MAC/WH/ONIA - WORD 
 
E.O. 12958: N/A 
TAGS: TRGY TBIO PGOV BTIO ENRG CA
SUBJECT: CANADA'S NUCLEAR SECTOR: REACTOR SHUTDOWN 
HIGHLIGHTS BROADER CONCERNS 
 
REF: A. 2007 OTTAWA 2276 
 
     ¶B. 2007 OTTAWA 2260 
     ¶C. 2007 OTTAWA 2255 
 
SENSITIVE BUT UNCLASSIFIED.  Not for Internet distribution. 
 
¶1. (SBU) Summary.  Natural Resources Minister Gary Lunn 
removed Linda Keen from the Presidency of the Canadian 
Nuclear Safety Commission (CNSC) late on January 15.  (While 
no longer CNSC President, she remains a member of the 
Commission.) Undoubtedly the government hoped this would wrap 
up the two-month drama that began with a routine shutdown of 
the NRU reactor in Chalk River in mid-November (reported 
reftels), but this seems certain not to be the case.  This 
episode serves to illustrate several distinct problems 
surrounding Canada's nuclear sector. 
 
-- The dependence of half of the global market for certain 
short-lived medical isotopes on the operation of a single, 
half-century-old reactor. 
 
-- Long-run financing problems facing GOC-owned reactor 
supplier Atomic Energy of Canada Limited (AECL), and the 
government's strategy for the company's future. 
 
-- Staffing and capacity challenges faced by the CNSC, the 
nuclear regulator, not just vis-a-vis its current mission, 
but also in the face of a possible resurgence of the nuclear 
industry in Canada over the coming decade. 
 
¶2. (SBU) Comment: We think that, as a consequence of this 
affair, the very real resource and capacity problems of the 
Canadian nuclear regulator have gained greater prominence in 
Parliament and the public mind, and stand a better chance of 
being addressed.  The prognosis for AECL, however, may be 
darker.  This imbroglio has served to highlight the 
difficulty AECL is having with its replacement technology 
(now eight years behind schedule) for the aging reactor which 
produces the medical isotopes and its lack of success in 
moving its new power reactor design forward and finding early 
customers )- all at a juncture when the GoC has been 
considering putting the money-losing company on the auction 
block or otherwise divesting itself of it.  The affair may 
also affect Canada's position as the world's largest supplier 
of medical isotopes as other countries, in particular the 
United States, consider whether to pursue their own domestic 
production capacity.  The significant political facets of 
this episode are discussed septel.  End Summary and Comment. 
 
Overview of CNSC and AECL 
------------------------- 
¶3. In Canada nuclear regulation is solely a federal 
jurisdiction; the Canadian Nuclear Safety Commission (CNSC), 
formed in 2000 out of the former Atomic Energy Control Board, 
is the independent, quasi-judicial administrative tribunal 
and regulatory agency charged with that responsibility.  It 
reports to Parliament through the Minister of Natural 
Resources (Gary Lunn).  With roughly 500 employees, the CNSC 
has as its principal mandate to "protect people and the 
environment from licensed sources of man-made radiation 
resulting from the use of nuclear energy and materials."  It 
also regulates the use of nuclear energy and materials in 
line with Canada's international commitments on the peaceful 
use of nuclear energy.  In a series of reports over the past 
eight years Canada's independent Auditor General (AG) 
identified a series of challenges facing CNSC, in particular 
human resources issues of capacity, recruitment, and 
Qhuman resources issues of capacity, recruitment, and 
retention of capable staff, and clarification of roles and 
responsibilities.  In its first audit, in 2000, the AG found 
that CNSC's regulatory activities were not based on a 
rigorous, well-documented system of risk analysis; and that 
only a few CNSC divisions had developed formal approaches to 
risk analysis as a basis for proposing regulatory activity. 
 
¶4. (SBU) Canada's federal government owns Atomic Energy of 
Canada Ltd. (AECL), a money-losing, 55-year-old reactor 
design/supply/service firm.  AECL has sold 12 reactors to 
Argentina, India, China, South Korea and other developing 
countries (the last reactor sale was to China in 1999), but 
it is not clear AECL will be competitive for future 
international business against U.S. and European competitors, 
and even its prospects for domestic Canadian new builds are 
 
OTTAWA 00000156  002 OF 004 
 
 
very uncertain. 
 
¶5. (SBU) While all reactors now in use in Canada are of AECL 
design, only the oldest unit is directly operated by AECL: 
the so-called National Research Universal or NRU reactor 
built in the early 1950s at Chalk River, Ontario, about 100 
miles west of Ottawa.  Approximately half of all diagnostic 
nuclear medicine procedures performed worldwide depend on 
Molybdenum-99 from the NRU reactor; these isotopes are 
packaged and distributed by MDS Nordion, Inc. (a private 
sector concern spun off from AECL around 1990).  Because 
these isotopes have half-lives of a few days or less, this 
business depends on more or less continuous operation of the 
NRU.  Construction of two new reactors dedicated to isotope 
supply (known as "Maple 1 and 2") and intended to replace the 
NRU in that capacity are significantly over budget and over 
eight years behind schedule.  Current AECL expectations are 
that the Maples will come on-line in late 2008 and early 2009. 
 
What Happened? 
-------------- 
¶6. (U) When the NRU was shut down for routine maintenance on 
November 18, CNSC inspectors verified that modifications to 
the reactor's cooling system called for in an August 2006 
licensing review had not been installed.  CNSC notified AECL 
the NRU was not in compliance with its license and could not 
therefore be restarted.  AECL did not restart the reactor, 
but claimed the modifications were upgrades, not mission 
critical, and could be accomplished over a longer period of 
time during forthcoming monthly maintenance periods.  AECL 
claimed it could continue to operate the NRU safely without 
the additional equipment, at least as an interim measure. 
The impasse between the regulator and AECL extended the 
scheduled NRU shutdown from one week to over a month, and the 
shutdown would have gone longer had the government not 
intervened and temporarily exempted the reactor from CNSC 
oversight (through emergency legislation that had all party 
support) to allow its restart (ref a). 
 
Medical Isotopes ) No Security of Supply? 
----------------------------------------- 
¶7. (U) As a result of the extended NRU shutdown, global 
supplies of critical medical radio-isotopes dwindled.  (Only 
five reactors around the world produce these radio-isotopes, 
one each in France, Belgium, Netherlands, South Africa, and 
Canada.)  Since many isotopes have half-lives measured in 
hours, any unplanned reactor shutdown easily leads to supply 
disruption.  The NRU alone accounts for over 50 percent of 
global supply of Molybdenum 99, which is the source of 
Technetium-99m, the most widely used isotope for diagnosing 
disease.  Compounding the shortage, the South African reactor 
went down for scheduled maintenance in early December. 
(Maintenance schedules are coordinated among reactor 
operators well in advance, but it had been anticipated the 
NRU would be back on-line by the end of November.) 
 
¶8. (SBU) In early December as medical concerns heightened -- 
the head of the Canadian Medical Association indicated he was 
"very concerned" -- Health Canada initiated efforts at some 
800 hospitals and clinics to monitor radioisotope shortages 
and plan a response.  (The government in fact portrayed the 
issue as one of public health from the beginning, leading the 
Prime Minister to claim in the House of Commons that 
QPrime Minister to claim in the House of Commons that 
operating the NRU without the safety upgrades posed "no 
threat to nuclear safety at all.")  The NRU shutdown exposed 
the lack of additional production capacity worldwide, and in 
particular the vulnerability of the United States which, 
although the largest consumer of medical isotopes, has no 
commercial production capacity at all for key elements such 
as Molybdenum 99.  Indeed, Congress has tasked the U.S. 
National Research Council to examine further the risks to the 
American public due to the lack of domestic production 
capacity. 
 
Precarious Finances ) End ahead for AECL? 
----------------------------------------- 
¶9. (SBU) Atomic Energy of Canada Ltd., established in 1951, 
is wholly owned by the GOC and has always required subsidies, 
which have been trimmed over the past decade even as reactor 
sales have gone flat.  (The last AECL sales were to China (2) 
and Korea (4) in the 1990s.)  Indeed, Minister Lunn himself 
noted that there has been a "chronic shortage of funding for 
 
OTTAWA 00000156  003 OF 004 
 
 
AECL going back over 14 years," and the firm's 
under-capitalization and poor accounting have been documented 
repeatedly by the Auditor General.  In an otherwise bleak 
immediate market, much hope has been invested in the putative 
"nuclear renaissance" expected as a consequence of policies 
aimed at reducing greenhouse gas emissions. 
¶10. (SBU) AECL has been lobbying the Ontario provincial 
government and utility firms to spend about C$12 billion on 
eight new reactors required to meet the province's energy 
needs over the next 20 years.  However, a 2007 public 
declaration by Ontario premier Dalton McGuinty that AECL,s 
heavy-water reactor technology (so-called CANDU for "CANada 
Deuterium Uranium", a reference to its heavy water moderator) 
was not a shoo-in and that all technologies would be 
considered, was a blow to AECL expectations.  This distress 
was exacerbated when the CNSC decided to discontinue its 
"pre-licensing assessments" (citing resource constraints) of 
AECL's new flagship reactor design, the Advanced CANDU 
Reactor (ACR), which was to be pitched to Ontario.  The loss 
of this pre-licensing assessment puts AECL at a competitive 
disadvantage in marketing the ACR, which has so far cost 
about C$300 million to develop. 
 
¶11. (SBU) In November 2007, just before the NRU isotope story 
broke publicly, the Conservative federal government announced 
a broad review of AECL's future, including the possibility of 
selling the company.  That long-rumored review is now on hold 
due to the turbulence around the isotope affair. 
 
¶12. Comment:  This may, however, only be a stay of execution. 
 There is no shortage of criticism of AECL, fueled by reports 
from the Auditor General, not just in 2007, but also in 2002 
and 1996, pointing to mismanagement and lack of transparency 
as critical and on-going failures at AECL.  And contrary to 
normal practice, AECL had not previously made the earlier 
reports public.  Divestment is certainly a political option, 
as governments of both parties have participated in the 
gradual privatization of, for example, PetroCanada, an 
integrated oil company, Air Canada, and the CN railroad over 
the past two decades.  However, if the ACR fails to attract 
Canadian buyers, AECL's financial prospects and its 
attractiveness to potential investors are open to question. 
End comment. 
 
CNSC Capacity ) Is Confidence Warranted? 
---------------------------------------- 
¶13. (SBU) Since inception, CNSC has struggled with problems 
of under-capacity, caught between limited funding, the aging 
demographics of nuclear professionals, and a current and 
anticipated rise in regulatory demands due to reactor 
refurbishments, redesigns, probable new builds, and plans for 
waste management.  In this case, although the downstream 
supply of medical isotopes is not formally the regulator's 
concern, Linda Keen's choice to stick to the licensing rule 
book suggests that the capacity to assess the broader impacts 
of CNSC decisions may have been lacking )- perhaps a direct 
consequence of a relatively young organization lacking 
sufficient resources.  On the plus side, in its most recent 
assessment (2005), the Auditor General found CNSC was making 
satisfactory progress in implementing its recommendations 
from the 2000 audit in areas such as human resource planning 
Qfrom the 2000 audit in areas such as human resource planning 
and implementation of an integrated, risk-informed approach 
to regulatory activities.  Comment:  The high profile events 
of the past two months have clearly served to make Parliament 
aware of the regulator's constraints.  Given that Canada 
cannot do without a nuclear regulator, these events may 
compel the government and Parliament to provide additional 
resources needed to remedy them, rather than to sweep them 
under the carpet yet again.  On the other hand, rational 
assessment and treatment of these events in the political 
domain is anything but assured.  End comment. 
 
What Does It All Mean? 
---------------------- 
¶14. (SBU) Despite the resource and organizational challenges 
faced by the CNSC and the apparent lack of a robust response 
by the regulator in the face of this unique set of 
circumstances, the evidence, including assessments by the 
Auditor General, still suggests that the CNSC is a capable 
and credible nuclear regulator that should retain the trust 
of its international peers.  Realistically, the government 
cannot dispense with CNSC, and may well be forced to find 
 
OTTAWA 00000156  004 OF 004 
 
 
additional resources to address its identified problems.  On 
the other hand, the fate of AECL in the wake of this 
imbroglio is cloudy.  The company undoubtedly lost some 
government goodwill, from an already diminished reserve, and 
its failure to comply with NRU licensing conditions (i.e., 
the installation of the two back-up cooling pumps) for 18 
months certainly will not help the firm's credibility with 
prospective customers in Canada, the United States, or 
elsewhere.  While to the casual observer AECL seems to have 
come out of the squabble over NRU relatively unscathed, the 
real implications for the company may be far different, and 
it is unclear to what extent the government will continue to 
support the loss-making firm.  In broader terms, this may be 
welcome news for AECL's international competitors. 
 
Visit Canada,s Economy and Environment Forum at 
http://www.intelink.gov/communities/state/can ada 
 
WILKINS