Wednesday, May 5, 2010

Nuclear Energy Development – Potential Ownership Structures

Oman’s plans to develop a peaceful nuclear energy program remain an exciting prospect and hold great potential for the Sultanate’s future. In this series of articles on nuclear energy development, we highlight some of the key issues that aspiring nuclear nations typically encounter along the road to developing a nuclear energy program. The past two posts have explored international treaties (such as the Treaty on the Non-Proliferation of Nuclear Weapons) and supportive legal and regulatory frameworks (such as safety and liability measures) that aspiring nuclear nations tend to implement. This article covers another key consideration for developing a nuclear energy program: potential ownership structures for nuclear facilities.

The Importance of Ownership Structure
Ownership structure is an important consideration for any large infrastructure project, as the proper structure helps to attract private investors and to incentivize the facility operators to run the project efficiently.

For nuclear facilities, ownership structure can be especially important. First, the highly sensitive nature of nuclear facilities makes it particularly vital that the facilities be operated efficiently, responsibly and in accordance with the highest standards. Second, the high level of international cooperation typically involved in nuclear programs makes it important for nuclear facilities to be transparent in their operations and their ownership structure; this consideration is particularly crucial for new and aspiring nuclear nations seeking access to other nations’ nuclear technology.

The Public-Private Model
In considering potential ownership structures for its nuclear facilities, Oman could gain valuable insight from the ownership structure it has already put forward for the privatization and restructuring of the Sultanate’s electricity and related water (i.e., desalination) facilities. Pursuant to the Sultanate’s plan, the sector is divided into three primary functions: generation, transmission and distribution. For generation and distribution, there are multiple companies performing the function. The companies feature partial or full private ownership, but operate under the supervision of the government’s electricity holding company.

Such a structure provides several key benefits. First, the combination of government and private-sector involvement facilitates access to the best available equipment and management, both from within Oman and from foreign countries, while allowing the government to maintain high-level supervision over, and responsibility for strategic planning for, the sector. Second, the segmentation of the sector into separate functional areas, and the presence of multiple companies in given functional areas, promotes competition, efficiency and high standards. Segmentation and competition also have two important corollary benefits: (i) promoting transparency and (ii) preventing any one private company from becoming too powerful in relation to the government – an important control in a sector that provides basic public services.

Potential Benefits of the Public-Private Model for Aspiring Nuclear Nations
Following on its public-private model for the electricity and desalination sector, the Sultanate would be well advised to consider the potential benefits of applying a similar model to its nuclear energy development plans. In particular:

  • Offering private companies the opportunity to participate in the ownership and operation of nuclear facilities could help attract investment capital and encourage leading international providers of nuclear technology to develop Oman’s nuclear energy projects.
  • Segmenting the nuclear energy program into distinct functional areas (e.g., generation and distribution), and allowing multiple companies to operate in each functional area, could help spur the respective companies to operate more efficiently and to higher standards.
  • Introducing segmentation and competition into the nuclear energy sector could help the Sultanate harness the benefits of private sector involvement while maintaining government control over a sector that would be both vital to national security and a provider of basic public services.
  • A robust public-private ownership model could help promote transparency in Oman’s nuclear energy program, which could facilitate access to international nuclear technology.