News analysis

May unlikely to budge on move to delay nuke plant

PM's concerns about British security trump pressure over decision to review China deal

China has warned that Britain risks losing £100 billion (S$ 174 billion) worth of investments if Prime Minister Theresa May cancels a nuclear power project involving Chinese funding and technology.

"The new British government", ran a commentary from China's state-owned Xinhua news agency, is endangering "the hard-won mutual trust" and may put an end to a "golden era of cooperation between the two nations".

But although Mrs May has also come under pressure from some of her own ministers to accommodate Chinese concerns, there are no indications that she is planning to budge from her surprise decision to subject the Chinese nuclear deal to strict national security checks.

The nuclear power plant, scheduled to be built at Hinkley Point in the south-western part of Britain, has always been controversial. Enthusiastically pushed forward by then Prime Minister David Cameron and Finance Minister George Osborne, Hinkley is the most expensive electricity project in the world. It is a partnership between EDF, France's state-owned electricity company, and the China General Nuclear Power Group (CGN), which will own a 33.5 per cent stake in the plant.

Hinkley's financial assumptions are one problem: Construction costs are officially estimated at £18 billion, although projections rise to £25 billion if all financial outlays are included, and go as high as £30 billion if recent estimates from Britain's government auditors are to be believed.

The site of the proposed Hinkley Point C nuclear power station in south-west England. The project is a partnership between EDF, France's state-owned electricity company, and the China General Nuclear Power Group, which will hold a 33.5 per cent stake. PHOTO: REUTERS

But within British government circles, the biggest controversy is over the deal's national security implications. As part of the Hinkley arrangement, CGN will be allowed to construct another nuclear plant based on its proprietary Chinese-designed Hualong reactor.

From China's perspective, this is a critical part of the arrangement: As CGN chairman He Yu pointed out, this represents not only Beijing's "entrance into the UK's nuclear market", but also the first such commercial breakthrough in any Western country.

Intelligence agencies believe such a project will provide China with unique access to sensitive technical know-how, as well as offer Beijing a plug into one of the most critical national networks of all: Britain's electricity grid. The intelligence agencies of the United States and Japan were particularly strong in voicing their concerns on this matter.

But Mr Cameron brushed them aside, while Mr Osborne used London's defiance of its allies over the nuclear contract as a badge of honour, proof that Britain is one Western nation most open to Chinese investment.

Still, it has since emerged that Mrs May, who served as Home Secretary in Mr Cameron's government, had strenuously opposed China's participation in the Hinkley deal from the start, and deeply resented Mr Osborne's decision to force it through the Cabinet.

Mrs May refused to offer Mr Osborne any government post when she became Prime Minister last month, and reports suggest that his singular obsession with developing trade links with China was one of the reasons for his removal from office.

The Hinkley dispute would not have erupted now had it not been for EDF's decision to call on the British press this week to attend a champagne reception at what was to be the official launch of the project. Mrs May saw this as a brazen tactic to force her government's hand and responded by ordering that the entire deal be re-examined. Sources close to the Prime Minister say "all options are on the table", including the prospect of pulling out from the deal. 

In reality, however, Britain's choices are limited. The country's 15 nuclear power stations are reaching retirement age, while its dirty, coal-fired power plants are set to be phased out by 2025; Hinkley, projected to supply 7 per cent of Britain's electricity requirements, remains therefore an essential element in the country's energy mix. But Chinese participation, and particularly the promise to allow China the opportunity to build another reactor, may be destined for the chop.

The move has infuriated Mr Jim O'Neill, Britain's Treasury Minister and former protege of Mr Osborne, who is apparently threatening to resign if the Chinese deal is cancelled; he complains that he was not consulted by the Prime Minister, and accuses the government of endangering other commercial deals with China, just when Britain needs all the capital investment it can get. China's official warning on this point was meant to reinforce his arguments.

But Lord O'Neill, who got a nobility title from the previous government partly due to his championing of China, is not high on Mrs May's list of trusted colleagues, so she is unlikely to be swayed by his threat to quit. For ultimately, she sees this dispute as a tussle about Britain's security, and one on which she is unwilling to offer many compromises.

A version of this article appeared in the print edition of The Straits Times on August 04, 2016, with the headline 'May unlikely to budge on move to delay nuke plant'. Print Edition | Subscribe