Energy lawyers fear the worst for future and current nuclear deals in wake of disaster.
Last week, as Japan continued to count the human and economic cost of the devastating earthquake and subsequent tsunami, the leading law firms in Tokyo were making the safety of their lawyers and staff their top priority.
All of the firms contacted by The Lawyer reported no casualties and everyone accounted for, with the occasional broken window the only damage.
So as the initial shock of the natural disaster began to fade, the attention of the world’s top lawyers turned to the longer-term impact of the crisis.
At press time, Japanese engineers were still fighting to prevent a total meltdown at the nuclear plant in Fukushima. Whatever the eventual outcome of that fight, the impact the series of explosions and risk of radiation leakage is likely to have on the world’s nuclear industry is already being assessed.
As Japan and the rest of the world continued to reel with shock at the images resulting from the tsunami, the consensus among energy specialists at the world’s top law firms was that the crisis had the potential to delay, or even derail, projects around the world.
As one London-based project finance lawyer put it last week, nuclear projects are already hugely political schemes, made all the more sensitive by the events in Tokyo over the weekend.
“The big question, beyond the human cost, is ’what’s going to happen to the nuclear industry?’,” he said.
His comments were echoed by a lawyer at Pillsbury Winthrop Shaw Pittman, which along with Morgan Lewis & Bockius is one of the US’s top two nuclear practices.
“Events are unfolding extremely rapidly in Japan right now and we’re following various reports from those on the ground, industry sources and the media,” said David Lewis, head of Pillsbury’s nuclear energy practice. “As such, we’re extremely reluctant at this point to speculate on the situation, let alone come to any conclusions.”
The speed of events was highlighted last Tuesday (15 March) when the nuclear crisis was upgraded in terms of its seriousness. Until the previous day Japanese nuclear experts had rated it as Level 4 on the International Nuclear Event Scale of 1 to 7 (Level 7 was the level at which Chernobyl registered).
“Managing to keep it at a Level 4 after the biggest earthquake in [Japan’s] history’s not a bad outcome,” one project finance specialist told The Lawyer on that Monday.
By Friday Japan had raised the alert to Level 5, with calls coming from the international community to upgrade the disaster to Level 6.
So while Lewis highlighted the fact that “the nuclear industry takes safety issues extremely seriously”, these sentiments may not be enough to reassure a newly agitating anti-nuclear lobby.
Shares in the company behind the Fukushima plant, Tokyo Electric Power Company, plummeted as the disaster unfolded. Germany’s chancellor Angela Merkel confirmed that her government would review a 2010 decision to extend the life of 17 nuclear plants. And the Swiss government confirmed that it planned to suspend approvals for three new plants.
These events underlined the potential ramifications for the nuclear industry and the advisers associated with it.
“The bar’s just been raised significantly,” argued James Bowe, a partner at Dewey & LeBoeuf. “In jurisdictions in which public input is taken intoaccount in regulatory and licensing proceedings, it will be much more difficult to prosecute a nuclear power project going forward than it was just a week ago.”
Pillsbury’s prominence in the nuclear and alternative energy sectors is generally underlined by its role as international counsel for Emirates Nuclear Energy Corporation (Enec) on the world’s largest project, a 5,600MW, $20bn (£12.4bn)-plus deal to build four nuclear reactors in Abu Dhabi’s western region (Norton Rose is also understood to be advising Enec).
Several US firms (thought to include Cleary Gottlieb Steen & Hamilton, Latham & Watkins, Milbank Tweed Hadley & McCloy and Sullivan & Cromwell) are understood to be currently pitching for financing roles on the emirate’s first nuclear deal, with the plants set to be built by Korea Electric Power Corp.
With the project still in its early stages, it appears inevitable that the events in Japan last week will raise questions about the appetite for such deals in the future, and arguably this megadeal itself.
One lawyer close to the deal pointed out that “logically and rationally” there was unlikely to be much impact on the new build in Abu Dhabi.
“The reactors in Japan are 40 years old, whereas the ones in Abu Dhabi are of a new design and represent one of the safest ways of generating electricity,” the lawyer said. “But there’s a fear factor with nuclear. For some people nuclear still means Chernobyl or Three Mile Island. So there’s likely to be an impact, both political and emotional.”
Certainly, the words ’Three Mile Island’, the site of a nuclear accident in 1979, still resonate in the US, and early reports suggest that the US is unlikely to be immune from that impact.
Nuclear power has been one of the central planks of President Obama’s alternative energy plans. Given the fears stoked by the events at Fukushima, those plans look to be floundering.
As one New York-based partner put it: “That’s the end of nuclear in the US for a while.”