BEIJING FRAN KFURT H ONG KONG LONDON LO S AN GELES MUNICH N EW YORK SAO PAULO SIN GAPO RE T 

U.S. Nuclear Regulatory Commission Meeting on Foreign Ownership R

Considerations from a Financing Perspective

19 June 2013

Paul M. Murphy

Milbank, Tweed, Hadley & McCloy LLP

Washington, DC
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 Background on Financing NPPs Background on the Key Rules  What are the Challenges under the

Current Legal/Regulatory Regime?

 Possible Considerations Some Specific Thoughts on Financing

Overview of Presentation
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Nuclear Financing Concerns

 Primary Concerns for Financiers

• Long development / construction 

periods

• High capital costs• Regulatory uncertainty• Reputational risk• Human resources• First-of-a-kind risk• Safety culture• Operational success• Supply chain• Sustainability of government commitment• Fuel cycle concerns• Environmental responsibility• Commitment to international regimes and 

standards

 The Foreign Ownership 

two of these critical issu

1. The challenges assoc

nuclear power plants

2. Regulatory Oversight
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So what do financiers want to see in an 

 Lenders like certainty

• On time, on budget• Have all the project risks been properly 

identified and allocated?

• Proven technology• Sustained government commitment• Clear and predictable regulatory 

process

• Dedicated revenue stream (e.g., long 

term PPA with a creditworthy entity for the term of debt) OR strong corporate or 

government credit

 Investors are much like banks, plus

• Less appetite for development period risk

• Need stronger financials to support equity 

rate of return (higher) after debt service

 Challenges for nuclear p

the United States

• Track record does no

on budget considerat

• Nuclear power is a “p

“price setter”

• With natural gas price

it is difficult for a new a merchant environm

• Regulatory delays ha

source of disruption fo
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What is the issue?

 As a general rule, a foreign entity may not have a controlling intere

operation of a US nuclear power plant. Specifically, under the SectAEA, no operating license for a nuclear power plant may be issued under foreign control: 

• No license may be issued to an alien or any corporation or other entity 

Commission knows or has reason to believe it is owned, controlled, oalien, a foreign corporation, or a foreign government. In any event, no 

issued to any person within the United States if, in the opinion of the Cissuance of a license to such person would be inimical to the common security or to the health and safety of the public. [42 USC § 2133 (d); 
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What is the standard of review?

 Specifically, in cases where the ownership interest is less than 100

will consider factors such as: 

(1) the extent of the proposed partial ownership of the reactor; (2) whether the applicant is seeking operating authority; (3) whether the applicant has interlocking directors or officers with foreign 

details concerning the relevant companies; 

(4) whether the applicant would have access to restricted data; and (5) details concerning ownership of the foreign parent company.64 Fed. Reg. at 52,358. 
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Difficulties and Considerations

 Current rules lack certainty

• “All or nothing” is easy• Presumption: “foreign” = “bad”• Current rules are subjective and 

qualitative

• Current rules are very fact-dependent

• Current rules don’t reflect the current 

state of the US nuclear industry or US electricity markets

• Yet, it is understandable why there is 

uncertainty on this subject

 Query:

• Will a financier be willing 

process?

• Does this uncertainty lim• Do we have a need for ex• Given current market con

modification of the rules m

• But, should we focus on 

conditions to drive rule-m
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Comparative Analysis

 What is going on outside the US ?

• Some countries don’t limit foreign ownership

– Examples:

 UK: sale of Horizon Turkey: Akkuyu as Russian build-own-operate NPP

• Some countries want domestic control

– Examples:

 France: EDF (government owned utility) UAE: Barakah One Saudi Arabia: K.A.CARE as government entity

 Are we missing out ?

• Is there a line at the door?• Is this an outdated approach?
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Looking Ahead

 Can things be done differently?

• 810 list: A precedent for having different approval structures for differ• Should all foreign owners/operators be viewed in the same light? Sho

matter?

• Commitment re. “local” operators• Reserve accounts in US banks, escrowed funds, etc.• Advance funding requirements to create financial certainty• Should reciprocity be a guiding principle?

 Approach

• Identify the concern and then create a structure to address that conce• Distinguish among national security, plant safety, and operational issu
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Some specific considerations on financin

 No history of project finance for nuclear power – Why?

• Remember, “project finance” is a term of art

– Limited / Non-Recourse structure– Debt / Equity structure– Financing Entities look to revenue stream of the asset– Repayment is a function of achievement of Commercial Operatio– Financing Entities can “take” the asset
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Financing a Nuclear Power Projec

 No history of project finance for nuclear power – Why?

• Classic nuclear risks

– Regulatory risk– Political risk (a “moment of insanity”; the joys of democracy)

– Schedule issues– Budget issues

• Project Finance remedies don’t readily suit a nuclear asset

– Financing Entities can’t “take” the asset– Need for a “licensed operator”– Strategic asset within many countries– Inability to replace the NSSS vendor during construction
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Financing: Concluding Thoughts

 So, even though a lender might not take security over the asset (in 

taking over the asset if a default were to occur), the lender, through covenants, might wish to exercise “control” over accounts and the 

 Query: Does a lender really need to exercise “control” over accou

of money?

• If there is a strong sovereign credit or a strong corporate balance she

structured as a corporate credit), then the lenders don’t need to exerccontrol

• Is there precedent for this outside of the US: YES

 Finally, given the long operating life of an NPP (approx. 60 years fo

designs), NPPs become an attractive long-term investment once thoperation

• History of the US fleet supports this view• Consideration of investors post-completion is part of a reasoned, lifec

the financing of NPPs
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 Thank you for your time and attention. Contact Information:

Paul M. MurphyMilbank, Tweed, Hadley & McCloy LLPwww.milbank.com+1-202-835-7536pmurphy@milbank.com
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Milbank, Tweed, Hadley & McCloy LLP at-

International Presence l Project Financing l Experience wit
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Paul Murphy’s practice focuses on multiple aspects of the nuclear industry – from legal and policy regulatory and treaty frameworks and issues regarding nuclear liability, to strategies for creating vithe identification and mitigation of associated risks – representing developers/owners, investors, a

internationally. Mr. Murphy is recognized as an expert in the development and financing of nucleaInternational Atomic Energy Agency (IAEA), the OECD's Nuclear Energy Agency (NEA), and the UMr. Murphy currently serves on the IAEA’s Technical Cooperation Program team, which assists mnuclear power programs. Mr. Murphy has served as a designated expert, chairman, and author at multiple working groups of the IAEA, primarily involving the development, financing, and structurincontinues to work with the IAEA in a number of key areas, including a current revision of the IAEA'

as lead author for a new report to be released in the next few months, entitled, "Alternative ContraNuclear Power Plants".Mr. Murphy currently serves as a two-time appointee to the US Secretary of Commerce’s Civilian NCommittee, and he chaired its Finance subcommittee for the last two years. In addition, Mr. MurphGovernment's sole representative on an NEA working group on "Financing of Nuclear Power Planworking group. Mr. Murphy also chaired the IAEA working group that issued, “Issues to Improve thPower Projects.” Mr. Murphy has also worked with the Nuclear Energy Institute, the US State DepOECD, and the Export-Import Bank of the United States on revisions to the OECD's Guidelines for projects by Export Credit Agencies.For the last four years, Mr. Murphy has served as a faculty member for the "Training Course on NuPrograms and Related Projects in Emerging Nuclear States", held on behalf of the US State DepaArgonne National Laboratory and attended by representatives of over 20 foreign governments. Mr

for the segments on financing and the bidding / evaluation process for nuclear power projects.Prior to joining Milbank, he served as Senior Counsel for Bechtel Power Corporation, supporting bbusiness lines as a transactional attorney involved in bid evaluations, business development, propnegotiations, procurement, and project execution.Mr. Murphy is a graduate of Princeton University's Woodrow Wilson School for Public and InternatHarvard Law School. Mr. Murphy is also a member of the International Nuclear Law Association.

Paul M. Murphy

Special Counsel

Washington, D.C.

+1-202-835-7536

pmurphy@milbank.com

www.milbank.com

PAUL M. MURPHY
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