Why Has Theresa May Halted a Chinese Reactor?

A tractor mows a field on the site where EDF Energy's Hinkley Point C nuclear power station was due to be constructed in Bridgwater, Somerset, U.K., on October 24, 2013. John Elliott writes that the delay to the controversial Chinese-funded nuclear electricity plant may have as much to do with Britain's energy security as its high cost. Suzanne Plunkett/reuters

This article was first published on the Riding the Elephant site.

At last, Britain seems to have a prime minister in Theresa May who means business and is not primarily interested in playing to the gallery like her predecessor, David Cameron, and his chancellor of the Exchequer henchman, George Osborne, did both at home and abroad.

A Financial Times columnist has reported that Whitehall officials are saying it feels like having a new government rather than just a change of prime minister. This means that old assumptions about how the government will react and about who matters around town have to be recalibrated.

People in India, and especially in Delhi (where I live), have been experiencing that with Narendra Modi's government replacing the Gandhi dynasty two years ago. He has overturned an established elite and governs on his own terms.

In Britain, the change has been dramatically illustrated by May's unexpected decision on the evening of July 28 to delay final confirmation of an £18 billion ($26 billion) nuclear power station at Hinkley Point in Somerset that would lead to China having direct involvement in Britain's electricity supplies.

The plan is for state-owned China General Nuclear Power to provide about a third of the finance in a joint venture with EDF, a French utility company with U.K. electric power interests. The U.K. government would buy electricity for £92.50 ($122) per megawatt hour—double the current wholesale price—for 35 years. The European Pressurized Reactor technology involved is unproven because two projects in Finland and France have yet to be commissioned and are years behind schedule and far over budget.

China expects, as part of its Cameron-Osborne deal, to follow this with its own Hualong technology for two more power projects at Sizewell in Suffolk and Bradwell in Essex.

That breathtakingly irrational gift of control over sizable chunks of Britain's electricity supplies (Hinkley would be a significant beginning at 7 percent) has been aptly dubbed by critics as the most extravagant of Osborne and Cameron's "vanity projects."

Another is HS2, a widely criticized plan for a high-speed railway link of dubious financial viability between London and Birmingham, for which Chinese investment has also been desperately sought despite cost estimates as high as £90 billion ($119 billion), up from an official 2011 figure of around £50 billion ($66 billion).

There has been extensive debate and concern internationally over the security risk of doing business with China in sensitive areas—most of its current £30 billion ($40 billion) investments in the U.K. are not sensitive, though it does have a stake in Thames Water.

The debate has focused in the past mostly on telecom networks, especially, as I noted on this blog in 2012, those made by Huawei for countries such as the U.S. (which has banned the company on government contracts), the U.K. (where British Telecom and others use it extensively) and India (where it is well entrenched).

It was argued then (by John Gapper, a leading Financial Times columnist) that it was too late to eliminate Huawei because "the time to declare telecoms a strategic, protected industry like defence, was 20 years ago."

Well, the time to declare and make nuclear power a protected strategic industry is surely now. China has to be regarded as a potential future enemy by the West, as it already is by its Asian neighbors. Hinkley would be operating for around 50 years, and no one—not even Beijing's leaders—can predict where and what fights China will begin over that timescale.

Currently, China is challenging its neighbors in the South China Sea by asserting no-fly zones and by claiming sovereignty over islands and sea-lanes and challenging international maritime rules, despite a recent international court ruling in The Hague rejecting the claims. This could lead to confrontations with countries in that area and with the U.S.

If Hinkley goes ahead with Chinese money, the U.K. would presumably have to remain a silent spectator instead of backing its allies in such a situation. Would a Cameron-Osborne government have even dared to vote against China at the United Nations?

The investments crystallized into a £30 billion ($40 billion) wish list when President Xi Jinping made a state visit to the U.K. last October. He was given a royal welcome and rode down the ceremonial Mall to Buckingham Palace in a gilded carriage with Queen Elizabeth. (Narendra Modi got invited to the palace for lunch a few weeks later but went by car.)

Courting Chinese Investment

Cameron—and Osborne, whom May sacked from the government immediately when she became prime minister—had spent years courting Chinese investment. But May, formerly the home secretary, raised security concerns with Cabinet colleagues when the Hinkley decisions were being made.

Her chief of staff warned that China would be able "to use their role to build weaknesses into computer systems which will allow them to shut down Britain's energy production at will." He also said China would be buying British silence on human rights abuses, which was proved right when Cameron and Osborne duly kowtowed to Xi.

So it is not really surprising that May stepped in on July 28 and got her energy minister to announce a review of the project. The timing, however, was curious—the EDF board had earlier that day voted to go ahead, and officials from France and China as well as the U.K. were about to travel to the site for a launch ceremony. Even more curious, Philip Hammond, May's chancellor of the Exchequer, had said during a visit to China for a G-20 meeting a week earlier that "we must make sure the project goes ahead."

May was presumably concerned primarily about the Chinese angle and also maybe about controversy inside EDF, as well as about the unproven technology and risk of delays and cost overruns. The EDF finance director resigned last March, fearing the project would ruin EDF financially, and another director resigned just before the board vote. After those two had gone, the board only approved the project on July 28 by 10 votes to 7. One executive is reported to have said that the vote might have gone the other way if May's intentions had been known.

May has risked upsetting both President Hollande of France and China's Xi. They will no doubt both understand that, having been in office for just two weeks, May needs time to approve such a massive project for which she will now bear prime ministerial responsibility.

But they will be extremely annoyed if she were to cancel the deal, which could make Xi unwilling to help the U.K. negotiate a quick post-Brexit bilateral trade deal with China, while Hollande could cause problems in Europe.

Such political considerations, however, are surely less important than Britain putting its future in a Chinese noose, and on a project of unproven technology and uncertain financial viability. A compromise solution will probably be found—maybe restricting the Chinese involvement in some way.

Narendra Modi might learn something if May takes a tough line. He is continuously split between his inclination to serenade Xi, as he did when the Chinese president visited India in September 2014, and the reality that China's blocks India's advancement internationally, encourages neighboring Pakistan to cause problems and hassles India on their common border.

How, one might ask, could Cameron and Osborne ever have decided to trust China with the projects. Did they really think China would treat Britain differently from the rest of the world?

John Elliott writes from New Delhi. His latest book is Implosion: India's Tryst With Reality (HarperCollins, India).