Revolving door between Japanese nuclear industry and regulators

After the crisis, kind of things one gets to read these days has been  so shocking. One really wonders what has been happening in so-called developed economies.

The financial crisis showed how there was a revolving door between people in the financial industry and regulators. One could be a regulator one day and walk next day to become a key financial player. As he got bored, he makes a comeback as regulator. Hence the term revolving door.

Daniel Kaufmann of Brookings has this nice essay on Japan’s nuclear energy crisis. He looks at this Japan’s Triple Disaster: Governance and the Earthquake, Tsunami and Nuclear Crises.

He says though Japan is ranked highly on governance indicators, but still ranks much lower in developed economies. Chile and Nordic economies which are smaller economies rank higher. The lower rankings had an impact on the poor handling of the 2011 earthquake and tsunami. The deficiency was glaring in particular with handling of the nuclear reactor crisis.

The response to the nuclear power plant crisis has been subpar, reflecting serious shortcomings in leadership and governance…..

The nuclear crisis is now only a close second to Chernobyl, and it is not subsiding. The 40-year old nuclear plant was designed to withstand a major earthquake, which it initially did. However, the tsunami breached the plant’s seawalls and disabled all back-up generators, leaving only battery-power to run cooling systems, which ran out of power in a few short hours. With the cooling systems having failed since Friday’s tsunami, only a few dozen brave workers and soldiers have been left at the plant to try and stave off a nuclear meltdown by flooding reactors with seawater.

The Japanese government has already evacuated over 200,000 people residing within 20 kilometers of the plant. The unfolding situation appears to be critical and has been exacerbated by poor governance of all the key actors responsible for Japan’s nuclear industry: the industry/operator (Tokyo Electric Power Company, Tepco), the regulator (Nuclear and Industrial Safety Agency, NISA) and the government. One should note that these failures are not only made in Japan. For instance, the International Atomic Energy Agency (IAEA) has not been active in stemming this crisis, which now seems to rest in the hands of a few courageous workers. In fact, the head of the IAEA, who is also Japanese, has not arrived to Japan yet.

The revolving door details are not much different from the financial industry in US and other places:

TEPCO’s Failures: The utility operator, the Tokyo Electric Power Company (TEPCO) may not have exhibited the same egregious governance failures as Soviet bureaucrats did in 1986, but its performance record has been subpar for a very long time.

It is a matter of record that in 2002 TEPCO admitted to falsifying the results of safety tests on reactor one’s containment vessel. In previous decades, the company had doctored reactor shroud safety records. In 2003, TEPCO prohibited inspectors from visiting reactors and later acknowledged that it systematically covered-up inspection data that showed cracks in reactors. Following a relatively small earthquake in 2007, a fire ensued at another nuclear plant, and TEPCO masked the fact that hundreds of gallons of radioactive water leaked out.

Making matters worse, TEPCO’s response to the ongoing nuclear crisis has been seriously flawed. The operator has infuriated Japan’s prime minister, who learned of the first plant explosion at reactor 1 on Saturday from watching TV. More generally, TEPCO has angered the public and media by providing only partial briefings, refusing to answer questions during press conferences, providing vague and delayed information and preferring to apologize for “causing inconvenience” instead of keeping the people truly apprised of developments.

TEPCO’s performance has been troubling virtually across the board. The only exception is on the human front, where the dozens of workers who have remained behind, alongside some brave soldiers, may be making the ultimate sacrifice in order to protect their fellow citizens.

Regulatory Failure: The Fukushima Daiichi nuclear plant crisis is exposing the extent to which Japan’s powerful nuclear industry has been subject to lax oversight, or worse. For starters, the effectiveness of the regulator comes into question in light of TEPCO’s history of deceit. In assessing governance in the industry, it would be unfair to single out only one company, when the entire industry was not subject to proper oversight.

In 2007, Japan’s government and power industry were warned that plants like Fukushima Daiichi were not built to withstand major earthquakes. Between 2005 and 2007, atomic power plants in Onagawa, Shika, Kashiwazaki-Kariwa and Kushiwazaki were affected by tremors beyond those which they were built to withstand. Since the 1970s, safety inspectors at the U.S. Atomic Energy Commission (AEC) have warned that General Electric reactors, the type employed in Fukushima Daiichi, were vulnerable to explosions and radiation release if a meltdown occurred. Yet to date, no actions had been taken by the Japanese government to modify nuclear plant standards.

Lax oversight of existing regulations is also to blame. In 2004, five workers were killed at a nuclear plant when superheated steam punctured a pipe. It was later discovered that the pipe had not been inspected in 28 years. In 2007, the Nuclear and Industrial Safety Agency (NISA) forced companies to reveal unreported safety breaches. Ultimately, seven out of 12 public utilities admitted to falsifying records.

Regulatory capture may have also contributed to the current situation. Many in the industry come through the revolving door, acting at different times in the licensing, rulemaking and inspections process. The rulemaking process also appears to be riddled with conflict of interest. In fact, when Japan rewrote its safety rules, 11 of 19 members of the panel belonged to Japan’s main lobby group for power companies, Japan Electric Association. Reportedly, it may in nuclear power where the industry and the regulator have the coziest of relations in Japan.

Further, NISA is also not an independent agency. It is a department under Japan’s Ministry of Economy, Trade and Industry (METI), which is responsible for expanding nuclear power generation. In recent months, METI has teamed up with power companies, including TEPCO to win nuclear deals abroad. The dire consequences of low regulatory independence are well exemplified by the U.S.’s Minerals and Management Service, which prior to the BP Oil Spill in 2010 was responsible both for the promoting and overseeing the oil industry.

An industry as critical as nuclear energy being ignored this way is crazy stuff.

Kaufman says this raises a number of issues post-crisis. This is so similar to what happened in Russia in 1986:

The government’s lack of transparency during this crisis is of utmost concern. Citizens should be kept well appraised of developments, as the fallout may significantly affect them. Moreover, increased transparency allows citizens to hold officials accountable for their actions in the ongoing relief efforts. Moving forward, trust between the citizens and the government will be essential in keeping Japan united during the grueling times ahead.

The negative fallout from opacity during crises can be severe. The dramatic events of 25 years ago at Chernobyl provide a stark historical lesson. In 1986, the Kremlin failed to inform the public of the disaster at Chernobyl and the world first learned of the nuclear meltdown from Swedish scientists who detected high levels of radiation. Gorbachev himself has written that Chernobyl led to the collapse of the Soviet Union more so than the launch of perestroika (restructuring). While the government’s response to the crisis was opaque, the subsequent public outcry hastened glasnost (openness). Former-Soviet citizens also see a meaningful break between the pre- and post-Chernobyl era. The era of censorship and obfuscation were no longer tenable after Chernobyl. Such historical lessons ought to be taken seriously by Japanese authorities. Transparency is truly paramount.

While the government response so far has been shaky, only time will tell how effective Japan’s ultimate response to the earthquake, tsunami and nuclear crisis will be. On some aspects, our initial assessment suggests that the country still has much to be proud of, and strengths to build from. It displayed strong governance in preparing for and responding to the earthquake and tsunami.

Again ignoring history makes one complacent. Japanese must have ignored these warning signs thinking Japan is not Russia. Just like US and others thought they are not Japan in the case of financial bubble and crisis.

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