Governments in developed and developing countries alike have increas­ingly found available budgets insufficient to meet all competing demands, and increasingly must turn to capital markets for financing specific projects or programmes; construction of new nuclear power plants would most likely fall into this category.

Even if a government does not build and own a new nuclear power plant, it can still take an equity share. If national budget resources are unavailable for this purpose, a government can create and dedicate government equity.

There are many ways in which a government can create equity. It can, for example, pledge receivables from creditable government-owned industries (or from industrial customers in the case of a government-owned utility); dedicate a portion of a government revenue stream (e. g. from mineral exports or taxes); pledge an asset like uranium reserves; barter (e. g. trade financing for agricultural exports); or pledge a service (like waste manage­ment). To the extent that a government uses this equity for, or otherwise assists in the financing of, a nuclear power plant, this might be considered as a subsidy or an unfair advantage for nuclear power under competition or trade rules in some jurisdictions. Other types of incentives or penalties to achieve desirable results, for example through contracting, might be structured to avoid this complication. However, to the extent that govern­ment participation involves government procurement, project costs will escalate: one World Bank estimate suggests that public procurement can add up to 40% to the cost of a project.

Other examples of possible government funding mechanisms include earmarked surcharges on all electricity sales, use of the national funds (for example, infrastructure funds or postal savings), creation of a government — run private bank to help finance ‘clean energy projects’ (including nuclear), banks to finance infrastructure, asset pooling (in countries or by utilities with other significant power generation assets), and (in developing coun­tries) use of remittances from expatriates. Regional approaches, involving more than one government or utility, may also be used for financing nuclear power plants. Clearly, innovation and government financing are not mutu­ally exclusive, nor are government and commercial financing.

Initial financing arrangements for a new nuclear plant might include some government funding for energy assessments and pre-construction studies or nuclear regulatory and legal infrastructures as well as research and human resource development; and capital market issues of financial instruments (securities, stocks, bonds). For plants in developing countries, additional resources could include directly allocated development funds from international aid organizations and development banks, or other government-sponsored aid programmes, Export Credit Agency (ECA) insurance schemes or institutions like the Overseas Private Investment Corporation (OPIC) and the Multilateral Investment Guarantee Agency (MIGA) (although these only ensure that the suppliers of the equipment but not the project sponsors get paid in case of delays or default), and equity investments and commercial loans. Many within the nuclear community assert that multilateral banks should become directly involved in financing nuclear plants. However, multilateral banks are required to balance the views of their Member States, which have strong and diverse views on nuclear power. Moreover, as banks, their investment criteria include dem­onstrating that a proposed nuclear plant will be the least-cost alternative for electricity generating capacity expansion, and/or cost efficient for solving environmental, security and other social problems, if these are included in a government’s project proposal.

Government support for debt has consisted primarily and traditionally of providing loan or other types of guarantees to facilitate financing of large infrastructure projects. If structured to the benefit of the government as well as the recipient, loan guarantees can be a source of revenue rather than a subsidy/cost to the government. Using an insurance scheme or export credit approach, governments could, for example, charge interest on the size of the loan as the price of the guarantee. Guarantees can also include guar­anteed power purchases (take-or-pay contracts), or even agreements to cover costs of delay arising from government action or inaction. Each of these guarantees carries its own risks for the government, which then becomes liable for non-performance, perhaps as the result of something over which it has no control. Governments in Asia readily entered into highly optimistic purchase power agreements to secure project financing for needed power plants, only to find that slower economic growth after the Asian economic crisis of 1997 made fulfilment of these obligations impos­sible. Some Latin American countries in the 1980s secured loans in hard currency for projects whose revenues were in local currency, only to have exchange rates shift dramatically, forcing default on large loans. Such guar­antees are not unique to government — they can also be, and variously have been, provided by utilities, other large corporations or consortia of compa­nies. The risks would be the same, but the losses would accrue to private investors and not to the government.