Canada says won't revive medical reactor project

OTTAWA Fri Jun 6, 2008 6:32pm EDT

OTTAWA (Reuters) - The Canadian government won't reverse its decision to scrap a nuclear reactor project designed to produce medical radioisotopes, a government spokeswoman said on Friday, even though cancellation may force it to make a big payout to medical technology company MDS Inc.

"The Maple project is done," said Bernadette Murphy, a spokeswoman for Natural Resources Minister Gary Lunn, referring to the project that government-owned Atomic Energy of Canada Ltd had hoped would replace the 50-year-old reactor that now supplies about half the world's supply of medical isotopes.

MDS, which buys the isotopes from AECL for use in cancer tests and other procedures, had said on Thursday that the situation regarding the two small Maple reactors was fluid.

"We don't view that decision as dead," Chief Executive Stephen DeFalco told analysts on a conference call. He also said the isotopes account for less than half of MDS's profit and that their supply was assured at least through 2011.

MDS and AECL have been partners in building the Maple reactors, which have suffered from huge cost overruns related to technical and regulatory difficulties -- including a failed test as recently as April 2008. They have had a stormy relationship involving litigation and mediation.

MDS complained that despite its contractual arrangements and investments in the project, it was not consulted when in mid-May the government approved the AECL decision to give up.

The federal opposition Liberal Party provided Reuters a copy of a secret government analysis that said AECL estimated it might have to pay MDS C$50 million ($49 million) to C$150 million "with the higher figure more likely."

The document was signed by Deputy Natural Resources Minister Cassie Doyle as a memo to Conservative Natural Resources Minister Gary Lunn.

A side document said that as of January 2008 the project had cost C$592 million -- including C$383 million spent by MDS -- and that at least C$314 million more would be needed to complete it.

This total projected cost of C$906 million compares with the original total estimate of C$140 million. The estimate was made before the failure of the April test.

Murphy made it clear the government had had enough.

"AECL made a decision and the government said, 'Absolutely, that's the right business decision to make'," she said.

($1=$1.02 Canadian)

(Reporting by Randall Palmer; Editing by Peter Galloway)

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