OTTAWA — The federal auditor general informed Natural Resources Minister Gary Lunn last September that the Chalk River Nuclear Laboratory housing the world's most important medical isotope producer was a mess needing hundreds of millions of dollars in federal funding to eliminate safety and security deficiencies.

Lunn's response, his office said today, was to order, on Nov. 29, a broad review of the structure of AECL, setting the stage for the possible privatization of all or part of the business.

The audit, quietly released last night on Atomic Energy of Canada Limited's website, four months after it was given to Lunn, concluded that AECL faces a "significant deficiency" that has put its ability to deliver on its corporate mandate at risk.

AECL was forced to shut down its reactor at the Chalk River, Ont. site in early December after it could not satisfy the Canadian Nuclear Safety Commission (CNSC) that it was operating according to the safety standards of its licence.

Because the Chalk River facility is the world's leading producer of medical isotopes used to diagnose cancer and other diseases, the reactor's shutdown provoked a public health crisis.

Parliament was forced to pass emergency legislation overriding the safety concerns of the CNSC, Canada's nuclear safety watchdog, allowing AECL to fire up the reactor and resume the production of medical isotopes.

Pointing fingers

Lunn has blamed CNSC president Linda Keen for the shutdown, threatening in a letter written Dec. 27 to fire her unless she could give him a good reason why she ought to remain on the job.

This week, Keen fired back, saying that, as she was the head of a quasi-judicial independent body, Lunn had overstepped his authority with his threats.

That prompted Lunn's political opponents to call for his resignation.

The auditor general's report is sure to add more fuel to the political fire. The audit is only now coming to light after Liberal MP Omar Alghabra pressed Auditor General Sheila Fraser late last year to review AECL's operations after the Chalk River reactor was shut down.

But a spokesperson for Lunn's office says the Liberals had nothing to do with its release. AECL did not want to release the audit until its new board of directors had reviewed the document. Coincidentally, that board met for the first time yesterday afternoon in Mississauga, Ont.

Yesterday, the Liberals distributed the reply they received from Fraser. She said that her office had just finished an audit or special examination of AECL's books and had, in fact, presented that audit to AECL's old board of directors on Sept. 5.

"Although there is no statutory requirement that federal Crown corporations [like AECL] make special examination reports public, there is an expectation that they do so," Fraser wrote in a late-December letter to Alghabra. "To the best of our knowledge, AECL has yet to release its special examination report."

On Dec. 14, Michael Burns resigned as chairman and chief executive officer of AECL and was replaced by two individuals: Glenna Carr became the chair and Hugh MacDiarmid became CEO. Those appointments were made by Prime Minister Harper.

'Significant deficiency'

Though AECL's books are audited and published by the Crown corporation annually, the auditor general does a "special examination" of Crown corporations at least once every five years. The auditor general's office completed its review of AECL in March and presented it in September.

"We would like to draw your attention to a significant deficiency related to the unresolved strategic challenges that the Corporation faces," Assistant Auditor General Nancy Cheng writes in her cover letter to AECL's board of directors. "It is our view that this report contains information that should be brought to the attention of the Minister of Natural Resources. Accordingly, following consultation with the Board, we will be forwarding a copy of the report to the Minister."

Cheng notes that her office did not do a technical assessment of the safety and security of AECL's nuclear research facilities as that is the responsibility of the CNSC.

But, the auditor did have this to say:

"Our examination found a significant deficiency with respect to the risk that the Corporation may be unable to resolve three strategic challenges that, in particular, entail long-term funding requirements and that together would impair its ability to achieve its mandate.

"These challenges are the completion and licensing of the Dedicated Isotope Facility, the development and licensability of the Advanced CANDU Reactor in time for the market requirement, and the replacement of aging facilities at Chalk River Laboratories."

The reactor that produces medical isotopes at Chalk River, known as the National Research Universal or NRU reactor, went into service in 1957 based on designs that were first drawn up in 1949.

The auditor general told AECL's board -- and Lunn -- that the aging infrastructure at the facility was an increasing risk to public safety. "Limited funds threaten AECL's ability to manage the Canadian nuclear platform responsively and cost-effectively and to properly safeguard its assets. In our 2002 special examination, we reported that until AECL could resolve how to fund the replacement of the aging buildings, the risks to public safety were likely to increase."

In its report, the auditor general notes that AECL has spent a pittance of what was required to maintain the safety and security of its facilities.

"AECL has made limited investments in its infrastructure in recent years. Over the last five years, it obtained a total of $34 million in incremental funding from the federal government to deal with urgent heath, safety, security, and environmental requirements at the Chalk River site.

"AECL has identified a need to increase its operating and capital investment by some $600 million in the next 5 years (about $850 million in the next 10 years) to address fire and building code deficiencies as well as licensing, health, safety, and security issues at the Chalk River Laboratories site. We understand that these amounts will not be included in AECL's operating and capital budgets until the government provides direction on future funding."