CEZ retains easy exit in Temelin contract

By bne IntelliNews May 8, 2013

bne -

Illustrating the Czech utility's nervousness over its ability to pay for the CZK200-300bn (€7.7-11.6bn) nuclear expansion, CEZ said on May 7 the contract to build new reactors at its Temelin plant will provide the company with a four-year grace period during which it will be able to walk away.

"After a contract is signed, we can quit at any time with no explanation within four years, and the maximum cost can be €400m," CFO Martin Novak told Dow Jones on the sidelines of a press briefing on May 7. The first stage of the project to add two new reactors to the plant in the south of the Czech Republic will involve only zoning and specific design work, he pointed out, while no actual construction work will take place.

CEZ plans to choose a winner from bids tendered by US/Japanese company Westinghouse and Russia's state-owned Rosatom for the design and construction of the expansion by the summer, and sign a contract by the end of the year. However, many question the economic viability of the project, especially with the European power market in the midst of a slump.

For its part, CEZ insists it can afford to fund the scheme itself, although it admits that would mean pulling back on all other major projects. Meanwhile, the state-controlled company is struggling to wield its significant political clout to lobby the government for a commitment to support Temelin, primarily via price guarantees for the electricity produced. Resistance to the request has the weight of public opinion behind it, with household bills already hiked by huge payouts to renewable energy producers - CEZ being a prime recipient.

In a conference call with analysts on May 7, the company sounded anything but confident on the issue. "The subsidy for Temelin, if any, could be provided by a contract for [price] difference," reports VTB Capital. "The discussion with the government is ongoing but no decision is expected this year. The decision is to be approved by parliament."

More expectedly, the utility is also struggling to assert its influence in overseas markets. Troubles in Albania, Bulgaria and Romania helped dent first quarter results released on May 7, although a series of one offs helped lift profit above consensus. Little wonder then that the company is wary of committing itself to lay out €10bn or so, and is keen to safeguard itself against any significant financial risk should it fall through.

Novak said the conditions that would allow CEZ to cancel Temelin are already part of the contract on offer to the bidders. Illustrating just how unsure it is, CEZ will likely pay for the design work on the project a monthly basis, the CFO added, thereby limiting the potential damage should it decide to pull out.

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