CEZ to delay signing nuclear tender contract on political crisis

By bne IntelliNews July 23, 2013

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The Czech state-controlled utility CEZ is to delay the expansion of the Temelin nuclear power plant by a year, a senior official said on July 22, as the political crisis gripping the country prevents it from securing a final agreement to start the project. On the flip side, the change in government also gives the power company fresh hopes of state support.

Following the collapse of the centre-right government in June, the future of the €8bn-10bn project to expand Temelin has become a major talking point in relation to the interim administration installed by President Milos Zeman earlier this month. CEZ was scheduled to choose between US and Russian bids to supply two new reactors by the autumn.

However, it now says it will delay its decision by 12 months, according to local press. Czech weekly Euro cites CEZ board member Pavel Cyrani as saying that even if a winning offer is chosen this year, the final contract may not be signed until the autumn of 2014, reports Radio Prague.

Spokeswoman Barbora Pulpanova confirmed Cyrani's words to Bloomberg, adding that the delay will allow the new government to update the national energy strategy. CEZ hopes that in turn will open the way for fresh negotiations on a power-purchase agreement.

Zeman - whose appointment of close allies to a "government of experts" has infuriated political parties across the spectrum - is a keen advocate of nuclear power, and has close ties to Russian business. However, both he and Prime Minister Jiri Rusnok claim the new cabinet - which could stay in power until the next scheduled elections in May 2014 - will not make any decision on Temelin.

Yet the suspicion remains that that pledge may not last much longer than ongoing attempts to secure parliamentary support for the administration. Rusnok and his cabinet face a confidence vote by August 8. Currently, it looks set to lose, at which point Zeman could lever the vaguely worded constitution to keep it in power.

New campaign

The change in government is a clear opportunity for CEZ to rejuvenate the Temelin expansion. Analysts across the board offer little hope that the project could be profitable without significant state support - likely in the form of guaranteed purchase prices - especially in light of the acute weakness of European power markets currently.

"There had been a lack of clarity on financial support for Temelin under the previous government, and it is hard to assume at this stage that the yet-to-be-formed government will be willing to quickly sign a [power purchasing agreement] with CEZ to make the Temelin extension profitable for the utility," write analysts at VTB Capital. "Our calculations imply that the selling price from Temelin would have to be twice the current market price to make the project NPV positive."

Although the project clearly has its backers in political circles - the state remains CEZ's majority shareholder with 67% - senior members of the fallen centre-right coalition had poured cold water on the company's chances of securing that state support. However, its demise, and forthcoming elections, offers the company the chance to launch a whole new lobbying campaign.

Cyrani, director of CEZ's strategy division, told Euro that the decisions on Temelin can be broken down into three distinct and separate processes, reports Radio Prague.

Choosing a winner of the tender is completely in CEZ's hands, he noted. However, the wider decision of whether or not to go ahead with the expansion at all depends on two factors beyond the company's control.

Firstly, the long-term national energy strategy, which is still being discussed by the government. That strategy, which will lay down the country's future energy mix, should be be approved by the end of the year, he said.

Secondly, a firm commitment on how the Czech Republic plans to finance nuclear investment is needed, he said. That debate is still far from over, he admitted. Given the huge price hikes in electricity bills seen in recent years due to overly-generous - and - as many would claim - corrupt schemes to support solar and wind power, additional support for Temelin would be a tough political sell. That makes any move on the project highly unlikely ahead of the next election, whenever it may fall.

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