CEZ told not to sign nuclear contract while Areva appeal ongoing

By bne IntelliNews November 20, 2012

Nicholas Watson in Prague -

The Czech competition authorities have temporarily blocked the state power company CEZ from signing a contract to build two nuclear reactors while they consider an appeal from France's Areva against its disqualification from the tender, but stopped short of suspending the whole tender procedure as the French company had requested.

The decision of the Office for the Protection of Competition (UOHS) may not be the body blow to the tender that Areva, angry at its exclusion, is trying to engineer. But it certainly injects more uncertainty into a process that is becoming increasingly messy since CEZ's surprise decision on October 5 to turf the French state nuclear company out of the tender to expand the Temelin plant, leaving only Toshiba's US subsidiary Westinghouse and a Czech-Russian consortium to contest the estimated CZK200bn-300bn (€8bn-10bn) project.

In a written statement emailed to bne, the chairman of the UOHS, Petr Rafaj, said that: "the Office imposed on the contracting authority CEZ a ban to conclude the contract in the award procedure of a completion of the Temelin nuclear power plant." However, in a decision that will give CEZ some comfort, Rafaj said that: "the Office rejected the Areva proposal to suspend the award procedure" - something the French firm said it would push for after CEZ rejected on October 30 its attempt to get back into the tender.

Effectively, UOHS is saying that it won't freeze the tender procedure, but CEZ can't accelerate the process by choosing a winner now and signing the contract while a legal appeal is still pending. To further prevent such a situation from arising, sources tell bne UOHS also informed CEZ that any changes it subsequently makes to the tender must be reported to the office within 24 hours.

Unsurprisingly, CEZ played down the latest bump in what is becoming an increasingly disjointed tender process, pointing out to bne that such an order is unlikely to have any influence on the tender because the company is not planning to award the contract until next year anyway.

That's true, though some analysts point to the notoriously slow decision-making at UOHS, something which is only likely to be exacerbated by the hugely complicated (and highly sensitive) nature of this case. On November 9, UOHS told CTK that it has set up a special team to pour though the 60,000 pages of documentation and will seek a number of expert opinions. Because the case is so complex and extensive, the office said it cannot estimate when it will make a decision.

Dark matter

These further complications raise yet more questions about why exactly CEZ chose to risk the fate of country's flagship tender by disqualifying Areva, rather than letting the process run its course and choosing either the Russian or American bid, both of which have strong backers amongst the Czech elite. Westinghouse has received strong support from the White House and also partnered up with the famously well-connected construction firm Metrostav; Vaclav Klaus, the Russophile Czech president, hinted at the end of last year that he favours the Russian-led bid.

In what has been described as a testy interview by a normally unflappable prime minister, Petr Necas told local daily Hospodarske noviny on November 2 that Areva's exclusion was entirely the fault of its local team, who "failed managerially... to place a bid in line with the public procurement law."

In particular, Necas singled out the fact that Areva "ostentatiously refused to commit themselves to a final price." However, sources close to the French side dispute this, saying Areva submitted a final price, only with the caveat that it could be even cheaper depending on market conditions.

This, as well as the claim that CEZ flagged up only nine issues with Areva's tender submission and failed to contact the French company over any of them, while many issues were found with the two other bidders' submissions yet they were given the opportunity to clarify these at meetings, have spawned many murky theories. One has it that faced with insurmountable financing difficulties, CEZ management has found a way to abandon the controversial project while saving face by blaming the French.

For its part, CEZ has only said that its decision to dump Areva out of the tender involved both commercial and legislative reasons, which analysts say could mean anything from personnel issues to technical or legal problems.

And Areva is receiving scant support from the other bidders. "Our view is that CEZ made it very clear from the beginning that there were certain rejection criteria that if tripped would create a situation where you would be eliminated from the process and that was understood by everyone: clearly Areva tripped that rejection criteria," Mike Kirst, Westinghouse's EMEA vice president for strategy and external relations, told bne on October 31.

Kirst went on to say that he didn't think Areva's disqualification would have any long-term impact on the tender. "We don't think this endangers the process - it may even accelerate it, since it's obvious that negotiating with two is easier than negotiating with three."

Today's news would appear to upset that sanguine view.

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