Prague's nuclear Hunger Wall

By bne IntelliNews April 22, 2014

Nicholas Watson in Prague -


According to myth, the purpose of Prague's Hunger Wall built in the 14th century was not strategic but to employ and thus feed the poor. On April 10, its modern-day equivalent, the €8bn-10bn expansion of the Temelin nuclear power plant, was finally demolished when the state utility CEZ announced the tender had been cancelled.

In the five years since CEZ announced what it claimed would be the Czech Republic's "most transparent" tender ever, the process had degenerated into such a fiasco that its cancellation was the worst-kept secret in Prague for over a year and appeared to have been only kept going in order to provide work for various officials and consultants.

"CEZ should have made the decision to cancel the project a long time ago – it would have saved tens of millions of euros of shareholders' money, as well as time and energy the bidders had to put in," says Jan Ondrich of Candole Partners, a Prague-based advisory firm that has been a long, trenchant critic of the project.

In its April 10 statement explaining the decision to cancel the tender, CEZ blamed the "turbulent" evolvement of the electricity sector in Europe since 2009. "While originally the project was fully economically feasible given the market price of electricity and other factors, today all investments into power plants, which revenues depend on sales of electricity in the free market, are threatened," it explained in tortured English.

However, the project's legions of critics have argued that it never made much sense, even before the incompetent politicians and officials managed to hole it completely.

Lack of support

A report dating from as long ago as the beginning of 2012 by Candole Partners (which counts amongst its clients competitors of CEZ), estimated that the CZK200bn project to build two new reactors at the Temelin nuclear power plant had only a 46% chance of breaking even over its 40-year lifetime. That meant there was only a 54% chance the project won't be profitable. "If we were potential investors in the project, we would probably decline. Investors typically want a 95% ratio to be sure that they won't lose money," Candole's Ondrich said at the time. "This is like taking €8bn and betting on the flip of a coin whether it's heads or tails."

Clearly investors agreed because CEZ fruitlessly casted about for state support for years, before all hope was lost when the recently formed coalition of Prime Minister Bohuslav Sobotka sternly ruled it out on April 9. "We have clearly declared that we currently refuse any type of state guarantee. Nobody should be surprised at this considering the experience we have had with support to renewable sources, above all to solar power plants," Sobotka told reporters. "Moreover, the development on energy markets is unpredictable to a maximum extent, and the government can hardly pledge to guarantee electricity prices."

Indeed, wholesale power prices in next-door Germany have plunged 34% since 2010 from over-capacity and falling fuel costs. On March 25, data compiled by Bloomberg showed Czech power for 2015 had dropped to its lowest level since the contract’s start in June 2012. And analysts say there is little prospect of prices rising soon given the huge expansion of wind and solar in Germany, as well as low hard coal and carbon prices, which make coal a more attractive fuel for power generators.

Given the deteriorating economics of the project, its supporters began to lean on arguments about energy security, but these too were undermined by murky decisions taken by officials in government and management.


The worst was the shocking move by CEZ in 2012 to eject France's Areva from the tender, which left only the US-based Westinghouse Electric and a consortium led by Russian state nuclear holding Rosatom in the race. CEZ airily said Areva had "failed to meet statutory requirements" and "not fulfilled some other crucial criteria defined in the tender", though subsequent leaks of documents called this into question.

According to bne sources, the decision to eject Areva was on the instructions of the office of the previous president Vaclav Klaus, a notorious interferer with a penchant for taking high-handed decisions, even in cases where he had no right to do so.

Areva was furious and set about contesting the decision through the courts, which had the effect of stalling the tender and making any decision to choose a winner nigh-on impossible. On April 17, Areva announced it was suspending its legal action in light of the tender being cancelled.

With Russia's subsequent annexation of the Ukrainian peninsula of Crimea and its continued backing of militant groups in eastern Ukraine, the decision to eject Areva also meant that Westinghouse by default became the only possible winner of the tender. "Personally, I cannot imagine that Russians will continue to take part in the tender to expand Temelin because a country that uses military aggression in foreign policy is a security risk for the Czech Republic as well," Jiri Dienstbier, minister for human rights, said on March 3 – a view shared by several of his colleagues.

Temelin redux

Westinghouse and Rosatom expressed dismay at the tender's cancellation, though it was widely greeted with relief by investors in CEZ. But for the nuclear industry and the myriad other parties – both official and unofficial – that benefit financially from such projects, CEZ's chief executive Daniel Benes offered a sliver of hope that they would not go hungry for long.

"It does not mean that we have stopped nuclear power plant construction in the Czech Republic," he said in a statement. "[The] risk that within 20 years we will not be able to cover [electricity] consumption of our country is still acute."


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