Romania’s Nuclearelectrica to resume talks on new nuclear reactors with Chinese investors

Romania’s Nuclearelectrica to resume talks on new nuclear reactors with Chinese investors
By bne IntelliNews August 28, 2017

Nuclearelectrica, the operator of Romania's sole nuclear power plant, is reportedly poised to resume negotiations with China General Nuclear Power (CGN) on the construction of two new reactors. 

Under the project, two new reactors of 720MW each will be built at Cernavoda with a total cost of between €4bn and €6bn. CGN will finance the project and will hold a share of at least 51%. 

Plans to expand the Cernavoda nuclear power plant have been under discussion for years, with various international investors including CEZ, GDF Suez and RWE having previously pulled out. 

CGN signed an agreement with majority state owned Nuclearelectrica to invest in the project in 2013, and three years later the Romanian government endorsed plans for the two companies to set up a joint venture. However, progress has been slow, and Nuclearelectrica shareholder Fondul Proprietatea (FP) opposes the project. 

Discussions with CGN will now resume in September, the company’s outgoing general manager Daniela Lulache said on August 25 quoted by Agerpres.

“Our partners have some requests, we have an answer — therefore it is not impossible to reach a deal within six months. But it is not easy either,” said Lulache. She also commented that the two supplementary reactors are needed for the country’s energy security and independence.

The company’s managing board received a mandate from the general shareholders’ meeting on August 24 to continue negotiations for another six months, she explained.

Lulache has managed Nuclearelectrica for four years and four months and will be replaced as of September 2 by interim manager Cosmin Ghita. 

Nuclearelectrica’s management is at odds with FP — which is keen to maximise dividends from the company — over the plans to build the new reactors. 

FP, which holds 9.1% in Nuclearelectrica, said last November that the project is not feasible and could be value destructive for Nuclearelectrica’s shareholders if continued, given the current electricity market context, as well longer term forecasts. At that time, the government claimed that FP’s position is caused by its narrow short-term interest.

Now, however, the cash-strapped government might be less inclined to invest in long-term projects, however profitable might they be in the long term. Faced with imminent fiscal slippage, Bucharest seems less inclined to pour money into long-term project such as the two nuclear reactors, even if Nuclearelectrica's contribution would be minimal. 

The situation on the electricity market this year suggests that the two new reactors are needed in the whole region, more than in Romania. In Romania, they are not expected to significantly ease the problems that resulted in record electricity prices on the spot market this year. To resolve this issue, Romgaz's new gas-fired power plant and possibly the (also controversial) reversible hydropower plant at Tarnita Lapustesti, as well as a market for renewable resources derivatives and deeper intra-day market, are urgently needed. 

In addition, there are numerous issues that still need to be decided between Nuclearelectrica and CGN. The Chinese company has asked for guarantees for a 15% internal rate of return (IRR) should it go ahead with building the new reactors. The Romanian authorities will probably not accept such high profitability, since this would imply a high cost paid by consumers, the daily commented. 

For comparison, the project’s IRR was envisaged at just 11.3% under the company’s development strategy drafted in 2013, when Nuclearelectrica’s shares were listed on the stock exchange. In another project developed by EdF at Hinkley Point in the UK, the British authorities received the European Commission’s agreement to guarantee 10% IRR, which was still seen as too high by the British authorities.

 

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