Final bids on Czech nuclear expansion submitted

By bne IntelliNews July 3, 2012

Tim Gosling in Prague -

The three bidders for the tender to expand Czech nuclear power plant Temelin submitted their bids on July 2. The offers appear to confirm that there's little to choose between them, save for the fact that only one of the three says it's ready to offer full financing.

After appraisal, state-controlled energy company CEZ will enter negotiations on the bids, with a final decision set for 2013. The bidders: US/Japanese Westinghouse, France's Areva and a Russian consortium led by Atomstroyexport - a unit of state nuclear company Rosatom - were selected in 2010, and all delivered their final offers, CEZ said in a statement.

CEZ launched the CZK200bn (€8bn) or so tender to build two new nuclear units at its 2-gigawatt Temelin nuclear power plant in 2009. The company says the tender includes an option for it to order another three reactors at sites inside and outside the Czech Republic, which could mean the total investment reaches about €25bn.

The three bidders have accelerated their marketing activity this year, with all three pushing their intention to sub-contract the majority of the work to Czech companies. Construction is planned to kick off in 2016. "The construction of new Temelin reactors is a key pillar of CEZ's strategy," CEO Daniel Benes said in the CEZ statement. "Today marks a significant step towards ensuring steady electricity supply for Czech customers for decades to come."

Show me the money

However, questions still remain over the fortunes of CEZ, its ability to fund the project, and in fact the overall economic viability of the Temelin expansion. Whilst the company insists it can power the project itself, it has admitted it would then struggle to realize other projects. In light of that, the company has been lobbying in Prague to secure government guarantees and feed in tariffs for the plant's output.

The company also said in May that following the selection of the supplier, it may issue another tender to choose a strategic partner to help it finance Temelin 3 and 4. French state company Electricite de France is the latest potential partner to admit to talks on the idea.

However, that comes three months after reports of financial challenges for CEZ saw Atomstroyexport up the ante in March by stating that it is ready to offer full funding for the project, and consider any type of strategic partnership, including one that would see it become an shareholder in CEZ itself. The company made the same offer to Hungary in June, as the country announced it a HUF3 trillion (€9.9bn) tender to expand the Paks facility.

Both Westinghouse and Areva have since insisted that they will not offer CEZ funding, but that they believe they can still win the tender. A source at one of the companies submitting bids on July 2 said, "We do of course offer large financing packages on some projects, but frankly, there are some companies that we would not offer funding." The implication, of course, is that some of the bidders are wary of entering funding agreements or undertaking other forms of investment with CEZ.

The Russian offer illustrates the enthusiasm in Moscow to win the contract. As one of its few successful high tech industries, the Kremlin has been pushing Russian nuclear technology across the globe as part of its drive to diversify the economy. Whilst it has seen significant success in winning business across Asia and the Middle East, it has struggled to make an impact in Europe. With its main competitors hailing from the US, Japan and France it is understandably concentrating on projects in CEE as a bridgehead into the EU.

The moon on a stick

By way of contrast, Areva "will not be involved in the financing," director for CEE Thomas Epron told a press conference after delivering his company's bid. "We have offered state guarantees for the initial stages however, which should help the project find bank financing ... but financing is CEZ's responsibility." Asked if Areva felt comfortable with that stance in light of Atomstroyexport's offer, he added: "You can offer the moon if you like. The key is whether the investor believes it. I don't know if [the Russian offer] is feasible [under OECD procurement rules]."

Without mentioning financing, Westinghouse CEO Shigenori Shiga said only that his company's "proposal meets or exceeds all mandatory requirements established in the Temelin tender to provide CEZ with the most economically advantageous proposal."

The question of just how bullish the challengers to the Russian bid are that their offers can compete without offering a funding package remains open. "Public procurement rules have been followed, and we're confident that everyone will stick to them," says Frank Apel, Areva's sales director for Central Europe & Nordic countries.

Of course, there will be much discussion between the bidders and the Czech side in the months to come, and whilst the official bidders are apparently wary of including financing packages alongside their technical and other offers, it can't be ruled out that financial arrangements could creep into the talks after all.

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