Poland backpedals on nuclear strategy

By bne IntelliNews June 19, 2013

bne -

Warsaw may postpone the planned construction of Poland's first nuclear power plants, the prime minister announced on June 18, claiming that the facilities may not be needed thanks to increased use of gas as an energy source, including that from its own stuttering push to develop domestic shale gas reserves.

The pace with which Poland will develop its nuclear power capability will depend on how the European energy market evolves, Prime Minister Donald Tusk told reporters, according to Dow Jones. The announcement extends the confusion surrounding Warsaw's ambitious strategy to increase its energy independence, primarily from Russia.

"I'm not ruling out nuclear in our energy mix, but later than planned," Tusk said, according to AFP. "This is primarily due to the expected growth of natural gas as an energy source, including domestic shale gas."

With 90% of Polish power coming from coal-fired plants, Warsaw has been planning to develop a pair of nuclear facilities as part of its efforts to limit greenhouse gas emissions in line with EU limits. Around PLN40bn out of a promised investment kitty of PLN100bn for the energy sector to 2020 was pledged to the construction of two 30-gigawatt (GW) nuclear plants, with the first to go online by 2024.

However, at the same time, Warsaw has been struggling in its push to exploit its large shale gas reserves. Poor test flows, and regulatory and tax complications, have seen several foreign investors walk away from exploration concessions in the last 12 months, and Warsaw has pressed state-controlled companies to pick up the slack. However, they complain that they can't keep up - especially with the government also pressuring them to pay out high dividends to help it with its fiscal consolidation efforts.

Krzysztof Kilian, CEO of the country's top utility PGE - charged with leading the drive to develop nuclear, said in October that the country could not pursue both shale gas and nuclear strategies. Tusk - an old friend of Kilian's - immediately denied the government faces any such decision. However, on June 12, Treasury Minister Wlodzimierz Karpinski said "it is obvious" Poland is facing a choice between the two.

"We have to wait for this decision for two or three years in my opinion," the official said, "because then we will know what [shale gas] deposits we really have and how costly it will be to have production from them. It could turn out that we have geology that makes it very expensive to produce this gas."

Karpinski - whose ministry manages state assets, including the controlling shareholdings in the companies being put in harness - is the first, and thus far only, Polish government official to admit that the country's ambitious drive to increase energy security is struggling. However, he also recently moved to dampen speculation that the shale gas push has been losing support in the corridors of power.

On June 3, he insisted that it remains Warsaw's "top priority," and that state-controlled companies will continue to invest. That appears to leave the nuclear strategy exposed - especially given the current weakness of European power markets. That said, PGE's recent attempt to escape the flagship PLN11bn expansion of the Opole coal-fired plant was scuppered when Warsaw pushed it back into the project, accompanied with vague promises of help with financing.

Tusk's move to tone down expectations over Poland's nuclear ambitions will also have been a let down for Japanese Prime Minister Shinzo Abe, who on June 16 met in Warsaw with the leaders of the Visegrad Group - Poland plus the Czech Republic, Hungary and Slovakia.

The Tokyo delegation, which travelled in the hope of giving long drawn-out negotiations on selling nuclear technology in the region a push, met with double disappointment after Czech PM Petr Necas announced the same day that he would resign over a corruption scandal at home. Czech state-controlled utility CEZ is set to make a final decision on a tender to build a €8bn-10bn expansion of the Temelin plant this year. Westinghouse, a US unit of Japan's Toshiba, is facing off against a Russian bid.

As well as Westinghouse, US-Japanese group GE Hitachi has also signaled interest in supplying technology for Poland's nuclear power plant projects. However, deadlines for talks on possible capital involvement and debt financing, as well as for the market model, technical issues and the legal framework of the investment, have already been extended numerous times, reports Warsaw Business Journal.

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