The Czech Dukovany gamble: Can the Koreans afford another loss-making project?

When the Czech government announced in July that the Korean company KHNP had won the tender to build new nuclear units, the public breathed a sigh of relief. At last, a decision after years of delays! After all, no one disputes the exclusion of the Russian and Chinese bidders given the current situation, while US company Westinghouse eliminated itself by failing to submit a bid in the required form, meaning that the final stage of the tender was effectively contested by only two bidders. Alongside KHNP, France's EDF also submitted a bid.

For many, the outcome of the tender was nevertheless a surprise. EDF had many trump cards that the Koreans lack. France is a European power that could help Czechia secure so-called notification, meaning EU approval of the state financial support scheme for the nuclear project. It also has an ambitious programme ahead to build a number of nuclear power plants, whose scale itself necessitates the involvement of external suppliers. Moreover, cooperation between the French company and Czech firms is underpinned by practical experience, not merely legally non-binding memorandums.

Although its projects to date have been marked by cost and schedule overruns, addressing these problems brings experience that can be used in subsequent projects. Indeed, no supplier of nuclear technology has yet managed to deliver nuclear construction in Europe's complex legal environment according to plan. This will be even more of a problem for a company that has no nuclear reference projects here.

It was therefore clear that KHNP's only chance was the lowest price. And that is what it offered – 200 billion crowns for one unit. This would undoubtedly be a success if it could be maintained. It is therefore hardly surprising that the government's decision was recommended in a situation where the tender conditions did not even allow all the French advantages to be properly taken into account. Moreover, this came at a time when the Koreans promised to assume and resolve all risks arising from the unresolved legal dispute with US company Westinghouse.

But this is proving to be a problem that could become costly. And it is no wonder. Westinghouse has no incentive to make its competitor's path into the European market easier. KHNP will also face problems at home. Its indebted parent group KEPCO can hardly afford another loss-making project. Its project in the United Arab Emirates did not end in profit either, even though construction there took place under labour conditions incomparably simpler than those prevailing here.

Since domestic interests come first, Korean lawmakers will ask the state-owned KEPCO/KHNP what the Czech nuclear project will bring to domestic industry. And if there is only one limited pie to divide, the Koreans will inevitably have to put pressure on Czech suppliers. There are growing concerns that this is exactly what will happen.

Jiří Gavor, analyst at consultancy ENA

The text was originally published in the daily Právo