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Czech Republic seeks a new path

Political turmoil and divisions over how to reform the state-controlled utility ČEZ are creating headaches for the nuclear envoy

Jan Stuller became special envoy for nuclear energy in 2016. A former special adviser at the International Atomic Energy Agency, he was appointed by the previous government to shepherd through a deal to build at least one nuclear reactor to replace aging Soviet-era units. His mission is to avoid a repeat of the 2014 fiasco, when a previous nuclear tender fell victim to over-optimistic financial forecasts and incompetent decisions.

A measure of what Stuller is up against can be seen in the latest delay to the project. The Standing Committee on Nuclear Energy announced on 17 May that it had postponed yet again a decision on how to move forward on constructing new nuclear reactors. It said it needed more time to evaluate the impact on the budget and ascertain the EU's views on state aid for such a project.

The announcement is a setback for Stuller. For the past year he has been coordinating the efforts of various working groups to draw up an investment plan for a new reactor at the Dukovany nuclear power plant. There, the four Soviet-era reactors operating are starting to be decommissioned. Between 1985 and 1987, four power units with pressurised water reactors came on line at Dukovany, meaning the oldest of them will need to be decommissioned by 2035.

Some experts, including Stuller, have gone on record as saying that its life could be extended by another five years. "From a technical point of view, it's possible to say that Dukovany is capable of being in operation for an additional 20 years after being in operation for 30 years—these reactors are in good shape," he told Petroleum Economist.

The debate over the investment model goes to the heart of the problem for the Czech Republic. It was one of the main reasons that the last tender to build two new units at the Temelin nuclear plant had to be scrapped in 2014.

The 70%-state-owned utility ČEZ used to boast it could build the new reactors using its own resources. But it became increasing clear that the company's finances and low electricity prices weren't adequate to meet the forecasted £7-9bn outlay and state guarantees would be required.

Options debated

The incoming coalition government in 2014 ruled that out, and this has been the public stance adopted by billionaire prime minister designate, Andrej Babiš. He's still trying to put together a coalition government—even though his ANO party won the parliamentary election back in October 2017. However, few doubt that state involvement will be necessary, given that the difference between CEZ's long-term borrowing rate and the state's is about 9% versus 3%.

The main nuclear steering committee headed by Stuller's boss, industry minister Tomas Huner, has debated several options including having a ČEZ subsidiary build the new units with state backing or having the state acquire an already-existing ČEZ subsidiary and use that to build the plants.

A third option would be to split the state utility by spinning off the utility's distribution, renewable energy, small-customer sales and energy services into a new company (ČEZ ESCO) and sell 49% of that entity to investors. The state would take full control of the remaining nuclear, coal, natural-gas and hydroelectric assets, as well as coal mining and energy trading. This is the preferred option of ČEZ's management and would solve the fundamental conflict between the majority shareholder of the utility, the government, and the minority private shareholders, who hold about 30% of the utility.

"The minority shareholders are not happy with starting to build new nuclear reactors, but the state has enormous interest in building them to ensure the stability of energy supply, so there are conflicting interests between these two groups of shareholders," says Stuller.

Despite the seeming advantages of splitting up ČEZ, such a move is meeting stiff resistance from several quarters, including from Babiš.

The six parties interested in supplying the reactor are Russia's Rosatom, Korea Hydro & Nuclear Power, China's General Nuclear Power, the US's Westinghouse Electric Corporation, France's EDF and a joint venture of Japan's Mitsubishi Heavy Industries and France's Areva called ATMEA.

No consensus

Stuller insists that all six bidders are "on the same line of the starting point with the same opportunity to win", though few doubt that the Russian side is in pole position to win. As well as the nuclear technology at ČEZ's plants being from the Soviet era, Russia has the option of offering financing for the new reactor at Dukovany—something the other bidders are either unable or unwilling to provide. This is crucial because, as Stuller notes, while "there is a vast consensus [in government] on building new nuclear resources… financing is one topic where we do not have a consensus."

£7-9bn—estimated outlay for new reactors

Other factors play into Russia's hands. These include the attempt by the Czech government to gain exemptions from the European Commission over the strict rules governing public tenders in the bloc, downgrading the issue of price in favour of other criteria such as technology. This, the government hopes, will make the process less complicated and drawn-out. Other observers, however, say it will clearly give the Russians an advantage, given the technology issue.

Officials at Stuller's Ministry of Industry and Trade admit there's no guarantee that Brussels will agree to any exemptions. The failure of the last nuclear tender in 2014 arose from the complexities of public tender rules. Fear of repeating that fiasco could force the Czech authorities to consider a direct government-to-government deal like the one that Hungary struck with Russia to expand its Soviet-era nuclear power plant at Paks. Brussels reluctantly approved that €12.5bn deal last year. But its decision has been widely criticised for seeming to appeal to political interests over technical merits and is now being challenged by Austria for breaching EU state aid rules.

Moscow contacts

Such a government-to-government deal is being publicly pushed by the openly pro-Russian President Miloš Zeman and his advisers. Local weekly Respekt detailed several visits last year by Zeman's top aide Martin Nejedly to Moscow, where he held meetings with influential officials close to the Kremlin, including Rosatom head Alexei Likhachev. Nejedly, who used to run the local branch of Russian oil major Lukoil, has refused to discuss any meetings he might have held in Russia, insisting they were private affairs.

Stuller won't be drawn on such matters, but admits that the overall political situation in the country is far from ideal, given there's still no government eight months after the last election. "Everything is complicated by having negotiations going on about forming a government between the political parties," Stuller says, adding that he doesn't consider his own role to be political to any extent. "My role, and that of most of the people I am working with on a daily basis, is oriented toward monitoring the implementation of the State Energy Policy, so I wouldn't call it political so much."

Still, Stuller is looking at November as another target date, though again "not one set in stone". He regards November as "the latest reasonable time to make a decision on the method to choose the main supplier. In November, I would love to see the answer to three questions: the investment model, the financing model and how we should select the supplier."

As for the pressure he's under to keep all these moving parts aligned in the same direction, he remains sanguine: "The government is under pressure and I'm part of it. But for me, it's rather my own internal pressure, because I see clearly what will happen in 10 years from now without any new nuclear sources of energy if we don't do something today."

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