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Kepco may abandon bid for British nuclear plant

Aug 02,2018
The Korea Electric Power Corporation (Kepco) considered dropping a bid to build a nuclear power project in Britain, according to a source Wednesday, a day after it was reported that the energy company had lost its lead in bidding for the deal.

According to an inside source familiar with the matter on Wednesday, Kepco began considering the option of pulling the plug on its bid for Toshiba’s NuGen unit, which is in charge of the Moorside nuclear power plant project in Cumbria, Britain, after the project’s business prospects fell below its expectations.

“It became difficult to predict how profitable the project will be after the U.K. government decided to adopt a pricing model that guarantees less of a return than the original one,” said the source. “The rate of return has to be at an acceptable level for the company, and if it falls to 1 to 2 percent per year, it would be hard for the company to push forward with the negotiation.”

Kepco was selected as the preferred bidder for NuGen last December, but the Financial Times reported Tuesday that Toshiba decided Kepco is no longer the top bidder and that it would “study alternative options.”

The negotiation took an unexpected turn when the British government decided in June to adopt the so-called regulated asset base (RAB) model for pricing rather than the contract for difference (CFD) model.

The CFD model is a price-guarantee scheme from the U.K. government for an energy company in charge of a nuclear project in the country. The government sets a “strike price” and pays the power company the difference between that price and the market price. In return, the contractor has to take on the majority of the risks in the project, including cost overruns.

In the RAB model, the British government shares the risks involved in the project but sets a price cap, which can translate into a lower rate of return compared to the CFD model. According to the source, who is a nuclear industry expert, the rate of return for the Barakah nuclear project in the United Arab Emirates that Kepco completed in March was around seven to eight percent per year, which is already low from the company’s perspective. The source said the rate of return from the Moorside project would likely to be even lower.

“From Kepco’s position, it would be difficult to risk a low rate of return or even losses because that would put a burden on the subsidiaries and contractors that will get involved in the project,” explained an official from the Korean Ministry of Trade, Industry and Energy.

“It’s not true that the negotiation got delayed by the change of administration in Korea,” the official from the Energy Ministry answered, when asked about The Guardian’s report on Sunday.

According to that report, the inauguration of Moon Jae-in as president, which is trying to phase out nuclear power in Korea, as well as the appointment of new Kepco president, made the deal uncertain.

The official said that Kepco and Toshiba first contacted each other in May 2017, when Moon took office.

The negotiation for the deal took off in November, a month before Kepco was selected as the preferred bidder.

Kim Jong-kap became CEO of Kepco last April.

A high-ranking official from Korea’s Energy Ministry involved in the negotiation said the government will continue to work with the U.K. government and the Japanese company, adding that although Toshiba notified Kepco that it is no longer the top bidder, it would still prioritize the Korean company in the bidding process.

“The negotiation for the Moorside nuclear project has entered a new phase” said Moon Shin-hak, director general of the nuclear power industry policy division at the Energy Ministry on Wednesday. “But the Korean government will continue to work closely with concerned parties to achieve our common interests - the stabilization of energy supply for Britain, the stabilization of business for Toshiba and to export the country’s nuclear technology for Korea.”

The director general added that the Korean government and Kepco are currently conducting a “joint feasibility study” with Toshiba and officials of the Department for Business, Energy and Industrial Strategy of Britain to put the negotiation back on track.

Some industry analysts have raised skepticism about Kepco pulling out of the deal.

“We cannot help but wonder if the government is just putting on a show just to rationalize its phase-out policy,” said Chung Bum-jin, professor of nuclear engineering department in Kyung Hee University.

“Because of the Moon government’s plan to reduce the nuclear power, small and mid-sized suppliers will have less work and if the government considers their survival, it should assume a more aggressive stance and even risk a temporary loss.”

“If Kepco makes it into Europe through this deal, it will be a proven track record of its competitiveness,” Chung added.

“It will be much easier for Kepco and its suppliers to land other major projects as the global market expects to see as many as 160 new projects in the near future.”

BY CHOI HYUNG-JO [choi.hyungjo@joongang.co.kr]


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