A model of the Temelin nuclear power station. Wikimedia Commons/Li-Sung. Some rights reserved.
As Germany and other European states turn away from nuclear power, the Czech Republic is looking to select the winner of the largest nuclear tender in its history. The deal worth around 250 – 300 billion Czech crowns (i.e. 15 billion dollars) concerns the upgrade of the Temelin power station. The upgrade project, however, offers more than just questions of economic interests and energy – the bid stands in the middle of a subtle geopolitical struggle between the United States and Russia.
The construction of Temelin was initiated in 1987 and was originally designed to operate with four nuclear units (reactors). In the 1990s the Czech government decided to cancel the construction of the third and fourth unit and continue only with the construction of the first two units. With interruptions, the plant was finished in 2002 with an installed capacity of 2,000 MW provided by two Russian-designed VVER-1000 reactors. The current upgrade project plans to double the capacity of Temelin by completing the cancelled construction of the third and fourth unit.
Temelin is operated by the CEZ Group, a joint-stock company, whose majority shareholder is the Czech state (it holds nearly 70 percent of CEZ stock). Therefore, the Czech government has the last word in choosing the winner of the bid. The public tender was launched in August 2009 and three entities offered their bids – French Areva, American-Japanese Westinghouse Electric Company and Russian-Czech consortium MIR.1200. In October 2012, CEZ announced that Areva did not meet statutory requirements and other criteria defined in the tender and excluded its bid from further evaluation. Thus, the two remaining bidders for the project are Westinghouse and MIR.1200.
What do both entities offer and what do they hope to gain in return?
Both bidders claim that the public tender is solely an economic issue and that there is little space for lobbying and politics. Nevertheless, both Westinghouse and MIR.1200 have hired PR agencies to shape public opinion (which, in the case of MIR.1200, may turn out to be crucial) and were granted support from their respective governments.
US ambassador to Prague, Norman Eisen, has stated that Westinghouse will receive all the support needed for its bid from the US Embassy in Prague and from the US government. This was already demonstrated in a December visit by Hillary Clinton, who met with Czech politicians (including opposition party representatives) to support the Westinghouse bid. During the meetings, Clinton mainly emphasized the national security aspect of the tender.
The MIR.1200 consortium is composed of three companies –Czech Skoda JS and Russian Atomstroyexport and Gidropress. Both Russian companies are owned by state-controlled Rosatom Corporation. This strong link to the Kremlin raises concerns that the Russian government uses Rosatom in a similar manner as Gazprom – as an extended arm of its foreign policy. On the other hand, in case CEZ runs out of funds to finance the construction, there is the possibility that strong Rosatom (backed by Moscow) may step in and provide the lacking funds. With respect to Westinghouse, there are speculations that such aid could be provided by the American Export-Import Bank.
For Rosatom, the Temelin upgrade is a major tender. Eastern European countries such as Hungary and Poland are planning to construct new nuclear power stations and Moscow believes that winning the Temelin tender would open doors to new projects in the region. This causes some anxiety in Washington D.C. since the USis concerned about the further expansion of state-owned Russian companies into such strategic sectors as nuclear energy in Central and Eastern Europe.
CEZ plans to start negotiating with bidders in early 2013 and the winner should be announced by the end of 2013. At present, Temelin marks one of the biggest energy tenders in Europe, so both Westinghouse and MIR.1200 are prone to compete to propose the best possible bid. The current projects offered by the two entities vary in certain features, but are not that different from each other.
Chairman of the Czech State Office for Nuclear Safety Dana Drabova has recently described the shortcomings of each bid – in her own words “the weakness of the Russian side rests always in the organization of construction, ensuring quality during construction and quality supervision.” On the other hand, she stated that the concept offered by Westinghouse is “too new” (the company is offering to construct two AP1000 nuclear reactors, which are not yet in operation anywhere in the world) and thus there is little practical evidence of its reliability.
The bidders have several trumps – some of them will probably be revealed as the decision draws closer. For now, MIR.1200 has offered to source 70 percent of labor to Czech firms using a network of subcontractors. Westinghouse, in turn, has proposed cooperation to Czech firms on other projects and emphasizes its high security standards and cutting-edge technology.
So, what is the crux of the matter? The problem is that the decision has broad implications for Czech foreign policy. In the decision-making process, the Czech side will have to consider not only the economic and technological features of the bids, but also their strategic and political aspects. For the Czech government the issue is all the more intricate, since the decision will be made between two entities, which represent distinct poles of Czech foreign policy orientation.
Is the Czech Republic ready to overlook animosities toward Russia for the sake of choosing the higher quality bid? Should Prague give preference to Westinghouse to further strengthen its good relations with its ally, the United States? Is it in the Czech national interest to increase the presence of Kremlin-controlled companies operating on Czech soil? The Temelin upgrade project raises many questions and it is up to the Czech government to clearly formulate its interests and postures – this, however, may turn out to be very problematic.
Czech society is divided over the issue of who should win the bid and assesses the matter with a certain amount of prejudice. Russia is still perceived as an expanding power wishing to lure the Czech Republic into its sphere of influence. This may be a constructed and exaggerated threat, but the country is already deeply reliant on Russian oil and gas imports and the public is reluctant to further increase energy dependence on Russia. However, the assumption that by choosing MIR.1200 the country will become more dependent on Russian energy imports is misleading. The choice of nuclear fuel supplier is basically independent from the tender and thus CEZ can choose Westinghouse to supply fuel rods for reactors built by MIR.1200 and vice versa. Moreover, the Russian company TVEL has been supplying Temelin with nuclear fuel for the last three years.
A survey conducted before the exclusion of Areva showed that the public would prefer Westinghouse (20 percent) to carry out the construction. Areva received 15 percent and MIR.1200 received only 5 percent, the rest of the interviewees did not have a preference. The business community, however, would rather see MIR.1200 win the tender, since it promises to provide the most opportunities for Czech subcontractors, which would have the prospects of boosting the domestic economy. The current government claims that it has no preferred bidder, but outgoing president Vaclav Klaus has clearly supported MIR.1200.
Another question – this time purely economic – arises. Is the investment viable? Experts claim that unless the Czech government guarantees CEZ that the purchase price of electricity will not drop below 50 euros per Megawatt hour, the investment will not be cost-effective. So far, the government is hesitant to give CEZ such guarantees. Therefore, a third option cannot be ruled out – the Temelin upgrade project may be completely cancelled.
Further doubts about the viability of the investment may lead to the reluctance to finance the project and furthermore, Prague may be pressured by its neighbors Germany (which plans to close its nuclear power plants by 2022) and traditionally anti-nuclear Austria to back down from the enlargement of Temelin.
Ideally, the winner of the tender should be chosen on the basis of economic and technological criteria. The winner should provide the most economic opportunities for Czech business (not only during the construction but also through future cooperation) and should ensure the quality of construction and high security standards. However, the tender seems to be gaining a rather political momentum, with both sides using arguments to accuse the counterpart of veiled geopolitical interests and intentions.
In the meantime, it will be worthwhile to observe what trumps both Westinghouse and MIR.1200 come up with to shift the attention of the Czechs to their side and what means the US and Russian governments will use to influence the final decision.