Page 47 - Buy Russia - bne IntelliNews monthly magazine April 2017

bne April 2017 Central Europe I 47
However, the Russians and Chinese likely hold the advantage. Moscow and Beijing are keen to push their nuclear industries overseas. The segment repre- sents a rare high-tech export opportu- nity, and both states are ready to offer financing in return for a contract.
The cost of funding is key to the success of any nuclear project these days, points out Petr Bartek, an analyst that covers CEZ for Erste Group.
Russia is ready to offer a full spectrum of investment and funding models, Rosatom says. Aside from the Hungar- ian deal, the company is also currently building a plant in Finland in which it will take on a minority shareholding, and runs other models across the globe featuring a variety of ownership and financing arrangements.
Harsh terms
China’s biggest coup thus far in proving itself in the nuclear race is the deal to buy into the UK’s Hinckley Point C, although that massive project continues to face hurdles. Beijing has also been looking
at Belene, a former Rosatom project in Bulgaria that is currently mothballed.
On top of the funding options, Russian and Chinese technology is far cheaper than that offered by their competitors, says Geoffrey Rothwell, principal econo- mist at the OECD Nuclear Energy Agency.
Czech media have reported that Beijing – which has received much encourage- ment for investment from President Milos Zeman and various oligarch groups over the past couple of years –
is pushing Prague for a contract without a tender. Whilst that has not been con- firmed, CEZ officials have suggested a direct inter-governmental deal a la Paks 2 would make life easier. The MIT has suggested it hopes to seek exemptions from EU public procurement rules.
However, Rothwell hints that Moscow has the upper hand. “Those that already have VVER technology will probably replace it with Russian financing,” he says.
The cost of such funding could prove a stumbling block, however. Hun-
gary swiftly put all details of the Paks 2 financing deal with Russia out of sight, designating it a state secret. However, Jan Havercamp at Greenpeace CEE provided what he says is a Russian version of the contract that was briefly available online.
The deal stipulates an interest rate on the €10bn loan at 3.95% until Paks 2 is operational, or by 2026 at the latest. The cost then rises incrementally to 4.95% over the next 21 years.
Since regaining investment status at
the three major US ratings agencies last year, Hungary has hinted it could consid- er seeking market funding instead. How- ever, it is speculated that Moscow has responded with a firm nyet to that idea.
Hungary’s improved ratings has reduced the yield on 15-year sovereign bonds
to just under 4%. The Czech Republic’s 20-year benchmark sits below 1.5%.
On top of that, the terms on the Hungar- ian loan are harsh. A 15-day delay in repayments would incur a 150% penalty
Russia illustrates the risks on a project whose life will likely to stretch close to the end of the century.
The rise of renewables, push for energy efficiency, and growing interconnec- tion of power markets has quashed electricity prices. Wholesale European power prices fell to a 10-year low of €30 per MWh last year. The disagree- ment within the power industry now
is over whether the long decline of recent years is due to reverse, or if low pricing is the new normal.
The other key debate is the cost-efficiency of nuclear against other forms of energy generation such as renewables. Embark- ing on a 70-year project to build a new nuclear plant is a big bet – likely with geo- political strings attached – that the rapid pace of technological development of renewables will slow through the century.
Moreover, increased safety demands since the accident at Fukushima, and the difficulties of dealing with radioactive waste, have hiked the costs of building
“Those that already have VVER technology will probably replace it with Russian financing”
clause. A six-month delay would allow Russia to call in the full amount imme- diately. No international arbitration clauses are included.
The sharp dive in the rates at which Hungary can borrow in the three years since Budapest sealed the deal with
new nuclear capacity. While there is no little debate over the exact figure, new nuclear projects currently need to sell output at a level of at least €70 or so to make financial sense. The plight of West- inghouse is testament to the struggle that nuclear – or the standard model of large capacity plants at least – now faces.
Find more Central Europe content at www.bne.eu/central-europe
Selected headlines from past month:
· ECHR ruling against Hungary strikes blow for refugee rights
· Visegrad Four unite against "second class" food
· Czech armed forces choose Bell Helicopter ahead of US summit
www.bne.eu