South Korea Plans to Lend $10 Billion for U.A.E. Nuclear Plants

South Korea expects to lend about $10 billion for the United Arab Emirates’ first nuclear plants, more than doubling pledges it has already made this year to finance construction projects in the Middle East.

The Export-Import Bank of Korea expects to lend most of the money that Korea Electric Power Corp. and contractors will need to borrow to build four 1,400-megawatt atomic power stations in the U.A.E., said the bank’s chief representative in Dubai.

The state-owned bank, known also as Kexim, provides credit for Korean companies overseas and has already committed this year to lend $9.4 billion for energy projects and other infrastructure work in the Middle East. Loans for the construction in Saudi Arabia of the Yanbu oil refinery and two power plants may be among its next big deals.

“The U.A.E. nuclear project will be the bank’s first for such a huge amount,” Heung-Sik Min said in a Sept. 30 interview. “Once they have chosen the financial advisers, they can outline the financing.” Korea Electric has so far selected one adviser, Credit Suisse Group AG.

South Korea is Asia’s fourth-largest oil importer, and a doubling of credit commitments by the government would mirror the push Korean construction companies have been making in the energy-rich Middle East. Korean builders may win record overseas orders this year of more than $60 billion, thanks largely to a growing demand in the region for power plants and refineries, South Korea’s Ministry of Knowledge Economy said on Oct. 3.

Doubling of Deals

Korean companies signed $50.7 billion in international contracts during the first nine months of this year, more than twice the value of deals done in the same period of 2009, the ministry said. Of this year’s total, 72 percent has come from the Middle East.

Korean builders have adopted “a strategy to go international because there is lots of competition domestically,” said Kwang-Soo Lee, an equities analyst at Hanwha Securities in Seoul.

Middle Eastern projects account for more than 20 percent of Kexim’s outstanding loans, up from 18 percent in each of the past two years. The bank is now preparing financing for at least nine additional projects in the U.A.E., Saudi Arabia and the Arabian Peninsula country of Oman. Among them is the 400,000 barrel-a-day Yanbu refinery, for which Daelim Industrial Co. and SK Engineering & Construction Co. secured contracts this year.

Beating GE, Areva

Korea Electric, the country’s biggest electricity provider, beat General Electric Co. and Areva SA of France for rights to build the U.A.E.’s first nuclear reactors. The plants, scheduled for construction in the emirate of Abu Dhabi between 2017 and 2020, are budgeted to cost $18.6 billion.

The power company is in the final stage of talks with Turkey for the construction of a nuclear power station, Chief Executive Officer Kim Ssang Su told lawmakers today in Seoul. It is also seeking to build plants in India and Malaysia, and is seeking to win an order for a 314-megawatt gas-fired power plant in the U.A.E., it said in a report to lawmakers.

The U.A.E.’s nuclear ambitions are part of a broader trend in the Persian Gulf, where several governments are looking for ways to satisfy a soaring demand for electricity. Kuwait plans to build four reactors by 2022, and Saudi Arabia is planning its first nuclear and renewable energy city. Iran opened its first nuclear plant in August and expects it to begin generating power in December.

International Project

The U.A.E. deal is Korea Electric’s first international nuclear project. The company has sub-contracted the work to Hyundai Engineering & Construction Co., Samsung C&T Corp., and Doosan Heavy Industries & Construction Co.

Areva Chief Executive Anne Lauvergeon said in January that her company lost the nuclear bid because Abu Dhabi chose a cheaper solution with reduced safety standards.

Korean Electric’s Kim said in a statement after winning the order that the reactors to be delivered to the U.A.E. are the “world’s safest, most reliable and cost-efficient nuclear power plants.” Emirates Nuclear Energy Corp. Chief Executive Officer Mohammed al-Hammadi said in the same statement that the team was picked in part for its “world-class safety performance.”

The main challenge for Korea Electric may be its lack of a track record for building nuclear plants outside its homeland.

‘Small Margin’

Korea Electric and others have “a high level of technology and are very competitive, but they don’t have much experience abroad,” said In-Kyu Cho, deputy director at Kexim’s Dubai office. The nuclear contract gives Korean exporters only a “small margin, but there will be many more opportunities in the future if they do a successful job in the U.A.E.,” he said.

The U.A.E. is also tendering several railway projects this year, including a mass-transit metro system for Abu Dhabi. Hyundai Rotem Co., the railroad unit of South Korea’s biggest automaker Hyundai Motor Co., is evaluating the metro project and awaiting bid details, a Hyundai Rotem spokesman said on Oct. 4.

“This is the period of Korean contractors,” said Wayne Lee, an analyst at Woori Investment & Securities Co. in Seoul. “If you look at the history of engineering and construction contractors, the U.S. and Europe dominated 20 years ago, then Japan followed, but from 2000 the Koreans have caught up.”

To contact the reporter on this story: Ayesha Daya in Dubai adaya1@bloomberg.net

To contact the editor responsible for this story: Steve Voss at sev@bloomberg.net

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