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CEZ Says Temelin Atomic Plant Bidders Must Improve Offers

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March 25 (Bloomberg) -- CEZ AS, the Czech state-controlled utility, said Westinghouse Electric Co. and a Russian-Czech group led by Rosatom Corp. must improve their offers to supply the Temelin nuclear plant in a deal valued at $10 billion.

Offers by both to construct two reactors need improvement “in all aspects,” CEZ spokesman Ladislav Kriz said in an e-mailed statement from Prague today. The Czech utility will meet with both companies for further discussions, according to the statement.

Westinghouse received an “unambiguous” assurance from CEZ that it ranks ahead of the Russian offer, Chief Executive Officer Danny Roderick said today at a news conference in Prague. Rosatom claims to have beaten Westinghouse on three criteria including price, the Russian newswire RIA reported, citing a person familiar with the situation.

Choosing between a U.S. and a Russian supplier is seen as a politically strategic decision in the ex-communist country, which depends on Russian imports for most of its energy. The Czechs currently buy 60 percent of their oil, 70 percent of natural gas and all of their nuclear fuel from Russia. Their six nuclear reactors are of Soviet-era design.

‘Big’ Challenge

“This is a big geopolitical challenge,” Eugeniusz Smolar, a foreign policy-expert for the Warsaw-based quarterly New Eastern Europe, said by phone. “The Czech Republic is a member of both NATO and the European Union, so it would be rather logical to go for western technology, but it’s possible that the Russians will offer a better price.”

The Temelin reactor construction is the largest industrial project in the Czech Republic’s history. The winner is supposed to be announced at the end of the summer and a contract should be signed by the end of the year.

CEZ shares fell 1 percent to 569.6 koruna today in Prague. The stock lost 13 percent last year and has shed a further 16 percent since the start of 2013.

The Czech government has been under diplomatic pressure from both sides. Former U.S. Secretary of State Hillary Clinton visited Prague in December to urge the nation to “diversify its energy sources” by choosing the Westinghouse technology, while Rosatom Deputy Chief Executive Officer Kirill Komarov said last October the Russian state-run company was willing to help finance the deal.

New Model

Westinghouse, owned by Toshiba Corp., is pitching its AP1000 reactor model, the newest design with so-called passive safety features that rely on gravity rather than diesel generators that failed after the 2011 tsunami in Fukushima, Japan, leading to a partial reactor meltdown. The Russian-Czech consortium led by Rosatom’s subsidiary Atomostroyexport is offering the VVER1200 design, the latest model in its long line of pressurized water reactors.

The current Temelin plant is a hybrid between the Russian and Westinghouse technology. Its two reactors, the Soviet-designed VVER1000, were fitted with Westinghouse safety systems, electricity circuits and cabling to conform with western European standards, delaying the construction for more than a decade. Both units came on line in 2003 with a combined output of 2,000 megawatts.

The choice between U.S. and Russian technology will also impact the future of Czech industry as both bidders promise to subcontract large parts of the project. Czech machinery makers, who worked with Soviet engineers in the past, are certified only for Russian standards and can’t currently compete with Western subcontractors, said Yves Brachet, chief executive officer at Westinghouse for Europe, Middle East and Africa.

‘Geopolitical Choice’

“It’s the Czech Republic’s geopolitical choice between West and East, and what type of industry it wants to cultivate,” Brachet said in a March 6 interview at Bloomberg’s Prague office. “It’s still difficult to buy here according to western European or U.S. standards. Choosing the AP100 could be an opportunity for the whole industry to open up to the West.”

The Temelin project is one of the few prizes left for the nuclear-power industry in Europe, where a number of projects were halted and countries from Germany to Italy declared an atom-free future after the 2011 disaster at Fukushima.

A combination of low power prices, plummeting value of carbon credits and falling demand for electricity is throwing even the Czech project into doubt as CEZ demands government guarantees on future purchase price of the power produced by new Temelin reactors.

Legal Issues

The company is also facing problems from Areva SA, which was excluded from the bidding process in October for failing to meet commercial and legal requirements of the tender. The French company has appealed the decision and said it will use all available legal procedures to stop the tender and prevent CEZ from signing a contract with the winner.

CEZ’s hopes of finding a strategic investor willing to help finance the new Temelin reactors have been disappointed as most European utilities are shedding assets and cutting spending rather than investing in new projects.

While the company insists it can afford to finance the new reactors on its own, its earnings and share prices have suffered because of the sluggish markets and problems at its subsidiaries in Albania and Bulgaria. Fourth-quarter profit slumped 52 percent and CEZ’s stock has fallen 24 percent in the past year.

To contact the reporter on this story: Ladka Bauerova in Prague at lbauerova@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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