Homepage News Money for Temelín poured down the drain

Money for Temelín poured down the drain

Date: 30. 6. 2015

Source: Lidové noviny (LN)

The Temelín tender went on for nearly five years and its participants had to invest hundreds of millions of Czech crowns in the preparation of their bids. “The money was devalued by the decision on tender cancellation," says the General Director of Plzeň-seated ŠKODA JS, Miroslav Fiala. In his interview for LN he now warns against repeating the same mistakes and damaging not only individual companies but also the Czech Republic as such.

LN Škoda JS organized Czech companies within the MIR.1200 Consortium that participated in the Temelín tender. At that time, there were indications that the construction of new nuclear units in Temelín would help retain Czech nuclear know-how. The tender was cancelled last year – is the local nuclear industry jeopardized by the loss of know-how?

Czech companies have so far managed to maintain their skills in the field of both production and engineering. And that is also thanks to the project of construction of Unit 3 and 4 of the Slovak Mochovce nuclear power plant. Škoda JS takes part in this project and drags a number of Czech sub-suppliers behind. Should our bid had been successful our teams would have probably come over from one large project in Mochovce to another one in Temelín. This will not happen. We will therefore face a problem because keeping these teams of top specialists together is not easy. If they do not have work, they will look for it somewhere else. Even in a different branch.  

LN According to a lately approved energy concept, further nuclear units shall only be completed in the 2030s. Is that too late for you?

There’s definitely a threat hanging over the Czech nuclear industry. I don’t want to thereby say that the Czech nuclear industry is solely dependent on the two planned units, one in Dukovany and another one in Temelín. Indeed, Czech companies also endeavor to ensure participation in other projects abroad. However, we definitely do think that the involvement of Czech companies should be a priority upon making a decision on how the supplier of new local units will be selected. It would be sinful not to use the local potential. 

LN Ever more often we can hear skeptical voices saying it is unrealistic to complete any new nuclear units in Europe. All new-build projects here are exceeding budgets and getting delayed. There’s a huge schedule slippage in the projects in French Flamanville or Finish Olkiluoto...

It’s a question of a strategic view. The mankind will always need electricity, I believe ever more. Coal resources in Czech and around the whole Europe are very limited. New coal fired power plants cannot, in fact, be constructed anymore due to a justified emphasis put on environmental protection.  I believe a reasonable mix of energy resources must be achieved. This absolutely does not mean we should have ninety percent of electricity coming from photovoltaic and wind power plants. Nuclear power industry thus definitely has its future, although probably not as extensive as originally planned. It’s a mistake if somebody looks at the construction of new nuclear power units similarly as at an investment into a lathe that must have a very fast recoverability. What’s missing here is a strategic view. 

LN A nuclear power plant does not have to be profitable?

Of course it does. The question is whether it has to earn money as fast as some analysts believe. It’s a matter of determining a reasonable period during which the power plant shall start earning back the construction costs. 

LN Could it be tens of years?

Reasonable recoverability ranges between fifteen and twenty years. Indeed it relates to electricity market prices.

LN If ČEZ really issues a new tender for the construction of new units in Dukovany and Temelín, will you participate?

It definitely is an opportunity for Škoda JS, same as for other Czech companies, and we’re prepared for it. It’s very important that an appropriate model of funding such a construction project is found. The cancelled Temelín tender went on for nearly five years and its participants – whether American Westinghouse or the Czech-Russian MIR MIR.1200 Consortium – had to invest huge financial means in it and the decision on tender cancellation led to its complete devaluation. A lot of money was poured down the drain.

LN How much did you spend?

I may only speak on behalf of our company. We spent 250 million Czech crowns on these five-year plays and this only represents our direct loss. Just image you have a packet of 250 million crowns, you open a window and throw it out. But that’s not all. Our best employees, whether in the field of engineering, sales or management, were flung into the preparation of the bid for Temelín – to ensure it was a top-quality one. Throughout the five years they were hundred percent devoted to this activity and could not work on competing for other projects. The fact that, despite all the above mentioned, the consequences were not that fatal proves how strong our company is. We have a steady backlog for several years.  

LN Are you afraid that the next tender could also be cancelled in the same manner?

Each company, of course, must do its best to show positive economic results. Attention will thus be paid to the fact whether the Czech Republic – or more precisely the Government as the majority owner  of electricity company – issues a trustworthy guarantee that the tender will not be eventually cancelled again after several years. The manner in which the previous tender was cancelled did not only harm its participants but also the Czech Republic as such. Because when a company enters a certain business environment it must be sure its several years lasting efforts won’t be wasted by a scratch of a pen. And this exactly what happened here. 

LN So if the Czech state provided the guarantees and you decided to take part in the future tender would it be again in cooperation with the Russians or with somebody else?

That’s hard to say. It really depends on how the tender would be issued. Škoda JS cannot offer a basic design on its own. This must be done by a company with respective know-how. We will exert our best efforts to achieve the maximum certainty of our involvement – as a sub-supplier of the company that wins the tender.

LN You have a Russian owner. The probability of your repeated cooperation with a Russian company is then pretty high, isn’t it...

This cannot be unambiguously said. The Russian VVER technology is most familiar to Czech companies. The technical design for the nuclear power plant nuclear part, according to which all nuclear units both in the Czech Republic and Slovakia were constructed, was developed in the Czech Republic based on the principle of this technology. The owner of the respective know-how is the Russian group Rosatom, whereas our sole shareholder is another Russian group, OMZ. Of course, we are ready for close cooperation with Rosatom.

LN Two Russian companies will not probably compete against each other...

Surely not against each other.  Nevertheless, we will seek cooperation – as possible subcontractors - with any company that will offer it. Of course, such cooperation is subject to shareholder’s approval, which is a standard in any company regardless of who the shareholder is. In this regard we have similar experience from the Chinese market where we normally sub-supply for French Areva. It is no problem even though Rosatom also has great business interest there. The same situation is in Finland. 

LN There have been some speculations that OMZ could sell your company right to Rosatom. Is anything like that about to happen?

I don’t know anything about that. And as I am the Chairman of Board who is also charged with performing the role of the General Director I believe I would have to know about such intentions. Therefore I take the liberty to declare this a speculation only.

LN Within the OMZ group, there is also the company Izhora Plants having the same production program as you do. Will not the Russians prioritize this company?

It also depends what territory we are talking about. It is clear that upon construction of new nuclear power plants within its territory, Russia will definitely make use of its own potential. Indeed, we also want to be active on the Russian market as well but we will rather aim our  bids at the company Roseněrgoatom, the operator of local nuclear power plants. We can offer equipment for assembly, disassembly or service activities. As regards the projects of Rosatom in other countries, we see the opportunities for our sub-supplies in Hungary, Finland and Turkey. There could be an advantageous distribution of work – the reactor is not only a pressure vessel and its head but it includes a number of other equipment.  

LN You mentioned supplies for French Areva. This company is currently facing serious economic troubles. It is just the construction projects of their EPR reactor that are exceeding the budget and getting delayed. At least a certain part of Areva’s business activities will be taken over by another French company, EDF. May this have any effect on your business?

Our company cooperates with both Areva and EDF. Should any merger happen, it would have no negative impact on our position with French companies. For instance, we are presently negotiating with Areva on the supplies of some reactor internals for their planned construction at the British Hinkley Point nuclear power plant. We are also working on an interesting project for EDF – for French Flamanville nuclear power plant we are implementing a supply of specific equipment serving upon reactor refueling, using our company’s know-how.  

LN What portion of your business is actually intended for foreign markets?

It’s roughly fifty percent of total revenues that range between three and five billion Czech crowns. Furthermore our supplies to foreign countries are quite diversified, we are not dependent on one customer only.

LN As far as I know your Russian owners want Škoda JS to get more involved in petrochemistry and produce equipment for refineries. Do they see decreasing potential in the nuclear field?

Part of strategy is that we want to stand on both legs. That means not only building on nuclear activities where there are not so many business opportunities due to the present overall energy situation in Europe. Therefore we also develop activities in the field of chemical, petrochemical and gas industries. We focus not only on engineering but also on production. Some time ago we won a large project in the Komi Republic (an autonomous part of the Russian Federation – editor’s note) where we provided a turn-key supply of a natural gas processing plant.

LN Let’s go back to the project you identified as a very important one for the Czech industry – that is the completion of the Slovak Mochovce nuclear power plant. Even this construction project faced great problems with a significant increase of costs and delays.

I cannot assess why the construction is getting delayed. I can only say that Škoda JS fulfills all its obligations resulting from the contract. We definitely not are the cause of the project delay. For more than a year we’ve been negotiating with Slovenske elektrarne – in fact with the Italians as the majority share in the company is held by Italian Enel. Yet in last autumn our participation in the completion of Mochovce was extended and currently we are negotiating about further possible enhancement of Škoda JS’ position in terms of its participation in the overall project coordination and management – up to the phase of commissioning. 

LN So in fact you could be the general contractor?

The general contractor’s role is performed by Slovenske elektrarne and they wish to retain this position in the future. At the same time they are interested in Škoda JS taking over a part of this task – the above mentioned coordination of all activities, preparation for commissioning and commissioning itself. Therefore we speak about the coordinator’s role upon project management. Hoewever, this is still being negotiated.

LN What do you think about the plans for the nuclear fuel production plant that shall be erected in the Czech Republic? This idea has been considered for example by the Ministry of Industry and Trade and even before there were rumors such a plant could be built at the premises of Škoda JS in Plzeň.

It definitely came into consideration at the time when the MIR.1200 Consortium was offering two reactors for Temelín. I believe this would only be realistic if even other future nuclear reactors in the Czech Republic were built on the basis of the Russian VVER technology. This is logical – it seemed that a partner for the construction of such a plant could be Russian company Tvel. By the way, just as a matter of interest – we also produce certain parts of nuclear fuel. These are so-called non-nuclear parts, some elements of fuel assembly shrouds, and we supply them in the long term for American Westinghouse. We have to work on a global basis and we cannot focus just on a segment of nuclear power industry.

LN Despite having mentioned a complicated situation in nuclear power industry, you don’t see it that hopeless from the viewpoint of your company, do you?

Absolutely not. We still employ eleven hundred people and they are highly qualified specialists. Their average age is around forty. We still have sufficient potential for gaining further orders and thereby for further growth.

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Whole life in Škoda * Miroslav Fiala (69) graduated from the College of Mechanical and Electrical Engineering in Plzen. He joined the company Škoda seated in Plzeň in the year 1968 – at the time when Czechoslovak nuclear power industry was passing though a great boom, the first nuclear power plant was being constructed in Jaslovske Bohunice. At the beginning, Mr. Fiala prepared design documentation for new nuclear power units.* He has worked in Škoda all his life, passed through various positions and personally took part in the construction of all Czechoslovak nuclear power plants. Since 2006 he has acted as the General Director and Chairman of the Board of Directors of Škoda JS (the acronym standing for nuclear engineering).