“Do we want to continue in nuclear power? A decision must be taken soon,”

1. 10. 2019

says Vladimír Poklop, Chairman of the Board of Directors and General Director of ŠKODA JS in an interview for All for Power. “If the project is supposed to make sense, I think it must start before June next year. The investor should be ČEZ, possibly a different organization. Of course, financing will be key. If Czechs provide the funding, they must have the project under control and must manage it. If the source of funds is sought outside the Czech Republic, it is only logical to supervise the project from the investor’s position,” emphasizes Poklop. We interviewed him about an interesting business opportunity in Ukraine and why the future of the entire Czech nuclear industry is at stake in the current tender.

poklopVladimír Poklop

What is your view of the current construction of nuclear power sources abroad? Could you compare it to the preparedness to complete new NPP units in our country?

If we are talking about Europe, the principal difference is that while we are hesitating and performing more and more analyses, the surrounding countries have decided and taken steps in their respective directions. It is always good to decide at a certain point. If everything I do is analyses, I will never finish them. Looking at the United Kingdom, Finland and Hungary, none of those countries used the standard tender for public procurement. This form is not suitable for large, complicated technological units. All of them used the simplified tender process, intergovernmental agreements, or preselection of the supplier with guaranteed electricity prices. All these examples show that if someone wants to license a new NPP unit in the legislation of the EU, it is a very complicated procedure unless the investor provides considerable assistance. Whoever the investor in our country is, ČEZ or anybody else, they will need to assume some of the responsibility in order to curb the costs and keep the deadline.

Do you believe that ČEZ should build the NPP units by itself?

There are several potential models. The principal question is who will provide funding. If Czechs provide the funding, they must have the project under control and must manage it. If the source of funds is sought outside the Czech Republic, then it is only logical to supervise the project from the investor’s position. If the Czech Republic is to fund the project, it must naturally also be its manager.

What would the timeline look like today in order to actually commence the construction?

One does make a realistic assumption that in the late 2020s we will have shut down several units of coal-fired power plants, which are currently key, for environmental and other reasons. The lifetime of the Dukovany power plant expires sometime between 2035 and 2040. I do not think it could be extended further. This means that at least one new NPP unit should be built within that period. Considering realistically that the preparation time is 7 years and implementation in Europe takes 7-10 years, we are looking at 15 to 17 years. The 20 I mentioned is the limit. Even if we started now, it would take no less than 2 years before a selection is made. However, this is not an issue the government would be looking at in the last year of its term. So, realistically? If the project is to make sense, I think it must start before June next year.

Do you sense any desire on the part of the government to tackle the issue?

Looking at the composition of this government, there certainly is interest in looking at the nuclear issue. However, it requires certain personal courage to make a decision. Are we going to build it? Who is going to finance the construction? Who will be in charge? If we have no answers to these questions, we can keep analyzing forever.

How key should be the price issue in the construction of a nuclear power source?

We are looking at a critical difference between nuclear power and gas-steam. Gas-steam systems can be built very quickly and are not too difficult in terms of investment. However, the operating costs are astronomical. A nuclear power installation takes a long time. The construction is highly sophisticated and expensive, but then it operates for 60 years at very predictable, favorable costs. I suppose the price in the contract is not too important. What is important is having it under control, so the deadline is not put off unnecessarily. The price is important, but not critical. The criticality lies in setting the project organization right from the onset. That alone can extend or reduce the project by as much as 5 or 7 years.

What is your view of the individual companies interested in the construction of additional capacity and of their condition?

That is a very interesting question. When you are entering a project of this magnitude, you need to be sure the chosen company remains in good condition for at least 15 years, which is a very long and very difficult period of time. It is, to a certain degree, a limitation for private companies. The perfect solution is to cooperate with a company which is backed by a government or itself operates several NPP units. There must be trust in their financial security. That trust is offered by the French, Russians, to a certain degree by the Koreans, the Chinese; Westinghouse does not know at this time where it will “end up”. It is supported by the government, but only to complete the units they have started building in the USA.

Could you estimate the costs of completion of a single unit?

I would rather not speculate.

Are you ready for the tender?

This is one of our strategic goals in the future. If the completion project does not get the green light, we will pursue commercial opportunities in other countries. Certainly, that would really be a shame.

Can you tell us about the cask supply for Temelín?

We continuously supply spent fuel casks to both Temelín and Dukovany. An important feature is that the casks are of our proprietary design. The project is to run until 2035 and contains about 2-6 casks per year for each NPP, depending on the customer’s needs. Therefore, it is some ground we wish to build on. We are determined to improve exports of the casks as well.

How did you participate in this year’s outage in Temelín?

It was a standard performance under a five-year service contract which allows us to provide services during the planned outages of the primary circuit. The scope is defined through the outage timetable.

How is work progressing in Mochovce?

The cold hydrostatic test has been completed; it started in early July. Next in line is the small revision as well as other activities leading to fuel insertion, which the timetable suggests should occur sometime between February and April next year. Once Unit 3 progressed into the testing stage, work pace really increased.

How optimistic are you about the completion of Mochovce?

I am optimistic now. It is realistic to assume that Unit 3 could be completed in 2019.

What else lies for you in this project?

We have completed installation work at Unit 3 and are now in the testing stage. Management of the construction is governed by Slovenské elektrárne; our engagement is basically to follow the start-up programs where our activities include support for coordination at the start-up of the unit.

What is the size of this project within your portfolio?

Let us say that the Slovak market currently represents 40% of our earnings. 20–25% is ČEZ and Ukraine. Hungary makes up 7%; the rest would be some smaller contracts. At the moment, our exports represent 60–70% of our revenue.

That is quite a steep increase in exports.

The reason is that there are no realistic opportunities for nuclear power in the Czech Republic.

What is the situation in Hungary?

We are running an important I&C project at the existing units of Paks I. It is continuing very well; the director of the plant even sent us a thank-you letter stating that everything is progressing without any problems. At Paks II, i.e., the construction of additional capacity, the Hungarian side and Rosatom are still figuring out the best organization of work. We are now waiting to see if there will be an opportunity for us there.

What are your activities in Ukraine?

There are two types of projects. First, there are supplies of our devices such as control rod drives, and then there are engineering projects, such as modernization. They are of a similar type to we are doing for ČEZ. We are looking into modernization of the polar crane, fuel handling machine, absorption of hydrogen, and so on. We also participate in the improvement of safety at the existing units.

Are you considered to be a Czech company there? To what degree do international relations between Russia and Ukraine affect the business?

Those relations do not affect the business of ŠKODA JS in any way. We are really seen as a Czech company that has outstanding knowledge of VVER technology and possesses the ability to produce and deliver the devices they need. Currently, this is quite an interesting opportunity for us from that point of view. In terms of the number of NPP units, we recognize that Ukraine has potential for years to come unless a politically motivated change takes place.

What is the nature of business negotiations with Ukrainians?

Those negotiations are very quick and pragmatic.

Does the Czech government somehow assist in exports to Ukraine?

We are looking into that. Some of the activities have been financed by the Czech Export Bank and insured by EGAP. While the banks see the Ukrainian market as risky, we have not had any problems with payments in the past two years. The tenders are very well prepared, and our partners have great technical expertise. It is very good for us that we are penetrating a strategic industry.

What is your opinion of Poland’s plans to build its own nuclear power source?

I still remember the attempts in Żarnowiec. It is a combination of several concepts. Poland can generate lots of energy from wind, it has large resources of black coal and I think the coal lobby remains very strong there. They have an agreement with Belarus, who have completed an NPP themselves, on the transfer of some of the power. This means Poland has started using some of the power generated at nuclear power plants east of them. The question remains when they really want to enter the nuclear power industry themselves. I suppose it will take several years.

You recently won a project for FRAMATOM. Would you please describe it in more detail?

The project entails the manufacturing of reactor internals for Hinkley Point. This is a high added-value operation for us as the material is provided by our French partners as reciprocal performance. This project will continue until 2022. We are currently negotiating other projects around Hinkley Point. Once again, this shows that our expertise is not limited to a single reactor type.

Your Activity Report indicates that you conduct business in 12 countries other than the Czech Republic. What are the others apart from those you have already mentioned?

We focus on 4 principal markets. They are the Czech Republic, Slovakia, Hungary and Ukraine. We have some activities in Finland, France, Austria and the United Kingdom, but also in Belgium, Bulgaria, Brazil, and Armenia. Our chief focus, however, lies in Western Europe. We believe there is certain potential in areas where we can offer production and engineering capacities.

Your company has three core segments – engineering, production, service. Where do you see the largest potential?

Interestingly enough, we are still seen primarily as a production company – that is true, but… Production in the past four years, due to the minimal growth in the nuclear power market, has dropped a little. On the other hand, the utilization of our production capacity is expected to come close to 100%. That means we are getting to the point where we wanted to be. In the next year, production should reach somewhere around 35%. The service segment is quite stable, and engineering is expected to decrease its share in our earnings once Mochovce has been completed. In the future, we are expecting engineering, production and service to be at approximately 50, 30 and 20%, respectively.

Is it realistic to maintain your earnings at around CZK 4.5 billion?

We are not interested in projects which are interesting in volume but come with excessive risks attached. We focus on projects with higher added value. Once Mochovce is completed in 2021, I expect our annual earnings to stabilize at around CZK 3.5 billion. Unless of course new opportunities arise in the construction of NPP units in Europe or a new nuclear power source becomes a reality in the Czech Republic.

Is there any demand in the world for research nuclear reactors?

Frankly, some demand exists, but it is connected to preparations of a country that has decided to transfer to nuclear power. In most cases, testing reactors are typically offered by companies seeking to build new NPP units. Now, this is not a direction we would see as promising in the future.

How do you recruit new people if they have doubts about the long-term future of nuclear power in the Czech Republic?

We are all facing a lack of new people trained in engineering who would be willing to enter this field as it is not too attractive currently. The impetus cannot be the construction of a nuclear power source here by some foreign contractor. A different approach must be taken, one that supports interest in technical fields, e.g., by engaging a different PR strategy. The number of students commencing nuclear studies these days is just sad.

So, the future of the entire industry is at stake?

I believe that in the future, maintenance or control of NPP units might face problems caused by this situation. ČEZ would then need to recruit experts from abroad.

How many employees does your company have?

Including ŠKODA Slovakia, we have about 1,100 employees.

Are they loyal or are they headhunted by foreign companies? 

Employee turnover is a little lower now. It is a fact that there is potential for manpower poaching, especially with the unemployment rates as low as they are now, but the team has remained quite stable so far.

Do you engage in some sort of cooperation with schools towards preparation of future employees?

Yes, especially with the University of West Bohemia, the Czech Technical University in Prague, and some vocational schools. We do not have any “technical school” of our own.

How do you plan your investments?

We invest primarily in renovation and repair. There are two types of investment: in production, renovation of machinery, equipment and new technologies; then there is of course investment required by new infrastructure, the condition of buildings, etc. The ratio between the two types are basically fifty fifty.

How much does the company owner interfere with the company's management?

The owner conducts traditional inspection and supervision activities. Up to a certain value of contracts, management is strictly a matter of the Board of Directors, otherwise, approval by the Supervisory Board is required.

What is your profit margin?

Everything depends on the profile of the contracts. Profit margins are highest in production. Service and engineering come second.

How could the government further assist with exports? Are you satisfied with the current support?

I do not want to criticize export financing. They also need to consider the risks and there exist several failed projects, even in power engineering, which ended in deep loss; therefore, the strategy says to abstain from projects worth billions. I do understand that. However, if there is an ambition to build new NPP units abroad as the EPC contractor or to supply an entire technology assembly, it cannot go forward without export financing. This is the limitation of the current financing parameters. On the other hand, I do not really see a company in the Czech Republic whose ambition is to act as EPC in the construction of power engineering units.

Do you think then that no large company could ever be a major contractor for a project abroad?

It could. I am still talking about the power industry. For example, a few Czech companies participate in tenders in India. But they only supply individual components; none of them can build it all. There is no such company at this time. ŠKODA Praha has the ability, but the risk would be with its owner – ČEZ. I guess it is not a real possibility in the current situation. Building a large project in a non-European country carries substantial risks. Nobody is going to choose a project which, if it fails, could be the end of their company.

Despite the major loss in the past, should the government support major projects abroad? Aren’t we losing the ability to implement such major projects?

We are losing the ability as well as the courage. We are trying to stay within the segment, but nobody is willing to play the role of integrator. Another point is that we are not able to reach a reasonable agreement. An investment project can easily be arranged by a consortium of two or three companies, but this is a model that does not really work here.

Does it mean that personal relations are failing?

It is hard to say where the problem lies. The fact of the matter is that many companies had design, production and engineering departments as late as in the 1990s, but now most of them only have one of the segments left. Knowing that one of those activities would have to be purchased, most companies change their mind.

Why do you sponsor ice hockey in Pilsen rather than football?

That goes a long way back. Our colleagues at Doosan sponsor football because they are a bigger factory, so we support ice hockey because we are a little smaller. I guess that we have nothing to envy each other in this respect.

Source: All for Power