Profitability concerns persist over Czech nuclear deal

Industry Minister Ahn Duk-geun, right, and Korea Hydro & Nuclear Power (KHNP) CEO Whang Joo-ho brief reporters on the Czech Republic's selection of KHNP as the preferred bidder to build nuclear reactors in Dukovany, during a press conference at Government Complex Sejong, July 2024. Newsis

The Czech Republic's final decision to sign a nuclear reactor construction deal with Korea Hydro & Nuclear Power (KHNP) next week has drawn renewed attention to how much Korean participants stand to earn from the project.

Questions have arisen as Prague did not disclose the contract terms when it announced Wednesday that it will sign the final agreement with Seoul on May 7. Valued at 400 billion Czech koruna ($18 billion), the project is aimed at building two new reactors in the European country's Dukovany power plant.

Prague only confirmed that it will finance the construction and acquire an 80 percent stake in a Czech state-owned company managing the project.

Industry officials see the size of the technology royalty KHNP will pay to the United States' Westinghouse and the extent of Czech industry's participation as key factors determining the deal's profitability.

KHNP is alleged to have agreed to guarantee Westinghouse a significant share of the profits whenever the Korean state-run nuclear operator exports reactors. The allegation surfaced after Westinghouse agreed in January to end its two-year dispute with KHNP over the U.S. company's intellectual property rights.

KHNP has declined to confirm the allegations, citing a nondisclosure agreement.

Another factor that could hurt the project's profitability is Prague's request that KHNP guarantee at least 60 percent local industry involvement. Given that most governments typically require a local share of up to 50 percent, KHNP may earn less than expected from the Dukovany deal.

"The deeper you look into the Czech nuclear export deal, the clearer it becomes that it's more of a bust than a breakthrough," Rep. Chung Chin-ook of the Democratic Party of Korea (DPK) said during a National Assembly audit last October.

Earlier this week, the lawmaker pointed to "the Code One" presidential aircraft's upcoming flight to Prague next week, which is presumably intended to carry the acting president to the signing ceremony.

"Korean Air and Asiana Airlines operate regular flights to Prague every day, so the government will waste at least 800 million won ($562,000) of taxpayers' money by sending the Code One," he said.

The liberal party reportedly plans to raise profitability concerns again during this year's Assembly audit.

"The detailed terms of the contract, such as the profit structure, work allocation and conditions for technology transfer, must be transparently verified in the future," DPK Rep. Jo Seoung-lae said in a statement Thursday, although he added that the party also welcomes the deal.

Given DPK Rep. Lee Jae-myung holding a large lead in the polls ahead of the June 3 presidential election, uncertainty is also growing over KHNP's plans to build two additional reactors in the Czech Republic's southern village of Temelin. The company was selected last July as the preferred bidder for the Dukovany deal, with a binding option to construct two more units at Temelin in the future.

Lee himself also plans a gradual phase-out of nuclear power through social consensus. On April 23, his camp told reporters that “while maintaining the current share of nuclear power (for a while), the broader goal is to gradually reduce it based on social consensus.”

Additionally, the Czech Republic is set to hold a parliamentary election in October, which could shift the country's political landscape.

However, the Korean government and KHNP have remained optimistic, welcoming the nation's first nuclear power plant export since the 2009 Barakah project in the United Arab Emirates.

"We will do our utmost until the end to sign the main contract and ensure successful and timely completion," KHNP CEO Whang Joo-ho said.

Then-President Yoon Suk Yeol, left, and Czech Prime Minister Petr Fiala sign a turbine blade made by Doosan Skoda Power at the Plzen Industrial Complex in the Czech Republic, Sept. 20, 2024. Courtesy of Doosan Enerbility

The project was tendered in 2022 by Elektrarna Dukovany II, a subsidiary of the Czech state-run utility CEZ Group. KHNP and France's EDF were shortlisted as final bidders.

After being excluded from the final bidding round, Westinghouse challenged KHNP's eligibility and filed a legal complaint seeking disqualification. However, the dispute was resolved in January when the two companies agreed to end the legal battle and pursue global cooperation.

Although EDF's complaints also delayed the final contract by a month, the Czech antitrust agency rejected the French firm's claims on April 24.

The dismissal of former President Yoon Suk Yeol on April 4 also did not derail the deal. Yoon had advocated for the project through his visit to the Czech Republic last September when he met with the country's leader.

KHNP is set to begin construction in 2029 with other Korean companies, including Doosan Enerbility and Daewoo E&C, aiming to begin operations in 2036.