SNAP ANALYSIS: UAE strengthens hand with nuclear deal

DUBAI/SEOUL (Reuters) - A consortium of South Korean firms has won a deal worth around $40 billion to build nuclear power plants in the United Arab Emirates, industry sources said on Sunday.

It includes Korea Electric Power Corp. (KEPCO), Hyundai Engineering and Construction, Samsung C&T Corp and Doosan Heavy Industries, sources said.

Following are some of the potential consequences of the award for the Gulf region and wider political implications for the Middle East:

- Nuclear power would strengthen the hand of the UAE among its Gulf neighbors and enhance its influence within the Arab world.

- The U.S. has cited the UAE's program as an example of peaceful development of nuclear-generated power, in contrast to the way Washington views Iran's program. The U.S. and its allies may use the UAE's program as a counterpoint to Tehran's plans. The U.S. suspects Iran is using its program to develop nuclear weapons, while Tehran says it needs nuclear power.

- The UAE has said it will import all fuel for its nuclear reactors and not to enrich uranium or reprocess used nuclear fuel, allaying Western concerns about uranium enrichment facilities being used for making weapons-grade material. Taking enrichment out of the nuclear program reduces the possibility of weapons development. Iran has refused to halt enrichment.

- Being first to nuclear-generated power could help the UAE challenge Saudi Arabia's leadership in the region. Saudi is the regional heavyweight because of the sheer size of its economy -- the largest among Arab states -- and its status as the top oil exporter.

- The UAE's program could trigger a race among other Gulf Arab states for atomic energy resources to meet surging electricity demand. The UAE's program could provide a development model for other Gulf Cooperation Countries and facilitate their programs.

- Aside from the UAE, the other five members of the Gulf Cooperation Council -- Kuwait, Saudi Arabia, Bahrain, Qatar and Oman -- have all expressed the desire to develop nuclear power plants to meet domestic demand for electricity and free more oil and gas for exports.

- Nuclear power could also put the UAE in a position to export electricity via the Gulf Arab power grid in the future, further enhancing its role in the GCC. The group hooked up the first stage of its power grid earlier this year.

- Currently within the Gulf, only Qatar has excess electricity capacity for export but its economy and power capacity is relatively small in comparison to other Gulf countries.

- The UAE, the world's third largest oil exporter, expects to see its power demand grow from around 15,000 megawatts in 2008 to 40,000 MW in 2020 as oil wealth drives population and economic growth.

- At the moment gas could only supply 20,000-25,000 MW, leaving a growing gap to fill beyond 2020. The country would rather use gas for oil activity, industry and as a petrochemical feedstock than for power generation.

- A nuclear power program would make the UAE less vulnerable to power shortages and would remove the cap tight power supplies could place on future economic growth, allowing it the freedom to expand industries and embark on new ones without limitations.

- The program would be a boon for construction companies and other service companies in the region, providing the potential for big contracts over a long period of time.

- Oil income has left Abu Dhabi, the leader of the seven-member federation of the UAE, with huge cash reserves. It is unlikely to struggle with financing the program. Financing issues have delayed programs elsewhere in the world. It is also unlikely to suffer the licensing and planning delays that often hit similar programs in more democratic countries, where residents and local politicians are more likely to raise objections.

SOUTH KOREA

- This deal paves the ways for South Korea to prove its nuclear power generation technologies on the global market. The country hopes that nuclear power exports can help revitalize Asia's fourth-largest economy. South Korea sees the nuclear power sector as strategic in its future development plans.

- The government aims to develop nuclear reactors with 100 percent proprietary technology by 2012 to achieve its exports aims.

- South Korea has developed light water reactors. It began its nuclear power generation in 1978, building its first plant based 100 percent upon U.S. technology Since then, it has developed the technology to build about 95 percent of a standard nuclear power plant, industry experts have said.

(Additional reporting by Simon Webb; Editing by John Stonestreet)