UPDATE 4-CEZ scraps tender to expand Temelin nuclear power plant

Thu Apr 10, 2014 11:34am EDT

* Says impossible to invest without state guarantee

* Investment also difficult due to low power prices

* Deal was seen valued at $10-15 billion

* CEZ shares rise, room seen for dividend increase (Adds U.S. embassy comment)

By Jan Lopatka and Robert Muller

PRAGUE, April 10 (Reuters) - Czech utility CEZ cancelled a tender to expand the Temelin nuclear plant on Thursday, halting a potential $15 billion project because of low wholesale power prices and the government's refusal to provide price guarantees.

Majority state-owned CEZ had long argued it could not build two 1,200 megawatt reactors without support, a prospect that grew unlikely when a centre-left cabinet took power in January.

The decision, however, does not rule out future Temelin expansion or affect plans for new reactors at its Dukovany plant or a site in Slovakia, Chief Executive Daniel Benes said.

"This decision does not mean that we are ending the project to build (Temelin's) third and fourth units," he told reporters. "We will continue work on the project, CEZ considers itself to be a nuclear company and will further develop nuclear energy."

CEZ shares rose more than 3 percent, gaining the most in more than two weeks, and traded up 2.8 percent at 561.20 crowns at 1403 GMT.

Central Europe's biggest utility had placed an expanded Temelin at the centre of its future strategy to help cement its place as a top electricity exporter. But weak demand and wholesale prices have made those plans increasingly untenable.

Most political parties back nuclear power, but the cabinet balked at price guarantees for power generated by the new units.

Wholesale electricity prices have more than halved in the past five years and CEZ said all power plant investments dependent on revenue from sales were under threat.

"In the future it will be necessary to cooperate closely with the state in order to secure further development of nuclear energy," Benes said.

Toshiba unit Westinghouse and a consortium including Russia's Atomstroyexport were the sole bidders in the tender, the country's largest ever energy deal. France's Areva was earlier disqualified.

A spokesman for the Czech-Russian consortium said the group expected it would be informed about further steps.

NEW TENDER?

Westinghouse said it was disappointed with the cancellation and that a new tender would cost time and money.

In a rare statement, the U.S. embassy said its government was "deeply disappointed" with the cancellation.

"As close friends and allies, we are also concerned about the signal this may send to U.S. and international investors," U.S. Ambassador to Prague Norman Eisen said in a statement.

President Milos Zeman said on Wednesday he favoured opening a new tender with more bidders. That idea was backed on Thursday by Industry Minister Jan Mladek, who said new bidders could include Areva and the South Korean utility Korea Electric Power Corp. (KEPCO), which was part of a delegation to the Czech capital this week.

"If there is a new tender - and I firmly hope there will be one within five years - then we will be obviously happy with more bidders," Mladek told Czech Television.

Minority shareholder Michal Snobr said the decision removed the threat of the state pushing CEZ into a loss-making project.

The decision also provides CEZ with more scope on dividend payments, a possible boon for the government which holds a 70 percent stake in the $14.8 billion utility. The finance ministry has already called for CEZ to pay out all of its 2013 profit, instead of its traditional 50-60 percent of profit.

Snobr said that, despite falling profits, CEZ would generate high free cash flow in the coming five years. "CEZ will be able to maintain a dividend of around 45 crowns," he said.

CEZ paid 45 crowns in 2011 and 40 crowns for 2012.

DIMMING PROSPECTS

Nuclear prospects have dimmed in Europe following Japan's Fukushima disaster and the fall in wholesale power prices.

The industry was keeping a close eye on the Temelin tender to see whether the government would follow Britain's lead and agree to guarantee prices for power from new nuclear plants.

"There is overcapacity in Europe and there is no need for large baseload generators," said Jan Ondrich, an analyst at Prague-based Candole Partners, a long-time critic of the tender.

"Power prices will likely stay low given expansion of wind and solar in Germany, low hard coal and low carbon prices."

Other nuclear projects in central Europe are Slovakia's completion of the Mochovce plant and Hungary's deal with Russia to build two 1,200 MW new units at the Paks plant.

CEZ operates two nuclear units at Temelin in southern Czech Republic and four at Dukovany in the southeast. (Additional reporting by Jason Hovet, writing by Jan Lopatka, Michael Kahn and Jason Hovet; editing by David Evans and Tom Pfeiffer)

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