UPDATE 2-Czech government takes step towards building new nuclear plant

(Adds CEZ comment, further details)

PRAGUE, April 27 (Reuters) - The Czech government on Monday approved agreements with majority state-owned electricity producer CEZ setting out the framework for building a new nuclear power block to come online in 2036, state and company officials said.

The Czech state has long been in talks with CEZ, in which it owns a 70% stake, about expanding its nuclear power fleet to replace blocks that will expire in the coming decades as well as lignite power plants to be retired in the 2030s as Europe weans itself off coal.

Costs and financing have been major sticking points in light of delays and cost overruns at other projects, Germany’s decision to abandon nuclear energy and CEZ’s unwillingness to take on risks of a project favoured by politicians that may never pay for itself.

The government wants to propose a financing model by the end of May, before the state goes into talks with the European Commission over the project.

It has been pushing for nuclear to be seen as a green or low-emission source under European Union rules, which Industry Minister Karel Havlicek said would help reduce funding costs.

Under the approved framework contracts, which Havlicek wants to close with CEZ by the end of June, CEZ could sell the project to the state at various points.

A third contract still being prepared would lay out conditions under which the state could buy electricity from CEZ and take the power price risk off the company.

Havlicek said the price would be determined according to “justified costs and reasonable profit” for CEZ.

He said the scheme being discussed was an “off-take contract”. The state would buy the power at a pre-agreed price and then sell it at the power exchange at a profit or loss, he said.

The government has estimated a new 1,200 megawatt (MW) block, set to be built at CEZ’s Dukovany nuclear power plant and enough to cover a tenth of annual consumption, would cost 140-160 billion Czech crowns ($5.6-$6.4 billion).

Critics, including some CEZ minority shareholders, argue it will run much higher.

Financing involving the state would be cheaper than commercial credit and thus also lower the eventual final power price, Havlicek said.

A CEZ spokesman said the financing model would be key as CEZ, central Europe’s biggest listed utility, looks to avoid burdening financing other activities.

He said the price would come below that for Hinkley Point in Britain, which was set at 92.5 pounds (per megawatt-hour in 2012 prices in a contract for difference.

Russia’s Rosatom has been favoured as a supplier by some, including Czech President Milos Zeman, although the country’s security establishment has been against suppliers from Russia and China. Other potential builders are South Korea’s KHNP, France’s EDF and U.S. group Westinghouse. ($1 = 25.2040 Czech crowns) (Reporting by Jan Lopatka and Robert Muller; editing by Jonathan Oatis and Mark Potter)