Monday, December 28, 2009

South Korea to Build Nuclear Plants in U.A.E. Under a $20.4 billion Contract

By Ayesha Daya and Shinhye Kang

Korea Electric Power Corp. shares surged after it led a group of bidders that won a $20 billion contract for four nuclear plants in the United Arab Emirates, beating General Electric Co. and Areva SA, the world’s biggest builder of atomic plants.The order announced yesterday is the first nuclear project awarded by a Gulf Arab nation and will be South Korea’s first export of atomic plants. Korea Electric’s winning group included Doosan Heavy Industries & Construction Co., the nation’s biggest power-equipment maker, signaling Korean companies are contenders to win more nuclear orders.

“There’s strong growth potential for the industry in the next two decades,” said Lee Jin Woo, a fund manager at KTB Asset Management Co. in Seoul, which manages the equivalent of $8.5 billion in assets. “There are expectations Korean companies will win additional orders.”

The order is part of a “fleet of power plants” the U.A.E. wants to build, Emirates Nuclear Energy Corp. Chief Executive Officer Mohammed al-Hammadi told reporters in Abu Dhabi yesterday. The U.A.E., the fourth-biggest oil producer in the Organization of Petroleum Exporting Countries, is turning to nuclear power as a growing infrastructure uses up domestic natural-gas supplies to generate electricity.Power demand will double to 40,000 megawatts by 2020, according to Anwar Gargash, minister of state for foreign affairs.

Shares Rise

Korea Electric Power rose 5 percent to close at 34,400 won in Seoul trading, the most since June 5. Its partners also gained, with Doosan Heavy soaring 15 percent, its daily limit, Hyundai Engineering & Construction Co. climbing 4.6 percent and Samsung C&T Corp. increasing 3 percent. Toshiba added 0.4 percent in Tokyo.

Doosan Heavy, as a major supplier, stands to gain the most from the project, Paul Hah, an analyst at Woori Investment & Securities Co., said in a report today. Korea Electric will reap long-term rewards, as the deal may lead to more orders from around the world.Korea Electric is in talks with Turkey to build two nuclear reactors near the Black Sea, it said in a statement. The state-run utility is competing for eight more orders, from countries including Jordan, India and China, it said.

The Korea Electric-led group will design, build and help operate four 1,400-megawatt nuclear power units in the U.A.E. that will be completed from 2017 to 2020.

Price Advantage

Emirates Nuclear Energy, known as ENEC, and Korea Electric plan to set up a joint venture to operate the plants and the two companies will explore other ventures such as sourcing fuel supply, al-Hammadi said. Korea Electric will supply fuel over the first three years, it said in a regulatory filing today.The group may earn another $20 billion over 60 years for operating the plant, the Ministry of Knowledge Economy said in a statement late yesterday.

“The South Koreans were always frontrunners to win on price,” Ian Jackson, an independent nuclear consultant, said in a phone interview. “I can’t see an obvious political element to it. The next question is where the fuel will come from.”The U.A.E. is continuing talks with other bidders on “potential cooperation in areas outside the scope” of the current contract, ENEC said in a statement. The French companies “remain open to future discussions and cooperation” with ENEC, they said in a separate statement.

Nuclear Technology

France plans to sell civilian nuclear energy technology to Saudi Arabia, the world’s top oil producer, as its own gas production falls short of domestic demand, Economy Minister Christine Lagarde said in May.The U.A.E. government has an atomic-energy agreement with the U.S., a necessary step to awarding construction contracts, and will prohibit the enrichment of uranium on U.A.E. soil. The civil nuclear agreement may create more than 10,000 jobs, while commercial opportunities could exceed $40 billion, according to the U.S. Chamber of Commerce.

By foregoing the development of domestic uranium enrichment and spent-fuel reprocessing, the country “has made it impossible for any future U.A.E. nuclear sector to produce weapons-usable nuclear material,” according to a statement on the Web site of its embassy in Washington D.C.

Countering Iran

The U.A.E.’s nuclear program may propel other Arab Gulf states including Saudi Arabia to seek similar technology, Jackson, the nuclear consultant, wrote in a Chatham House report on Nov. 10. The Sunni Muslim-led Gulf monarchies may also seek to counter the nuclear program being developed by Iran’s Shiite clerical regime.

Iran has been under investigation by the UN since 2003 because it concealed nuclear work from the International Atomic Energy Agency for two decades. It is subject to three sets of United Nations economic sanctions for ignoring Security Council demands that it suspend uranium enrichment and related work and allow wider inspections.

The U.S. and several allies say Iran’s atomic work is cover for the development of a weapon, while the government in Tehran says the program is for civilian purposes, such as electricity generation.
--With assistance from Seonjin Cha, and Saeromi Shin in Seoul, Arif Sharif in Dubai and Alan Katz in Paris. Editors: Alex Devine, Jane Lee.

Business Week


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