30/01/2010

Korea Power Engineering looks to China as key nuclear market to expand in, SVP says mergermarket

Korea Power Engineering (KOPEC), a listed, South Korean nuclear power plant designer, sees China as a key market opportunity to export nuclear power reactors, Senior Vice President Tae Sun Ro said.

Speaking on the sidelines of Synergy Event’s Nuclear Power Asia forum in Kuala Lumpur, Ro, who heads the nuclear division, said the company would unlikely undertake joint ventures or strategic alliances, but is keen to secure contracts to build nuclear power plants in China - a country reliant on importing infrastructure support, design and technology. In December 2009, KOPEC signed an MOU with China’s State Nuclear Power Engineering Corporation to provide technological assistance for the development of China’s AP1000 nuclear power plant.

Ro also pointed to developing markets in South East Asia as markets it considers important once the region formally commits to the development of Nuclear reactors. KOPEC, which has a market capitalization of KRW 2.4trn (USD 2bn), designs nuclear power plant facilities for state-run utility Korea Electric Power Corporation (KEPCO). Hyundai Securities sector analyst Byung-Hwa Han said that the Korean government is targeting developing regions in nuclear development, such as China and the Middle East, as part of its drive to win additional contracts to build reactors.

Governments in developing countries are strong supporters of nuclear power plants compared with those from developed countries in Europe and the US where they face more difficulties dealing with public opposition. As a result, these countries already have their own nuclear powerhouses, such as US-based Westinghouse, which raise the barriers to entry, continued Han.

The Korean government set an ambitious goal to build 80 nuclear power plants in developing countries by 2030, as the demand for nuclear power grows. However, Ro raised a point that Korea is not yet ready to export its nuclear power technology in terms of nuclear research studying optimum fuel production and wastehandling methods.

An industry executive in charge of the nuclear program for a utility firm explained that M&A in the nuclear power sector is rare since the sector is largely state-controlled. However, developing countries often turn to partnerships and alliances for the import of the design, engineering, operation and maintenance of plants, with countries such as the US, Japan, Korea, Russia or those in Europe leading this arena.

According to Han, KOPEC has an order backlog worth KRW 731.8bn for nuclear engineering works for 2009-2015. As of December 2008, cash and cash equivalents stood at KRW 35.6bn, and the company generated an EV/EBITDA multiple of 14x.

KOPEC raised KRW 165bn (USD 142m) through its IPO offering in December 2009. The entire proceeds of the 20% floated will be reserved for KEPCO, said Ro. He added that KEPCO will not sell an additional 20% until 2012.

Last year, South Korea won the contract to build four light water nuclear reactors in the UAE estimated to be worth USD 40bn. KEPCO, which led the consortium, beat French powerhouse Areva and a US-Japanese grouping comprising General Electric and Hitachi. South Korea aims to have 33% of its electricity generated from nuclear energy by 2022, against 25% achieved in 2008.

by Julia In and Eunice Kang

Napocor hopeful Philippine govt will pass Bataan Nuclear Power Plant
Commissioning Act, potentially reviving country’s nuclear sector, co president
says mergermarket

National Power Corporation (Napocor), is optimistic of the government passing the Bataan Nuclear Power Plant Commissioning Act, said Froilan Tampino, president of the stateowned utility group. An approval could see the Bataan nuclear power plant (BNPP) commissioned as soon as five years from now, he stated.

Speaking on the sidelines of Synergy Event’s Nuclear Power Asia conference held in Kuala Lumpur, Tampinco said the country’s fate to embark on nuclear development is dependent on the passing of a bill from the lower house of congress to rehabilitate, commission and commercialize National Power Corporation's (Napocor) 630 MW Bataan plant - the country’s first nuclear reactor located in Morong, Bataan which was mothballed in 1986.

The nation stood a foot above its regional neighbours in commercializing nuclear, Tampinco added. “The fact that we have had the experience of undertaking an actual project for a commercial nuclear power plant gives us an edge over our ASEAN neighbors who are in their various stages of developing their own nuclear power facility from the lessons learned.”

Advantages include the pool of local skilled manpower who will need re-training, he noted. Most importantly, although outdated, the Philippines has a nuclear legislative framework in place. “In terms of energy polices, The Department of Energy has included nuclear power in its Power Development Program, as a long-term and stable source of power generation,” he remarked. Napocor is the state-utility that is tasked with spearheading the country’s implementation of a nuclear power program.

The bill is in reference to the Bataan Nuclear Power Plant Commissioning Act of 2008 now pending votes in the House of Representatives’ Appropriations Committee. In 2007, current president Gloria Macapagal-Arroyo’s administration proposed to revive the Bataan plant to reduce its dependence on fossil fuels.
 
Tampinco said he hopes the plan gets the green light by the first half of this year; pinning 2020 as a realistic timeframe to have the country’s energy supply fueled by nuclear. If the bill is passed, the Philippines would be the first South East Asian nation to operate a nuclear reactor before 2020.

However, a Manila-based political economist raised doubts that congress would approve the bill ahead of the national elections in May. With the public’s strong stance against nuclear, he argued that congress will not likely publicly support the bill pre-election, especially with the candidate for the ruling party -Defence Secretary Gilbert Teodoro - not reflecting strongly in polls.

Meanwhile, the frontrunner Senator Benigno Aquino Jr., is the firstborn son of the president who had the nuclear plant shuttered in the first place, and is expected not to contradict his mother’s policies on nuclear energy, the economist said. The bill is also not in the legislative calendar for the last few working days before congress goes into recess before the elections.

Napocor’s 630-MW plant was built in 1974 and completed in 1984 at a cost of USD 2.3bn under former dictator President Ferdinand Marcos, who was toppled in 1986 in part due to corruption and fraud associated with the project’s financing. This, coupled with massive public opposition and defects in its design and construction, led to it being dormant since. Tampinco acknowledged that Bataan strikes a public divide, but it was the decision of the incoming administration and how the government plans to handle the issues of nuclear that will determine its fate.

Bataan will remain in government hands, and any foreign participation will be limited to rehabilitation work, engineering procurement, as well as the importation of nuclear technology that is compliant with International Energy Agency standards, he explained. In December 2008, the Department of Energy, through the National Power Corporation, signed a memorandum of agreement with the Korea Electric Power Corp (Kepco) to
conduct a feasibility study on BNPP.

As part of the privatisation bill, the utility group is forced to privatize 70% of its total capacity in the major grid. Post-privatisation, Napocor will focus its efforts and resources on the operation, maintenance of transmission and generation in the island and off-grid areas, concluded Tampinco.

M&A in the nuclear power sector is rare since the sector is largely state-controlled, said an industry executive at a European utility who heads their nuclear program. However, developing countries often turn to partnerships and alliances for the import of design, construction and maintenance of plants predominately from Japan, Korea, Russia, France or the US.

by Julia In, Kuala Lumpur

04/02/2010

Malaysia’s nuclear ambitions raise questions of the financing risks involved -
analysis mergermarket

Southeast Asian nations are increasingly turning to nuclear power generation to guarantee the region’s future energy supply, but cost constraints could pose challenges, according to the views of four nuclear power experts who spoke on the sidelines of Synergy Event’s Nuclear Power Asia conference in Kuala Lumpur.

Last year, Vietnam became the first Southeast Asian country to sign a deal with Russia to build the region’s first nuclear power plant, estimated to be worth USD 11bn. No nuclear power plants (NPP) currently exist in the region.

Nuclear power is seen as a no-choice energy option for Peninsular Malaysia, as domestic gas supplies can no longer be assured post-2020, stated Zamzam bin Jaafar, head of the nuclear energy unit for Tenaga Nasional.

The country relies on gas and coal for power generation, 60% and 30% respectively.  And with the supply of imported coal beyond 2020 uncertain, Malaysia’s prime minister last year declared its preparation for nuclear power post-2020 as a stable and economical alternative to address the country’s unrelenting power demands.

Tenaga, the state-run utility, is spearheading Malaysia’s nuclear program, and awaiting the results of a pre-feasibility study from Korean utility Korean Electric Power Corporation (KEPCO) on nuclear power. Malaysia’s first NPP will be constructed on a turnkey basis.

Pillsbury partner George Borova, head of the law firm's international nuclear energy practice, said that despite the region’s rapid economic growth, it will be tough to convince local banks to finance and invest in NPPs that have a construction period longer than 10 years. That opinion was shared by Tom Neyrinck, GDF Suez's regional head for Western Europe who spearheads acquisition & financial advisory matters for the France-based energy group.

Banks would only take equity positions at the post-completion stage of NPP, but not before, Borova said.
Tenaga Nasional's Jafaar agreed that banks would unlikely shoulder the long-term financial risk of construction due to the steep cost over-runs associated with delays. Instead, they are more likely to guarantee the debt once a plant is commercialized, he said.

To counter this, the Malaysian government would likely guarantee the financing risk associated with a NPP, suggested Lukman Sheriff, partner at local law firm Zul Rafique & Partners. He and Jafaar believed that domestic banks have a history and a strong appetite to finance independent power projects.

The estimated capital cost for a 1000 MW plant is USD 3.5bn, priced on the basis of USD 2000 kWe, the latest benchmark set by the International Atomic Energy Agency. A large capacity of 1400 MW would cost closer to USD 5bn, according to Jaafar. He brushed off concerns of Tenaga’s ability to pool the USD 3.5bn coffer as the funding would most likely take the form of a private public partnership (PPA) – the standard
financing model adopted by developed nations.

The PPA arrangement could take a 70/30 debt to equity form; with the debt portion divided between export credit agencies and domestic banks. The equity would be split between chosen turnkey contractors and Tenaga, outlined Jafaar. Lukman mirrored Jafaar’s views and said, “At the end of the day, Tenaga is paying for the electricity, most commercial banks will be comfortable taking on the paper obligation risk with Tenaga which has a very strong credit standing.” Furthermore, Lukman described a PPA as “very sellable” whenever the project is government-backed.

The key responsibility for lawyers in the process will be to establish the legal and regulatory framework that is in compliance with international nuclear laws, Borovas said. Governments must also sign all the international legal conventions and agreements from the International Atomic Energy Agency.

Neyrinck explained that M&A in the nuclear power sector is rare, as the sector is largely state-controlled. But Malaysia, Singapore and other neighbouring countries will turn to partnerships and alliances to import nuclear power technology which encompasses plant design, engineering and construction from countries including Japan, Korea, Russia, France, Canada and the US.

Meanwhile, Lukman and Jafaar raised the issue of public acceptance as another looming issue the government cannot ignore.

“We need to store new capacity, but the biggest challenge for Malaysia will be changing the public mindset. We can’t afford to have a city blackout for the public to realize the importance of nuclear. We have a long way to go, but public education is the first step,” concluded Jafaar.

by Julia In