Korea Hydro & Nuclear Power and Daewoo Engineering & Construction Consort Negotiations for Construction Contract for Dukovany Nuclear Power Plant in Czech Republic Collapse (Comprehensive 2nd report)

(Sejong = Yonhap News) Reporter Jang Bo-in = Negotiations for a construction contract for the Dukovany nuclear power plant project in the Czech Republic between Korea Hydro & Nuclear Power and the Daewoo Engineering & Construction-Doosan Energy consortium broke down on the 29th after difficulties.

KHNP issued an explanatory document this morning and said, “We wish to end the construction contract negotiations for the Dukovany nuclear power plant construction project that has been in progress with the Daewoo Engineering & Construction-Doosan Energy Consortium (hereinafter referred to as the construction company).”

KHNP explained, “This is due to differences of opinion between the two sides on major contract terms,” and added, “KHNP and the construction company have been trying to reach an amicable agreement through working-level negotiations, disagreement mediation committee, and management negotiations, but were unable to reach a final agreement.”

Accordingly, Korea Hydro & Nuclear Power officially ends negotiations for the construction contract and takes follow-up measures.

KHNP said, “We are beginning the process of terminating the joint cooperation agreement with the existing construction company, while preparing a comprehensive response plan, including preparing a bid to select a new construction company.”

The plan is to fill the gap in the construction company's work that occurs until a new construction company is selected, either directly by KHNP or through an ordering contract if necessary.

In order to win orders for the Dukovany nuclear power plant, Korea Hydro & Nuclear Power pre-selected the Daewoo Engineering & Construction consortium as the construction company in 2018 and signed a joint cooperation agreement with Team Korea, including the consortium.

However, until the final bid for the nuclear power plant project was submitted, it was not possible to reach an agreement with the consortium on the terms and amount of the contract, and even after signing the main contract for the nuclear power plant project with the ordering company, Dukovany II Nuclear Power Company (EDU II), in June of last year, no conclusion was reached.

KHNP explained that although two CEO interviews, 78 working-level meetings, and 11 disagreement mediation committee meetings were held over the past 15 months, differences of opinion persisted.

It has been reported that the two sides have differed in their positions regarding construction costs and risk-sharing structures.

In the industry, there were claims that KHNP insisted on settling the total amount rather than settling the volume, which is the global standard, and unilaterally requested a reduction in the construction contract amount and unit price.

There were also concerns that KHNP, as the person in charge of engineering, procurement, and construction (EPC), was trying to shift its design responsibility and the ordering company's responsibility for site provision to the construction company.

KHNP's position is that it signed contracts for both domestic and United Arab Emirates (UAE) nuclear power plant construction projects in a way that confirmed the total amount, and that the contract for the Dukovani project was carried out in consultation with Team Korea companies, including the Daewoo E&C consortium as well as the ordering company.

Regarding the request for reduction, the company countered that it was a legitimate request for adjustment after verification by an external professional agency, and that it did not make unreasonable demands or unilaterally transfer risks to the construction company.

Both sides continued to make different claims even after the announcement of the breakdown of negotiations.

Daewoo Engineering & Construction expressed regret over KHNP's announcement and stated that it 'cannot accept it', and claimed that KHNP ended negotiations without giving sufficient time for review after presenting a new plan that changed the terms of the subcontract on October 7. At the same time, he asked Korea Hydro & Nuclear Power to begin negotiations again.

In response, KHNP explained that the plan presented to Daewoo Engineering & Construction was an improvement plan to reduce the burden on the construction company, and that the difference of opinion on the cost was not narrowed even though it proposed a 10% increase in the construction contract amount.

Choi Il-kyung, head of KHNP's business operations division (vice president), said of the scale of the cost that the two sides disagreed on that day, saying, "It is far beyond what we can afford," and "It will be more than 1 trillion won."

KHNP stated that the decision not to extend negotiations was made to maintain trust with the Czech government and ordering company and to resolve concerns about process delays.

It is said that the Czech Republic has been informed of its plan to end construction contract negotiations by the end of this month.

In addition, it was claimed that as the negotiations have been prolonged, concerns have been raised locally about the construction company's passive management of subcontractors.

However, KHNP expressed its intention not to rule out the participation of Daewoo Engineering & Construction or Doosan Energy in the process of re-selecting the construction company.

Doosan Energy has already announced its intention to participate in the re-bidding.

KHNP emphasized that the failure of this contract will not affect the overall schedule of the Dukovani project.

The plan is to complete the selection of a new construction company by July of next year and adhere to the nuclear power plant siting schedule scheduled for January 2028.

The Dukovany nuclear power plant construction project is a project in which Korea Hydro & Nuclear Power supplies two 1,000 MW (megawatt) Korean-style nuclear power plants (Dukovany Units 5 and 6), APR1000, to the Dukovany region in the Czech Republic. The total project cost is approximately 422 billion crowns (approximately KRW 26 trillion).

Construction is scheduled to begin in November 2029, trial operations of units 5 and 6 will begin in April 2037 and April 2038, respectively, and commercial operation will begin two years later.

KHNP has completed contracts with companies participating in Team Korea for comprehensive design services (KEPCO Technology), nuclear reactor equipment supply (Doosan Energy), and turbine generator equipment supply (Doosan Energy).

The nuclear power plant fuel contract (KEPCO Nuclear Fuel) and the commissioning and maintenance service (KEPCO KPS) contract are being negotiated with the goal of being concluded in 2027.

Although a rift occurred in Team Korea due to the failure of the construction contract, KHNP stated that there were no problems with the cooperative relationship with the Czech Republic or the external credibility of the Korean nuclear power plant project.

Director Choi said, “We are continuing to communicate with the ordering company and the Czech government,” and added, “We are discussing closely at the practical level regarding the selection of a new construction company and how to fill the work gap.”

Kim Chang-hee, Director of Nuclear Power Plant Strategy Planning at the Ministry of Trade, Industry and Energy, said, "Nuclear power plants are a national export business, and are a business that involves the entire in-house reactor design, maintenance, nuclear fuel, equipment supply chain, and raw material supply chain." He added, "I don't think the change of construction company will have a big impact. Even if there is an impact, Team Korea will work together as one to minimize the impact."