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(News Focus) S. Korea's reactor deal with Turkey hits snag

All Headlines 16:17 November 15, 2010

By Lee Joon-seung

SEOUL, Nov. 15 (Yonhap) -- South Korea's plan to export nuclear reactors to Turkey has hit a stumbling block as both sides failed to conclude an agreement due to differences over the proper level of power prices.

Sources at the Ministry of Knowledge Economy and state-run Korea Electric Power Corp. (KEPCO) said Monday that the conclusion of the deal has been delayed after marathon discussions failed to find middle ground on how to establish fair electricity prices.

After starting negotiations early this year, the two sides wanted to sign the intergovernmental agreement (IGA) to build the Sinop atomic power plant on the Black Sea coast during last week's G-20 summit held in Seoul. However, they only reached an understanding to pursue more negotiations as soon as possible to iron out outstanding differences.

The Sinop project involves the building of four 1,400-megawatt reactors at a cost of around US$20 billion. South Korea has proposed using its APR-1400 reactors that will be used for a nuclear power plant in the United Arab Emirates (UAE).

Moon Jae-do, head of the ministry's resources development office, said there were lingering differences on how to ensure an adequate return on investment over an extended period of time.

"The deal with Turkey involves KEPCO and its Turkish partner setting up a joint company to arrange financing, construction and sharing of earnings through a power purchase agreement once the reactors are built," he said. Seoul and Turkey could foot up to 30 percent of the cost with international project financing to pay for the rest.

Without going into details, the official said the two sides have not been able to see eye-to-eye on how to calculate earnings, although Turkey is carefully examining a undisclosed "improved" proposal forwarded by Seoul to break the impasse.

In addition, Seoul has said that the Turkish government must be the largest shareholder in the company.

Other government officials said Seoul "naturally" wants to receive more for electricity produced since large sums of money have to go into the construction, while Turkey wants to keep prices low to benefit its users.

"For Seoul, there is a critical need to show the public and parliament that the deal is commercially viable and would not become a burden on state-run KEPCO down the road," said an official who declined to be identified.

He added that despite the inability to sign the IGA deal during summit talks held on Saturday between South Korean President Lee Myung-bak and Prime Minister Recep Tayyip Erdogan, this setback does not mean Seoul has lost the bid altogether.

The official pointed out that the two sides have engaged in long-drawn talks since March and pledged to carry out related cooperative efforts.

"Even under the initial plan, a formal deal is scheduled to be signed in the first half of 2011, with more detailed plans to be set in the second half of the year," he said, hinting that there is no real need to rush this matter. This blueprint calls for actual construction of the first Turkish reactor to begin around 2012.

Related to lack of headway, Turkey's media reported that Ankara's energy minister has invited Japanese industrial giant Toshiba for talks on building the Sinop plants.

It said Turkish Energy Minister Taner Yildiz wanted to engage in speedy negotiation processes with other countries that may be interested in the nuclear power plant deal. He said U.S. and European companies may be considered so the country can have at least two nuclear power plants in operation by 2023.

Local market experts, meanwhile, said the failure to sign the IGA over the weekend would not have any effect on local industries.

"There were some differences on power purchasing prices and what to do if there is an emergency situation, but this is not seen as a complete failure since the countries have already made considerable headway on related research and development," said Jeong Min-kyu, an analyst at IBK Investment and Securities.

Although the setback may raise concerns that KEPCO and related companies may lose the deal, it is still more likely that South Korean businesses will nab the deal compared to foreign rivals, he said.

The expert added that speculation that Lithuania, Finland and Malaysia are interested in South Korean reactors is good news for the industry as a whole.

If Seoul signs the Turkish deal, it will be the second export contract following the UAE deal reached in late 2009.

South Korea, with 20 commercial reactors in operation, is the world's fifth-largest producer of nuclear-based electricity in the world. The country plans to build eight more reactors by 2017 with one to go on line next month.


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