Contentious Competition for Poland’s Nuclear New Build

South Korea’s KHNP and Westinghouse are the two leading bidders for Poland’s new nuclear build. France’s EDF is a lagging bidder reportedly having submitted the most expensive of the three bids. The competition for Poland’s business, six full size reactors, became contentious this week based on wire service reports from Poland and trade press reports in the US.  (This report has been updated. See 'Updates' section below.)

Early last week the South Korean trade press publication Business Korea reported that KHNP had won the business or at least part of it with a bid that included a equity investment for a minority share in the project. KHNP is  reported by Polish news media to have won at least two out of the six plants sought by Poland.

Business Korea reported that Korea Hydro & Nuclear Power (KHNP) is expected to sign a letter of intent with Poland’s state-run power company PGE Polska Grupa Energetyczna and private firm ZEPAK within two weeks regarding a new nuclear power plant construction project. The project is to replace ZEPAK’s lignite power plant in Patnow, Poland with one or more nuclear reactors. The operation of the lignite power plant is to continue until 2024. Lignite is the dirtiest form of coal for power production and produces the most CO2 when burned in production of electricity.

According to am Indian wire service report, translating a report in the Polish newspaper Rzeczpospolita published 10/19/22, Polish Energy Group, private energy concern ZE PAK, and KHNP will sign a declaration on the NPP’s construction. adding that the signing of the agreement, which should be overseen by Polish Deputy Prime Minister and Minister of State Assets Jacek Sasin “is expected in the next two weeks.”

Business Korea also reported Westinghouse currently has the upper hand to win the business for two reactors, one in Lubiatowo and another in Kopalino.  In anticipation of this business, the firm has signed multiple deals with potential Polish based suppliers as part of its localization strategy.

Contentious Competition Ahead

South Korea and Westinghouse are also competing in Dukovany, Czech Republic, where a one or more nuclear power plants will be built. The country has long range plans for new reactors at the Temelin site.

According to a US nuclear trade press report, the two firms are not in agreement about the intellectual property origins of the technology in the design of the KHNP APR1400. This dispute could affect KHNP’s Polish deals and future business elsewhere.

Updates

For an update on prospects for a deal for Westinghouse in Poland see the 10/24/22 report at World Nuclear News. There has not been any confirmation of a deal from the Department of Energy. The IAEA Ministerial is taking place in Washington, DC, all this week so watch the news for announcements during this conference. 

A media report on 10/25/22 in the South Korean press reports the possibility that the South Korean government will raise the issue of the Westinghouse lawsuit against KHNP via diplomatic channels.  The basis for taking this route is President Biden's agreement last May for "collaboration" on nuclear energy exports.  Clearly, the Westinghouse lawsuit doesn't look much like "collaboration" to the South Korean government.

Business Korea reports on 10/26/22 that Korea Hydro & Nuclear Power (KHNP) is expected to sign a letter of intent with Poland on Oct. 31 regarding nuclear power plant construction.

According to Polish newspapers, Poland’s decision has to do with KHNP’s price competitiveness and technology transfer. According to them, KHNP is capable of building six 1.4 GW reactors at a total cost of US$26.7 billion ($4.45B/each) whereas the costs of the United States (Westinghouse) and France  (EDF) for the same number of similar PWR type nuclear reactors are US$31.3 billion ($5.27B/each)  and more than US$33 billion ($5.5B/each), respectively.

Note that the power ratings (electrical) of the reactors for each of these vendors as bid may be different than previously documented in other deals. These numbers may affect the calculation of the cost per Kw of potential generating capacity for each design. 

The newspapers also reported that KHNP proposed post-construction technology transfer to Poland and this is why Westinghouse filed a suit on Oct. 21. According to Westinghouse, KHNP’s APR-1400 reactor that may be built in Poland is based on its technology and cannot be exported without its consent and the  approval of the US Secretary of Energy under US nuclear export rule in 10CFR810.

Westinghouse Lawsuit Over KHNP’s Alleged Use
of Its Intellectual Property

On 10/23/22 S&P Global reported that Westinghouse has sued in federal court to block a potential deal for competitor Korea Hydro and Nuclear Power(KHNP) to sell nuclear reactors to Poland.

In a legal filing on 10/21/22 Westinghouse said KHNP’s reactor design includes intellectual property licensed by Westinghouse and requires permission from the US company before being transferred to Poland and other countries considering deploying the APR1400 reactor.

S&P Global reported that the filing was made because Westinghouse learned that Poland’s government was preparing to sign a preliminary agreement to buy nuclear reactors from government-owned KHNP instead of Westinghouse or some other source.

According to S&P Global, the lawsuit is based on a claim that intellectual property in KHNP’s APR1400 reactor design incorporates technology from the System 80 reactor design it acquired in 2000 from Westinghouse and that Westinghouse has intellectual property rights that matter as a result.

Westinghouse reportedly claimed in the lawsuit that KHNP conceded this need when the South Korean company sold four APR1400 reactors to the United Arab Emirates in 2010. Three of those reactors, the first to be operated by an Arab country, are connected to the grid with the fourth almost ready for operation.

The leverage Westinghouse is seeking is to force KHNP to comply with US laws restricting nuclear power technology sharing. Under these rules, known as Part 810 requirements, the US Department of Energy must clear the sharing of certain technologies with other countries.

Note that Poland as a country is listed in 10CFR810, which are the export control regulations that govern nuclear technology exports,  as a “Generally Authorized Destination” and so is South Korea.

US Export Control Regulations

Under DOE regulation 10CFR810 the Department of Energy (DOE) has statutory responsibility for authorizing the transfer of unclassified nuclear technology and assistance to foreign atomic energy activities within the United States or abroad.

S&P Global reported that Westinghouse asked the court to issue a judgment that the APR1400 reactor contains US-origin technology that is subject to DOE review under 10CFR810. Westinghouse also asked the court to enjoin KHNP from sharing technical information covered by Part 810 with Poland or with authorities in the Czech Republic or Saudi Arabia, which are also considering acquiring APR1400 nuclear plants.

Note that Westinghouse is ineligible itself from bidding on Saudi Arabia’s tender for two new full size nuclear reactors because the Saudi government does not have an agreement for peaceful use of nuclear energy under Section 123 of the Atomic Energy Act.

Given the currently antagonistic relations between Saudi Arabia and the US, it’s not clear what the State Department’s view would be on a request for support from Westinghouse for a waiver to bid on the Saudi tender.

The question may be moot since the tender was announced last June and Westinghouse was not included in the calls for bids from Saudi Arabia. What is clear is that the US government doesn’t want China or Russia to win the bid for the Saudi reactors which leaves KHNP as the only acceptable choice from the US prospective.

Opinion – Some Questions About the Lawsuit

There are a few questions that aren’t addressed in the wire service report by S&P Global published online 10/23/22. This part of the blog post is personal opinion and is not a legal analysis or advice.

The first question is whether a US court has jurisdiction to affect the business operations of a domestic South Korean firm doing business in Poland? This is likely one of the first areas of contention that the court will have to decide.

Second, what  influence can  the lawsuit have, if successful, over any US supply chain procurements that KHNP would plan to make for its Polish effort? Examples include reactor cooling pumps, steam generators, turbines, and even fuel. Westinghouse is a major supplier of nuclear fuel to European reactors from its plant in Sweden. It’s a reasonable assumption that the Westinghouse bid for AP1000s would have included supplying the reactors, if built, with fuel from this plant.

Third, does KHNP have the domestic or international supply chain resources, including fuel, to avoid using US suppliers altogether, and would this strategy be in the firm’s best interests? Would its bid still be as competitive if it cannot use equipment from US nuclear technology manufacturers? For instance, would it buy its nuclear fuel from France if it cannot buy it from Westinghouse?

Fourth, given that there will be future deals, e.g., Czech Republic, where KHNP and Westinghouse are in competition with each other, would a settlement of some kind now be more cost effective for future business for both KHNP and Westinghouse rather than letting the case go to trial?

Keep in mind that KHNP is reported to have won the bid for two of Poland’s planned six reactors and Westinghouse is reported by Polish news media to have won two of the six planned reactors at separate locations. Is there enough business to go around if a licensing deal is crafted to settle Westinghouse’s intellectual property claims and to avoid protracted litigation?

Fifth, Westinghouse and Poland are betting on significant financial support from the US Export/Import bank for the AP1000 deal. KHNP is reported to be self-financing its share of the costs with a proposal for an minority equity investment as part of its bid. Poland may still seek US financial help for some of its financing which could be impacted by the lawsuit. In the past Poland’s plans for new nuclear reactors have come up short due to a lack of government commitment to fund them so US help is probably essential for a winning Westinghouse deal.

Sixth, Large globally significant export deals are often “sweetened” by what are loosely call  “offsets.” These are side deals at favorable terms and often are “buried” in the main transaction. In this case the trade publication “Business Korea” reports that “South Korea and Poland are cooperating closely in the defense sector, and this may have a positive effect on KHNP in the nuclear power plant construction projects.

South Korea recently signed contracts with Poland to export K239 Chunmoo MLRS, K2 tank, K9 howitzer and FA-50 light attacker. Presidents Andrzej Duda and Yoon Suk-yeol met with each other in June this year and discussed closer cooperation in the defense and nuclear power industries.”

This trade press report says there is a lot riding on the KHNP deal with Poland besides reactors. Given Russia’s aggression in Ukraine, Poland is likely keenly interested in acquiring the South Korean armaments.

There have not been any published media reports that the Westinghouse bid includes any similar offsets. The firm would have to partner with armaments manufacturers in the US in order to offer any since it is not, per se., a defense contractor for military equipment.

Any offset deal that Westinghouse might put together, to sweeten the Poland nuclear deal, with a US munitions manufacturer, would need approval from the Pentagon as well as the Bureau of Industry and Security at the Department of Commerce, the State Department, etc. Given the ongoing hostilities instigated by Russia in Ukraine next door to Poland, the White House National Security Council would likely also be involved in such a review.

As they say in the world of Opera, and baseball, “it ain’t over until the fat lady sings,” so watch this space for developments.

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