THE ROMANIAN EXPERIENCES IN CERNAVODA NPP FINANCING

Transcription

1 2 nd Regional Conference on Energy and Nuclear Power in Africa May Cape Town, South Africa THE ROMANIAN EXPERIENCES IN CERNAVODA NPP FINANCING Dr. IOAN ROTARU IAEA Invited Expert

2 CONTENT 1. CONSIDERATION ON NPP FINACING 2. ROMANIAN EXPERIENCE 3. OUR PRODUCTS 2

3 1. CONSIDERATION ON NPP FINACING 2. ROMANIAN EXPERIENCE 3. OUR PRODUCTS 3

4 INTRODUCTION (1) Milestones in Development of a National Infrastructure for Nuclear Power, IAEA Nuclear Series, No. NG-G-3.1, 2007: describes the infrastructure issues need to be considered for introduction of Nuclear Power Plants. Infrastructure required to support a national nuclear power programme would be expected to proceed the following phases of development: Phase 1: Considerations before a decision is taken. Phase 2: Preparatory work for NPP construction after the decision has been taken. Phase 3: Activities to implement the first NPP. Completion of the infrastructure conditions for each phases is marked by a specific milestone, for the development assessment and decision to go to next phase. 4

5 INTRODUCTION (2) IAEA document define the following milestones: Milestone 1: Ready for knowledgeable commitment for nuclear. Milestone 2: Ready to invite bids for first NPP. Milestone 3: Ready to commission and operate first NPP. 19 issues are recommended to be considered for the evaluation of the milestones assessment, each of them being important and requires careful consideration. Government, Nuclear Safety Regulatory Body and NPP Owner/Operator need to ensure that: activities in all phases are managed as per applicable requirements and rules. assessment and evaluation of the results of each milestones are properly performed for a documented decison for next phase. 5

6 MILESTONES IN THE DEVELOPMENT OF A NATIONAL INFRASTRUCTURE FOR NUCLEAR POWER (NG-G-3.1) Nuclear power option in clud ed w ith in the national energy strategy MILESTONE 1 Ready to make a knowledgeable commitment to a nuclear programme MILESTONE 2 Ready to invite bids for the first N P P MILESTONE 3 Ready to com m ission and operate the first NPP Infrastructure development program Preparing PHASE for 1 assum ing Considerations commitments before & a decision o b ligation to launch s a nuclear power programme is ta ke n PHASE 2 Preparatory work for the construction of a NPP after a policy decision has been taken PHASE 3 A ctivities to im plem ent a first NPP Maintenance and continuous infrastructure improvement 1 st. NPP Project P re project P roject decision m aking C onstruction F ea sib ility stu d y Bidding process years Operation / decommissioning Comm issioning INFRASTRUCTURE DEVELOPMENT PROGRAMME

7 FUNDING AND FINANCING Represent one of the 19 issues of the Agency Milestone approach. Funding refers to items that are the fiscal responsibility of a Government in establishing a Nuclear Power Program (e.g. ensuring the necessary resources for nuclear power infrastructure development, legislative and regulatory framework development and regulation, etc.). Financing refer to items that are the fiscal responsibility of the NPP Owner/Operator (whether it is the government or a private utility) - NPP and the associated facilities. Initial activities to understand the commitments involved in creating a nuclear power infrastructure and to develop the human expertise to manage and regulate nuclear facilities will be of prime importance to subsequent efforts to obtain financing for the first Nuclear Power Plant.

8 WHAT IS REQUIRED/RECOMMENDED FOR FUNDING AND FINANCING? Phase 1: What to do? Preparatory for the knowledgeable decision on the national Nuclear Power program. NEPIO (or equivalent) should be funded including required preparatory studies. Development of the strategy and funding plan for Nuclear Infrastructure implementation. Evaluation of the financing options and establishment of the policy and strategy for the financing of the first Nuclear Power Plant. Phase 1: Funding plan for the Nuclear Infrastructure development and policy and strategy for financing the first NPP

9 WHAT IS REQUIRED/RECOMMENDED FOR FUNDING AND FINANCING? Phase 2: What to do? Preparatory stage for the first Nuclear Power Plant (to request bids). Implementation of the funding plan established in Phase 1 for Regulatory Body development and operation (training), legislative framework development (consultants) and some NPP activities (site selection and characterization). Determination/estimation of the costs and preparation of the financing plan of the first NPP and associated facilities (including level of borrowing and nature of guarantees) and and of a strategy to manage the associated risks (consultants). Financing plan and risks strategy shall considered factors like the political and economic stability, public attitude against nuclear, prospects of economic development, protection to foreign investment, existence of a competent regulatory body and the capability to manage large capital construction projects. Phase 2: Implementation of the funding plan (infrastructure development and operation) and development of the first NPP financing plan and risks management strategy.

10 NPP FINANCING PLAN NPP Owner should prepare NPP financing plan which should includes the collection of relevant project related financial data, as a function of time and proposed solution for financing. NPP financing plan represents: Instrument for capital evaluation and identification of the NPP financing sources. Government commitment to assure equity for NPP project implementation using State budget. Financing plan should cover: NPP total capital investment (evaluation) nuclear fuel cycle costs with front end and back end local and foreign portions to be financed establishment of debt/equity ratio targets assessment of potential financing sources.

11 WHAT IS REQUIRED/RECOMMENDED FOR FUNDING AND FINANCING? Phase 3: What to do? NPP bids shall be analyze and the commercial contract with EPC contractor (or NPP Vendor) shall be concluded. Readjust financial plan for the first NPP to cover the program requirements. Implement the financial mechanism (Government equity, loan agreements, etc.) to assure the necessary capital for the first NPP construction and commissioning, as per the contractual schedule. Re-analyze the predicted electricity rates and tariffs, if are sufficient to ensure a return on capital investment cash flow (electricity market?). Mechanisms to provide funding for decommissioning, long term spent fuel and waste management and disposal are implemented (required law in force and infrastructure developed). Phase 3: Securing the financial mechanism for first NPP construction and commissioning and re-analyze project economics and the future of the NPP operation.

12 NPP LIFE CYCLE CASH FLOW

13 ECONOMICS OF NP PLANTS Objectives of NPP economic analysis: How much money do you need for a Nuclear Power Plant project? - Feasibility Study What are the potential sources to obtain the needed capital? - Financial plan and financing arrangements How much receiving during the NPP operation will you need for capital return and debt repayment? - Cash flow analysis

14 BASICS OF NPP FINANCING Equity and debt are the basic elements of NPP capital financing. Equity means capital raises by selling shares of NPP ownership. Sponsors (Government) may buy shares themselves using state budget sources (internal equity) or sell shares (external equity). Debt is borrowed money and the creditors are attracted by: the creditworthiness of the project (potential for repayment) economics of the project. the price (the cost of the loan and the risk-return ratio of the interest income offered to the creditor). Equity/debt ratio: recommended 30/70 or 40/60.

15 CONCERNS OF NUCLEAR FINANCIAL INSTITUTIONS Long development / construction periods High capital costs Sustainability of Government commitment Adequate national nuclear infrastructure in place Highly regulated industry Safety culture Human Resources and Supply Chain Environmental responsibility 15

16 WHAT FINACIAL INSTITUTION REVIEW? Financial institutions shall review the country: Legal framework Regulatory competence Financial stability Technical competence Operator skills and attitude Emergency preparedness International connectivity

17 OTHERS EXPECTATIONS OF FINANCIAL INSTITUTIONS Credible public consultation. Credible Environmental Impact Assessment (EIA). Acceptable security for external loans (sovereign guarantees). Efficient and proper allocation of costs, risks, rights and responsibilities among the NPP Project responsible parties. NPP project structure that imposes serious discipline in cost and risk management is a sine qua non of successful financing, whatever arrangements are made with regard to debt and equity.

18 TYPES OF RISKS ASSOCIATED WITH NPP PROJECTS Political Regulatory / Licensing Technology Completion/Construction & Commissioning Labor & Materials Electricity Market Operational Environmental Nuclear Incident The risk should be borne by the involved party which is in the best position to manage the risk (see next diagram). Always ask: How much is that risk allocation going to cost the project? 18

19 PARTIES INVOLVED IN A NUCLEAR POWER PROJECT ECAs Government Regulation & Licensing Financial Commitments Treaty Commitments & National Law Commercial Banks Multilaterals Financing Entities Government Spent Fuel Management Decommissioning Public NSSS Suppliers PROJECT Offtakers Labor Fuel Supply EPC Contractor Owners Human Capital Operators Equipment & Material Suppliers Subcontractors 19 Consultants Risk Allocation?

20 1. CONSIDERATION ON NPP FINACING 2. ROMANIAN EXPERIENCE 3. OUR PRODUCTS 20

21 ROMANIAN NPP SHORT HISTORY (1) 1970: decision for the introduction of the first NPP in Romania was taken. 1975: Romanian Government decided to use for the first NPP the CANDU nuclear power reactor, based on the comparison of the different nuclear technology available on the NPP market : commercial contracts for Cernavoda Unit 1 were signed with AECL Canada (nuclear island), ANSALDO NUCLEARE Italy and GE USA (balance of plant). 1981: Cernavoda Unit1 site works started : decision to build additional 4 units and the civil works started in parallel for all Cernavoda 5 units. 1990: all the NPP works were stopped and the Romanian Government requested an IAEA pre-osart mission. IAEA pre-osart report recommended to improve the project management.

22 ROMANIAN NPP SHORT HISTORY (2) 1991: a new contract was signed with the traditional partners (AECL Canada, ANSALDO NUCLEARE Italy and GE USA) only for Cernavoda Unit 1 finalization and the others units were stopped December: Cernavoda Unit 1 was commissioned and started the commercial operation. 2001: contract for Cernavoda Unit 2 completion was signed and construction works started November: Cernavoda Unit 2 started the commercial operation 2009: Romanian Government decided to finalize Cernavoda Unit 3 and 4, using an innovative financing model. These units should be in commercial operation after

23 FUNDING AND FINANCING FIRST NPP Funding: Nuclear Infrastructure developed in Phase 2 ( ) based on the Government contribution (state budget, with annual allocation, as per funding plan). Financing of Cernavoda Unit1: Local portion (goods and services): Government through state budget. Imported goods and services (Canada, Italy and USA): 85% of the value of imports: loans borrowed by NPP utility from Export Credits Agencies (EDC Canada, SACE Italy and US EXIM) with sovereign guaranties. 15% of the value of imports: Government trough state budget. Interest During Construction (IDC) and others taxes to the ECAs were supported by the Government

24 CERNAVODA UNIT 2 FINANCING Similar financing mechanism with Cernavoda Unit 1, except the limitation of the Government financial support from the state budget, due to the introduction of the electricity market in Romania, starting with Local portion (goods and services): Loan (225 milions Euro) borrowed by NPP Utility form European Commission (EURATOM) with and limited Government support through state budget. Imported goods and services (Canada, Italy and USA): 85% of the value of imports: loans borrowed by NPP utility from commercial banks, Export Credits Agencies (Societe General-SOGEN, EDC Canada, SACE Italy and US EXIM) with sovereign guaranties. 15% of the value of imports: EURATOM loan and NPP utility own resources.

25 CERNAVODA UNIT 3 AND 4 FINANCING (1) Pre-Fesability Study issued in 2003 identified the main constrains in Project completion: Unavailability of the Government s direct financial support and sovereign guaranties, in compliance with the Government policy of withdrawing from the electric power sector, considering the liberalization of the electric power market and the specific regulations concerning the subsidies granted by the Government. Insufficient capability of Cernavoda NPP Owner (NUCLEARELECTRICA) to finance and attract the needed financing resources, taking into account the repayment of the loans for Cernavoda Units 2 (due in the next years from starting the commercial operation ).

26 CERNAVODA UNIT 3 AND 4 FINANCING (2) Cernavoda Units 3 and 4 can be completed by setting up a partnership with private investors, associated with NUCLEARELECTRICA within a Joint Venture (Project Company PCO), developed as an IPP (Independent Power Producer) on the Romanian electricity market. NUCLEARELECTRICA is a 100% state owned company, NPP Cernavoda Owner and Operator of Units 1 & 2. PCO will be established for the purpose of owning and operating of Unit 3 and 4 and shall be a Romanian registered legal entity. Partnership with foreign investors would ensure the required financing for the project completion (estimated to 4 billions Euro), through the initial cash participation in setting up the PCO (equity) and subsequent loans, borrowed without sovereign guaranties but with corporate guaranties.

27 CERNAVODA UNIT 3 AND 4 FINANCING (3) Financing of the Cernavoda Units 3 and 4 represents an innovative approach for Romania. Potential investors were selected in 2008 and the Project Company (EnergoNuclear) was set-up in January NUCLEARELECTRICA shall be the Units 3&4 operator based on the contract with PCO. Shareholders will be the electricity off-taker ( take or pay ), directly proportional to the shares of the new company nominal capital each shareholder holds (pro-rata). Shareholder agreement and electricity off-take contracts shall be tools for debt financing (loans). Current status of the Project: potential main contractors for EPC contract selected and based on the BIS to be finalized sooner, the bids shall be required by end of this year.

28 EXPERIENCES AND LEARNED LESSONS (1) Financing model of the Cernavoda Units 1 and 2 is a traditional NPP financing model named sovereign model, with the following main characteristics: 1.Nuclear Power development is part of a national development plan (similar situation were/are in People s Republic of China, France, India and South Korea). 2.NPP Ownership is by a government-owned utility (CNNPC, EDF, NPCIL, KEPCO). 3.Heavy Government involvement (commitment, balance sheet /state budget, sovereign guarantee) 4.NPP financing and funding (more than 70%) come from sovereign sources (with Government guarantee).

29 EXPERIENCES AND LEARNED LESSONS (2) Before to borrow loans, the financiers (banks, ECAs) observed and focus on the following area in Romania: Country stability (both economic and political) Sovereign credit rating Exchange rate fluctuations Tax policy Licensing and regulatory requirements Consistency (vs. unpredictability) in the legal and regulatory regime Ethical behavior (e.g., country rating on levels of corruption) Selected NPP technology Commercial Contract terms and conditions Availability of skilled labor Prior experience with nuclear technology and power generation These review process is time consuming (from the starting the discussion by the effectiveness of the loans: 1-2 years) and should be taken into account in the project implementation schedule.

30 EXPERIENCES AND LEARNED LESSONS (3) NPP EPC Contractor/Vendor should play an important role in the NPP financing, at least in in the following area: Help the NPP Owner to obtain external financing from its origin country (supplier loan, Export Credit Agency, commercial banks). Develop new innovative solutions considering all the risks associated with its product implementation. Working with Regulatory Body and Government of recipient country to improve licensing process and legal framework. Developed expertise and cooperate with NPP Owner to mitigate NPP Project delivery risk. Results of these actions are expected to be lower costs and lower risks, which will contribute to the assurance of the necessarily financing!

31 EXPERIENCES AND LEARNED LESSONS (4) National authorities (Ministry of Finance, Ministry of External Affairs, etc.) should be involved in identification of the suitable financial markets and financial sources for first NPP. Loans from Export Credit Agencies (ECA) are characterized by specific fees: Exposure fee (insurance premium) Management fee Commitment fee Interest All these fees shall be paid to ECA (two times per year) also during the NPP construction period (5-6 years) using Government funds (important financial effort).

32 1. CONSIDERATION ON NPP FINACING 2. ROMANIAN EXPERIENCE 3. OUR PRODUCTS 32

33 IFA MAGURELE NUCLEAR RESEARCH REACTOR 33

34 IFA MAGURELE VVR-S RESEARCH REACTOR 34

35 PITESTI TRIGA NUCLEAR RESEARCH REACTOR 35

36 ROMANIA CERNAVODA NPP Units 1 and 2 in operation (1996 December, 2007 November) Units 3 and 4 under construction ( ) 36

37 CERNAVODA NPP 37

38 UNIT # 1 14 YEARS OF COMMERCIAL OPERATION 38

39 UNIT # 2 CERNAVODA: 3 YEARS OF COMMERCIAL OPERATION 39

40 PITESTI CANDU 6 NUCLEAR FUEL PLANT 40

41 CERNAVODA NPP SITE RIM DRY SPENT FUEL STORAGE FACILITY MACSTORE Type (AECL Canada) first module operational from 2003; second 2006; third 2008, forth

42 CERNAVODA UNIT # 3 & 4 (under construction)

43 CONCLUSION lear Power Plant is fundamentally more complex than er forms of power infrastructure and this complexity s to the challenge of financing: 1. higher capital costs; 2. longer planning and construction periods; 3. significant risk factors that need to be expertly managed. stment decisions for nuclear power projects cannot be e only on the basis of NPP project parameters. Political, l, technical and financial factors need to be addressed! ernment shall play a very important role in establishing financing plan and mechanism for the first NPP.

44 Thank you for your attention!