A new report from Moody's Investors Service has reignited the debate about whether there is a business case for the Baltic states having a nuclear power plant or if the whole thing is just hubris.
The Moody's sector comment released May 14 points out that the state-run energy companies that are supposed to be the driving forces behind the new nuclear power plant in Lithuania risk exposing themselves due to the huge sums involved in paying for a new €5bn-plus plant to replace the Soviet-era facility shut down in 2009.
"If the project goes ahead in its proposed form, it will be credit negative for Estonia's Eesti Energia and Latvia's Latvenergo owing to the project's large capital commitments and the execution risk associated with construction," warns Joanna Fic of Moody's.
According to the draft agreement between Lithuania and Hitachi - which will build the 1.350-megawatt plant - Lithuania will own 38% of the project, Estonia 22%, and Latvia and Hitachi 20% each.
In some ways, what Moody's is saying is obvious to anyone on nodding terms with nuclear projects. They are invariably late, invariably way over budget and usually come with bigger-than-promised future costs for smaller-than-promised returns. But there has been surprisingly little debate in the Baltic about this - the assumption is generally that everything will come in on budget, and on schedule despite the fact that this rarely (if ever) happens in the Baltics in a general sense and the nuclear industry in a very specific sense. "The Lithuanian government expects the... plant to cost at least €5bn, although we expect a final estimate will not be known until 2015. The current plan assumes full commissioning of the plant in 2020-22, which we consider ambitious given the early stage of the project," says Fic.
Undertaking such a big scheme - partly for political reasons - will mean Eesti Energia and Latvenergo are taking a bigger risk than they might feel comfortable with in a normal business environment. As Moody's points out, Eesti Energia has total assets of around €2bn, while Latvenergo has €3.2bn. "Given the project's cost, we expect all participants will find it challenging to raise the required funds, particularly in the current financial climate," Fic says.
Latvenergo responded on May 15 in restrained tones. A spokesman told bne it's "possible participation" in the new Visaginas nuclear power plant was dependent entirely on the "commercial viability" of the project - hardly a no-holds-barred endorsement. "The decision on whether to participate will be a rational consideration of all impacting and relevant economic factors, including equity and credit obligations," Latvenergo said, adding that a share of "up to" 20% would represent a good balance of opportunity and risk.
Andres Tropp, head of Eesti Energija's nuclear department, tells bne that Moody's opinion reflects a widespread perception that all nuclear projects are considered high-risk and a final investment decision cannot be taken earlier than 2015. "It's pretty obvious that Eesti Energija requires strong support, including financial support, from its shareholder [the Estonian State] for participating in this project and this shareholder should get adequate and detailed views on all aspects of the project before it can proceed with its decision making process. We are not there just yet," Tropp says.
Regarding the planned 22% stake, Tropp said: "Nothing is certain until the final investment decision will be made."
Twists and turns
As investment adverts invariably warn, past performance is no guarantee of future returns, but the litany of failures connected to Visaginas does not provide much encouragement. For a project in its "early stages," it has been around for an awfully long time.
After years of fruitless chit-chat, a supposed deal signing at a showcase energy summit in 2008 turned out to be an embarrassing non-event. Poland was unilaterally invited to join the project by Lithuania, then unilaterally walked out again last year. The South Korean company Kepco that actually won the protracted tender made for the exit as well in circumstances that remain murky.
Contracts to take care of the decommissioned Soviet-era plant have been beset by legal wrangles, while Lithuania constantly bothers the EU for more money to take care of the fallout - if that's not an unfortunate term.
As if to underline that plenty of questions remain about the environmental credentials of nuclear power following the Fukushima disaster in Japan, it seemed grimly ironic that it should be Hitachi riding to the rescue just as their home market dried up.
The draft agreement signed between the Lithuania and Hitachi still needs ratification in parliament and while this will likely be forthcoming, it might not be quite as smooth a ride as anticipated. This is an election year after all and opposition parties will want to shine a light on gaffes by the Andrius Kubilius government during the tendering process, while promising of course that when they are in charge everything will be on target and on budget.
The one thing you can credit Lithuania with is persistence. The desire for the "prestige" of having a nuclear reactor pumping out the watts on their territory seems to be the one unshakeable fact in the whole affair.