Russia set to take lead on Mochovce as Bratislava closes in on Slovenske Elektrarne

By bne IntelliNews July 15, 2015

bne IntelliNews -


Czech-based engineering company Skoda JS, owned by Russian corporation OMZ, is pushing to strengthen its role in Slovakia's Mochovce nuclear project, the company announced on July 15. 

OMZ currently operates at Mochovce under a €520mn contract to oversee commissions associated with the construction of the two new reactors. However, it now wants to become the main coordinator of the €4.6bn nuclear project, Slovak daily Hospodarske Noviny reported. 

Hugely delayed and over budget, Mochovce is the main issue weighing against the efforts of Enel of Italy to sell its 66% stake in Slovak power producer Slovenske Elektrarne (SE). The move by OMZ - closely associated with Russian state nuclear agency Rosatom and technically privately owned but essentially state-controlled according to reports - comes as Bratislava is closing in on taking control of SE from the Italian utility. 

"We've been holding talks on expanding our role with respect to coordinating the whole project," Skoda JS spokesman Jan Stolar told the Slovak daily. He pledged the company will increase the number of Slovak suppliers as soon as it clinches an agreement. 

SE, currently leading the nuclear project itself, appears open to OMZ strengthening its position after years of harsh criticism from Bratislava for its handling of Mochovce. "Slovenske Elektrarne is considering comprehensive coordination services for Skoda JS as one of the initiatives aimed at making improvements," spokesperson Jana Burdova said. 

The installation of an extra 880MW at the plant is more than two years behind schedule, partly because of increased security demands in the wake of the March 2011 Fukushima disaster. The first of the two units is now expected to start commercial operation in November 2016, with the second to follow a year later. However, nuclear regulator Urad Jadroveho Dozoru (UJD) said in May the project might face a new delay of three or four months. 

Moreover, the cost of the project has almost doubled. Initially projected at €2.8bn it was increased to €4.63bn in November, much to the fury of the Slovak government. It has been suggested the cost could rise to as much as €5.5bn. 

The project has been the main obstacle claimed by Enel's suitors. However, Czech energy group EPH, a Hungarian consortium made up of MVM and MOL, and Finnish utility Fortum reportedly filed bids for Enel's stake, which has an equity value of around €750mn according to CEO Francesco Starace. China National Nuclear Corporation is also reportedly mulling an offer. 

Soft underbelly 

However, the move to hand the Russian-owned company a leading role at Mochovce comes as Bratislava is thought to be working on a deal to take over SE itself. It threatens to reopen debate on the loyalties of Slovak Prime Minister Robert Fico, who has been performing a precarious balancing act throughout the stand-off between Russia and the West. 

While Slovakia has been feeding Ukraine gas as part of a West-backed effort to alleviate Russian pressure on Kyiv, Fico has also begun canvassing Moscow for a role in any new gas export system. Russian state nuclear agency Rosatom - a leading edge in Moscow's bid to diversify its economy - is seen by the West as an additional threat to EU energy security. 

Indeed, with Central Europe seen as part of a soft underbelly of EU policymaking, Rosatom is pushing to extend its influence in the region. Last year it sealed a deal to expand Hungary's Paks nuclear power plant. In a consortium with Skoda JS, it was also one of the final two bidders in a recent Czech tender to boost its nuclear capacity. While that project was dropped last year, a new tender is on the way. 

With Enel firmly on the back foot, and the Slovak state apparently putting the finishing touches to a deal to take control of SE, it seems unlikely that a handover of the Mochovce project to a Russian-owned company would happen without Fico's approval. Such a move would clearly be welcomed in Moscow. 

At the same time, some hint that from a technical and business point of view, handing control to a Russian contractor is the smart move, given the years of delay and billions added to the tab at Mochovce. One Slovak banker told bne IntelliNews in late June that Enel has run SE very badly. 

"They've screwed up Mochovce, not least by trying to finish a partly-built Russian block without involving the Russians. They also shouldn't be running the project themselves, but via a project company; they don't even do nuclear in Italy," he said. 

Another problem, according to the same source, is that the construction permit on Mochovce is about to run out, and renewal would likely bring up serious issues. "The current permit was issued when things were much laxer," the banker claims. 

Presumably, a new permit might be easier to secure should SE end up in state hands, as now seems almost certain. Having suffered under huge pressure from the authorities since announcing last summer that it would look to sell, Enel essentially gave up that drive earlier this year. 

The Italians said in the spring they now plan to sell its 66% in two tranches. The first deal, due by the end of the year according to Enel, is set to see Bratislava raise its current 34% stake to a majority. The Slovak government has set a deadline of July 17 to start the process to choose an advisor on the terms it should offer Enel. 


While Bratislava's purchase of at least 17% of SE looks on the cards, the destination of any further divestment by Enel will depend heavily on efforts to sort the problems at Mochovce out. The Slovak banking source tells bne IntelliNews that SE is essentially worthless without this problem solved. 

Still, there are candidates that say they'd be willing to throw their hat into the ring with the government. Oil refiner Slovnaft - owned by Hungary's MOL, which has bid for the whole 66% stake - reportedly suggested to Pravda on July 15 that it could be interested in teaming up with the Slovak government. 

"Although the consortium of Slovnaft and MVM has made an indicative offer to buy a 66% stake in Slovenske elektrarne, at the same time we're open to a discussion on possibly strengthening the position of the state," Chairman Oszkar Vilagi  told the Slovak daily. 

A track record of working with the state within the country's dominant gas utility is a major signal for some that Czech-based energy holding EPH is favourite to join the SE shareholders list eventually. However, the closely-held group has major several major purchases recently that have loaded it up with debt, leaving many to doubt it could stretch to a significant acquisition in SE. 

Yet the Slovak banker says finance may not prove a big obstacle. "SE is not worth much even if [the problematic] Mochovce is hived off," he notes, "so EPH could afford it." 


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