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KEPCO, KHNP Forgo Private Maintenance Contract for UAE Power Plant for Fear of Taking Responsibility
Afraid of Being Held to Account for Accidents
KEPCO, KHNP Forgo Private Maintenance Contract for UAE Power Plant for Fear of Taking Responsibility
  • By Jung Suk-yee
  • January 14, 2019, 09:31
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Korea Hydro & Nuclear Power Co. (KHNP) gave up signing a private contract with the United Arab Emirates for long-term maintenance of the Barakah nuclear power plant for fear of being held responsible for accidents.

The fear of being held responsible for accidents prevented a South Korean state-run firm from signing a multibillion dollar deal with the United Arab Emirates (UAE) for long-term maintenance of the Barakah nuclear power plant, it was learned belatedly.

The UAE intended to sign a private long-term maintenance agreement (LTMA) for the nuclear power plant with Korea Hydro & Nuclear Power Co. (KHNP), a subsidiary of Korean Electric Power Corp. (KEPCO), but changed to a competitive bidding after the Korean company’s rejection of its demand that KHNP take full responsibility for any accident. The LTMA is a mega project worth 2 trillion won to 3 trillion won (US$1.79 billion to 2.69 billion).

The agreement’s main contractors – KEPCO and its subsidiary, KHNP – decided to forego the private contract because they were afraid of being held to account if any accident happens. As a result, Nawah Energy Co., the operator of the Barakah nuclear plant, changed to a competitive bid.

The political climate in Korea of that time also weighed down KEPCO and KHNP. The two companies could not hastily accept risks because at the time, the Board of Audit and Inspection and the prosecution investigated officials involved in the previous government’s policy decisions, including overseas resource development projects.

An expert in the power plant industry said, “The APR1400 model used in the Barakah project has the lowest level of core damage frequency (CDF) and containment failure frequency, which represents the probability of accidents, so there was no need to worry about accidents. But the two firms decided not to take unnecessary risks and gave up the private contract because they were weighed down by the government’s crackdown on what they called ‘deep-rooted irregularities’ in overseas resource development projects,

Nawah is receiving bids for the LTMA for the Barakah nuclear power plant and is now in talks with three bidders – a South Korean consortium led by the KHNP and the KEPCO Plant Service & Engineering Co. (KPS), Doosan Babcock of the United Kingdom, and Allied Power of the United States. Doosan Babcock is an affiliate of Doosan Heavy Industries Co., South Korea's leading power equipment maker. The UAE’s state-run firm will make the final decision next month.

Nawah was planning to select KEPCO KPS as the contractor for the LTMA through a free contract, according to an official who is well versed in the LTMA bids. The prime contract signed between KEPCO and the UAE included a clause that South Korean operators will provide maintenance services when the UAE makes a request. On that basis, KEPCO KPS had held negotiations on the private contract from 2015 to early 2017. However, Nawah attached a condition in February 2017 right before sealing the deal that KEPCO KPS gives a full refund of the contract amount when any accident happens. KEPCO KPS did not accept the condition. The company’s negotiators leaned towards accepting the condition and proceed with the contract with Nawah but they confronted strong opposition from higher-level officials. Accordingly, Nawah decided to call for competitive bids for the LTMA.

The problem is that the terms of the contract, including price, have become further unfavorable for the South Korean consortium. The condition of full responsibility remains even in the competitive bidding. During the negotiations on a private contract, KEPCO KPS agreed to reduce the term of the contract from 10 years to two years. This shortened term is most likely to be applied to the bidding as well. In addition, Nawah is highly likely to attach the condition that the UAE will decide on who is legally responsible for accidents. During the talks for the private contract in 2017, KEPCO KPS insisted that Singapore, a third country, determine liability and almost won endorsement from the UAE. However, the discussion ended up with nothing after the company abandoned the free contract.