THE ROMANIAN EXPERIENCES IN CERNAVODA NPP · PDF fileInternational Atomic Energy Agency 2nd Regional Conference on Energy and Nuclear Power in Africa 30 – 31 May 2011-05-11 Cape

International Atomic Energy Agency

2nd Regional Conference on Energy and Nuclear Power in Africa30 – 31 May 2011-05-11

Cape Town, South Africa

THE ROMANIAN EXPERIENCESIN CERNAVODA NPP FINANCING

Dr. IOAN ROTARUIAEA Invited Expert


CONTENT

1. CONSIDERATION ON NPP FINACING

2. ROMANIAN EXPERIENCE

3. OUR PRODUCTS

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3. OUR PRODUCTS

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International Atomic Energy Agency4

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 forintroduction of Nuclear Power Plants.

Infrastructure required to support a national nuclear powerprogramme would be expected to proceed the followingphases 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 ismarked by a specific milestone, for the developmentassessment and decision to go to next phase.


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 theevaluation of the milestones assessment, each of thembeing important and requires careful consideration.

Government, Nuclear Safety Regulatory Body and NPPOwner/Operator need to ensure that:

activities in all phases are managed as per applicablerequirements and rules. assessment and evaluation of the results of each

milestones are properly performed for a documenteddecison for next phase.


MILESTONES IN THE DEVELOPMENT OF A NATIONAL INFRASTRUCTURE FOR NUCLEAR POWER (NG-G-3.1)

P re p a r in g fo r a s s u m in g c o m m itm e n ts & o b lig a t io n s

Infr

astr

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evel

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. NPP

Pro

ject

C o m m is s io n in g

O p e ra t io n / d e c o m m is s io n in g

N u c le a r p o w e r o p t io n in c lu d e d w ith in th e

n a t io n a l e n e rg y s tra te g y

1 0 – 1 5 y e a r s

P H A S E 2

P H A S E 3

P H A S E 1

M IL E S T O N E 1R e a d y to m a k e a

k n o w le d g e a b le c o m m itm e n t to a n u c le a r p ro g ra m m e

M IL E S T O N E 2R e a d y to in v ite b id s

fo r th e f ir s t N P P

M IL E S T O N E 3R e a d y to c o m m is s io n a n d

o p e ra te th e f ir s t N P P

F e a s ib il ity s tu d y B id d in g p ro c e s s

P r e p r o j e c t P r o j e c t d e c is io n m a k in g C o n s t r u c t io n

C o n s id e ra t io n s b e fo re a d e c is io n to la u n c h a n u c le a r p o w e r p ro g ra m m e is ta k e n

P re p a ra to ry w o rk fo r th e c o n s tru c t io n o f a N P P a fte r a p o lic y d e c is io n h a s b e e n ta k e n

A c t iv i t ie s to im p le m e n t a f ir s t N P P

M a in te n a n c e a n d c o n t in u o u s in fra s t ru c tu re im p ro v e m e n t

IN F R A S T R U C T U R E D E V E L O P M E N T P R O G R A M M E

P re p a r in g fo r a s s u m in g c o m m itm e n ts & o b lig a t io n s

Infr

astr

uctu

re d

evel

opm

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. NPP

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C o m m is s io n in g

O p e ra t io n / d e c o m m is s io n in g





1 0 – 1 5 y e a r s

P H A S E 2

P H A S E 3

P H A S E 1

M IL E S T O N E 1R e a d y to m a k e a

k n o w le d g e a b le c o m m itm e n t to a n u c le a r p ro g ra m m e

M IL E S T O N E 2R e a d y to in v ite b id s

fo r th e f ir s t N P P

M IL E S T O N E 3R e a d y to c o m m is s io n a n d

o p e ra te th e f ir s t N P P

F e a s ib il ity s tu d y B id d in g p ro c e s s

P r e p r o j e c t P r o j e c t d e c is io n m a k in g C o n s t r u c t io n





A c t iv i t ie s to im p le m e n t a f ir s t N P P

M a in te n a n c e a n d c o n t in u o u s in fra s t ru c tu re im p ro v e m e n t

IN F R A S T R U C T U R E D E V E L O P M E N T P R O G R A M M E


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 powerinfrastructure development, legislative and regulatory frameworkdevelopment and regulation, etc.).

“Financing” refer to items that are the fiscal responsibility of theNPP Owner/Operator (whether it is the government or a privateutility) - NPP and the associated facilities.

Initial activities to understand the commitments involved increating a nuclear power infrastructure and to develop the humanexpertise to manage and regulate nuclear facilities will be ofprime importance to subsequent efforts to obtain financing forthe first Nuclear Power Plant.


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 PowerPlant.

Phase 1: Funding plan for the Nuclear Infrastructuredevelopment and policy and strategy for financing the firstNPP



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 thefirst NPP and associated facilities (including level of borrowing and nature ofguarantees) and and of a strategy to manage the associated risks (consultants).

• Financing plan and risks strategy shall considered factors like the political andeconomic stability, public attitude against nuclear, prospects of economicdevelopment, protection to foreign investment, existence of a competentregulatory body and the capability to manage large capital construction projects.

Phase 2: Implementation of the funding plan (infrastructuredevelopment and operation) and development of the firstNPP financing plan and risks management strategy.


NPP FINANCING PLAN NPP Owner should prepare NPP financing plan which

should includes the collection of relevant project relatedfinancial data, as a function of time and proposed solutionfor 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.



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 andcommissioning, as per the contractual schedule.

• Re-analyze the predicted electricity rates and tariffs, if are sufficient to ensurea return on capital investment –cash flow (electricity market?).

• Mechanisms to provide funding for decommissioning, long term spent fuel andwaste management and disposal are implemented (required law in force andinfrastructure developed).

Phase 3: Securing the financial mechanism for first NPPconstruction and commissioning and re-analyze projecteconomics and the future of the NPP operation.


NPP LIFE CYCLE CASH FLOW


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 financingarrangements

• How much receiving during the NPP operationwill you need for capital return and debtrepayment? - Cash flow analysis


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 (externalequity).

Debt is borrowed money and the creditors are attractedby:

• 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 theinterest income offered to the creditor).

Equity/debt ratio: recommended 30/70 or 40/60.


CONCERNS OF NUCLEAR FINANCIAL INSTITUTIONS

Long development / construction periodsHigh capital costsSustainability of Government commitmentAdequate national nuclear infrastructure in

placeHighly regulated industrySafety cultureHuman Resources and Supply ChainEnvironmental responsibility


WHAT FINACIAL INSTITUTION REVIEW?Financial institutions shall review the country:Legal frameworkRegulatory competenceFinancial stabilityTechnical competenceOperator skills and attitudeEmergency preparednessInternational connectivity


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 Projectresponsible parties.

NPP project structure that imposes seriousdiscipline in cost and risk management is asine qua non of successful financing,whatever arrangements are made with regardto debt and equity.


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 inthe best position to manage the risk (see next diagram).

Always ask: How much is that risk allocation going tocost the project?


PARTIES INVOLVED IN A NUCLEAR POWER PROJECT

Risk Allocation?

Consultants

Government

Public

Spent Fuel Management

Offtakers

Operators

Human Capital

OwnersEPC

Contractor

Fuel Supply

NSSS Suppliers

Financing Entities

Decommissioning

PROJECT

SubcontractorsEquipment &

Material Suppliers

Labor

Multilaterals

Commercial Banks

ECAs Government Regulation & Licensing

Financial Commitments

Treaty Commitments &

National Law




3. OUR PRODUCTS

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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 thedifferent nuclear technology available on the NPP market.

1978-1980: commercial contracts for Cernavoda Unit 1 weresigned with AECL Canada (nuclear island), ANSALDONUCLEARE Italy and GE USA (balance of plant).

1981: Cernavoda Unit1 site works started. 1983-1984: 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.


ROMANIAN NPP SHORT HISTORY (2) 1991: a new contract was signed with the traditional

partners (AECL Canada, ANSALDO NUCLEARE Italy andGE USA) only for Cernavoda Unit 1 finalization and theothers units were stopped.

1996 December: Cernavoda Unit 1 was commissioned andstarted the commercial operation.

2001: contract for Cernavoda Unit 2 completion was signedand construction works started.

2007 November: Cernavoda Unit 2 started the commercialoperation

2009: Romanian Government decided to finalize CernavodaUnit 3 and 4, using an innovative financing model. Theseunits should be in commercial operation after 2017.

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FUNDING AND FINANCING FIRST NPP Funding: Nuclear Infrastructure developed in Phase 2

(1970-1980) based on the Government contribution (statebudget, 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 Italyand 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


CERNAVODA UNIT 2 FINANCING Similar financing mechanism with Cernavoda Unit 1, except the

limitation of the Government financial support from the statebudget, due to the introduction of the electricity market inRomania, starting with 2000.Local portion (goods and services): Loan (225 milions Euro)

borrowed by NPP Utility form European Commission(EURATOM) with and limited Government support through statebudget.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 (SocieteGeneral-SOGEN, EDC Canada, SACE Italy and US EXIM)with sovereign guaranties.

15% of the value of imports: EURATOM loan and NPP utilityown resources.


CERNAVODA UNIT 3 AND 4 FINANCING (1)Pre-Fesability Study issued in 2003 identified the mainconstrains in Project completion: Unavailability of the Government’s direct financial support and

sovereign guaranties, in compliance with the Government policyof withdrawing from the electric power sector, considering theliberalization of the electric power market and the specificregulations concerning the subsidies granted by theGovernment.

Insufficient capability of Cernavoda NPP Owner(NUCLEARELECTRICA) to finance and attract the neededfinancing resources, taking into account the repayment of theloans for Cernavoda Units 2 (due in the next 10-15 years fromstarting the commercial operation - 2007).


CERNAVODA UNIT 3 AND 4 FINANCING (2) Cernavoda Units 3 and 4 can be completed by setting up a

partnership with private investors, associated withNUCLEARELECTRICA within a Joint Venture (Project Company –PCO), developed as an IPP (Independent Power Producer) on theRomanian electricity market.

NUCLEARELECTRICA is a 100% state owned company, NPPCernavoda Owner and Operator of Units 1 & 2.

PCO will be established for the purpose of owning and operatingof Unit 3 and 4 and shall be a Romanian registered legal entity.

Partnership with foreign investors would ensure the requiredfinancing 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 sovereignguaranties but with corporate guaranties.


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 2009. 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 companynominal capital each shareholder holds (pro-rata).

Shareholder agreement and electricity off-take contractsshall be tools for debt financing (loans).

Current status of the Project: potential main contractors forEPC contract selected and based on the BIS to be finalizedsooner, the bids shall be required by end of this year.


EXPERIENCES AND LEARNED LESSONS (1)Financing model of the Cernavoda Units 1 and 2 is a traditionalNPP financing model named “sovereign model”, with thefollowing main characteristics:1.Nuclear Power development is part of a national

development plan (similar situation were/are in People’sRepublic 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 fromsovereign sources (with Government guarantee).


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 thediscussion by the effectiveness of the loans: 1-2 years) andshould be taken into account in the project implementationschedule.


EXPERIENCES AND LEARNED LESSONS (3)NPP EPC Contractor/Vendor should play an important rolein 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 risksassociated with its product implementation.

Working with Regulatory Body and Government of recipientcountry to improve licensing process and legal framework.

Developed expertise and cooperate with NPP Owner tomitigate NPP Project delivery risk.

Results of these actions are expected to be lower costs andlower risks, which will contribute to the assurance of thenecessarily financing!


EXPERIENCES AND LEARNED LESSONS (4) National authorities (Ministry of Finance, Ministry of

External Affairs, etc.) should be involved in identification ofthe suitable financial markets and financial sources for firstNPP.

Loans from Export Credit Agencies (ECA) are characterizedby specific fees:

• Exposure fee (insurance premium)• Management fee • Commitment fee• Interest

All these fees shall be paid to ECA (two times per year) alsoduring the NPP construction period (5-6 years) usingGovernment funds (important financial effort).




3. OUR PRODUCTS

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IFA MAGURELE NUCLEAR RESEARCH REACTOR

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IFA MAGURELE VVR-S RESEARCH REACTOR


PITESTI TRIGA NUCLEAR RESEARCH REACTOR


ROMANIA CERNAVODA NPPUnits 1 and 2 in operation (1996 December, 2007 November)

Units 3 and 4 under construction (2017-2018)

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CERNAVODA NPP


UNIT # 1 – 14 YEARS OF COMMERCIAL OPERATION

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UNIT # 2 CERNAVODA: 3 YEARS OF COMMERCIAL OPERATION

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PITESTI CANDU 6 NUCLEAR FUEL PLANT

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CERNAVODA NPP SITEERIM DRY SPENT FUEL STORAGE FACILITY

MACSTORE Type (AECL Canada) – first module operational from 2003; second – 2006; third – 2008, forth -2010.

Final profile: 27 modules – 50-80 years of storage for 2 CANDU Units

CERNAVODA UNIT # 3 & 4(under construction)

CONCLUSIONclear Power Plant is fundamentally more complex than

her forms of power infrastructure and this complexityds 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.estment decisions for nuclear power projects cannot bede only on the basis of NPP project parameters. Political,al, technical and financial factors need to be addressed!vernment shall play a very important role in establishingfinancing plan and mechanism for the first NPP.

…Thank you for your attention!

Documents

THE ROMANIAN EXPERIENCES IN CERNAVODA NPP · PDF fileInternational Atomic Energy Agency 2nd Regional Conference on Energy and Nuclear Power in Africa 30 – 31 May 2011-05-11 Cape