Czech government takes majority in $18 billion nuclear power project

By Jan Lopatka

PRAGUE (Reuters) -The Czech government will take a majority stake in an $18 billion project to build two new nuclear units, Prime Minister Petr Fiala said on Wednesday, a decision aimed at easing the financial burden on power firm CEZ.

CEZ, which is 70% state-owned, had agreed to build a single reactor at its Dukovany power plant with state loans and guarantees, but sought alternative financing after the government expanded the project to two units.

Under Wednesday's deal, the government will acquire an 80% stake in CEZ subsidiary Elektrarna Dukovany (EDU) II - which will build the new units - for about 3.6 billion crowns ($164 million).

The investment and financing model was one of the key obstacles on the path to a deal with South Korea's Korea Hydro & Nuclear Power (KHNP), a subsidiary of Korean state utility KEPCO, which was chosen last year to build the plant.

"We decided on the way of financing the new nuclear units, taking over 80% in EDU II from CEZ, and on May 7, a contract will be signed with KHNP," Fiala told a press conference.

CEZ said selling most of the project to the state would allow CEZ to finance other energy investments as the country transitions away from coal.

Finance Minister Zbynek Stanjura said the government would apply for European Union approval of state aid immediately after signing the contracts.

He said the government planned to provide loans, a compensation mechanism for power market volatility on electricity from the new plant, and a guarantee for regulatory changes in the same way that the Commission agreed for the original plan for one unit.

EDU aims to complete the first unit in 2036 and the second soon after.

The Czech Republic gets about 40% of its electricity production from its two existing nuclear power plants. It exports a declining amount of power as its surplus falls with the decommissioning of coal plants.

The expected cost of the new nuclear units, around 400 billion crowns, does not include inflation over the time of construction or other additional costs.

Nuclear projects often run into huge cost overruns, which the Czechs have sought to eliminate in their planned contracts with KHNP, which was chosen over France's EDF.

The French company has lost appeals against the tender result with Czech competition authorities, but has also challenged the selection of KHNP with the European Commission.

($1 = 21.9350 Czech crowns)

(Reporting by Jan Lopatka, editing by Jason Hovet and Emelia Sithole-Matarise)