The UAE nuclear deal is an opportunity for South Korean firms to position themselves to win more work in the power and water sector
The year 2009 will be remembered as the best 12 months for South Korean engineering, procurement and construction (EPC) contractors in the Middle East. Major multi-billion dollar awards for process plant projects in Saudi Arabia, Algeria and Abu Dhabi throughout the year saw Korean contractors’ stock rise. However, it was the Abu Dhabi nuclear contract deal that made the world really sit up and take notice.
The UAE’s decision in December 2009 to award a $20bn contract for the design and construction of four 1,400MW nuclear power units to a consortium comprising of Korea Electric Power Corporation (Kepco), Hyundai Heavy Industries (Hyundai HI), Samsung Engineering and Construction (Samsung E&C) and Doosan Heavy Industries and Construction (Doosan), took even industry experts by surprise. The South Koreans beat US and French rivals to one of the Middle East’s biggest ever energy contracts, amid tough competition.
The award marked South Korea’s transformation from an importer of nuclear technology in the 1970s to nuclear plant supplier by 2009.
The Korean consortium was awarded the contract by the federal body, Emirates Nuclear Energy Corporation (Enec) after a 12-month bidding process. Enec spokeman Fahad al-Qahtani explains the decision behind the award: “One of the reasons Enec picked Kepco as the prime contractor was the depth of the team, and the resources the team would bring to bear on our project.
As a member of the Korean team, we want to win [nuclear] contracts wherever they are in the region
Hae-Jin Hwang, Doosan
“It’s a team that has an outstanding record for designing, building and operating nuclear power plants to the highest levels of safety.
“In addition, Hyundai, Samsung, and Doosan, all have great deal of experience in building large power plants, desalination plants and large commercial buildings in the UAE. They know what it takes to succeed here – and have demonstrated success.”
In terms of installed capacity, state-owned Kepco is the third largest nuclear energy company in the world with 17,716MW in operation. The company currently has 20 nuclear power plants in South Korea, with eight more planned or under construction.
Kepco and its partners will supply the full scope of works for the nuclear plants in the UAE. Three Kepco subsidiaries will also be involved in the scheme. Korea Hydro and Nuclear Power Co are to be the main EPC contractor, Korea Power Engineering Co will provide design and engineering services, while Korea Plant Service and Engineering Co will provide plant maintenance. US-based Westinghouse, a subsidiary of Japan’s Toshiba Group will also be involved as initial reactor supplier.
The first reactor is due for completion by 2017, while the other three are expected to come on-stream by 2010. The contract is fixed price and the EPC costs are estimated to be $18.3bn of the total $20bn construction cost.
Seoul’s reaction to Enec’s decision to award the contract to the Kepco consortium was one of great pride and the news dominated the Korean press for most of January.
“Though Korea has accumulated the technology and has long experience in nuclear power plants, we have never had the chance to export nuclear power plants before,” says Do Bong-kae, director of the Middle East division of the Korean Ministry for Foreign Affairs and Trade. “This deal realised our dream and upgraded the image of the Korean nuclear industry.
“We understand the UAE chose the Korean consortium for its rich experience, its competitive price, short construction period and most notably, the safety of Korean [nuclear] power plants. We hope Korea will play a meaningful role in the global nuclear energy market.”
The country’s involvement in the deal is set to extend further to include financing.
The Export-Import Bank of Korea (Korea Eximbank) is involved in confidential discussions with Enec regarding finance for the scheme, according to a source. Enec is also in talks with four international banks as it seeks to appoint a second financial adviser to assist with the development of its 5,600MW nuclear scheme. The banks are the UK’s HSBC and Rothschild, US’ Citigroup, and France’s BNP Paribas. The four are understood to have already made pitches to Enec.
“Due to the confidentiality agreements in place, Korea Eximbank couldn’t talk about the details of the deal even if it wanted to,” the source says. “However, once the financial adviser is in place the work will really start. The end of 2010 is my prediction.”
Hyundai HI has been involved in major construction projects in the Middle East since it won a $957m contract to build the Jubail Industrial Harbour in Saudi Arabia in 1976. The contract would be worth about $3.7bn today. Ho-sang Kim, chief operating officer, overseas business division for Hyundai HI, admits that while this is the first major foreign contract his firm has won in conjunction with other Korean contractors, they have regularly worked as team on domestic projects.
Working in tandem
“As far as building nuclear power plants is concerned, we are very comfortable working with Kepco as the operator and Doosan as the manufacturer,” Kim says. “And while working with other Korean contractors is not something we would do in general projects of this size, it requires a lot of co-operation.”
Mobilisation on the ground in the UAE has already begun. “Initial work is progressing well. Our engineers are already at the site and we have started to erect temporary facilities,” he says.
Another consortium partner Doosan has almost 40 years’ experience in the Middle East and is leading development of large-scale power and water facilities across the region, as well as being a recognised supplier of plant components.
The region has become one of our biggest markets, especially for power and desalination
Hae-Jin Hwang, Doosan
The company has been involved in the Korean nuclear industry for the past 30 years and is the sole supplier of the main equipment for all 20 of the country’s facilities. The reactor being used for the UAE project is Doosan’s APR-1400, based on Westinghouse technology. It is estimated to be 20 per cent cheaper to build than a similar reactor made by France’s Areva. Fuel costs are also 23 per cent lower.
The company’s regional managing director for the Middle East, Hae-Jin Hwang says it is right that the Korean firms have teamed up for the project. “Supplying nuclear plants should be a country concept and as a member of the Korean team, we want to win [nuclear] contracts wherever they are – in Saudi Arabia, Jordan or Bahrain,” he says.
“Besides the nuclear deal, we had a busy 2009 in the Middle East,” Hwang adds. “We won $1.67bn worth of power and water projects and the region has become one of our biggest markets, especially for power and desalination.
“The economic situation is good in the Middle East and while our EPC contracting business is going well, we would also like to expand our service operation in the region.”
Doosan’s Middle East share of the power and water sector is coming under threat as many Korean EPC contractors look to diversify away from hydrocarbons and aggressively bid for power and water projects in the region. However, unlike many of its competitors, the company also manufactures components for power and water plants. So it hopes to apply the country strategy here too, by supplying equipment to its fellow Korean contractors.
“We have supplied boilers and steam turbines to Korean contractors for projects in the region,” Hwang says. “If Korean contractors win more power and water projects in the region, then we are confident they will come to us for equipment.”
With the UK-based World Nuclear Association forecasting 430 additional nuclear plants will be built by 2030, and 1,400 between 2010 and 2050, even those Korean contractors not involved in the UAE nuclear deal, believe they can win work on future projects.
“After we have completed the nuclear power project in Korea [Korean Standard Shingori Nuclear Plant No 1], we are now qualified to be a prime contractor,” says Casey Choi, president of SK Engineering & Construction. “More projects like the one in the UAE will come along in other parts of the world, such as Jordan and Turkey.”
Sang-Ryong Woo from GS Engineering and Construction agrees: “Considering the work volume and the size of the nuclear power plant contract, one or two contractors cannot do all of the work. We are building two plants in Korea at the moment, so we hope to be heavily involved in the future.” While nuclear power schemes stole the headlines at the start of 2010, Korean contractors are keen to broaden their portfolios to include as many power and water projects in the Middle East.
Power and water schemes in the region offer excellent opportunities for direct investment as independent power producers for example, as well as post-project service contracts. “We are bidding for a contract for a sewerage scheme in Bahrain,” says Hong-Pyo Kong from Samsung Engineering.
“This will be a 25-year project covering operations and maintenance, so my company will be looking at 50 per cent ownership.
“In Korea, we have a lot of experience in similar schemes and we have to inject our money,” he adds.
Daewoo Engineering and Construction is another Korean contractor looking to grab market share in power and water projects in the Middle East.
“We have a lot of bids in for power plants at the moment,” says Sang-Real Kim, vice-president, overseas business division for Daewoo. “We are bidding on power plants in numerous locations including Morocco, Iraqi Kurdistan and Saudi Arabia. We see power and water as a growth market,” he adds.
Power and water projects will continue to be a priority area for investment in the Middle East as demand continues to rise. In particular interest is mounting in other countries for developing nuclear power projects. The UAE has given South Korea the opportunity to showcase what it is capable of. Now is the time to deliver.