"'27 Trillion Won' Czech Nuclear Plant Construction Contract Talks Collapse; KHNP Parts Ways with Daewoo-Doosan Consortium (Roundup)"

78 Working-Level Meetings and 11 Dispute-Resolution Committee Meetings Fail to Yield Agreement
KHNP to Replace Contractor Through Competitive Bidding: "Doing Everything Possible to Minimize Project Disruptions"

Negotiations over the construction contract for the 27 trillion won Czech Dukovany nuclear power plant project between Korea Hydro & Nuclear Power (KHNP) and a consortium of Daewoo Engineering & Construction and Doosan Enerbility have collapsed. The two sides negotiated for about 15 months but failed to bridge their differences over construction costs and contract terms. KHNP has decided to end its partnership with the existing consortium and select a new contractor through competitive bidding. It aims to sign a new construction contract by July next year, but delays caused by replacing the contractor and the possibility of legal disputes have emerged as variables affecting the project.

Talks Collapse After 15 Months as Differences Over Costs and Contract Terms Remain

KHNP said on October 29 that it was officially ending negotiations on the construction contract for the Czech Dukovany nuclear power plant project with the Daewoo Engineering & Construction-Doosan Enerbility consortium. The two sides attempted to reach an agreement through working-level negotiations, a dispute mediation committee and executive-level talks, but failed to resolve their differences over key contract terms.

A KHNP official said, "The two sides were unable to narrow their differences over key contract terms, including not only construction costs but also the contract structure, scope of work and whether the terms of the main contract would be incorporated. We decided to end the negotiations and begin the process of selecting a new contractor, taking into account that extending the talks further could have a greater impact on the overall project schedule."

The conflict between the two sides arose over how construction costs would be calculated and the contract structure. KHNP sought a lump-sum contract, under which the total price is fixed in advance, as it had for the Barakah nuclear power plant project in the United Arab Emirates (UAE). The contractor, by contrast, argued that any increase in the actual volume of construction work after detailed design should be settled separately.

Under a lump-sum contract, construction is carried out for the amount agreed at the time the contract is signed. In principle, the contractor bears the associated risk even if the volume of work increases during construction. Under a quantity-based settlement arrangement, however, costs may rise further due to design changes and other factors, resulting in a different allocation of risk between the contracting parties.

According to KHNP, the two sides initially agreed on the price for constructing one nuclear reactor and on a lump-sum contract when the first tender was held in 2022. However, differences emerged during the final tender process for the construction of two reactors in 2024, when the contractor sought changes to unit prices and settlement based on the volume of work.

KHNP ultimately submitted its final bid at a price it had calculated based on the unit prices originally agreed upon, while taking into account domestic nuclear power plant projects, the UAE project and conditions in the Czech Republic.

During subsequent negotiations, KHNP proposed increasing the construction price on the assumption that the baseline volume of work would rise. It also presented a compromise under which the total price would be fixed when the basic design was approved, rather than when the contract was signed. The parties still failed to reach an agreement.

A KHNP official said, "Based on the unit prices agreed upon during the initial tender, we proposed increasing the construction cost to reflect additional work and increases in the volume of work. We also reviewed whether the construction costs were reasonable through an assessment by domestic specialist institutions, but ultimately failed to reach an agreement that both sides could accept."

The negotiations also involved disagreements over the basis for calculating construction costs. KHNP said it requested a breakdown of direct and indirect costs and detailed calculation data, but the contractor did not submit the relevant materials, making it difficult to verify whether the construction costs were reasonable.

Since signing the main contract with the Czech project owner in June last year, the two sides had held 78 working-level meetings, two meetings between chief executive officers (CEOs) and 11 sessions of the dispute mediation committee over about 15 months. Even during the committee's meetings from June 30 to July 31 this year, they were unable to narrow their differences over price and contract terms.

The Czech project owner had reportedly asked the parties to finalize the construction contract by the end of September. KHNP shared its plan to reach a conclusion on the negotiations by the end of October through an implementation review council involving the governments of South Korea and the Czech Republic.

New Contractor to Be Selected by July Next Year

KHNP determined that selecting a new contractor would have less impact on the overall project schedule than continuing negotiations. Some work is already behind schedule, and KHNP said that extending negotiations for a prolonged period could disrupt subsequent design work and permitting.

KHNP plans to select a new contractor through competitive bidding under the State Contracts Act. It aims to hold a briefing for potential contractors, establish comprehensive evaluation criteria and then complete the contract by July next year following the bidding announcement and evaluation.

Daewoo Engineering & Construction and Doosan Enerbility, which were part of the existing consortium, will also be eligible to bid again. KHNP said it would provide all qualified companies with a fair opportunity to participate, taking into account relevant laws and regulations, project conditions and their ability to fulfill the contract.

A KHNP official said, "No successor contractor has been selected yet, and we plan to proceed with competitive bidding in accordance with relevant laws and regulations. We will select a competitive company through a comprehensive assessment of not only the contract price but also construction capabilities, contract terms and the ability to meet the schedule."

KHNP is also preparing for potential gaps in work during the contractor transition. Designs for auxiliary facilities and the development and design of routes for transporting heavy equipment will be handled through separate contracts, while existing contracts will be used to verify site information. KHNP will directly prepare project management documents and plans for temporary accommodation.

Schedule Delays and Legal Disputes Pose Risks

However, selecting a new contractor is expected to take about nine months, making it difficult to fully allay concerns about schedule delays. In particular, ensuring continuity in the existing design work and keeping the permitting process on track during the contractor transition remain challenges.

The possibility of a legal dispute with the existing consortium is another variable. Although KHNP ended the construction contract negotiations today, ending the joint cooperation agreement requires a separate procedure. KHNP plans to proceed with formal notification and internal decision-making, as well as the settlement of costs and handover of deliverables.

The possibility that the existing contractors could object to the termination of the agreement and take legal action, such as filing a lawsuit or seeking an injunction, cannot be ruled out. KHNP plans to proceed with the selection of a new contractor in parallel, even if a legal dispute arises, to minimize the impact on the project schedule.

A KHNP official said, "We plan to discuss the settlement of costs and handover of deliverables related to ending the joint cooperation agreement with the existing consortium. If legal proceedings are initiated, we will respond in cooperation with internal and external legal experts and proceed with the selection of a new contractor without disruption."

The collapse of these negotiations does not mean the entire Czech nuclear power plant project has been scrapped. In June last year, KHNP signed the main contract for construction of Dukovany Units 5 and 6 with the Czech project owner, EDU II. It subsequently signed a comprehensive engineering services contract with Korea Power Engineering Company and a contract with Doosan Enerbility to supply the reactor and turbine generators. Negotiations are also underway with Korea Nuclear Fuel, which will supply nuclear fuel, and Korea Plant Service & Engineering, which will provide commissioning and maintenance services, with contracts targeted for signing next year. The existing cooperation framework, excluding the construction work, will remain in place.

KHNP also plans to minimize the impact of the failed construction contract negotiations on its relationship with the Czech government and the international credibility of South Korea's nuclear power industry. During the process of selecting a new contractor, KHNP plans to consult with the Czech government and project owner and explain its alternative execution plan and measures to ensure continuity of the project.

A KHNP official said, "The existing Team Korea cooperation framework, excluding the construction work, will remain in place. We will work closely with the government, the Czech project owner and our partners to minimize the impact on the main contract and make every effort to carry out the project as originally planned."

This content was produced with the assistance of AI translation services.