CROATIA CIVIL NUCLEAR INVESTMENT PLANS:

UNCLAS SECTION 01 OF 02 ZAGREB 000870

SENSITIVE
SIPDIS

DEPARTMENT FOR EEB/ESC AND T/MARC HUMPHREY, COMMERCE FOR
ITA SARAH LOPP

E.O. 12958: N/A
TAGS: ENRG BTIO TRGY BEXP HR
SUBJECT: CROATIA CIVIL NUCLEAR INVESTMENT PLANS:
CONSIDERING THE NUCLEAR OPTION

REF: STATE 127423


1. (U) In response to reftel request, Post has prepared the
following information on Croatia's current plans for nuclear
sector investment This cable was prepared with the
assistance of embasssy commercial service staff.


2. (U) Overview: Croatia released its new national energy
strategy for public discussion in November. The strategy
lays out three possible scenarios for the estimated 10
billion euros of investment needed to develop the energy
sector until 2020 in order meet Croatia's increasing demand.
Among the three scenarios, the draft strategy clearly favors
the one that includes construction of a 1000 MW nuclear power
plant. However, the ruling HDZ party prefers construction of
a combination of coal and natural gas plants and not a
nuclear plant. Discussions within the government continue,
but the government is expected to officially choose one of
the scenarios early in 2009. Croatia currently shares
operation of the Krsko nuclear power plant in Slovenia,
originally constructed by Westinghouse in 1983. For this
reason, Croatia has a reasonably well-developed contracting
and component industry. The Croatian electric power utility
Hrvatska Elektroprivreda (HEP) estimates that 40% of
contracting and components for a plant could be supplied
locally. HEP has already been in discussions with
Westinghouse, and visited their facilities in the U.S.
However, they admit the project is in its infant stages. The
energy strategy foresees a 4-6 year "political phase" of
discussion, feasability studies, and site location
procedures, before any firm investment decisions are made.
End Overview.


3. (U) Since the breakup of Yugoslavia, Croatia has held a
50% stake in the Krsko nuclear plant in Slovenia, which was
constructed by Westinghouse in 1983. Although relations
between Slovenia and Croatia over Krsko have been generally
excellent, concerns over energy security have featured in
Croatia's discussions of a nuclear plant of its own (Slovenia
is reportedly considering construction of a second plant at
Krsko without Croatian participation). Other factors drawing
Croatia to consider domestic nuclear power are: low unit cost
of nuclear power, environmental benefits in terms of CO2
emissions, and the possibility of becoming an electricity
exporter. Because the project is in such an early phase, it
is impossible to know what role the government would play in
financing or managing the plant. However, it is highly
likely any such project would be financed and managed by HEP.


4. (U) In response to reftel request, below are the names of
the key nuclear decision making bodies and names and titles
of top officials:

Damir Polancec
Minister of Economy and
Deputy Prime Minister

Branimir Horacek
Director of Energy and Mining
Ministry of Economy

Mario Horvatic
Director General
State office of Nuclear Safety

Ivan Mravak
President of the Management Board
Hrvatska Elektroprivreda (HEP)


5. (U) The Croatian State office of Nuclear Safety is
relatively small, under 20 employees, and has the legal
authority for oversight and inspection activities, as well as
permitting for any activities covered under Croatian nuclear
security legislation. Croatia is party to the Joint Protocol
Relating to the Application of the Vienna and Paris
Conventions on Nuclear Liability. Croatian nuclear liability
legislation holds operators liable for damages up to 320
million kuna (approximately $58 million).


6. (U) Because of Croatia's involvement with the Krsko plant
in Slovenia, Croatia has a small but experienced industry
capable of providing many components and contracting
services. According to a member of the HEP board of
directors, Croatia is capable of providing 40% of the
components and contracting needs for a nuclear plant.
Selected local companies with expertise in this area include:
Djuro Djakovic (construction, worked on Krsko plant); Teh-Cut

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(components); Pecon (process design, assembly, construction);
Elektroproject (design and engineering consultant to Krsko),
Ekonerg (energy consultant who developed the draft national
energy strategy); Ventilator Group (HVAC, cooling tower fans,
other components); Inetec (pressure systems and consulting),
Enconet (waste disposal and emergency response),among others.


7. (U) Opportunities for U.S. industry: There are no current
tenders in this field. However, should Croatia decide to
pursue construction of a reactor as part of its national
energy strategy, then there would presumably be opportunities
for U.S. industry across the full range of construction,
components, operations, and consulting.


8. (SBU) In addition to discussions with Westinghouse,
Croatian HEP has visited French Areva for similar
introductory talks. HEP executives were impressed with their
visit to Westinghouse in the U.S. Croatia has a
well-established relationship with Westinghouse through the
Krsko plant, but other officials have privately admitted to
us there could be political pressure for Croatia to choose a
fellow EU supplier (Croatia would presumably be a member of
the EU by the time any nuclear project got off the ground).


9. (SBU) Comment: The shape of Croatia's future energy
investment is highly uncertain, especially in the current
economic climate. While a nuclear plant offers many
advantages for an energy investment wish-list, experts and
industry representatives worry that Croatia's energy needs
are immediate and cannot be served by the long timeline that
nuclear plant construction requires. Budget forecasts for
2009 indicate the government will already strain to pay
salaries and service its debt, so the government could be
very reticent to start down an extremely expensive path. And
with local elections coming up in 2009, the government will
be wary of possible strong public opposition to nuclear
power. For these reasons, it will likely be years before the
project materializes, if at all.
WALKER