LITHUANIA SEEKS INCREASED OUTSIDE FINANCING FOR A

C O N F I D E N T I A L VILNIUS 000581 PLEASE PASS TO USTDA:JMERRIMAN DOC:JDERSTINE DOE:MAPICELLI E.O. 12958: DECL: 10/30/2019 TAGS: ENRG ECON LH SUBJECT: LITHUANIA SEEKS INCREASED OUTSIDE FINANCING FOR A NEW NUCLEAR PLANT REF: VILNIUS 275 Classified By: A/DCM John Finkbeiner for reasons 1.4 (b) and (d). SUMMARY -------------- ¶1. (C) On 29 October the General Director of Visagino Atomine Elektrine (VAE),Sarunas Vasiliauskas, told us that the GOL is proceeding with plans for the Visaginas Nuclear Power Plant (VNPP) but needs 95 percent of the financing to come from outside sources. VAE is likely to build a one reactor plant with a capacity of between 600 and 1700 MW at a cost of 3 to 5 billion euros (about 4.4 billion - 7.4 billion USD). Vasiliauskas insisted that senior level support exists for this project in all three Baltic nations and that a strategic investor will likely be selected around the New Year (but would not formally sign an agreement until mid-summer 2010). The strategic investor will select technology for the plant, but would have to pay to upgrade the electrical grid to accept any reactor larger than 1300 MW. SENIOR LEVEL SUPPORT -------------- ¶2. (C) Vasiliauskas said that on the 27th of April the PMs of Estonia, Latvia, and Lithuania affirmed their support to continue cooperation on the Visaginas NPP during their meeting regarding an electrical link to Sweden. He added that he expected a similar declaration on the 6th of November when the PMs of the Baltic Republics meet again. Vasiliauskas insisted that President Grybauskaite supports a diversified energy mix that includes a NPP. LOOKING FOR LOTS OF POCKETS -------------- ¶3. (C) Vasiliauskas indicated that the GOL would consider giving a strategic investor a 50-70 percent interest in the plant. He noted that both President Grybauskaite and PM Andrius Kubilius fully support having a strategic investor in the VNPP project and would back removing the stipulation in Lithuanian legislation that requires that the GOL hold a 34 percent interest in the Visaginas project. In addition, he said the GOL would make an effort to change legislation so that a 60 year concession could be awarded to a strategic investor in the new NPP. He divulged that other investors or consortia of investors could be combined with the investment of a strategic investor to make up the 95 percent of project cost that the GOL will not fund (Vasiliauskas suggested these other investors could include Latvenergo, Eesti Energia and PGE). According to Vasiliauskas the GOL will provide for 5 percent of the cost of the project through the offer of the construction site and preexisting connections to the electrical grid that exist at the immediately adjacent Ignalina Nuclear Power Plant (INPP). He suggested that if sufficient non-GOL funding was not found by the end of 2010 the VNPP project would likely cease to exist. STRATEGIC INVESTOR IN THE GRID -------------- ¶4. (C) Vasiliauskas said that he expects a strategic investor to be selected around the New Year but to not have a formal agreement in place until mid-summer 2010. This is a few months later than the March 2010 time frame stipulated in the GOL's Directive 300 (reftel),but is still quite ambitious according to Vasiliauskas. The GOL will look for two criteria in the selection of a strategic investor: financial wherewithal and nuclear expertise. ¶5. (C) The GOL will not select the technology for the plant but cede this decision to the strategic investor, which would presumably take a Build, Own, Operate (BOO) interest in the new NPP, according to Vasiliauskas. He and other interlocutors have repeatedly made the point that the strategic investor will make the decision on reactor technology, although he added that he assumed regional partners would have some say in the selection of reactor technology. ¶6. (C) EDF, RWE, and EON all were mentioned by Vasiliauskas as potential strategic investors. He made clear that a strategic investor's technology selection is going to be governed by the fact that the grid cannot presently accept an individual reactor that exceeds 1300 MW in size. The current Westinghouse and GE proposals would fit the bill (Westinghouse's AP1000, at 1100 MW is the clear favorite, according to Vasiliauskas and other GOL interlocutors). Vasiliauskas said Areva's EPR (at 1600 MW) might still be in the running despite its large size, but the plant operator (strategic investor and sub-investors) would be asked to pay for grid upgrades if it were to choose a plant that was larger than the 1300 MW limit. This may reassure Westinghouse, whose preference is that technology be chosen before a strategic investor. Vasiliauskas was clear in his rejection of "Russian or German-branded Russian" as a reactor selection. SMALLER SIZE AND COST -------------- ¶7. (C) Vasiliauskas affirmed that the GOL is considering a one reactor plant, and we have heard the same from the Minister of Energy. Vasiliauskas said this plant could be between 600 and 1700 MW in size, and cost about 3-5 billion euros (about 4.4 billion - 7.4 billion USD). This is a smaller reactor than the site could accept; we have heard in the past that two reactor blocks that do not exceed 3400 MW could be installed there. In addition, a smaller NPP would not allow Lithuania to provide the 1000-1200 MW that Poland has requested from the project. Vasiliauskas responded that if the Poles want more power out of the plant they will need to pay for it. Also, he said they might still participate in the project to have the chance to get some NPP experience before embarking on their own nuclear plant projects. As for the plant being enough to replace but not increase the loss of power caused by the upcoming closure of the INPP, Vasiliauskas responded that Lithuania is building Visaginas to move away from dependence on Russia, adding that "at least we won't have blackouts." COMMENT -------------- ¶8. (C) The GOL's decision to have 95% of the project financing in private hands is understandable given Lithuania's current economic recession, which is having a drastic effect on current government expenditures. Nevertheless, it may prove difficult for the GOL to find parties willing to fund 95 percent of the project cost. In any case the GOL is moving ahead with the project, including sending representatives on a USTDA-sponsored orientation visit to the U.S. the week of November 9. DERSE