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Poland and the US Sign a Memorandum of Understanding Concerning Strategic Civil Nuclear Cooperation – What Can We Expect?

Poland and the US signed the Memorandum of Understanding (MoU) on strategic civil nuclear cooperation on June 12. The MoU emphasizes the desire to establish a deeper bilateral strategic relationship aiming at energy security and meeting Poland’s clean energy needs. These aims are to be achieved by:

  • Collaboration for developing Polish infrastructure for the responsible use of nuclear energy and technologies

  • Adoption of best practices in nuclear safety, security and independent regulatory oversight

  • Exploration of cooperation across the breadth of existing and future US reactor technologies, fuel, equipment and services

  • Identifying a pathway to Poland’s development of a civil nuclear program, including addressing commercial challenges such as financing and workforce development

In a prior post (Poland’s New Energy Policy Until 2040 Goes Nuclear), we described the development of nuclear energy as one of the key elements of the new Polish Energy Policy until 2040. This plan focused on the planned 6,000-9,000MW of generation by nuclear power plants (NPPs). Although we are still waiting for the final version of this Energy Policy until 2040, with the signing of the MoU, Poland appears to be taking further steps to follow the Polish Energy Policy 2040 goals.

Analyzing the MoU, several important questions appear:

Technology and Main Equipment Vendors

In the draft Polish Energy Policy until 2040, along with public declarations by representatives of the Ministry of Energy, the policy continues to focus on NPPs with reactors of 1,000-1,500MW. The US is no longer a producer of such large capacity reactors, although the US still has significant expertise in designing and operating such NPPs. Given the current state of the market, it could be expected that such reactors would be manufactured in Asia.

To date, Poland’s policy has not focused on small modular reactors with lower power, e.g., 60MW, which are being developed in the US, where the first prototype of this type is expected to be operational in 2026. The MoU mentions “new technologies,” so a key question is whether this was a clear reference to small modular reactors, and whether Poland’s officials welcome such an initiative from the US.

Financing

The MoU mentions the challenge of commercialization and financing of any project. This is with good reason, as Poland does not have enough capacity to finance the large NPP. As an example, the tender to construct the coal-fired power plant in Ostrołęka of 1,000MW was awarded in 2017, but until now the owners have not secured all the financing for the project. This casts into doubt the ability to finance the large NPP solely from Polish sources.

The issue is how to combine potential external financing sources with the evident desire of the Polish government to retain control over the project. Obviously, solutions can be found, but they will require extensive negotiation, given the risks involved in any new-build NPP.

Our previous post regarding the implementation of the NPP project showed the timetable proposed by the government. That timetable posited 2018 as the year to select a financing model, a year that has come and gone. While the MoU contains no binding obligations on the signatories, we hope that it creates opportunities for further discussions that will enable the development of a financing model in 2020.

Tender Procedures

When Poland recommenced efforts in 2011 to construct the NPP, it adopted a law specifically regulating the preparation and implementation of the investment process. That law provides that the public procurement law, with minor modifications, shall apply to contracts awarded in connection with the preparation, implementation and financing of investments regarding the construction of NPPs. As the State Treasury controls the heavy power sector in Poland, including the Special Purpose Vehicle dedicated to construct the first Polish NPP, the application of public procurement procedures to tenders for the project are understandable.

Interestingly, however, the law does not distinguish alternative projects that may be initiated by privately controlled project companies – as the law reads, these also are subject to the same public procurement requirements. Although it is still too early to expect privately controlled initiatives in the sector, the public procurement requirement means that structuring a tender will be crucial either for large NPPs or for any projects implementing alternative technical solutions. The European Commission can be expected to carefully review the transparency of the selection process. Entities from the US, on the basis of the US-Poland bilateral investment treaty, have a right to most favored nation treatment in any tender.

Given these issues, even with the impetus provided by the MoU, we expect that any proceedings regarding tenders for the large NPPs or any alternatives will last several years.

© Copyright 2019 Squire Patton Boggs (US) LLP

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About this Author

Peter Swiecicki, Warsaw, Squire Patton Boggs, Infrastructure Financing Lawyer, Privatization Matters Attorney
Partner

Peter Swiecicki is the Managing Partner of our Warsaw office and his practice includes some of the largest infrastructure financings and privatizations in Central and Eastern Europe. His experience includes financings of the largest and most complex toll motorway project in Poland, as well as the main gas pipeline and the tallest office building in Central Europe.

Peter has served as an advisor to the Government of Kuwait on PPP projects, and advised on the financing of the Żywiec Hospital PPP project.

He has...

48 22 395 55 08
Igor G. Hanas International Investment Lawyer Squire Patton Boggs Warsaw
Senior Associate

Igor Hanas’ practice focuses on the energy and industrial construction sectors, and infrastructure projects, including the PPP model. Igor advises foreign and domestic investors, general contractors and service providers on all aspects of turnkey projects, starting from procurement and negotiations, through financing, performance, corporate and contractual issues and cross border technology import to handover of the investment.

Igor advises clients in regulatory matters including license (concession) issues in relation energy, chemical and natural resources sectors.

Additionally, Igor advises clients in the energy sector with respect to PPA and CPA, O&M agreements and other commercial contracts related to day-to-day operations.

He also represents clients before public administration authorities, common courts and the National Appeal Chamber in projects of the above-listed types.

Prior to joining the firm, Igor was an associate at the Warsaw office of an international law firm for a number of years and worked at a financial institution which is part of an international financial group.

Experience

  • Representing a global energy engineering construction firm in public procurement proceedings, negotiations with investors concerning the construction of a new power station of a capacity of 1,000 MW in Elektrownia Ostrołęka S.A. worth US$1.7 billion.

  • Representing a global energy engineering construction firm in public procurement proceedings, negotiations with investors, including representation before the National Appeal Chamber and district courts, concerning the construction of two new power stations of a capacity of 1,000 MW and 910 MW respectively, worth US$1.7 billion and US$1.3 billion, respectively and a combined cycle power plant in Warsaw Żerań (PGNiG Termika project) worth US$700 million.

  • Advising European and Asian EPC companies applying to the Polish Stage Grid for a public bid in Poland to design and construct high voltage electricity transmission lines and transformers, including the Poland - Lithuania energy bridge.

  • Advising international group of EPC contractors (Energy Service and Water Process Divisions) in turnkey retrofit/modernization/fuel conversion projects in Polish energy groups: PGE Energy Group, Tauron Energy Group, Energa Energy Group, ZE PAK Group, Dalkia and EDF. Legal assistance at all stages of proceedings: from public procurement and private proceedings stage, through performance of the project, cross border matters and technology transfer until the handover of the investments.

  • Negotiating commercial contracts for global chemical company subsidiaries operating in Poland with the oil & refinery industry and the copper mining industry.

48-22-395-5537