Preliminary Czech ruling rejects Westinghouse and EDF appeals

Thursday, 31 October 2024

In a ruling published on Thursday, the Office for the Protection of Competition (UOHS) said it had "decided in the first instance on the proposals of the companies Électricité de France and Westinghouse Electric Company LLC against the procedure of the contracting authority Elektrárna Dukovany II in the tender for the construction of a new nuclear power plant. The proceedings on the proposals of both companies were mostly terminated, while other parts of the proposals were rejected. The decisions are not final and the parties to the proceedings may lodge an appeal with the Chairman of the Office".

It said that Westinghouse's objection "against the procedure of the contracting authority outside the framework of the Public Procurement Act on the basis of the so-called security exception" did not proceed "because the company should have filed its objections to the use of the exemption no later than 15 days after it became aware of the use of this procedure, which was in March 2022. However, the objections were not received by the contracting authority until 1 August 2024".

It also says that "both applicants also argued that the contracting authority had acted illegally in failing to comply with the basic principles of public procurement ... for example, the substantial extension of the subject of performance of the public contract in question, the inability of the preferred supplier to perform the contract, etc". However this complaint was also not taken forward "because no legal objections can be raised against the specific procedure of the contracting authority in awarding the public contract outside the procurement procedure using the exception under Article 29(a) of the Public Procurement Act".

Both companies claimed that foreign subsidy regulations had been infringed, with EDF also alleging "a breach of the 3E principles as well", which refers to the benchmarking process for tenders. But the office "rejected the proposals in these parts because they were not directed against a procedure which the contracting authority is required to follow under the Public Procurement Act".

Because these are not final rulings the competition office added that "the prohibition to conclude a contract for the tender in question remains in effect until the decision in the case comes into force".

The ruling was published the day after it emerged that there was a ban on signing the contract pending a decision on the case. Speaking on Wednesday, Deputy Prime Minister Vlastimil Válek said that was "the standard procedure of the Office" and happens in many hundreds of cases a year "so it's nothing out of the ordinary - it's part of our legislation and I don't think it should jeopardise any of that timetable in any way".

ČEZ Group also issued a statement saying that its project company for the two new units, had "proceeded from the very beginning in accordance with the applicable laws" and it was "conducting negotiations with the preferred supplier, which is the Korean company KHNP, regarding the form of the final contract. According to the current schedule, it should be ready for signing by 31 March 2025. It can be expected that by then the ÚOHS will be able to make a decision in the proceedings so that the signing of the contract with the preferred supplier is not delayed".

The background
 

The Czech Republic currently gets about one-third of its electricity from the four VVER-440 units at Dukovany, which began operating between 1985 and 1987, and the two VVER-1000 units in operation at Temelín, which came into operation in 2000 and 2002.

In October last year, Westinghouse, EDF and KHNP submitted binding bids for a fifth unit at the Dukovany nuclear power plant, and non-binding offers for up to three more units - another one at Dukovany and two at the Temelin nuclear power plant. Westinghouse was proposing its AP1000, EDF was proposing its EPR1200 reactor, KHNP was proposing its APR1000. But in February the Czech government announced it was changing the tender to be binding offers for four new units, with Westinghouse not included because it "did not meet the necessary conditions".

Prime Minister Petr Fiala explained at the time that the decision to switch to binding offers for all four units was the result of the original tender suggesting that contracting for four units, rather than having separate processes, could have a 25% benefit in terms of costs.

In July, he announced KHNP as the preferred bidder, with contract negotiations to begin with the aim of signing contracts for the initial unit by the end of March 2025 - the target for test operation of the first new unit is 2036 with commercial operation in 2038. He said the winning tender "based on the evaluation of experts, offered better conditions in most of the evaluated criteria, including the price". The KHNP bid was for a cost of around CZK200 billion (USD8.6 billion) per unit, if two units were contracted.