DANIELA LULACHE: "Hydraulic fracking may have an impact on the Cernavodă plant"

• (Interview with Daniela Lulache, CEO of Nuclearelectrica)

Hydraulic fracking may have an impact on the Cernavodă plant, said Daniela Lulache, CEO of Nuclearelectrica SA, citing the conclusions of a study which the company ordered in that regard. The specialists who conducted the study advise against the exploitation of shale gas on a perimeter of 100 km around the Cernavodă plant.

According to Mrs. Lulache, the experts consider that the analysis must continue by conducting thorough impact studies.

This study conducted in 2014 did not involve any costs for the Cernavodă nuclear plant, as it was paid out of the Government's funds allocated to the National R&D Program.

Nuclearelectrica had this initiative after Chevron began the works for the exploration of shale gas in Pungeşti, and the topic was heavily debated by the public.

According to the Romanian authorities, American group Chevron is the only one that has the license to explore several shale gas deposits in Romania. The company has exploration rights in the county of Vaslui (in Bârlad) and in Dobrogea (Costineşti, Vama Veche, Adamclisi). The localities in Dobrogea are about 90-100 km away from the Cernavodă plant.

So far, Chevron has only conducted exploration operations in Pungeşti, in the county of Vaslui. In July 2014, the American group has completed the exploitation activities at the first Romanian well in Romania, at Siliştea-Pungeşti in Vaslui, after two months of drilling at a depth of 3,000 meters. Chevron holds three more environmental permits for the exploration of shale gas in the county of Vaslui, at Păltiniş-Băceşti, Popeni-Găgeşti and Puieşti. Moreover, the company has secured the second environmental permit last year to build a new exploration well, in the perimeter it owns in Puieşti.

So far, Chevron has not yet announced the result of the exploration of Pungeşti.

In the interview, Daniela Lulache also talked to us about the status of the project of Units 3 and 4 of Cernavodă, for which negotiations are still ongoing with the Chinese partners, as well as the options that Nuclearelectrica has available for the various guarantee schemes.

Reporter: In 2013, Nuclearelectrica has ordered a study for assessing the impact which the exploration and exploitation of shale gas would have on the Cernavodă plant. What are the conclusions of the study?

Daniela Lulache: Indeed, to assess the impact of the use of this technology for the exploitation of shale gas on nuclear plants, we have requested in 2013, as part of the National R&D Program which ICN Piteşti and SITON Bucharest are participating in, an "Impact assessment concerning the exploitation of shale gas on the seismicity of the location of the Cernavodă Nuclear Electric Plant and on the tectonics and the hydrology in the area".

The conclusions of the study, drawn up by SITON Bucharest last year, stipulate that hydraulic fracking could have an impact on the Cernavodă plant and the suggestion is for the exploration of shale gas to be restricted on a perimeter of 100 km around the location of the Cernavodă Nuclear Plant. Since the evaluation conducted by SITON was conservative and considering the negative effects which the exploitation of shale gas could cause in the vicinity of the nuclearelectric plant, the recommendation of the institute is for other supplemental and complementary studies and analyses to be conducted as well, involving specialists from related areas, in order to have an interdisciplinary analysis of impact, with hypotheses closer to reality.

The study did not involve any costs for the Cernavodă nuclear plant, as it was paid out of the Government's funds allocated to the National R&D Program.

Reporter: What is the current status of the plan to attract Chinese investors in the project for the construction of Units 3 and 4 of Cernavodă?

Daniela Lulache: The memorandum of understanding concerning the joint implementation of the project of the two units is in the negotiation stage. After the parties reach an agreement, the Memorandum will be put up for the approval of the shareholders of Nuclearelectrica (SNN).

In the next stage, the Articles of Incorporation and the Investors' Agreement for the new project company will be negotiated. The strategy concerns the creation of a project company (Joint-venture) with a duration of two years and which is a precursor to an Independent Energy Producer.

The implementation schedule, which for that matter is tentative, has seen some adjustments deriving from the negotiation process, a process which is intended first of all to achieve mutually advantageous conditions for both parties.

As you know, following the launch of the Strategy for the Continuation of Units 3 and 4 of CNE Cernavodă by the Romanian government, and after its approval by the General Shareholder Meeting of SNN, in August 2014 we launched the investor selection procedure in order to continue the project. After the completion of the first stage of the procedure, China General Nuclear Power Corporation, which was the only bidder, was declared a Qualified Investor on September 8th, 2014.

On October 15th, 2014, as a result of the analysis of the Documentation of Intent, China General Nuclear Power Corporation was declared a selected investor and the common letter of intention concerning the implementation of the project was signed.

Reporter: What is the current stage of securing the authorization for the state aid needed for the two units? Do you follow the minimum guaranteed price scheme, for which the UK received the approval of the EU, or do you resort to other financing sources as well? The UK and Poland have asked for European funds for their nuclear projects, as part of the Juncker investment plan.

Daniela Lulache: The strategy for the continuation of the project of Units 3 and 4 stipulates the use of some support mechanisms, needed for the making of the investment. Aside from the state guarantees granted within the limits and in compliance with the specific legislation in effect, Romania has also taken under consideration the Contract for Difference - a mechanism devised by Great Britain, as a proposal to make two nuclear units at Hinkley Point C, and recently approved by the European Commission.

The approval of such a mechanism by the Commission creates a strong precedent for all the major projects for investing in neutral technologies, not just for the nuclear industry. Since it is a dual mechanism, based on market rules, one of the goals consists of avoiding overcompensation and forcing the producers to reach the strike price, this will be reviewed by the European Commission on a case by case basis, taking into account the data specific to the applicant state.

At this time, until the final structuring of financing and the making of the final investment decision, such a mechanism is a proposal which will be reviewed. Afterwards, based on the final investment decision, the habilitated authorities will be notified.

In the concrete case of Units 3 and 4 of CNE Cernavodă, the priority for its continuation consists precisely in the structuring of domestic financing, through the capital contribution of a private investor and the identification of the optimal support mechanisms, in order to make revenues predictable and sufficient to allow the recouping of the initial investment, the covering of the operating and maintenance costs, the debt service and a return in line with the risks taken on by the investors involved in the project.

Attracting foreign sources is made far easier once the previously mentioned needs are determined. The Juncker investment fund offers guarantees, which, theoretically, would mean a different foreign financing source, comparable with other foreign sources in terms of costs, fully useable only after the final internal investment decision.

Reporter: What are the main challenges that the company is being faced with on the energy market, when it comes to selling its output?

Daniela Lulache: Starting with the second half of 2013 and during all of 2014, SNN has been faced with the drop in energy prices on the competitive market. The difference, in the first nine months of 2014, compared to the similar period of 2013, was -19%, from 209 lei/MWh in 2013 to 172 lei/MWh in 2014. This drop could not be offset by the increase of the percentage of energy sold on the regulated market, resulting from the percentage pertaining to the regulated market, of 35% in 2014, compared to 50% in 2013.

Reporter: What impact did the creation of the regional energy exchange have on the activity of Nuclearelectrica?

Daniela Lulache: The coupling of the export markets in the Czech Republic, Hungary, Slovakia and Romania took place in the second half of November 2014, and the strict evaluation of the impact of the coupling of the markets on the Romanian spot market (quantities, prices), would be currently premature. Besides, historically, the quantities of energy sold by the SNN on the spot market have been reduced, to avoid the volatility of prices on this market.

Reporter: Are you considering the opening of a trading firm outside the country, in order to exploit the export opportunities?

Daniela Lulache: SNN is reviewing all the options available for increasing performance, but, at least for now, the creation of a trading firm is not a solution that would answer the company's needs.

Reporter: Thank you!