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Published: 30 march 2012 11:54

Lithuania and Hitachi initial concession agreement on Visaginas Nuclear Power Plant

Masaharu Hanyu ir Žygimantas Vaičiūnas
BFL/Tomo Lukšio nuotr. / Masaharu Hanyu ir Žygimantas Vaičiūnas

Following more than a year of negotiations, on Friday, the Lithuanian government and Japan's Hitachi initialed a concession agreement on building a new nuclear power plant in Lithuania. This is the first important step in implementing what is the biggest energy project in Lithuania in the past several decades.

"We have completed talks with the strategic investor, Hitachi, on the concession agreement, which will pave the way for the biggest ever investment in Lithuania, amounting to 17 billion litas (EUR 5 b)," Prime Minister Andrius Kubilius at a press briefing after the initialing ceremony.

The government's press office said in a press release that "the concession agreement provides the contractual framework for the Visaginas Nuclear Power Plant, including the provision of: rights for the project company to design, construct and operate and in time decommission the plant; host country and investor rights and obligations; formalizing and concluding the procurement for Hitachi investment and Hitachi-GE technology; and an agreed timeline for delivery."

"We welcome this important milestone in the project and wish to emphasize our appreciation of the cooperative and supportive spirit in which the project has proceeded to date. The conclusion of further project documentation prior to the formal award of the concession is, of course, the next essential step and we look forward to working closely with VAE and the regional partners, whose support is vital for the project, so as to advance to the stage of project implementation," Hitachi Vice-President Masaharu Hanyu said.

The agreement was initialed by Deputy Energy Minister Žygimantas Vaičiūnas, who is the chairman of the Concession Tender Commission, and Masaharu Hanyu, vice-president of Hitachi, the strategic investor in the project.

On Thursday, the Lithuanian Cabinet gave the green light for initialing the concession agreement with Hitachi. If the government and the parliament approve the agreement and it is signed and if Latvian, Estonian, and possibly Polish energy companies join the project, Lithuania expects to build the new facility by 2020-2022.

It is said that the construction of the Visaginas nuclear power plant would bring around 962 million litas in extra tax revenue to Lithuania by 2020 and that the implementation of the project would contribute 34.7 billion litas to the country's GDP in 2011 to 2050.

It is planned that investment in the project will reach up to 17 billion litas and that foreign direct investment alone will be higher than 50 percent of its value.

A project company, which is to be established shortly, will perform and finance the designing of the new nuclear power plant. Lithuanian, Latvian and Estonian energy companies and Japan's Hitachi will be the founders of the project company. It is not ruled out that Poland will join at a later stage.

The signing of the concession agreement would be followed by designing work, which would last for about 30 months and would cost some 283 million euros. It would include technical planning, site preparation activities, obtaining of the construction permit, licensing, and designing and ordering of equipment.

That would be followed by a tender to select a construction contractor. After a contract with the winning bidder is signed and the parties to the project agree on financial commitments, a Final Investment Decision would be signed. It is said that 31 March 2015 is a deadline for signing the FID.

Energy Minister Arvydas Sekmokas has said that the new plant's electricity production cost during its entire lifetime of 60 years should be 0.07-0.10 litas per kilowatt-hour, excluding another 0.10-0.15 litas in loan costs. The loans are planned to be paid back over 18 years. Thus, it is estimated that the price of electricity generated at the new facility would sum up to to 0.17-0.25 litas until 2040.

The new facility is estimated to cost up to 5 billion litas, with 50-70 percent of the money planned to be borrowed at 5-8 percent interest and the remaining funds to be invested by shareholders of the future joint venture, including Japan's Hitachi, Lithuania's Visagino Atominė Elektrinė (Visaginas Nuclear Power Plant, or VAE), Latvia's Latvenergo and Estonia's Eesti Energia, and, possibly, other investors.

Lithuania is expected to own at least 34 percent of shares in the project company. Negotiations are ongoing on what stakes other shareholders will hold in the project.

Formal talks on the concession agreement started on 14 July 2011, after Hitachi Ltd was selected as the strategic investor on the basis of providing the most economically advantageous proposal. The corporation proposed to invest in the project company and supply Hitachi-GE's Advanced Boiling Water Reactor (ABWR), "the only generation III nuclear reactor with a proven operational track record around the world, with an enhanced level of safety," the press office said.

The Visaginas plant's strategic investor is Hitachi Ltd together with Hitachi-GE Nuclear Services, in which Hitachi holds an 80 percent stake.

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