The Czech Republic has decided to bet on a future that includes nuclear energy. After the collapse of the tender for a new block at the Temelín plant and the bitter experiences that public process entailed, the Czech Government and the energy giant ČEZ, the majority owner of which is the Czech state, have decided to take their chances with an exception provided by the law on security. By taking advantage of this option, they have excluded possible suppliers from countries that present long-term risks to the Czech Republic: Russia and China. Of course, Czech Industry and Trade Minister Karel Havlíček refused to exclude Russia’s Rosatom from the tender until it was revealed that operatives from Russian military intelligence, the GRU, were behind the 2014 explosions at munitions warehouses in Vrbětice. Even now, however, the Russian candidate is not out of play entirely. How is that possible, and what does it mean for Czech security?
The Czech Republic, like other European Union states, has pledged to achieve carbon neutrality by 2050. Approximately half of its current domestic production of electricity is provided by coal-powered plants, one-third of the electricity comes from two nuclear power plants, and the rest comes from renewables and natural gas. Unlike neighboring Germany and Austria, the Czech Republic has decided to bet on nuclear in the future. For that reason, the biggest Czech electric company, ČEZ, announced a tender in 2009 for new nuclear blocks at its youngest such power plant, Temelín. After five years and enormous complications with the law on the issuing of public tenders, that attempt ended in a fiasco. ČEZ nevertheless immediately began discussing repeating the tender process. Because of their previous international disgrace at Temelín, as well as the upcoming end to the service life of the blocks at the older Dukovany plant, their choice has been made in favor of that kind of power generation in particular.
During the failed tender for the Temelín location, the ČEZ electricity giant was aware of and confirmed that for such a big, complex plan as building a new nuclear block it would be too complicated, costly and risky to approach such a project in accordance with the legislation currently regulating such endeavors. Even the fact that in 2016 the Czech Republic adopted a new law on the issuing of public tenders, based on applicable EU legislation, did nothing to change that. The new legal regulations have done nothing to alleviate the concerns of the ČEZ management that the scenario of 2009-2014 might repeat itself.
After the fiasco with the tender for Temelín, the idea was born within the circle of people who are involved with the construction of new blocks at ČEZ and at the Industry and Trade Ministry that it would only be possible to launch a tender for a new block at Dukovany with the aid of an exemption from EU legislation. That would mean going the route of requiring technical specifications for the desired reactor that would so detailed that they could be supplied just by a single vendor, which means such a tender would not necessarily have to follow EU legislation on competition and could be undertaken by directly contacting that specific supplier. This model is known as the so-called “Hungarian path”, following the roadmap currently used to build the new blocks at Hungary’s Paks II nuclear power plant.
Czech institutions in charge of security, crucial bureaucrats and also some politicians were already aware at the time of what a danger the Hungarian path poses - not just to the Dukovany tender, but to the Czech Republic as a state in particular. By joining forces, they successfully blocked that direct path without a real tender that ČEZ had so much hoped to be able to take, one that would mostly likely have ended up as a direct commission for the Russian state military nuclear agency, Rosatom.
Difficulties with public tenders
The experience of the failed tender for Temelín was too protracted and painful for ČEZ. After the failure of their plan to commission construction at Dukovany without a tender and directly from a specific supplier, following Hungary’s model for building the Paks II, the lawyers and management at ČEZ and the Industry and Trade Ministry came up with a backup plan. The law on issuing public tenders includes what is termed an “exemption for security” at paragraph 29, point a). It literally states: “The client is not obligated to issue a public tender through a proceedings for a tender if to do so would endanger the protection of the basic security interests of the Czech Republic and if measures cannot be simultaneously taken to facilitate undertaking a proceedings for a tender.”
Under ordinary circumstances that exemption is used when the state buys strategically significant products, technologies or services, especially in the area of defense and security – typically weapons, measuring and monitoring equipment, etc. The argument of the ČEZ leadership and those who support the idea of using this exemption in the case of Dukovany is that any new nuclear power source would become a component of the country’s critical infrastructure and, given the anticipated withdrawal from coal-based energy by the Czech Republic and the shutdown of the older reactors, it would be essential to preserve the Czech Republic’s energy security by building such a new nuclear power source. In other words, according to the authors’ original idea, the plan would be related to “security”, comprehended as the narrow meaning of “energy security”, specifically, arranging for an important installation for energy production in the Czech energy mix.
What the authors of that original proposal did not count on was the fact that when applying an exemption related to “security”, the law uses that term in a wider sense - i.e., not just energy security, and not so narrow a meaning as arranging for the delivery of electricity. On the basis of ČEZ’s decision to proceed according to this exemption in their attempt to avoid the torture of a classic public tender, in June 2018 a so-called group on security was created by them, comprising representatives of the Interior Ministry, the Foreign Affairs Ministry, and four security institutions: the three intelligence services (BIS, which does counter-intelligence; ÚZSI, which does intelligence; and Military Intelligence) as well as the National Office for Cybernetic and Information Security.
This group jointly created classified materials over the course of the next few years that were submitted to the Czech Government in April 2020, which discussed them under a regime for official state secrets and subsequently approved them. The positions of those institutions responsible for security toward the Dukovany tender was only made public thanks to a November 2020 freedom of information request by the public broadcasting news server iRozhlas.cz. Those institutions concluded that Russian and Chinese candidates are not, from a geopolitical security standpoint, eligible to be contacted by the Czech Government or the ČEZ company as part of a tender to build a new nuclear block at Dukovany.
The conclusion of those institutions is not at all surprising given the facts known about negotiations between those two powers and the Czech Republic. The facts worth mentioning are, for example, the successful Chinese and Russian cyberattacks on the Czech Foreign Affairs Ministry and other critical infrastructure, or Chinese activities associated with acquisitions by the Chinese investment group CEFC, said in security circles to be an extension of Chinese military intelligence.
In short, neither China nor Russia function as democracies operating under the rule of law that would consider other countries their equal trade partners, but operate as powers taking aggressive action against smaller states whenever it is in their interests to do so. To comprehend what kind of geopolitical threat Russia and China represent to the Czech Republic and other EU and NATO states, we can consider the public part of the annual report by BIS, the Czech counter-intelligence service. That agency said the following in its report for 2019 about this particular case:
“The most distinct risk accompanying all of the cases monitored would be the possible participation in projects by problematic entities with the ability and motivation to abuse their positions to achieve their own particular interests or to achieve the aims of a third party, e.g., a foreign power, and to thwart the interests of the Czech Republic. It would depend on the nature of the project how such risks might arise, but this could especially happen through the abuse of access to large amounts of sensitive information (personal, economic, security-related) or by creating a dependency on deliveries from a risky supplier and then conditioning the completion of a project on the meeting of certain economic, political or security demands. Threats in such cases could also arise through the need to continue dependency on a supplier even after the project’s completion, with all of the typical consequences (vendor lock-in).
In the sense of these described risks, entities coming from countries where the state administration has the opportunity to pursue its own foreign policy aims irrespective of the economic interests of companies based there, including private ones, should be considered problematic. Closely connected to the described problem is the subject of risky foreign investments and mechanisms for discovering the security threats they entail. An investor originating in a country with authoritarian features, as in the above-mentioned projects, is exactly such an important factor influencing the assessment of the riskiness of a specific investment.”
Despite the clear attitude of the group on security toward Russian and Chinese suppliers and the necessity of meeting the demand for security, as well as strong pressure from opposition politicians and broad media coverage of the issue, Czech Industry and Trade Minister Havlíček refused to exclude Russia’s Rosatom from the tender, saying that to do so would endanger the final price tag for the project. Of course, in complete contradiction of that explanation, Havlíček then excluded the Chinese supplier from the tender, exactly for reasons of security. Moreover, he presented a plan that was never consulted with either the opposition politicians or with the institutions responsible for security that involved sending each candidate a so-called questionnaire on security, i.e., a legally non-binding series of questions to which the Czech community of experts on security already knows most of the answers.
That situation lasted until 17 April, when at an extraordinary public conference, Czech Prime Minister Andrej Babiš and Czech Interior Minister Jan Hamáček told the public that according to the Czech intelligence services and the Czech Police, operatives from unit 29155 of Russian military intelligence, the GRU, were responsible for the explosions at the munitions warehouses in the Moravian town of Vrbětice in 2014 that caused the deaths of two people and billions of Czech crowns’ worth of damage.
It was not until after the publicizing of the details of the scandal at Vrbětice that Havlíček said he could not imagine inviting a Russian candidate to the tender and that it was all but entirely ruled out that such a candidate would ever implement the project. Havlíček added at the same time that the next Government would decide the issue after the elections to the lower house in the autumn of 2021, and said that he would be deciding for the time being whether or not to send the above-mentioned questionnaire on security to the Russian candidate. The content of that questionnaire is meant to be inquiries about the entity’s collaboration with security authorities, ties between persons in the management of such companies and state bodies, anti-corruption measures undertaken, etc. The questionnaire is still being finalized by the group on security and after it is approved by the Interior Ministry, the Industry and Trade Ministry, the Czech Government’s Permanent Committee on New Nuclear Resources (SVVJNZ) and ČEZ, it will be sent to each candidate.
Two possible ways Rosatom can get back in the game
Currently it seems the Russian and Chinese firms are out of the game. Of course, the steps taken by the Government to date, Havlíček’s unwillingness to concede on the clear position of the institutions dealing with security, as well as the longstanding aims of Czech President Zeman’s clique at Prague Castle make it clear that the Kremlin has not yet said all it has to say about this.
The first possible way that Rosatom, the military nuclear agency directed by the Russian state, could get back in the game would be for the tender per se to be discredited, i.e., repeating the scenario of the Temelín tender and then, under the pressure of time, issuing a bespoke new tender for a “Czech consortium”. How could this be achieved?
The collapse of the tender, which the Russians are aiming for – and Havlíček is helping them get their hands on it – will almost certainly happen if the parameters of the tender are not changed with respect to the size of the reactor sought and the time limits for submitting bids. Neither South Korea’s KHNP nor the French EDF have reactors of this kind, specifically, a project that can be referenced with a maximum installed output of 1200 MW. Those companies just have bigger reactors running abroad, the Koreans one with 1400 MW of output and the French one with 1600 MW of output. The only other company to have a reactor of this kind operating abroad besides the Russians, one where the maximum installed output is 1200 MW or less, is the American-Canadian Westinghouse corporation, but it can be anticipated that if that company will be the sole competitor, the price it will ask will be unacceptable to the Czech Republic.
If this tender collapses, great demand will arise for what is being called the “Czech way”, which means the Hungarian scenario will be copied and the commission will be directly given to a “Czech” consortium where the main component – the nuclear island – will be supplied by Rosatom. For the Russians that is a much more advantageous option because they will bear no liability for the project. While Havlíček’s Industry and Trade Ministry is cultivating a rather accommodating attitude toward Rosatom, other potential suppliers are de facto displaying no interest, which indicates this option may prevail. Which Czech firms could be in the consortium were revealed by the director of the Central European branch of Rosatom, Mr Šíma, when he answered a question posed by reporters from public broadcaster Czech Radio: “We are negotiating with roughly nine big Czech companies. Certainly with both of the Škoda companies in Plzeň, with Sigma, with ZVVZ Milevsko, and I&C Energo.”
The more exact statement would be that these are all firms with strong ties to the Russian Federation or to the pro-Russian Czech President Miloš Zeman. The owner of Škoda JS is the Russian Gazprom Bank; the main export market of the Sigma Group is Russia; Škoda Transportation is owned by the holding company PPF, which is known for its good relationships with the pro-Kremlin President Zeman and its deals inside the Russian Federation; ZVVZ Milevsko also enjoys the favor of Miloš Zeman; and I&C Energo is owned by Daniel Křetínský’s group, which is a business partner of PPF.
A second, apparently more complex way for the Russian candidate to return to the tender is the one both Zeman and Havlíček mentioned in their commentaries on the Vrbětice incident: They would allow for an option whereby the Russians would not be held accountable for the explosions at the munitions warehouses, and if their involvement in that scandal could not be sufficiently proven, then there would be no need to exclude Rosatom from the tender. The first step toward disrupting the firm position of the institutions responsible for security on this issue would be, for example, to remove the director of BIS, the Czech counter-intelligence service, Michal Koudelka. The next step would be to silence government bureaucrats who criticize the involvement of the Russian agency in the tender. The first such person is the former Government Plenipotentiary for Nuclear Security, Jaroslav Míl, who has already been forced out. The fate of the Czech tender for the new block at Dukovany will be decided to a great extent by the elections to the Chamber of Deputies in the fall of 2021.