The conflict between Korea Electric Power Corporation and Korea Hydro & Nuclear Power is escalating over the handling of additional expenses amounting to 1.4 trillion won that arose during the construction of the Barakah nuclear power plant in the United Arab Emirates (UAE). As the two companies have failed to find a solution, it is expected to escalate into an international dispute.
According to industry sources on the 24th, Korea Electric Power Corporation President Kim Dong-cheol and Korea Hydro & Nuclear Power President Hwang Joo-ho recently met privately to discuss the issue of additional expenses but were unable to derive a solution. Korea Hydro & Nuclear Power and Korea Electric Power Corporation have been in conflict over the settlement of construction costs for the Barakah nuclear power plant in the UAE, which they won in 2009.
The Barakah nuclear power plant, composed of a total of four units, is the first nuclear power project that South Korea has won overseas. The contract amount was approximately 20 trillion won. Korea Electric Power Corporation won the Barakah nuclear power plant project and entrusted Korea Hydro & Nuclear Power with major tasks such as managing construction personnel and commissioning. Subsequently, problems arose as project costs increased due to delays in completion and extensions of the contract period.
In January of last year, Korea Hydro & Nuclear Power requested Korea Electric Power Corporation to settle the additional expense of $1 billion (approximately 1.4 trillion won) that was additionally incurred. Although Korea Hydro & Nuclear Power is a wholly-owned subsidiary of Korea Electric Power Corporation, it argues that Korea Electric Power Corporation should settle the expenses since the two companies have entered into an independent corporation operational support service agreement. Korea Hydro & Nuclear Power claims that settling with the UAE, the ordering party, is a separate issue.
If Korea Hydro & Nuclear Power is unable to settle the additional expenses it has self-assessed with Korea Electric Power Corporation, it will have to bear a loss of 1.4 trillion won as is. Korea Hydro & Nuclear Power believes that if it does not receive this expense, there is a high possibility of being held accountable for dereliction of duty.
On the other hand, Korea Electric Power Corporation argues that it is paramount to first receive the settlement for additional expenses from the UAE side as part of 'Team Korea.' They assert that if there is money to be received from the UAE, it should be settled first. They maintain that it cannot accept Korea Hydro & Nuclear Power's request for additional settlement funds against its parent company, Korea Electric Power Corporation.
If Korea Electric Power Corporation does not receive the settlement for additional expenses from the UAE, it will have to additionally reflect a loss amounting to 1.4 trillion won in its financial statements. Although they have not publicly disclosed precise data, there have been observations that the cumulative profit margin of the Barakah nuclear power plant in the UAE until the first half of last year was in the 1% range. If additional losses are reflected, it would effectively mean a negative outcome, which could lead to intensified criticism of continuing unprofitable operations.
Having confirmed Korea Electric Power Corporation's stance, Korea Hydro & Nuclear Power is reportedly preparing for an international dispute. The contract signed by the two companies states that if disagreements cannot be resolved, they will be legally resolved in the London Court of International Arbitration (LCIA). Korea Electric Power Corporation and Korea Hydro & Nuclear Power have already appointed law firms in preparation for the international dispute.
Korea Hydro & Nuclear Power intends to bill Korea Electric Power Corporation in accordance with the contract between them. In response, a Korea Electric Power Corporation official said, 'We requested Korea Hydro & Nuclear Power to provide supporting documents necessary for negotiating the amount needed for settlement, but we have not received them yet,' and added, 'We are conducting negotiations with the local ordering party and Korea Hydro & Nuclear Power, and we are also considering giving Korea Hydro & Nuclear Power the opportunity to participate directly in negotiations with the ordering party.'