Korea South-East Power Co. (KOEN) is drawing controversy for ordering a heat recovery steam generator, one of the main equipment units, in a different way from other power generation public corporations while building a combined-cycle power plant. Among Korea Electric Power Corporation (KEPCO)'s five power generation subsidiaries, the four—Central, Western, Dongsuh, and Southern Power—use the "integrated lowest-bid system" when ordering heat recovery steam generators.
By contrast, KOEN has recently been using other methods such as "competitive dialogue contracts" and "negotiated contracts" instead of the integrated lowest-bid system. In particular, while other main equipment such as gas turbines and steam turbines are ordered through the integrated lowest-bid system, only heat recovery steam generator orders do not use the integrated lowest-bid system, raising suspicions.
As of the 29th, according to the power generation industry, there have been a total of 12 combined-cycle power plant projects carried out since 2021 by the five power generation subsidiaries of Korea Electric Power Corporation (KEPCO). Of these, excluding three that had to be processed by private contracts due to their nature as state projects, six heat recovery steam generator orders in the six thermal power plant projects by the four subsidiaries—Central, Western, Dongsuh, and Southern Power—used the integrated lowest-bid system. An official at one power generation subsidiary said, "Because the integrated lowest-bid system is the most common method."
However, KOEN did not use the integrated lowest-bid system when ordering heat recovery steam generators in the three projects it carried out. KOEN began taking a different path in Oct. 2023 by introducing a "competitive dialogue contract" as the ordering method for the heat recovery steam generator at the Goseong Combined-Cycle Power Plant.
The successful bidder for the heat recovery steam generator to be installed at the Songsan Bit Green Power Plant, for which bidding began in Nov. last year, was decided by private contract, and the award notice was issued on the 26th. KOEN has also settled on a "negotiated contract" as the ordering method for the heat recovery steam generator at the Bundang Combined-Cycle Power Plant, for which a bid notice will be issued within a month or two.
Under the national contract law, orders for main power plant equipment can be placed using methods other than the integrated lowest-bid system. The integrated lowest-bid system determines the winning bidder through price competition focused on the lowest price after verifying the bidding companies' technology, financial structure, and project execution capabilities.
If there is no main equipment on the market that meets the performance desired by a power generation subsidiary and research and development (R&D) or innovation is needed, a "competitive dialogue contract" can be used. A "negotiated contract," in which proposals are received from multiple bidders, evaluated, and then a contract is concluded through negotiations, can also be used. However, negotiated contracts are generally applied to complex projects that are difficult to evaluate on price alone, such as cultural and arts events and national security-related projects.
Under the competitive dialogue method applied to the Goseong Combined-Cycle Power Plant, the ordering party, the power generation subsidiary, conducts screening by comprehensively evaluating the bidders' circumstances along with their bid prices. Qualitative and quantitative evaluations are carried out based on the scoring criteria set by KOEN. As a result, among the two companies that participated, the company that submitted the higher bid price was selected.
KOEN was also flagged over the ordering method for the heat recovery steam generator at the Bundang Combined-Cycle Power Plant during the national audit last year. It was later audited by the Ministry of Climate, Energy and Environment. The ministry recommended preparing a plan to have the heat recovery steam generator contract for the Bundang Combined-Cycle Power Plant processed by entrusting it to the Public Procurement Service. However, it is expected that the existing approach will be maintained, with KOEN placing the order through a negotiated contract without going through the Public Procurement Service.
A KOEN official said, "As a result of consultations with the Public Procurement Service, we received the opinion that there would be no major problem even if we proceed with a negotiated contract," adding, "However, if the Public Procurement Service carries out the negotiated contract, it would take an additional two to three months compared with KOEN handling it directly, so the agency suggested that if the order is urgent, it is better for KOEN to do it directly."
An official at the ministry said, "We cannot enforce implementation based on the audit results," but added, "Once the implementation results come out, we plan to review again whether there were valid reasons."
Because only KOEN's procurement method differs, discontent is surfacing in the heat recovery steam generator industry. In this regard, an official at a heat recovery steam generator company said, "Because the heat recovery steam generator, which accounts for about 25% of the total construction cost of a combined-cycle power plant, was not ordered through the integrated lowest-bid system, the opportunity for competitive bidding has virtually disappeared," adding, "We filed a report with the Board of Audit and Inspection regarding the ordering methods for the Bundang Combined-Cycle Power Plant and the Songsan Bit Green Power Plant."
A KOEN official said, "While gas turbines and steam turbines generally follow the integrated lowest-bid system, in the case of heat recovery steam generators, problems such as construction stoppages and deterioration in construction quality occurred due to low-price awards during prior projects," adding, "The heat recovery steam generators going into the Goseong Combined-Cycle Power Plant are two units with the largest capacity in Korea, so we determined that ensuring reliability is crucial and introduced the competitive dialogue method."
The official added, "In the case of the Songsan Bit Green Power Plant, for the first time among power generation companies, we had a consortium led by the heat recovery steam generator bidder sign the gas turbine contract," saying, "For smooth project management, we pursued integrated ordering (heat recovery steam generator, gas turbine, steam turbine) so that the bidder could directly select the gas turbine manufacturer and participate in the bid autonomously, but after four failed bid attempts, we proceeded with a private contract."