Brazil: Restarting Angra-3 Civil Works

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Brazil's Eletronuclear resumed civil construction works at the Angra-3 newbuild on Nov. 11, seven years after the project was mothballed for the second time amid the fallout of a corruption scandal. The resumption follows the recent election of Luiz Inacio Lula da Silva, who previously revived work on Angra-3 just before his prior term as president ended in 2010. While Lula is likely to be supportive of the project moving forward after he takes office on Jan. 1, Eletronuclear must still contract the bulk of electromechanical engineering work, and that’s not expected before 2024.

The on-again/off-again project to build the German-designed 1,405-megawatt Angra-3, on which construction first commenced in 1980, will likely maintain government support given Lula's previous support and more recent signals. Eletronuclear is still targeting 2028 for commissioning of Angra-3, which it hopes to jump-start in part by accelerating the plant’s “Critical Line Acceleration Plan" by contracting local suppliers. In 2021 Eletronuclear spent 1.24 billion real ($233 million) contracting for Angra-3 civil works, and in February 2022 it signed a contract with a consortium—comprising Brazilian contractors Ferreira Guedes and Matricial and electromechanical engineering company ADtranz—for construction works including completion of the reactor building by 2025, electromechanical work to close the steel containment structure, and installation of a spent fuel pool.

Even as Eletronuclear proceeds with civil works, however, it doesn't intend to conclude an engineering, procurement and construction (EPC) contract before 2024, once more pushing back that timeline. In part that's because much of the construction work is already going forward — with the project about 63% complete — and EDF subsidiary Framatome, which owns Angra-3's nuclear island technology, is already serving as the project's design authority. What Eletronuclear requires from an EPC contractor then will therefore largely entail electromechanical engineering work, with little procurement and construction.

Former Eletronuclear CEO Leonam Dos Santos Guimaraes told Energy Intelligence in September that an EPC contract for Angra-3 would most likely go to a "consortium involving especially big construction companies, and not necessarily our well-known nuclear companies like Westinghouse, Rosatom and CNNC," but more specialized contractors "like in the United States, Jacobs and Fluor, and also in France, like Bouygues, and in China, we have this particular company specialized in construction of nuclear power plants, not CNNC who designs and builds the plant."

Such prospective bidders are already wary of taking on any construction risk at the troubled project, even before an EPC tendering process has begun and even given the limited EPC scope. “We found out that the main issue for potential bidders and for the success of such a bid is a good risk allocation,” Marcelo Gomes da Silva, Eletronuclear’s head of advisory department for science, technology and generation expansion, told a New Nuclear Watch Institute Nov. 17 webinar on Latin America. "If you put too much risk on the industry side," he explained, "you may have either the higher price or even an unsuccessful bid. If you put too little risk, you have a very high tariff for the consumer in the end."

Financing Challenges

In the previous chapter of Angra-3's construction, work on the reactor was halted in 2015 thanks to "delays" in Framatome's predecessor Areva being paid, lack of financing and a corruption scandal that implicated many of the project's Brazilian suppliers as well as Eletronuclear officials. It's not clear what is being done to remove corruption risks at the project, but under the current government, state-owned Brazilian Development Bank (BNDES) outlined a project financing structure that does not ask prospective EPC partners for equity contributions as previous models did. Instead, it relies on debt-financing by guaranteeing project loans: Angra-3 would be supported by 80% debt financing through project loans and hopes of financing through international partners.

That financing structure doesn’t appear to be at risk of changing under a left-wing Lula government. Eletronuclear expects Lula will continue to support a mix of national and international financing. "Let us remember that it was under President Lula's tenure in the past that the Angra-3 project was started and gained momentum," Eletronuclear's Gomes da Silva said in response to questions from Energy Intelligence. "And regarding the financing structure, I think that the current constraints on national budget" calls “for a market solution" including a "financing structure based on bank loans and bonds."

Now BNDES is reviewing government-approved guidelines for establishing yet another output tariff for the plant, one that must cover both capital costs, currently estimated at 18.8 billion reals ($3.3 billion), the project's existing debt, and an 8.88% return on equity.

As proposed by BNDES, that 18.8 billion real capital cost is to be covered via 5.4 billion real ($995 million) from former Eletronuclear parent company Eletrobras, 3.5 billion real ($645 million) from new owner, the Brazilian Company for Participation in Nuclear and Binational Energy (ENBPar), and 9.5 billion real ($1.7 billion) from debt financing. These capital spending figures were agreed upon as part of the privatization of Eletrobras and the restructured ownership of Eletronuclear under ENBPar.

ENBPar was established by government decree on Sep. 10, as part of the 23.2 billion real initial privatization of Eletrobras, Brazil’s largest power and utilities firm. While Lula has pledged to make Eletrobras a state-owned entity again, budget constraints could limit that possibility. Eletrobras currently maintains a 36% minority stake in Eletronuclear, with ENBPar holding the majority at 64%, but in terms of capital spending, Eletrobras is on the hook for about 68% of Angra-3 costs and ENBPar the rest.

Eletrobras said in its May 9 annual report that while it commits "to raise funds and grant guarantees in proportion to our participation in the voting capital of Eletronuclear," the company cannot provide assurances that it "will obtain the funds necessary to meet our investment obligations or that ENBPar will be able to obtain all the necessary funds and guarantees, which could adversely affect the completion of the project."

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