A South Korean consortium won a $40 billion deal to build and operate four nuclear reactors for the United Arab Emirates, beating U.S. and French rivals to one of the Middle East's biggest ever energy contracts.
Under the deal announced on Sunday, the first nuclear plant in the Gulf Arab region is scheduled to start supplying power to the UAE grid in 2017.
"This deal is the largest mega-project in Korean history," said a statement from the South Korean president's office.
"It is more than six times bigger than the previous single contract."
Led by state-owned utility Korea Electric Power Corp (KEPCO) , the consortium will design, build and run four reactors with capacity to produce 1,400 megawatts each of electricity.
The contract to build the plants is worth around $20 billion, and the consortium expects to earn another $20 billion by jointly operating the reactors for 60 years.
Work on the first nuclear plant in the Gulf Arab region is expected to begin in 2012, and all four reactors are due to be completed by 2020.
The UAE, the world's third-largest oil exporter, needs the nuclear power to help meet an expected rise in electricity demand to 40,000 MW in 2020 from around 15,000 MW last year, amid a petrodollar-fuelled economic boom.
South Korea hopes to build more plants beyond 2020 as the UAE looks to construct more reactors to meet future demand.
"Considering the growth estimates in the UAE's power demand, South Korea expects to win additional projects to build nuclear power reactors in addition to this contract for four reactors," the statement said.
The KEPCO-led consortium includes Hyundai Engineering and Construction, Samsung C&T Corp, Doosan Heavy Industries, and U.S.-based Westinghouse Electric, a unit of Japan's Toshiba Corp , the statement said.
South Korean President Lee Myung-bak was in the UAE to sign the deal with UAE President Sheikh Khalifa bin Zayed al-Nahyan.
The South Korean group beat a French consortium and another group led by U.S. giant General Electric.
The $20-billion Korean bid to build the four plants was $16 billion lower than the bid submitted by the French group, an industry source said.
"We were impressed by the Korean consortium's world-class safety and its demonstrated ability to meet the UAE program goals," said Mohamed al-Hammadi, CEO of the Emirates Nuclear Energy Corporation (ENEC) in a separate ENEC statement.
The choice of South Korea surprised some analysts, who had expected the deal to go to one of the other consortiums for strategic reasons.
"The UAE's choice must have been based on strictly commercial terms because in terms of political clout in the region it's nil," said Al Troner, president of Houston-based Asia Pacific Energy Consulting.
"Korea has a good track record in terms of safety and price and it's a surprise to see the U.S. and France are not part of the bid because they are the ones with the more political strength in the Middle East."
Nascent nuclear programs in the Middle East, including in Saudi Arabia and Egypt, have fuelled concerns of a regional arms race.
But the UAE has already pledged to import the fuel it needs for reactors -- rather than attempting to enrich uranium, the fuel for nuclear power plants -- to allay fears about uranium enrichment facilities being used to make weapons-grade material.
Iran has long been at odds with the West over its declared plans to use enriched uranium to generate electricity, a programme the United States and European allies fear is a cover to develop the ability to produce atomic bombs.
Weathering the storm
The emirate of Abu Dhabi, which is driving the UAE nuclear programme, holds most of the UAE's crude reserves, and has managed to avoid the worst of the global economic slowdown as well as the debt crisis that has hit neighboring Dubai.
Dubai's debt crisis had cast a shadow over financing prospects for other Gulf borrowers but analysts expect blue-chip names like Abu Dhabi and Qatar to weather the fallout.
"These are long-term projects and many of the finance providers will look beyond what is happening today," said John Sfakianakis, chief economist at Banque Saudi Fransi-Credit Agricole Group in Riyadh. "The UAE's nuclear programme is a strategic project."
He said the UAE could issue bonds in future to fund the project, in addition to the usual mix of project financing methods such as export agencies and banks.
"I think by the time they do this (issue bonds), the Dubai storm will be over, plus Abu Dhabi would have a substantial windfall from oil revenues," he said.