A South Korean consortium has won a $40 billion contract to build several nuclear reactors for the United Arab Emirates, industry sources said on Sunday.
The consortium would build the first nuclear power plants in the Gulf Arab region under the deal, one of the largest energy contracts ever awarded in the Middle East and also one of the world's biggest nuclear power plant deals.
We've won, said one industry source. We're not sure about the exact figure but I think it's around $40 billion.
South Korean President Lee Myung-bak was expected to sign the deal with UAE President Sheikh Khalifa bin Zayed al-Nahayan later on Sunday, sources said.
The consortium includes Korea Electric Power Corp. (KEPCO), Hyundai Engineering and Construction, Samsung C&T Corp and Doosan Heavy Industries.
The South Korean group beat a French consortium and another group of companies from the United States and Japan.
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 fueled 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 program the United States and European allies fear is a cover to develop the ability to produce atomic bombs.
Work on the first nuclear plant in the Gulf Arab region was expected to begin in 2012.
The UAE is the world's third-largest oil exporter and is looking to nuclear power to meet rapidly rising electricity consumption. Petrodollar-fueled economic growth has left the Gulf Arab state struggling to meet domestic power demand.
Abu Dhabi is driving the UAE nuclear program. The emirate 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 emirate Dubai.
Competitive prices played a key role in the UAE's decision, especially now with the economic crisis everyone is trying to cut down on costs, said Christian Koch, director of International Studies at Gulf Research Center.
Abu Dhabi stepped in to provide a $10-billion lifeline to Dubai earlier this month, to help its flagship company Dubai World meet debt obligations.
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 program 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.
The UAE plans to build three or four nuclear reactors in a first phase to help meet an expected rise in power demand to 40,000 megawatts in 2020 from around 15,000 MW last year.
(Additional reporting by Martin Dokoupil
(Writing by Simon Webb; Editing by Amran Abocar and John Stonestreet)