Bucharest, December 28^th 2016

Press release

Regarding the press release issued by the Ministry of Energy (“ME”) on 27.12.2016 and the subsequent questions received from the mass-media, SN Nuclearelectrica SA (“SNN”) makes the following statement:

1. Regarding the intimation made by the Ministry of Energy with the Competition Council regarding a possible dominant position of third parties on the market, SNN considers that ME is entitled to request any type of price and market analysis to the competent authorities in the field. Thus, the authorities responsible for competition can pass judgement regarding the free circulation of goods, competitive or dumping price policies, dominant position abuses, state aid (direct or indirect).
2. From SNN’s point of view, the price offered by the other qualified supplier, within each procurement procedure, is a market price, fact which can be easily verified by comparison to the market data supplied by Euratom Supply Agency (on long term and spot contracts), as well as to third party sources which publish data related to the evolution of the uranium price, especially on spot markets. Any uranium procurement contract is implicitly a three party contract, thus any contract concluded by SNN are signed by SNN, the supplier (CNU and/or Cameco) and ESA, precisely in order to ensure that the transactions take place at market prices and to avoid the dominant position of an independent authority.
3. It is known that the price of uranium on the international market decreased considerably in the last period, which impacts the price strategies of producers who adapt to the market conditions. In this context, considering the financial obligations of CNU, it is obvious that the company cannot be a competitive one at the international level, because its price is calculated to include the prejudice found by the Court of Accounts. The measures adopted by SNN, since the rightful termination of the contract with CNU, constantly considered granting legal rights to CNU and organizing internal procurement procedures for raw material in such a manner that CNU may simultaneously implement certain recovery and development measures and participate in the competitions organized by SNN. However, the progress registered by CNU after a year since the measures imposed by the Court of Accounts is a slow one, without significant change.
4. Considering the current situation of CNU, from the operation point of view, it is difficult to assess if CNU would be able to supply a long term contract of 4 years, for example, reason for which SNN decided, in a conservative manner, to conclude short term contract so that CNU, following its operational and financial recovery process may have real chances in such a competition, from the price perspective.
5. Moreover, in order to reduce the risk of dependency on one supplier, SNN imitated in 2016 two international qualification procedures for new UO2 suppliers, as per the good practices in the nuclear industry. These procedures did not lead to the qualification of new suppliers, although there was interest from other companies, mainly due to the requested technical specifications of the product.
6. Considering the above mentioned factors, SNN hopes that the ME has analyzed carefully the potential impact of such an intimation on the risk of ensuring the continuity of the raw material supply and the operation of Cernavoda NPP as Cameco may decide, in this context, not to participate in further procedures organized by SNN considering the short term of the contracts and the reduced quantity of uranium purchased, thus leaving SNN in an impossibility to manage this risk, corroborated with the lack of recovery of CNU and the failure to qualify other suppliers.
7. Chronologically, after the rightful termination of the raw material supply contract with CNU in 2015 for uranium sintered powder (UO2) as a result of CNU’s refusal to fulfill its obligations in the contract, SNN organized two competitive procedures between its two qualified suppliers: CNU and Cameco Inc. SUA (with production facilities in Canada), in order to ensure the raw material necessary for the continuation of the operation of FCN and Cernavoda NPP. Cameco is a qualified supplier of SNN since 2008 precisely in order to manage the risk of dependency on a sole supplier or to manage the insufficiency in raw material, as is the current situation). In order to give CNU the possibility to participate in a procedure which would have led to the conclusion of a long term contract (4 years), considering the statements of the Ministry of Energy regarding the implementation of recovery measures for CNU, company which is entirely under the control of the Ministry of Energy, and considering the importance of maintaining the integrated nuclear fuel cycle, SNN decided to conclude short term contracts. Thus, since CNU’s refusal to deliver SNN raw material as per the provisions of the contract, SNN organized 3 UO2 procurement procedures. Up to present, based on the public procurement legislation for merchandise, in compliance with the principle of the efficient use of public funds, namely, the lowest price, SNN concluded two contracts of 6 months’ duration for the quantity of 120 tons of UO2 each, which ensured the supply for 2016 and will ensure it in the first months of 2017.In order to ensure the supply of raw material and granting CNU the possibility to reach a competitive capacity on the international market, SNN initiated in December 2016 a new short term procurement procedure to which the two qualified suppliers of SNN were invited to submit offers, procedure concluded with the signing of a new contract with Cameco, as Cameco’s offer had a price substantially lower than that of CNU. The new contract will enter into force in January 2017, after its signing by Euratom Supply Agency (ESA), as all the uranium procurement contracts in the European Union are three party contracts (signed by the buyer, the supplier and ESA). This third contract will have a duration of 6 months and a quantity of 120 tons of UO2. The procurement price of this contract in lei equivalent is of 373,58 lei kg/U in UO2.

 SNN has analyzed potential strategic measures with medium and long term impact to manage this situation, considering the internal and external factors mentioned above and has already initiated the necessary steps towards the relevant competent authorities in order to identify practical cooperation possibilities with CNU (for example: a processing contract with CNU – SNN would purchase the uranium octoxide (U3O8) from the market and contract CNU for its processing into uranium dioxide (UO2)) or to develop additional processing and refinement capabilities and/or upgrade of the existing ones in Romania. Thus, SNN would ensure the security of supply of uranium dioxide sintered powder (UO2) in compliance with the technical specifications for the manufacturing of the CANDU 6 type nuclear fuel bundles and would mitigate the risk of dependency on a single supplier, maintaining a strategic business relation with CNU to the benefit of both parties, at the same time. SNN is still waiting for a point of view from the Ministry of Energy on its proposals, but it is probable that in this context, the subject will be tackled by the next Government.

Daniela Lulache

Director General