Max Ernst.The Elephant

Zeman a nuclear power

Murky Nuclear Business in New Europe.

How business is now done: Russia and China appear to be tussling in the shadows for a lucrative no-bid nuclear contract in the Czech Republic.

It is no secret that the Kremlin has invested heavily into its most prominent Czech ally, President Miloš Zeman. What is it getting in return?

Back in 2012, few expected the then-retired ex-Prime Minister (1998-2002) and former leader of the post-communist Social Democratic party (ČSSD) to make a successful political comeback. Yet he did, following a campaign strategy organized by Martin Nejedlý, the recently retired head of LUKOIL Aviation Czech, a subsidiary of the Russian oil giant. When Zeman was sworn in as president in March 2013, Nejedlý became one of his closest advisors, a position he still holds in spite of lacking the required security clearances.

Earlier this year, in spite of his deteriorating diabetes and inability to campaign effectively, Zeman successfully sought re-election. Towering over an underwhelming field of candidates, he projected charisma and showed himself attuned to Czechs’ anti-immigration sentiments in ways that other candidates were not. It has been uncovered that a half of all the funding received by the political group that nominated him, the Citizens’ Rights Party, came from employees of a cobweb of companies owned by Sergei Roldugin, the godfather of Vladimir Putin’s daughter, Mariya.

Provided that the presidency in the Czech Republic is mostly a ceremonial affair, why does Zeman seem to matter to the Kremlin? For years, Zeman was not able to do much for Putin, other than constantly wind up the Czech Republic’s Atlanticists by giving speeches supportive of his regime and critical of the post-2014 sanctions regime imposed on Russia by the European Union. Due to his worsening health, the Czech President has not even attended the high-profile Valdai Forum or the “Dialogue of Civilizations” conference organized by Vladimir Yakunin over the last few years.

One tangible pay-off is looming on the horizon, however: one of the Czech Republic’s aging nuclear power plants, Dukovany, will soon be due for an upgrade and expansion. The plant has been in operation since 1985, with a projected lifespan ending in 2035. Since the Czech government has committed itself to boosting its nuclear energy capabilities in order reduce its current dependence on coal, building a new reactor in Dukovany seems like a natural step.

Unsurprisingly, Zeman has been actively lobbying on behalf of the Russian energy company Rosatom. It has been revealed, for example, that Nejedlý conducted secret talks about Dukovany with Rosatom’s CEO, Alexei Likhachev. On his recent visit to the plant, the president stated that he was “personally not opposed at all to the application of the same model as the one used in Hungary with its Paks power plant.”

What happened in Hungary, of course, was that Orbán’s government awarded a $13.7 billion contract to Rosatom without going through a public tender. Financing has been provided largely through loans extended by Russian banks, and various details of the contract have been classified as matters of national security.

Zeman’s support extended to Rosatom is not just cheap talk. The President has leverage extending far beyond his normal constitutional duties. He played an active role in forming the current cabinet led by Prime Minister Andrej Babiš, who is now leading a minority government with ČSSD, which relies on the votes of the Communist Party (KSČM) in order to secure passage of critical pieces of legislation. That alone was a first in post-1989 Czech politics, where Communists had previously been systematically ostracized.

The arrangement was made under Zeman’s auspices and it is his personal influence that keeps parliamentarians in line. As a result, Zeman has been making frequent trips to parliament to whip the votes necessary to pass key legislation, including the government’s budget. Not only is that bizarre and unseemly in a parliamentary democracy, it has also given Zeman a degree of power over the government’s policy not enjoyed by any of his predecessors.

Earlier this year, for example, Zeman refused to appoint the Social Democratic nominee Miroslav Poche, a member of European Parliament, as foreign minister. After a brief stand-off, the coalition caved in and instead appointed a much more junior candidate, Tomáš Petříček. Zeman cited Poche’s views on immigration as the reason for his rejection—a highly unusual feat in a system where the president’s appointments of cabinet ministers are a formality. But given Zeman’s ties to Russia, it is no conspiracy theory to suggest that it is in his (and the Kremlin’s) interest that the Czech Republic’s diplomacy be as leaderless and malleable as possible.

Today, Zeman is trying similarly heavy-handed methods to push Rosatom through. As Jakub Janda, director of the Prague-based think tank European Values, wrote, “the President’s office are blackmailing the Prime Minister that if he fails to award the CZK 150-200-billion ($6.6-8.8 billion) to the Russians, he will lose Zeman’s support, who will then destroy his coalition by using Communists and some Social Democrats.”

The situation puts the spotlight on Prime Minister Andrej Babiš, a billionaire turned technocratic populist. In principle, his government could turn to a number of other prospective bidders instead of Rosatom, including the U.S. giant Westinghouse, France’s Areva and EDF, and Japanese, Korean, and Chinese companies. The economics are tricky, however, as the Czech energy giant ČEZ lacks the necessary resources to finance the expansion on its own—at least not without depriving its vocal minority shareholders of dividends for decades to come. If the government decides to go ahead, the taxpayers will have to underwrite at least a part of the final bill.

Yet, the EU places stringent restrictions on state aid to investment projects involving private parties. Furthermore, Dukovany is close to the border with Austria, where strong and well-organized opposition to nuclear energy, underscored by the country’s 1978 referendum on the subject, is intent on torpedoing any expansion of existing nuclear structures in neighboring countries through legal challenges at the EU-level. All of that makes a crude government-to-government agreement with Russia look like an appealing alternative to a “normal,” competitive tender—especially so if Russia provides cheap financing.

So far, Babiš has refused to play along with Zeman and the Russians, suggesting instead that the lifespan of the existing plant be extended until the mid-2040s, at a fraction of the cost of a full upgrade and expansion. Inadvertedly, the situation turns Babiš into an advocate of renewable energy. Support for wind, solar, and biofuels increased dramatically under previous governments, to a point where Babiš called the increases in support “scandalous.” His government was widely expected to reduce them.

To observe Babiš’ reluctance is heartening, but the Prime Minister is no Russia hawk. Although his government expelled three Russian diplomats following the poisoning of Sergei Skripal and his daughter, the Prime Minister has been also a critic of the EU’s sanctions against Russia, seeing them as harmful to Czech business interests.

What seems to matter more to him is the massive cost of Dukovany’s potential expansion, which dwarfs the burden of subsidies to renewables, which amount to a little over $1 billion each year. (And, as a side note, Babiš’ business conglomerate, Agrofert, has often found itself on the receiving end of those subsidies.) But Dukovany would be by far the largest public procurement contract under his tenure as Prime Minister. Recent history in Europe, furthermore, does not offer many examples of successful nuclear energy projects either—at least not without massive delays and cost overruns.

To complicate things further, Nejedlý and Rosatom might not be the only agents of foreign powers trying to influence Zeman. In 2013, the China General Nuclear Power Group (CGN) was given the green light to expand the plant at Cernavodă in Romania, together with a 51-percent stake in the joint venture company, in spite of being a sole bidder in the announced tender. The Czech president has long fostered ties with Beijing, culminating in a state visit by President Xi Jinping in 2016 and the appointment of Ye Jianming, the founder of Chinese investment conglomerate CEFC, as Zeman’s advisor. Though Ye has since fallen out favor, the regime has not lost its interest in Zeman. In fact, the Czech President just visited a business forum in Shanghai at the beginning of November, where he was hosted personally by President Xi.

How the relevant actors play their cards now is critical, as a decision of some kind is expected by the end of this year. A Russian- or Chinese-run expansion of Czech nuclear energy capabilities would shape the country’s geopolitical options for decades to come, possibly long beyond the current crisis of the EU, NATO and of the Western-led ‘liberal order.’  And if there was ever a moment for the Trump administration to go on a charm offensive in the Czech capital, it is now. If Dukovany ends up in Russian or Chinese hands, recovering the lost Western influence will be an extremely difficult feat.

The American Interest.

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