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Hanhikivi-1 / Contract Cancellation Was Unlawful, Says Independent Review Board

By David Dalton
16 December 2022

Finland’s nuclear project with Russia shelved because of ‘delays and increased risks from war in Ukraine’
Contract Cancellation Was Unlawful, Says Independent Review Board
Preparatory work was under way at the site to ensure readiness for the start of full-scale construction, Rosatom said. Courtesy Fennovoima.
Project company Fennovoima’s decision to terminate the engineering, procurement and construction (EPC) contract with Russia’s state nuclear corporation Rosatom for the Hanhikivi-1 nuclear power plant at Pyhäjoki in northwest Finland was unlawful, a dispute review board has ruled.

In August Rosatom and Fennovoima said they had filed claims for billions of euros in damages from each other over Fennovoima’s decision to cancel the Hanhikivi project.

The Fennovoima consortium, in which Russia’s Rosatom has a 34% minority holding through its wholly owned subsidiary Raos Voima, terminated the contract in May for Rosatom to build Hanhikivi-1, citing delays and increased risks resulting from the war in Ukraine.

Fennovoima acknowledged in a statement that the dispute review board had “issued a recommendation with respect to a dispute between the Parties concerning Fennovoima’s termination of the EPC contract and its claims arising from the termination”.

Recommendation ‘Not Final Or Binding’

The company gave no details of the recommendation, but noted it was “neither final nor binding”. Fennovoima said it had begun international arbitration proceedings against Rosatom’s plant supplier Raos Project to recover “the amounts to which it is entitled” following its termination of the EPC contract.

A dispute review board is independent panel providing guidance to resolve disputes during a construction project. Such boards are a standard element of contracts for large-scale projects. Fennovoima said the board had been part of the plant supply agreement with Russia.

Hanhikivi-1 was being built using the ‘Mankala’ principle, a business model used in the Finnish electricity sector. Shareholders are responsible for the fixed costs of the power company, including servicing of debt. In return, shareholders have the right to buy the electricity produced, at cost, in accordance with their respective share in the company. Industrial shareholders use the electricity for themselves and electric companies sell it to customers.

Rosatom Will ‘Defend Its Interests’

The project was a joint project between Fennovoima, a consortium of Finnish utilities, and Raos Voima. Finland’s Voimaosakeyhtiö SF, a consortium which includes industrial and trading companies and local energy utilities, holds 66%.

The technology for the project was to be Russia’s AES-2006 pressurised water reactor.

In April 2021, Fennovoima said total investment costs for the project had increased from €6.5-€7bn to €7-€7.5bn.

Rosatom said in a statement it intends to defend its interests “until its demands are fully satisfied”. It said the termination of the EPC contract came at a time when the project was demonstrating “remarkable progress”.

In early 2022, Fennovoima said licensing work was almost complete with final licensing materials expected to be submitted to the Radiation and Nuclear Safety Authority within months. Preparatory work was under way at the site to ensure readiness for the start of full-scale construction, Rosatom said.

A computer-generated image of the planned nuclear power station. Courtesy Fennovoima.

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