PRAGUE — The Czech Republic looks set for a confrontation with the European Commission — and its anti-nuclear neighbors — over its ambitions to expand nuclear power.

Prague wants to streamline a project to build a new reactor at the Dukovany nuclear power plant, 50 kilometers north of the Austrian border, to replace a Soviet-era reactor. That means persuading Brussels to exempt the project from strict EU rules on government bids.

If it fails, the Czech government is considering striking a nuclear deal with Russia along the same contentious lines as Hungary, which signed with Moscow last year.

The second option would raise trouble for the Commission, which reluctantly approved Hungary's Paks II nuclear project last year following long negotiations with Budapest. The decision was widely criticized for seeming to appeal to political interests over technical merits and is now being challenged by Austria for breaching EU state aid rules.

Austria and another Czech neighbor, Germany, strongly oppose any expansion of nuclear power in Europe.

Kristýna Křižanová, adviser to the deputy minister of industry and trade, said talks with Brussels are “getting really complicated and we are not sure we will be granted the exemption." She said the country is responding to Commission questions ahead of a March deadline before another round of talks.

A previous effort by state-controlled utility CEZ to build two reactors at the Temelin nuclear plant turned into a fiasco.

If that doesn't work, the Czech government will consider other moves, including a direct government-to-government deal like Hungary’s €12 billion Paks. Budapest granted Russia’s Rosatom the contract to build the two reactors without a tender, arguing that the state-owned company was the only one that could fulfill the technical requirements to replace older Soviet-era units. Russia is also financing €10 billion of the project through a loan to Hungary.

“We are now assessing other possible options and that is a legitimate example of how to proceed, but we have no preferred option right now,” Křižanová said.

Under its State Energy Policy, approved in 2015, the Czech Republic aims to make nuclear the main source of its electricity as aging coal-fired power plants are phased out over the coming decades. Nuclear is forecast to rise to above 50 percent of the power mix by 2040.

For that to happen, the Czech government needs to get the new project off the ground. A previous effort by state-controlled utility CEZ to build two reactors at the Temelin nuclear plant turned into a fiasco. That tender was launched in 2009 and cancelled in 2014, the victim of a series of over-optimistic financial forecasts and problems in getting government guarantees.

The decision on Dukovany, however, may be delayed as political parties negotiate the formation of a new government.

A second try

Fearful of a repeat, Prague wants Brussels to agree to exemptions of strict EU rules on public bidding, downgrading the issue of price in favor of criteria such as technology, to shorten and simplify the process.

Ján Štuller, special envoy for nuclear energy at the ministry of industry and trade, said the six bidders who completed a Czech Request for Information in 2016 are “on the same line of the starting point with the same opportunity to win.”

But if the Commission agrees to the relaxed tender conditions, or if the Czechs decide to pursue a direct government-to-government deal, Russia and its state nuclear company Rosatom would find themselves ahead of the five other bidders — Korea Hydro & Nuclear Power, China General Nuclear Power, U.S.-based Westinghouse Electric, France’s Areva and EDF, and a joint venture between Japan’s Mitsubishi Heavy Industries and Areva called ATMEA.

Like the Hungarians, the Czechs could argue that Rosatom is best placed to replace the existing Russian reactor. On top of that, Moscow can offer financing for projects it sees as strategically important, and it has strong political backing in Prague following the reelection of openly pro-Russian President Miloš Zeman in January.

And Rosatom has the advantage of being able to offer nuclear technology tried and tested in Russia, making its project in Hungary cheaper than Areva's under construction in Britain, for example.

"Rosatom will be ready to offer the best conditions to the Czech side, depending on which project model will be selected by the Czech government," the company's media office said, pointing to projects it's developing in Turkey, Egypt, Bangladesh, Belarus and Finland as well as Hungary. "In case the Czech government decides to announce a tender, Rosatom will be ready to participate in it."

Westinghouse, which said it was the preliminary front-runner for the Czech Temelin project in 2013, worries that the country's new nuclear procurement process could become a "banking contest" in which the bidder's financial package trumps other criteria, said a company official who asked not to be named.

That, the official said, would give Rosatom and state-owned rivals from South Korea and China an unfair advantage over private companies such as Westinghouse and Areva, which are both in financial trouble.

Mikhail Chudakov, head of the International Atomic Energy Agency's Department of Nuclear Energy, doesn’t believe nuclear power is possible at a large scale without strong government commitment and government assistance.

“One of the reasons why nuclear power plants are planned but not constructed is the high upfront investment," he said.

Russian relations

Zeman has said he would not be opposed to a nuclear deal similar to the one Hungary struck for Paks. The Czech Republic's acting Prime Minister Andrej Babiš has not expressed an official position on Russia.

“We’ve always known that the preference is for Russia,” said an EU diplomat based in Prague. “The decision in the end will be political.”

“Projects such as Nord Stream 2, or Russian energy activities in Serbia, the Czech Republic and Hungary keep the Euroatlantic counterintelligence community awake at night” — Jakub Janda

That could be especially true if the project's need for subsidies becomes more dire, especially amid lower European wholesale power prices and falling renewable energy costs.

Prague is now looking at how to cover the cost of new nuclear. Babiš has spoken publicly against the previous government's idea of raising money for the project by spinning off some of CEZ's units and keeping nuclear, fossil fuels and hydroelectric assets under state control.

“There is a vast consensus on building new nuclear resources … but financing is one topic where we do not have a consensus,” said Štuller of the ministry of industry and trade. “In November, I would love to see the answer to three questions: the investment model, the financing model and how we should select the supplier."

But if Rosatom does win the contract, the Czech Republic is likely to face a much higher level of scrutiny than Hungary did over Paks II.

There are also security fears in Brussels about the growing influence of Russia in the Czech Republic, which would only increase if Moscow gained such a stranglehold over the country’s electricity production. Rosatom is already the exclusive supplier of fuel for the Temelin nuclear plant until 2020.

"Projects such as Nord Stream 2, or Russian energy activities in Serbia, the Czech Republic and Hungary keep the Euroatlantic counterintelligence community awake at night," said Jakub Janda, deputy director of the Prague-based European Values think tank.

Rosatom rejected the idea that nuclear energy could be used to abuse market power.

"Unfortunately, there are some energy groups’ lobbyists and — in our view, irresponsible — politicians who exploit ignorance about nuclear energy and current political divisions between Russia and the West to spread myths and Bogeyman stories about nuclear geopolitics in order to derail new build projects."

Sara Stefanini and Nicholas Hirst contributed reporting from Brussels.