UAE Nuclear Power Plant Operation Support Contract.. Era of New Growth, New Business Model

Korea Hydro & Nuclear Power (KHNP) has concluded the contract of operation support for four nuclear power plant units under construction with the Emirates Nuclear Energy Corporation (UAE). 

KHNP is planning to dispatch at most 400 manpower annually and over 3,000 manpower cumulatively for 10 years after the completion of construction of UAE Barakah nuclear power plants. The contract payment is 600 million USD, and the contract supports 320 million USD for housing, education, and other costs. The special demand of construction in the sandblast of the Middle East in the mid-1970s has changed into the higher value-added business of technological and service cluster.

After exporting the Korean Standard nuclear power plant APR1400 to the UAE in 2009, this contract is the first cast to provide the manpower for operation. Not only the safety and construction technology of Korean Standard nuclear power plants but also the operation capability of nuclear power plant have been recognized along with knowledge and expertise of safety management.

The contract of operation support of UAE nuclear power plant by KHNP is very meaningful as it has shown the possibility of new business in the era of low growth. Traditionally, Korean enterprises have maintained the export strategy centered on the price competitiveness. Therefore, the experts have stressed that Korean enterprises have innovated the business model centered not on a product but on “technology and service.”

A manufacturer of train in France, Alstom, and the air transportation department of GE began to have the product sales competitiveness through integration of train or airplane engine with maintenance service and package sales, and they create more profits through a service.

Through the ecosystem from ITunes and applications to provide distinctive customer experience, Apple was also successful with the strategy toward the reinforcement of sales of IPod or IPhone products and customer loyalty. Likewise, the innovation of business model to integrate service upon new product or new technology promises the change of greater growth.

To establish the sustainable and successful business model, various conditions shall be fulfilled. Yet, the most significant factor is “proposal of value” and “impossibility of imitation.”

The proposal of value is to deviate from the perspective of product-oriented supplier to resolve customer issues and to propose the solution to fulfill needs. Actually, the most important customer competitiveness and customer value for KHNP is “safety.” Even with abundant fossil fuel, as the UAE demanded the sustainable and economic alternative energy, the UAE has required the construction of safe nuclear power plant after the Fukushima accident of Japan in 2011.

Through the follow-up measures and solutions of Fukushima accident, KHNP has built up the trust with improved safety facilities, and as KHNP has fulfilled the strict standard of the world’s best operation rate and low rate of failure or breakdown, KHNP was able to win the contract. 

On the other side, it is pointed out that the follow-up contract is relatively small compare to the contents announced in the nuclear power plant contract in 2009.

However, since this is the first contract, and since the power plant operation lasts for 60 years, there are more chances. As the Barakah power plants are Korean Standard power plants, and as the operation manpower is world-class, it is difficult for other corporations to follow KHNP. Yet, it is required to listen to the criticism that the competitiveness in fuel supply or waste process technology is not sufficient for export.

By Yoon, Yeo Sun (Professor at KAIST College of Business)