A South Korean group won a landmark deal to build and operate four nuclear reactors for the United Arab Emirates, beating more favored U.S. and French rivals to one of the Middle East's biggest ever energy contracts.

Under the $40 billion deal announced on Sunday, which Seoul said it hoped would kick-start an export drive for its nuclear technology, the first nuclear plant in the Gulf Arab region is scheduled to start supplying power to the UAE grid in 2017.

In stark contrast to the development program launched by northern Gulf neighbor Iran, the UAE's nuclear ambitions carry the blessing of its ally the United States.

A consortium led by state-owned utility Korea Electric Power Corp (KEPCO) aims to complete the UAE's four 1,400 megawatt reactors by 2020.

The South Korean president's office described the deal as the largest mega-project in Korean history, while KEPCO said it was also it was in talks with Turkey to export two nuclear power reactors to Black Sea areas.

The U.S. and the UAE have a nuclear cooperation pact and U.S.-based firm Westinghouse Electric, a unit of Japan's Toshiba Corp, was part of the winning consortium.

It also includes Hyundai Engineering and Construction, Samsung C&T Corp and Doosan Heavy Industries. The UAE has pledged to import the fuel it needs for reactors -- rather than attempting to enrich uranium, the fuel for nuclear power plants -- to allay fears about enrichment facilities being used to make weapons-grade material.

Iran has long been at odds with the West over its declared plans to use enriched uranium to generate electricity, a program the United States and European allies fear is a cover to develop the ability to produce atomic bombs.

South Korea hopes to use nascent nuclear programs in the Middle East, which include developments in Saudi Arabia and Egypt, as a springboard for expanding its nuclear industry, though the projects have fueled concerns within the international community over a regional arms race.

We are now expecting much bigger opportunities in entering overseas markets as winning the UAE nuclear deal will play a role of convincing those countries in the Middle East and other regions which are thinking of importing nuclear power reactors, KEPCO said in a statement.

ECONOMIC BOOM

The UAE, the world's third-largest oil exporter, needs the nuclear power to help meet an expected rise in electricity demand to 40,000 MW in 2020 from around 15,000 MW last year, amid a petrodollar-fueled economic boom.

South Korea said it also hopes to build more plants in the UAE beyond 2020 to meet future demand.

Considering the growth estimates in the UAE's power demand, South Korea expects to win additional projects to build nuclear power reactors in addition to this contract for four reactors, it said.

The South Korean group beat a French consortium and another group led by U.S. giant General Electric. The $20 billion Korean bid was $16 billion lower than the French group's bid, an industry source said.

In addition to the deal to design and build the plants, the Korean consortium expects to earn another $20 billion by jointly operating the reactors for 60 years.

'SURPRISE CHOICE'

The choice of South Korea surprised some analysts, who had expected the deal to go to one of the other consortiums for strategic reasons.

The UAE's choice must have been based on strictly commercial terms because in terms of political clout in the region it's nil, said Al Troner, president of Houston-based Asia Pacific Energy Consulting.

Korea has a good track record in terms of safety and price and it's a surprise to see the U.S. and France are not part of the bid because they are the ones with the more political strength in the Middle East.

The emirate of Abu Dhabi, which is driving the UAE nuclear program, holds most of the UAE's crude reserves, and has managed to avoid the worst of the global economic slowdown as well as the debt crisis that has hit neighboring Dubai.

Dubai's debt crisis had cast a shadow over financing prospects for other Gulf borrowers but analysts expect blue-chip names like Abu Dhabi and Qatar to weather the fallout.

These are long-term projects and many of the finance providers will look beyond what is happening today, said John Sfakianakis, chief economist at Banque Saudi Fransi-Credit Agricole Group in Riyadh. The UAE's nuclear program is a strategic project.

He said the UAE could issue bonds in future to fund the project, in addition to the usual mix of project financing methods such as export agencies and banks.

I think by the time they do this (issue bonds), the Dubai storm will be over, plus Abu Dhabi would have a substantial windfall from oil revenues, he said..

(Additional reporting by Martin Dokoupil in Dubai)

(Writing by Simon Webb; editing by John Stonestreet)

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