Conflict breaks out at power talks

Work to reorganise Russia’s power industry and unify the nuclear sector under a single entity is fraught with conflicting interests. President Vladimir Putin has set up a working group to discuss the proposed merger of Russia’s nuclear plants, fuel manufacturing and trade enterprises into a single state corporation based on the present nuclear utility Rosenergoatom.

The Nuclear Power Ministry (Minatom) and Rosenergoatom have long been at loggerheads with the electricity grid operator Unified Energy Systems (UES) over the power sector reorganisation and energy tariffs, but planned nuclear sector reforms were expected to go through unopposed. Now, unexpected opposition from the Economic Development and Trade Minister German Gref means they are likely to be considered in the wider context of broader energy reforms, including changes within UES.

Russia’s energy problems culminated in Putin’s recent dismissal of Industry Minister Alexander Gavrin and governor of the far east Primorye region Yevgeni Nazdratenko, following a severe power crisis in the region.

Working group discussions

The working group, which met for the first time on 5 February, is headed by the governor of the Tomsk region, Victor Kress, and includes UES head Anatoly Chubais, presidential advisor Andrey Illarionov, and UES director Boris Fedorov. The group initially agreed that a single nuclear entity would:

•Be able to co-ordinate an increase in nuclear generation in order to compensate for a steady reduction in the use of natural gas.

•Build a joint stock of spare parts.

•Make it easier to attract investment and monitor safety.

•Limit charges while remaining able to increase the investment portion of tariffs.

However, Gref, who is responsible for limiting energy sector monopolies, opposed the plan on the grounds that it would allow a single corporation to control 40% of Russia’s European energy market, and that it would create a monopoly that was comparable to UES.

Minatom did not expect Gref’s objections. In February, the Rosenergoatom executive director Yuri Yakovlev said that the draft government decree on the reorganisation had been accepted by all ministries and departments concerned and would be signed within a month. Gref’s refusal to countersign the draft decree has led deputy prime minister Viktor Khristenko to say that the matter will have to be decided within the context of the restructuring of the power industry as a whole.

Gref wants to see two separate companies set up to manage RBMK and VVER reactors. Rosenergoatom’s deputy director for economics Alla Arkhangelskaya has pointed out that RBMKs have a lower tariff than VVERs and that both have tariffs below those that have been set by UES for its thermal stations. This is why Rosenergoatom is adamant that its own reorganisation should remain separate from any changes that take place in UES.

“The question is, who is going to compete with whom,” Arkhangelskaya said in a recent interview with Segodnya. “The Ministry of Economic Development and Trade’s scenario shows nuclear plants competing with thermal stations, but we know that nuclear stations are cheaper.”

To split or not to split

Another scenario has been presented by Andrei Zadernyuk, head of the Federal Energy Commission, who wants the two companies that are produced by splitting Rosenergoatom to compete with each other within a single pricing group. The problem with this possibility is outlined by Arkhangelskaya: “They will stop building RBMK reactors, which means that the new company will operate for 10-15 years and then quietly fade away. But during this time the competing VVER operator will have to match RBMK prices in order to survive, which will leave nothing for investment.” She adds that prices will not average out because it is not possible to form a single market for electricity at the moment. “No-one has developed the grids and so it is impossible to organise transfers of current across regional boundaries,” she says. “This means the electricity market will be zonal. UES has seven energy zones. Competition will be organised within them, but wider “averaging” is only possible if it is divorced from real prices. What kind of market is that?”

Arkhangelskaya dismisses fears about Rosenergoatom becoming an expensive monopoly, and says that, to the contrary, the amalgamation of companies allows various options for setting tariffs. “The creation of a single generating company will make it possible to cut cost sharply,” she explains. “It will be possible either to reduce the growth rate of electricity tariffs or to increase the investment element while leaving the tariff unchanged. The decision on how the spend the funds saved is a matter for the government or the Federal Energy Commission.”

Arkhangelskaya says that a single stock of spare parts would avoid plants being shut down because they do not hold the parts that are needed for essential repairs or maintenance. She adds that at the moment all the stations have different tariffs. For example, Kola cannot work to its design capacity because it has no-one to sell its power to. As a result, its tariff is rising sharply. On the other hand, Novovoronezh could distribute power at a higher tariff but it has no incentive to do so because it does not need the money for investment. The switching of funds between the two is impossible, unless this is done from profits after paying 35% tax, plus VAT. Within the proposed single entity, with a flexible pricing policy, there would be no need to switch funds.

Will tariffs rise?

When asked if tariffs would rise if spent fuel recycling costs were included in calculations, Arkhangelskaya said that for plants with VVER-440 reactors, the tariff already included the cost of transportation, storage and reprocessing of spent fuel. For the VVER-1000, the cost price includes transportation and storage but not reprocessing. But there are not any facilities for reprocessing VVER-1000 spent fuel. The RBMK tariff does not include the cost of treating spent fuel because there are no plans to reprocess it. Eventually it will have to be buried, which will be expensive. At present it is stored at the stations. There are no funds available for storage, just subsidies towards investment and scientific development work.