Reforming the nuclear industry1 January 1998
The creation of Energoatom is only the first step on the long road towards a commercially driven Ukrainian nuclear industry.
During the last 3-4 years the need for changes in the old Soviet structures of the Ukrainian nuclear industry has become ever more pressing. After disintegration of the Soviet Union all the infrastructure needed for an independent nuclear power sector, and for safe operation of the nuclear plants, remained in Russia. Ukrainian nuclear operators faced many problems, two of which were particularly urgent: availability of equipment; and supply of fuel. With each passing year of Ukrainian independence these problems have got worse, with the need for change felt in all parts of the country’s power sector.
The first real steps towards reform at the government level were taken over two years ago. In April 1995 a presidential order was issued announcing the start of restructuring and resulting in the emergence of a Ukrainian electricity market. The advantages of innovation were clear: competition increases operational efficiency, frees up prices and creates an incentive for investment.
A vital question was: how would the nuclear stations function under the new conditions? At that time two possible ways for nuclear stations to enter the market were being considered:
• Option 1: nuclear plants participate in the electricity market united in one state-owned generating utility. This was the preferred approach of Goskomatom, the Ukrainian governmental body controlling the activities of the nuclear power plants and responsible for implementing state nuclear policy.
• Option 2: each nuclear plant enters the market on its own. A champion of this approach was the then general manager of Zaporozhe plant, Vladimir Bronnikov, who envisaged creation of a company in Zaporozhe called Energoatom-Dnepr. On this model, the individual plants act as separate businesses, negotiating their own supply contracts with local organisations, including barter-type arrangements.
The government of Ukraine chose the first option, and on 17 October 1996 the decision was taken to create a national nuclear generating company – Energoatom.
The company is housed in state property and reports to Goskomatom. But Gosko-matom is itself being liquidated along with the Ministry of Energy and Electrification. They are being replaced by the Ministry of Power of the Ukraine, within which a nuclear department is being established to which Energoatom will report. The nuclear department is headed by Nikolay Fridman, Ukraine’s first deputy minister for nuclear industry and formerly chief engineer at the Rovno plant. Goskomatom’s previous operational role for the nuclear plants has been taken on by Energoatom , while the nuclear department of the Ministry of Power takes on responsibility for formulating national nuclear policy and representing Ukrainian interests in the IAEA and other international organisations. Design, procurement and other activities not closely related to operation (eg responsibilities for the local community, running schools and hospitals etc, which have traditionally fallen within the responsibility of the nuclear plant manager) will be separated from the nuclear power plants themselves, while Energoatom will be responsible for operating the nuclear power plants, unit engineering and reconstruction, and nuclear fuel purchases. Other responsibilities include establishing spent fuel management and radwaste treatment systems, as well as training for power plant personnel.
According to the ex-chairman of Goskomatom, Viktor Chebrov, who oversaw the birth of Energoatom, the new structure should lead to improved financing and greater economic efficiency. He believes that uniting all the Ukrainian nuclear plants into one utility will considerably reduce the costs of R&D, technical support and nuclear purchases. In addition a good basis is provided for compliance with the principles of the Vienna convention on nuclear damage compensation.
Proponents of the Energoatom approach believe that a single company will help smooth out economic differences between the profitable and less profitable stations (eg those with only a single operating unit).
The new company is now up and running and most of the staff hired. Recently a new president of Energoatom was appointed. This is Nur Nigmatullin who was with Goskomatom during 1993-1996 as the first deputy chairman. He takes over from Valeriy Starodumov, who was in the post briefly and most probably will head one of the offices of the Ministry of Power Nuclear Department. The chief executive officer is Vissarian Kim.
Energoatom has started active collaboration with EBRD on financing the completion of the Rovno 4 and Khmelnitsky 2 VVER-1000s, within the framework of the memorandum of understanding between G-7 and Ukraine on the closure of the Chernobyl plant before 2000. Contacts with leading nuclear international organisations have been established.
It is important to note that the restructuring of the Ukrainian nuclear industry builds on world experience. In particular, the strategy has been informed by the experience of British Energy, the privatised utility successfully operating nuclear plants in the UK. For over two years, BE has been providing consultancy on creation of the new company, under a TACIS-funded contract, recently extended, and has just opened an office in Kiev. In spring 1997 BE was awarded an additional contract, funded by the UK Department of Trade and Industry, on creating a safety culture and training of top management. The British utility also has contracts to provide help to the Ukrainians on bidding and commercial practices in the electricity market – now well established in the UK – and on cost-risk factors in nuclear construction (funded by the UK Know-How Fund and by EBRD, respectively).
But the creation of Energoatom is just the first step in the process of restructuring the nuclear industry of the Ukraine – a process that could take at least 5 years.
RELYING ON RUSSIA
The Ukraine remains wholly dependent on Russia for nuclear fuel supplies and it took a long time for the Ukrainian government to recognise that the country needs its own indigenous fuel cycle industry. The first move towards setting up such a capability was made a couple of years ago with the decision to create a concern (provisionally called Nuclear Fuel of Ukraine) which is intended to be the basis of its fuel cycle industry.
The financing method proposed for the new concern looked very attractive. The funds were to be derived from utility payments for fuel deliveries to be made by Russia, under the terms of the Ukrainian–American–Russian agreement of 1994. Under this agreement, over the period 1994-1997 Russia was to supply to Ukraine fuel for its eleven operating VVER-1000s, in exchange for strategic missile warheads. The total number of fuel assemblies involved was supposed to be 1800 and, theoretically, within 4 years the fund was meant to amount to more than 1 billion grivnas ($1 is equal to about 1.86 grivnas). Initially it proved impossible to spare even one cent for this project – because of the large debt owed by electricity consumers – but now some accumulation of funds has started.
Nonetheless, work on the project continues and work on documents setting out the legal framework are being prepared.
Ukraine has the potential to create its own indigenous nuclear fuel cycle. Known uranium resources are sufficient for 100 years operation of the existing Ukrainian nuclear power plants (which amount to 12.8 GWe) and there are zirconium refining facilities for fuel assembly production. The quality of Ukrainian technical personnel is world class.
However, Ukraine is not able to sustain its own uranium enrichment facilities. This is for the simple reason that there is not enough power generation capacity. So in the case of fuel, Ukraine will remain dependent on outside suppliers to the tune of about 45%, which is the proportion of total fuel assembly cost attributable to uranium enrichment.
Meanwhile steps continue towards creation of a joint venture for production of high quality fuel for VVER-1000s. In February 1996 the Russian company TVEL won a tender for partnership in this project. The strong points of the Russian proposal were provision of longer cycle fuel (four years instead of three) and lower costs compared with those of competing bidders, Westinghouse and ABB.
Ukraine, Russia and Kazakhstan have worked out a draft agreement on the venture, which is to have its head office in Kiev. The state property fund will be responsible for the 30% Ukrainian interest in the joint venture, which is planned to have a starting capital of around $1 million.
As Nikolay Fridman has underlined recently, Energoatom and the shareholder-owned company TVEL intend to create in Ukraine a company capable of meeting a demand for fuel that is estimated to be $350 million per year. “This joint venture will help standardise the mode of payment for fuel between our countries,” he said.
TVEL is planning to open its own office in Kiev, perhaps in recognition of the emerging market environment and the need to cultivate its new potential partner (it is worth noting that Western companies such as EDF and Westinghouse, have had their offices in Kiev for quite a long time).
In spite of considerable efforts, the financial situation in the nuclear industry remains complicated. The reason is familiar – non-payments by electricity consumers. Electricity is not yet sold as it should be and the debt owed by the nuclear power plants to the National Dispatch Centre is still too high – 1.7 billion grivnas (815 million dollars). This corresponds to 5 months full operation by all the Ukrainian nuclear power plants.