Questionable Russian-owned company caught up in Ukrainian nuclear reactor deal

2016_Chernobyl-NB-3 The road barrier at the checkpoint into the Chernobyl nuclear plant. Photo: Nils Bøhmer - Credit: Nils Bøhmer

As Ukraine’s president Petro Poroshenko, faces a run off in the country’s elections, he has issued a decree to his cabinet to act urgently on building two new nuclear reactors, the Kyiv Post has reported.

But investigative journalists have revealed that the company poised to build the new reactors has close financial links to Moscow ­– which has been fomenting a proxy war in Ukraine’s east ever since Moscow annexed the Crimean Peninsula in 2014.

The reporting by the Kyiv Post and others did not clarify whether Poroshenko himself is aware of the connection. But if his government gave a contract to the Russian-owned company it could constitute a security breach for Ukraine’s nuclear industry at a time when it is trying to wean itself off Russian-manufactured nuclear fuel.

Ukraine has 15 nuclear reactors, which it inherited after the Soviet Union’s collapse in 1991. All of them are elderly and hobbling toward retirement. But they also supply 52 percent of the country’s energy. As tensions with Moscow have mounted, Ukraine has worked with Westinghouse, a major US-based nuclear fuel supplier, to develop fuels suitable to its Soviet-built fleet of VVER-1000 reactors.

Last summer, Ukraine’s energy minister said Kiev would fulfill only 45 percent of the country’s nuclear fuel needs by buying from Russia – and pledged to drop that even further. Officials also announced that four of the six reactors at Ukraine’s huge Zaporozhie plant were now burning Westinghouse fuel.

But Moscow – which views Ukraine’s nuclear fuel needs as a political wedge – has not taken kindly to this shift. Russian state newswires have even spread reports saying that Ukraine is failing to wean itself off Russian nuclear fuel.

Untrue as those reports are, they nonetheless show how keen Moscow is to maintain the impression that Ukraine remains its nuclear vassal state. The appearance of a company willing to build two reactors for Ukraine – but which is secretly owned by Russians – would seem to slyly advance that goal.

The company in question is called Škoda JS, which is registered in the Czech Republic. According to the Kyiv Post, Škoda JS is a subsidiary of a Netherlands-based company called OMZ BV – which itself is a front for Russia’s United Machine Building Plant.

That company is, in turn, owned by Russia’s state-owned Gazprombank – against which Kiev has levied sanctions. Gazprom, the banks parent company, is Russia’s state owned natural gas and energy giant.

Poroshenko’s election-time decree calls for building two more reactors at Ukraine’s Khmelnytskyi nuclear power plant, a project estimated to cost $2.5 billion. But Radio Free Europe/Radio Liberty’s Ukrainian service revealed that Škoda JS had been awarded the contract to build the reactors absent an open tender.

According to that report, officials at the Khmelnytskyi plant hired Škoda JS for the reactor construction project because it was cheaper than other builders ­– namely Westinghouse.

Škoda JS, meanwhile, has been in the crosshairs of the National Anti-corruption Bureau of Ukraine, according to the Kyiv Post. The paper reported that the bureau has opened an investigation in to Škoda JS for shady offshore financial arrangements and the possibility that some of its dealings in Ukraine have been illegal.

How these revelations impact the fate of the proposed reactor project remain unclear. But they give a good indication of how reluctant Moscow is to relinquish its dominant position in Ukrainian nuclear energy – and Ukrainian energy as a whole.

An earlier report from the Kyiv Post shows that significant links in Ukraine’s electricity supply chain are, in fact, controlled by businesspeople with ties to the Kremlin. According to a tally by the paper, 21 of 27 electricity companies in Ukraine are owned by Russian oligarchs, despite the years of war Moscow has waged on the country.

Construction on the Khmelnytskyi nuclear power plant initially began in the early 1980s, but was stopped in the wake of Chernobyl accident in 1986. It current operates two VVER-1000 Soviet-built reactors.