MOSCOW - At a press conference in the Bulgarian capital Sofia, Russia’s Prime Minister Vladimir Putin was most conspicuously hard pressed to name the price of a nuclear power plant (NPP) that Russia is building in this former Communist Bloc country. Because Russia builds its NPPs abroad on subsidised export credits, the prices are simply set by a Kremlin order – and NPPs become nothing but a political instrument. For now, however, the Bulgarian one has neither a price tag nor an investor.
The incident that befell the Russian premier Vladimir Putin at the November 13 press conference in Bulgaria’s Sofia was a most curious one. Putin and his Bulgarian counterpart, Boyko Borissov, were talking to reporters after having concluded a round of Russian-Bulgarian talks, and the Russian prime minister announced that he was prepared – or not? – to name the price of the nuclear power plant in Belene, which Russia – through a company called Atomexportstroi, a wing of the Russian State Nuclear Corporation Rosatom which is in charge of the atomic authority’s intergovernmental cooperation agreements and handles construction of nuclear reactors abroad – is building in this former USSR satellite state.
I’m prepared to name the price – not!
The episode ran like something out of a classic comedy movie. Here’s an excerpt from the press conference transcript (quoted here and elsewhere in this story as per the official translation):
Question: The newspaper Trud.
Can we find out the final cost of the Belene Nuclear Power Plant? What shareholders, what Bulgarian companies will take part in this project? And when will construction be launched?
Vladimir Putin: The Bulgarian party insisted on its Russian partners specifying the end figure. We are ready to do it here and now.
Question: Here and now?
Vladimir Putin: Yes.
Response: Please do!
Vladimir Putin: I cannot – it’s impossible unless we agree to it with Bulgaria.
However zany the very situation, it reflects a very serious problem. In point of fact, there is quite frequently in Russia no economic notion of the cost of construction of a nuclear power plant. Because the Russian nuclear industry runs on state subsidies – both overt and implied ones – and because the promotion of Rosatom’s Russia-based and foreign nuclear projects is done for political purposes, the final pricing is an administrative, rather than commercial, matter, decided upon depending on the particular political situation at hand.
This often causes bewilderment in Russia’s foreign partners, who think, naively, that what they’re discussing with the Russian government has to do with economy and not politics. Wrong! Rosatom’s project in the Bulgarian town of Belene is one such case. The NPP’s costs have already grown by two and a half times – and it’s not certain that they won’t keep growing.
Belene, another denizen of Russia’s nuclear construction limbo
Construction on the nuclear power plant near Belene was started in 1985 – when Bulgaria was still a Warsaw Pact country. The project was a controversial one from the get-go, with issues of both economic advisability and safety, including seismic risks, impeding its progress: In 1977, a severe earthquake some 14 kilometres off the planned site had killed over 120 local residents. In 1991, the year that the Soviet Union disintegrated and the entire Soviet empire crumbled, construction works were halted at Belene, and a final freeze was ordered on the project the following year. As it issued its decree to cease all works at the site, the Bulgarian Cabinet of Ministers called the nuclear power plant project “technologically unsafe and uneconomical.”
But come 2004, the Bulgarian government is rethinking its policy, deciding to resume the construction. In 2005, the government announces an international tender for the construction of two nuclear power units at Belene, and in 2006 Russia’s Atomstroiexport, whose proposal meets no real competition, wins the contract.
A construction agreement between Bulgaria and Russia was signed in January 2008. At the time, the contract, for two power-producing units of a capacity of 1,000 megawatts each, was valued at almost EUR 4 billion.
The investment funds were to come from Bulgaria and Germany’s electric power and natural gas utility giant RWE, which held 49 percent shares in the project. However, in autumn 2009 RWE left the project, and Bulgaria – whose path after the breakup of the USSR has been largely similar to those of other former Communist bloc countries that had to undergo a painstaking recovery from the various after-effects of the Soviet economic legacy – is not prepared to bear all the costs the project will incur on its state budget. Russia has offered Bulgaria a EUR 2 billion loan to keep the construction going, but Sofia rejected the offer.
The economic issues are not the only problem the Belene site has been facing. The very thought of having a nuclear power plant built to an as yet untested Russian project, and in an earthquake-prone area to boot, has caused vigorous public protests both in Bulgaria and in neighbouring states. In 2004, environmentalists from some twenty countries – including activists from the Russian ecological group Ecodefense! – launched a campaign against the construction and have since brought enough pressure on the project’s participants to compel a dozen of European private investment banks – including such heavyweights as Deutsche Bank, Commerzbank, UniCredit, Société Générale, Citibank, and Credit Suisse – to abandon the idea of financing the project.
The price dance
“The price of the NPP Belene has long been established, and we are not going to change it. The primary agreement states that the power plant will cost EUR 3,997 billion, and this is not subject to change,” said Rosatom head Sergei Kiriyenko in 2009.
But no one will give another serious look to this obviously unrealistic – practically dumping-level – price anymore.
The problem is that in summer 2009, Bulgaria had a change of government. The new Minister of Economy, Energy, and Tourism, Traycho Traykov, proved a competent economist and found it impossible to believe that a two-reactor nuclear power plant could come as cheap as EUR 4 billion.
“Two months ago, when I was an ordinary taxpayer, I knew that the construction of NPP Belene cost EUR 4 billion. But when I became minister and did my calculations, it turned out that the project would set us back by EUR 10 billion,” Traykov has said.
He explained that four billion euros would only stretch as far as the basic contract amount covering the construction of the power units. Another two billion, according to Traykov’s estimates, would have to be factored into the overall costs to hedge inflation risks. Yet another EUR 1.3 billion, said Traykov, would account for creating the needed infrastructure at the site, including wages for the engineering staff and similar expenses, while “financing required for the construction period” would lighten the state budget by an additional two billion euros.
Basically, Rosatom’s attempt to convince Bulgaria that it could get a nuclear power plant at a 50 percent discount fell through spectacularly.
…is getting pricier – by two, three, four times?
It was in fact the NPP price and the calculations behind it that was at the centre of Putin and Borissov’s negotiations on November 13. Premier Borissov shared his account of it with journalists at the press-conference later that day:
You see, I have repeatedly raised the price issue concerning the final cost of the Belene nuclear plant because Bulgaria had an extremely bitter experience with the Tsankov Kamyk reservoir. It is a typical example. There are many contracts which announce a price while the supplements specify sums bloating the basic contract price two-, three- or even fourfold. That is why we have said many times in public that the signed contract with the previous government amounts to 3.99 billion euros. But this is not the final price because it does not take into account the inflation index, infrastructure expenditures, and interest on contract loans. Considering long-term loan interest payments, which affect the price, the previous government was wrong when referring to the final cost. We demanded that experts representing both countries set the final cost with loans and interest included: we need to know how many billions the Belene plant will cost in fifty, sixty or any other number of months and after the next reactor is ready…
The plant is being built on a turnkey basis, in other words it can begin operating as soon as it is finished. How much will it cost? Who will invest in it? What loans can we expect? How much will we pay? These are serious calculations, and I want these questions to be analysed in a serious way for us to determine the final cost and announce it.
Putin: We will return after this short commercial break…
…And instead of addressing his Bulgarian counterpart’s concerns, Mr. Putin went into the all too familiar boasts and ballyhoo over the Russian nuclear industry.
Vladimir Putin: I informed Mr Prime Minister that we have drawn up an ambitious programme in Russia to develop the nuclear power industry.
First, approximately 30 major nuclear power units were built in the USSR throughout the Soviet years, and we intend to build 18 major units before 2015.
Second, we are actively working abroad: China will possess six nuclear power plants and India 16 units, including the two that have just opened. We have a contract with Turkey, your neighbour, to build there too.
I have said already that we offer very good, current and competitive technology. Our basic competitors in Europe, Japan and the United States cannot rival us for the quality of equipment though they charge more. The higher charges mainly depend on their different system of labour remuneration and the differences in energy production, transport, etc. We are more competitive in these respects while guaranteeing top quality. I have also said that we are not greedy – we attract foreign partners, mainly from Europe, in the fields where they are indisputable leaders, and we cede about 25% of the overall volume to them.
We have announced our final costs to the Bulgarian party today. Now it’s the Bulgarian experts’ turn to run estimates and give us a response.
In other words, this was a “secret” of the Russian nuclear energy industry that Putin just revealed to Bulgaria: Russia offers different pay, production, transport… But he still did not say what he was expected to say – how much will it cost to have Russia supply Bulgaria with a ready-to-operate nuclear power plant?
And this is why it happened. It is simply not accepted practice in the West to engage in obfuscation and secret-mongering while working out financial details. At any rate, where such issues are on the agenda as the costs of developing new buildings, roads, or power plants – especially those that are built on credit or with participation of foreign companies – these issues are discussed openly so that the government and the public could make an informed choice for or against this or that project. But it’s just the opposite in Russia. In Russia, everything’s a secret, and decisions are often made to cater to the interests of a particular corporation, public interests be damned.
In Bulgaria, the very attempt to get a straight response to the question about how much the construction of a nuclear power plant would cost the state budget brought about the following situation: If Rosatom, speaking through Putin, announces the real price of the NPP to be built in Belene – and for a two-unit nuclear power plant built to the Russian design dubbed NPP-2006, the price would hover around EUR 10 billion – then Bulgaria will simply take a pass on the project. Bulgaria has previously stated it is not ready to consider going ahead with the construction if its costs exceed EUR 7 billion. If Rosatom insists on its dumping prices and continues obstinately to give the Bulgarians its knocked-down estimates, Borissov’s government may again end up distrusting Moscow’s attempts at overselling and the EUR 4 billion scandal would repeat itself all over again.
Rosatom is used to feeling quite comfortable operating in the conditions of a continuous “commercial secret” – such as when signing new NPP construction deals with China, for instance. But in Europe – and especially with projects in urgent need of investors – such hot air as Putin’s promotional statements on the safety, reliability, and cost-effectiveness of Russian NPPs will simply not do.
No investor for Belene
As for investors, the Belene site is still without one. Bulgaria was trying to make an NPP financing case to its closest neighbours – like Serbia, which it hoped to sell on an idea of a five-percent contribution. There was also talk of a loan from the China Development Bank.
Serbia did eventually come on board: On November 24, Belgrade said in an official statement it was ready to invest into Belene, but on a much more modest scale, around one percent. In an official letter to Bulgarian premier Borissov, Serbian Prime Minister Mirko Cvetković asked Bulgaria to provide documentation on the project. The Serbs are then to announce their final decision on participating in the construction.
If Bulgaria’s search produces no investor for Belene, this will either cause Sofia to abandon the dangerous and expensive project for good, or the result will be that both the construction and the funds for it will become Moscow’s responsibility.
A Russian NPP on European Union territory?
But why would Russia want to finance a Bulgarian nuclear power plant? Can Russia’s hide-and-seek about the NPP’s price be an elaborate play on Moscow’s part aimed not at earning money on building a site, but rather at getting to keep it once the construction is completed? This is quite possible, especially if no strategic investor is found for the Belene project and the Bulgarian government stays its course of refusing to put out the needed funds. The result will be that the Russian budget will become EUR 7 billion to EUR 10 billion leaner – and Bulgaria will wake up to find it has a foreign nuclear site on its territory, one that might be used as a tool for economic or political influence. The implications are broad: power cut-offs, constant bargaining about power prices or fuel prices, and so on and so on.
This is not such an outlandish scenario as one might think – just take the Armenian NPP (also known as Metsamor NPP) as an example. Metsamor, equipped with two VVER-440 reactors, was built during the 1970s, when both Armenia and Russia were two of the fifteen sister republics comprising the Soviet Union.
When Armenia, a small state in the Caucasus, had trouble coming up with money to buy nuclear fuel to keep the plant online, Russia provided a batch of fuel on loan, and then another one. Then came the time to make good on the debt – and Armenia was unable to settle. The sad end of this story is that Metsamor is now Armenian in name only: It remains nominally to be the property of Armenia, but in reality it is controlled by Russia – that is the real picture behind the official wording stating that the site has been placed “under fiduciary management” carried out by Inter RAO UES, the Russian power generation and electricity trading company, whose 57.3 percent of authorized capital is owned by Rosatom.
A nuclear trump card
There is nothing new in this practice. In fact, even back in Soviet times, nuclear power plants in both the USSR’s republics and its satellite states were built by Moscow for reasons that included keeping these “people’s democracies” on a tighter leash. A similar situation is currently developing in another former USSR nation, Belarus, where Rosatom is pushing for a nuclear power plant near the town of Ostrovets. Belarus has no money for such an expensive purchase, and if Minsk does Moscow’s bidding and agrees to have Ostrovets NPP built on credit, the site – if and when it is built – will be effectively under Russia’s control. The same sequence of events may very well unfold in Bulgaria.
That such a likelihood is a very realistic prospect for Bulgaria can be confirmed by a February statement made by Rosatom saying that Russia is ready to invest EUR 1.9 billion into Belene in exchange for 80 percent of the NPP’s shares. In other words, Russia can both eat the cake – build the plant – and keep it. Forget 80 percent – Rosatom can sign up for a 100 percent investment, if it comes to that, because in the end, the costs will be borne by the Russian taxpayers, not the nuclear corporation’s budget.
“If Bulgaria announces a tender for its share in NPP Belene, we will participate,” Rosatom head Kiriyenko said.
It may very well be that the hand Rosatom is playing in Bulgaria and Belarus, with Putin’s support, is of the same deck as the one played in Armenia: A nuclear power plant as an economic and political trap.
Do Russia’s neighbours need such presents – and will the Russian budget even withstand the burden of additional expenses that financing such dangerous “presents” will incur?