Baltic NPP’s financial prospects no more than usual song and dance

Publish date: December 4, 2008

Written by: Galina Raguzina

Translated by: Maria Kaminskaya

KALININGRAD - Having made official its intent to come up with investment funds for the construction of the Baltic Nuclear Power Plant (NPP) in Kaliningrad, Russia’s Federal Agency for Atomic Energy, Rosatom, is doing little to substantiate it with any concrete details, much less consideration for public concerns or environmental risks that this project – which even Rosatom recognizes is yet to be “legalised” – entails.

Rosatom officials presented a copy of the “Declaration of Intent to invest into the construction of the Baltic Nuclear Power Plant” – a project that the nuclear authority has recently started actively pushing for – at a late November meeting with the administration of the Kaliningrad region, Russia’s westernmost enclave. However well thought through in terms of further sticking to financial obligations that Rosatom assumed at this much publicised event, the document may have served as proof that the state deems the very issue of building the new nuclear site a decided matter and no revisiting will be expected.

“We are opening seven new sites where, beginning next year, front-end engineering works will be taking place. One of these is the Baltic Nuclear Power Plant, building which has made the essence of an agreement reached between the administration of the Kaliningrad region and the top management of the state corporation Rosatom,” Dmitry Tveretinov, Deputy Director General for Development of the Russian atomic energy supplier Energoatom, told the press at the Kaliningrad presentation.

Energoatom manages the country’s 10 nuclear power plants currently in operation. As for Rosatom, industry sites that are under the agency’s purview have recently been reincorporated as joint stock companies as part of a general national push to reinvigorate domestic production in such areas the nuclear, shipbuilding, and aviation branches.

According to Tveretinov, the Baltic NPP has not been included into the so-called “Master Layout for Prospective Electric Power Producing Sites for the Period of up to 2020,” the energy industry development programme ratified by the Russian government in March 2008. However, relevant governmental ministries and agencies have already been charged with preparing what feedback they have to submit with regard to Rosatom’s maverick proposal.

“We hope that in the beginning of next year, the Baltic NPP will be included into the Master Layout plan, and our activity will thus be legalized,” Tveretinov added.

The amendments that Rosatom hopes to introduce to the nuclear industry master layout plan have already made it into what project proponents have dubbed their “road map”: A chart, presented at the meeting that showed in yellow the sequence in which the country’s new nuclear capacities will be launched and, in blue, when old ones – such as Reactor Blocks 3 and 4 of the Novovoronezh NPP, Reactor Blocks 1 and 2 of the Kola NPP, and Reactor Blocks 1 and 2 of the Leningrad NPP – are slated for shutdown. Taking the modified plan into consideration, the first reactor of the planned Baltic NPP has been coloured yellow to designate its inclusion into what is called the “Mandatory Programme for the Introduction of New Nuclear Capacities.”

Another eight reactors, pictured in white, were part of the “Additional Programme,” which also included Reactor Block 2 of the future Baltic NPP. In Tveretinov’s words, the difference between the “mandatory” and “additional” new reactor capacities is that the former have been approved for construction by the government, while providing the latter will involve “attracting additional sources of investment, with regard to which no decisions have yet been made, but the intent is there.”

Rosatom’s imaginary friends: Where to find investors?
Last August, Rosatom made an official statement that said investment into the Baltic NPP will amount to € 5 billion, half of which will be provided by foreign sources. Yet, at the meeting in Kaliningrad, Rosatom cited a much more modest figure, saying the costs would run up to RUR 134 billion, which today corresponds roughly to € 3.8 billion.

As far as foreign money goes – rumours that investors will either come from the Czech Republic or the former Soviet nations on the Baltic Sea have been circulating for over six months now – no detailed information was made available to the press at the November meeting.

Igor Konyshev, Rosatom’s point man for managing relations with public organisations and the authority’s rapport with Russia’s regions, had the following comment: “Negotiations with companies ready to invest are in progress and I am confident that we will have a good investment package, but this is closed information.”

The origins of the other half of the funds Rosatom hopes to land to cover construction costs were something the nuclear officials found themselves much more eager to discuss, apparently taking offence at the remark made by the chairman of the environmental organisation Ecodefense’s Kaliningrad branch, Alexandra Korolyova, that nuclear industry sites are built with taxpayer money.

As Konyshev said, this part of the financing will not be coming directly from the state budget, but from Rosatom’s own coffers.

“The funds available to the state corporation are not only funds from the federal budget,” Konyshev explained, “but also the profit generated from operating our sites and selling the product that they make.”

Tveretinov provided a further clarification to the press by adding that Rosatom incorporates over a hundred production sites, including those involved with the extraction and reprocessing of uranium, generation of nuclear power, projects related to the space programme and the development of submarines, as well as various fields of scientific research and engineering.

As a new corporation consolidating a variety of joint stock companies, Rosatom derives its profit from these subsidiaries and makes decisions regarding further distribution of earnings to suit particular needs. “These are our profits, and we are ready to invest them into the construction of the Baltic NPP,” Konyshev said at the meeting.

Yet, according to Greenpeace Russia’s estimates, 80 percent of all nuclear power plants’ profits is spent on paying for fuel deliveries, covering costs of operating the reactors, and investing into safety upgrades, among other expenditures. Whatever funds the Russian atomic industry lacks it receives as free subsidies from budgets of various levels or as foreign aid sent to enhance nuclear and radiation safety at Russian NPPs.

“Apart from that, there is a system of failing to make good on payments due to the populations residing near NPPs and to enterprises supplying services related to nuclear fuel management and radioactive waste treatment, as well as a multitude of items designating deferred expenses, for which sources of funds have not yet been determined, but which it will be impossible to avoid in the future,” said a 2004 report by Greenpeace called “Costs of nuclear electricity: Is it worth investing into new reactors?”

According to the Energy Strategy mapped out by the Russian government for the period of up to 2020, Russian nuclear energy sites – in contrast with any other branch of the electric power producing industry – will be the only ones to receive official subsidies, including those from the federal budget.

Public participation and other issues
Various design and engineering experts from Moscow, Kaliningrad, and Belarus have already completed their assignment of choosing the Baltic NPP’s future construction site. However, though Konyshev and his colleagues shared the study’s results with the public, they were unable to deliver on their earlier promise to announce the specific location.

Yet, project developers hope by end 2009 to complete the required documentation – including a feasibility study for the investment bid and environmental impact assessments – and obtain the license to start construction.

Konyshev assured those present at the meeting that public hearings would be organised for the residents of the area where the plant will be built, with all feedback resulting from the hearings to be forwarded to the licensing authority.

It is exactly the realisation of the public’s right to weigh in on such projects that causes concerns among environmentalists. According to Korolyova, the ramifications of a new NPP operating in the area will not only impact those living in close vicinity. In Konyshev’s words, this would, however, fall beyond the purview of the Russian legislation:

“If one were to follow your logic, we would have to conduct hearings in Lithuania, Poland, Belarus, and the whole of the Kaliningrad region. The Russian legislation does not provide for that,” he said.

No debate of such a nature can be expected to be resolved before the Russian Federation ratifies the Convention on the Environmental Impact Assessment in a Transboundary Context, developed by the UN’s Economic Commission for Europe and signed in Finland’s Espoo in 1991.

In accordance with the Espoo Convention, the country initiating an industrial project with potentially detrimental consequences for neighbouring states – and nuclear power plants are included in the list of operations with implied risks of harmful cross-border environmental impact – has the obligation to afford both its community and those of surrounding states equal rights to participate in a study estimating such risks.

At the same time, the Russian legislation does take other international agreements into account, obligating Rosatom to at least inform neighbouring states of its intentions and give them a chance to familiarise themselves with the project documentation. This would have special significance when planning a nuclear power plant in a Russian region surrounded on all sides by other sovereign states.

Financial crisis going nuclear
According to Vladimir Slivyak, Ecodefense’s co-chairman in Moscow, the current financial crisis – which is expected to hit Russia the hardest already next year – may lead to significant setbacks in the realisation of Russia’s hefty nuclear power plant construction programme.

“Rosatom has already said earlier that part of its plans will have to undergo revisions because of the financial crisis. The fate of the Baltic NPP is now also under question,” Slivyak told Bellona Web. “On the one hand, there is still no decision by the federal government, and on the other, it looks as though the budget is already taking cuts, as well.”

Latest cost estimates involved in the Baltic NPP project, as presented by Rosatom at the November meeting in Kaliningrad, seem to confirm Slivyak’s projections.

Kaliningrad Governor Georgy Boos has earlier expressed doubts that the global financial slump will even so much as leave a temporary scratch on the economy of the Kaliningrad region. Furthermore, said Yury Shalimov, deputy premier of Kaliningrad regional government, this crisis will even play nicely into the country’s nuclear energy prospects: “Those who have to deal with the economy know: The most profitable investment is always made during crisis times.”

Environmentalists believe, however, that in today’s economic climate, investors unaffiliated with the state are unlikely to bet on a costly, lengthy, and ecologically controversial project. Since no concrete name was ever mentioned in Kaliningrad that would substantiate the prospects of attracting foreign investors, the only logical conclusion seems to be that all works currently in progress are being implemented with state funds, ecologists say.

“Rosatom isn’t shy about investing state budget funds into dangerous projects at a time when the crisis is kicking people out on the street, salaries are being cut, and the credit system is going down,” said a November statement by Ecodefense.

Furthermore, says Ecodefense’s Slivyak, one might be well served by the lessons of the 1998 financial downfall, which was the ruin for the ambitions nuclear energy development projects in full swing in South East Asia at the time. None of the planned nuclear power plants were built then.

“The crisis is breathing heavily down the neck of Rosatom and Governor Boos’ tandem and is threatening to make this project futureless,” the environmentalist concluded.