ANALYSIS: Rosatom head Kiriyenko on foundering Baltic NPP: We understand what we were aiming at

ingressimage_pic-for-home-page.jpg Photo: Source: rosatom.ru

Rosatom’s progress with the embattled Baltic Nuclear Power Plant (Baltic NPP) project – a formerly two-unit 2,300-megawatt site in Neman, a town in the Russian westernmost exclave of Kaliningrad Region, close to the border with the European Union (EU) – has been under a heavy storm of doubt in recent weeks as the media reported the corporation was scrapping the original design and, in even more disquieting revelations, subcontractor companies were removing their workers from the location.

But on Thursday, speaking live with Ekho Moskvy’s editor-in-chief Alexei Venediktov (in Russian) in St. Petersburg, where the annual high-level St. Petersburg International Economic Forum was in progress, Kiriyenko said Russia was not abandoning its brainchild, but just “adjusting” it in response to adverse circumstances.

He said that despite current and anticipated setbacks, Rosatom was intent on expecting to cover what it assures will be both an increased local demand in Kaliningrad Region in the future and demand from customers in the European Union.

As adverse circumstances go, in the five years since a construction agreement was signed with the government of Kaliningrad Region in August 2008, Rosatom has managed to land no power purchasing contracts for the primarily export-oriented station’s future output, nor any partnership agreements in Europe to secure funding sources.

In Kaliningrad Region, Rosatom still faces the prospect of costly upgrades needed for the severely aged and overburdened transmission and distribution infrastructure. It might also have to double up on efforts to convince local residents – who are predominantly opposed to the construction – that the currently energy-sufficient region even needs the headache of dealing with nuclear risks for a handful of dubious benefits.

In his interview, Kiriyenko spoke of the challenges that he explained have led to the latest upheavals and said, in particular, that the current construction site would be expanded to accommodate an additional four to eight 40-megawatt reactors – an effort Rosatom says it undertakes to ensure Kaliningrad Region’s energy security and that will likely delay works at the site by at least one or two years.

His words come as a top Rosatom official’s most detailed and authoritative corroboration offered yet of a hazy picture that started to emerge a month ago from the initial sparse news reports. But on a closer look, all this picture seems to paint is a corporation desperately scrambling, against the worsening odds, to breathe new life into a hopeless project no one wants. 

“It will be installed on land at the NPP”

Late last May, media reports first indicated Rosatom was considering a major revamp for the project by looking into the possibility of building “firstly” units of smaller capacity at the site, and putting online the previously planned 1,200-megawatt VVER-1200 reactors “upon the availability of contracts for consumption and a power delivery scheme.”

Reports said 640- and 40-megawatt reactors were possibly discussed. Rosatom’s older VVER design, VVER-640, and the KLT-40C, a reactor based on marine propulsion systems, were considered to be the likely candidates.

This was followed by breaking news reports citing subcontractors at the site that construction was “being frozen for two years” and a leaked internal order from the general contractor in Neman, Rosatom’s Nizhny-Novgorod-based engineering company NIAEP, announcing staffing and budget changes in view of the upcoming mothballing.

In a baffling development later that day, a contradictory version of the same exact order appeared within hours on Rosatom’s website – detailing many of the same internal instructions, but stripped of “mothballing” or “employee termination” language and citing anticipated reactor capacity changes instead.

That the KLT-40C design was likely considered for the station in Neman could reasonably be inferred from a June 13 RIA Novosti report (in Russian), which quoted Alexander Polushkin, a top manager at NIAEP, as saying:

“This will be a reactor that has been in operation some 40 years, and it will be installed on land at the NPP.”

“What the eye fears, the hands do”

The KLT-40C was developed in the 1990s based on marine reactor designs for operation on board of a floating nuclear power plant (FNPP). The FNPP’s reactor plant and its auxiliary systems, according to Bellona’s 2011 report Floating Nuclear Power Plants, were designed as far back as the 1970s, with only the reactor core designed specifically for future operation on a floating nuclear station.

The developers say the “experience of development and long-term failure-free operation of nuclear vessels” served as the basis for developing the FNPP design, and that the KLT-40C is one of the small-scale reactor plant designs that are most ready for deployment, with possible arrangement both on land or on a non-self-propelled watercraft.

Still, the only such vessel in existence is currently under construction in St. Petersburg, for future service at a remote submarine base in Russia’s Kamchatka Region. 

“There are no engineering mysteries there. We have never done this before, but as they say, what the eye fears, the hands do,” Polushkin continued, according to RIA Novosti, quoting an old piece of Russian folk wisdom that is generally used when trying to inspire confidence in an as-yet untried and possibly foolhardy endeavor.

To an uninitiated observer, at least, the logic behind speaking of “40 years of operation” – presumably to ease any misgivings regarding the reactor’s safety – next to an admission of having no experience attempting something like this before might seem less than readily apparent.

But the plan seems to be set in motion. Polushkin, who serves as NIAEP’s senior vice president for project management and is Director of Project Engineering of Rosenergoatom Concern, Russia’s nuclear power plant operator company, said the “first project may be ready for licensing, in our assessments, sometime in late 2016,” according to RIA Novosti.

Kiriyenko’s defense

Kiriyenko’s explanation of Rosatom’s overhauls at the Neman site followed a lengthy discussion prompted by Venediktov’s question about “concerns” over the Baltic NPP construction expressed to him in interviews by the foreign ministers of Russia’s European neighbors and ex-Soviet republics Latvia, Estonia, and Lithuania.

bodytextimage_kiriyenko_venediktov.jpg Photo: Source: http://echo.msk.ru

 

Kiriyenko spoke of difficulties Rosatom has faced getting on the same page with Lithuania in international consultations over safety assurances – which, he said, Rosatom was happy to provide – and, more to the point, linked Russia’s neighbors’ displeasure at the construction going on just over the border with the hard realities of economic rivalry:

“For the Baltic countries, especially for Lithuania, our main neighbor with Kaliningrad, this sounds very interesting. Because they say: We want to build our own nuclear power plant, all together, all these three ministers have an agreement that by bringing together all these three Baltic countries, they want to build – just a mere several hundred kilometers from that place where we are building the Baltic NPP – they want to build their own. Their own [nuclear power plant] is not causing them concern, and our [plant] is. Guys, wait a minute […]”  

“[…] The issue is: Whose profit it will be. If it is built in Russia, then the main contracts go to Russian contractors, the taxes from it will go to Russian contractors, the profit from electric power sales will go to Russian contractors. If it is built in Lithuania, all of the above will [go to them],” Kiriyenko continued, according to the transcript of the interview (in Russian) posted, complete with the audio and video versions, on Ekho Moskvy’s website.

After shutting down the second reactor at its old Soviet-built Ignalina NPP in Visaginas in 2009, Lithuania has been considering a replacement plant and Japan’s Hitachi has been involved in negotiations. But it still remains to be seen if Vilnius goes on to build it.

In a comment published on Ekho Moskvy’s website on Friday, co-chairman of the ecological group Ecodefense! Vladimir Slivyak pointed out that, the uncertainties with funding sources aside, the majority of Lithuanians spoke against a new plant in a popular referendum last October.

Though it was advisory in status, the vote makes any new nuclear construction a tenuous prospect. 

Argumentation weak here, strengthen by voice

All at the same time, Kiriyenko insisted a nuclear power plant in Visaginas would not cost Rosatom its opportunity to compete on the regional market – and that given all safety assurances are provided by Lithuania for its own plant, Russia would have no objections. As for competition, Rosatom, he said, can offer more up-to-date technologies, and cheaper, too.

“So, when these two stations are close [to one another], then the issue… such an emotional reaction, it speaks of one thing. When you understand that you’re losing economic competition, you need to engage your political arguments. Remember, in Churchill? ‘Argumentation weak here, strengthen by voice.” So, your interviewees strengthened by voice.” 

Incidentally, the Baltic NPP is a first Russian project where 49% equity in the future plant was made available to potential investors abroad. The station was not on the Russian government’s nuclear construction plans until late 2009, after Rosatom successfully lobbied its inclusion by promising to secure a European investor to cover half of the cost. None, however, were found despite the intensive search and negotiations of the past several years.

Equally unfruitful were Rosatom’s attempts to request loans for the construction in Neman from European banking heavyweights. In April, Germany’s HypoVereinsbank declined to participate. Just before that, the French bank BNP Paribas had turned Rosatom down. Italy’s Unicredit and France’s Société Générale have said they are expecting their own experts’ evaluations of the project before deciding whether or not they would extend credit lines.

Ecologists have played a considerable role in this, having mounted a vigorous environmental campaign against the Neman construction.

And then there is the selling market. Whichever the motives of Russia’s closest neighbors, there is that thorny problem of trying to sell something to customers who are unwilling to buy.

Lithuanian President Dalia Grybauskaitė has already stated, when asked if Vilnius was going to buy power supplies from the Baltic NPP, that Lithuania, just like the entire European Union, can only purchase electric power from those sources that are safe. 

“Rosatom has known very well that a number of countries in the region look skeptically at the prospect of buying energy from the Baltic NPP. It’s not just Lithuania and its Baltic neighbors, but also Poland, and the European heavyweight Germany. Rosatom started to spend enormous funds at its own risk, absent of any guarantees that this energy will be in demand,” Slivyak wrote in his comment.

“The multi-year campaign under the slogan ‘You don’t have to invest, we’ll still build our megareactors here’ has had no effect in Europe,” Slivyak wrote. “Rosatom, being in a very dubious situation, took a gamble and, predictably, lost. And now it’s trying to pin the responsibility for its bad judgment on a small country called Lithuania whose political reach, I believe, does not compare to that of the Russian state nuclear corporation.”   

‘The fight against Baltic NPP is continuing’

Responding to Venediktov’s question about whether the Baltic NPP construction has, in fact, been frozen, Kiriyenko said “the fight against it is continuing” even after several unsuccessful attempts to “block” the project. 

“From what I understand, a new opposition instrument has been engaged, a serious one, let’s not underestimate our partners/competitors,” Kiriyenko said, zeroing in on the more pressing issue “that has now come up in earnest”: plans by Russia’s former sister USSR republics Lithuania, Estonia, and Latvia to sever synchronous connection with the unified transmission grid that currently links their power networks with those of Russia, Ukraine, and Belarus.  

Kaliningrad Region is locked between the Baltic Sea to the west, Lithuania to the north and east, and Poland to the south. Belarus and Ukraine lie further to the east and southeast.

This, Kiriyenko said on Thursday, prompted Rosatom’s urgent search for workarounds: 

SERGEI KIRIYENKO: If this happens, Kaliningrad here ends up isolated, this is an isolated energy system. We have to reckon with that. They have already stated they were moving toward it. […] [w]e must draw our conclusions. The first conclusion we must draw: If the Kaliningrad grid becomes isolated – it’s not too large, and units of such capacity will not be able to [operate] in it. We are building two 1,200[-megawatt units], and total [demand] in Kaliningrad today is 450-500 [megawatts].

ALEXEI VENEDIKTOV: [So,] five times as little.

SERGEI KIRIYENKO: Yes, it will be 800 down the road. [The region] won’t be able to work with the grid. Consequently, the first and main issue. We launched the Baltic NPP project, primarily, to guarantee meeting Kaliningrad’s demand, didn’t we. So if the Baltic countries disconnect, we won’t be able to provide this guaranteed supply. This is an absolute priority for us. Yes, it’s nice to make money on selling electric power, but first, [we need] to ensure the [energy] independence of a Russian region. What are we doing now? We are beginning urgently, in response to that, to adjust – this is not our decision, but we are forced to react… [… The] decision has not yet been made de facto, but they have started preparing actively for it, we can see that preparations have begun for it […]

According to Kiriyenko, talks are in progress with the European Union on how and when this will be done exactly. But his insistence that the Baltic NPP project was launched first and foremost to guarantee local power supply – and past years’ negotiations to secure future export deals suggest otherwise – raises two questions: Just how grave a threat Kaliningrad Region’s anticipated isolation is? And equally importantly, how recently did this bell first ring? 

Kaliningrad’s immediate neighbor and European Union member Lithuania has been pursuing a number of projects to ensure energy independence from Russia and its own integration with the European transmission network, in accordance with the EU’s energy policy.

Reached by Bellona on the telephone on Monday, Chief Adviser to the Lithuanian Minister of Energy Daiva Rimašauskaitė said the goal of integration with the European system has been in place “for quite a long time”:

“Lithuania has always stated that it is pursuing the path of synchronization with [the European grid]. All our steps are connected with that,” Rimašauskaitė told Bellona, adding that Lithuania started talking about this “five years ago, not a year or two years ago.”

bodytextimage_lithuania_electricity-1..jpg Photo: Source: http://www.enmin.lt/en/

The Strategic Planning page of the Lithuanian power transmission operator company Litgrid says that at present, the power system of Lithuania is part of the IPS/UPS system – the wide area synchronous transmission grid operating on some of the former Soviet territory – controlled by Russia. “Lithuania just as the other two Baltic States seeks to join the decentralised European power system and to adopt transparent European standards for the power system control,” the page reads.

Whether this automatically means disconnection from the Russia-controlled grid could not be immediately established on Monday. But the Lithuanian National Energy (Energy Independence) Strategy endorsed by the government in October 2010 lists it as one of the strategic initiatives till 2020.

The Lithuanian Ministry of Energy’s National Energy Independence Strategy of 2012, approved by the parliament in June last year, says the “system control and the market operation according to the IPS/UPS rules are incompatible with the requirements” of the adopted European energy policy. “Such disparity also prevents the Baltic States from achieving the objective of integration into the EU’s single electricity market by 2014,” the document says, showing, again, desynchronization from the IPS/UPS systems as one of the steps for implementation by 2020.

Meanwhile, in Kaliningrad Region, the recently built Kaliningradskaya Thermal Power Plant 2 – a station with two 450-megawatt combined-cycle gas turbine units – would seem to offer enough capacity to cover both existing energy needs and even the demand projected by Kiriyenko.

As Slivyak counters in his comment on Ekho Moskvy, a nuclear power plant with two 1,200-megawatt reactors – on top of the already operating 900-megawatt gas-fired plant – simply cannot have been proposed to meet Kaliningrad’s demand as an absolute priority. Besides, the threat of Lithuania leaving Kaliningrad completely isolated is overstated, he said.

During a recent conference in Germany’s Rostock, “I asked Lithuanian [Parliament] Member Linas Balsis what the attitude to this issue is in Lithuania. In his words, Lithuania cannot subject Kaliningrad to an ‘energy blockade,’” Slivyak wrote. “Under any scenario, in accordance with international agreements, Lithuania must provide the Russian exclave access to supply of resources from [mainland] Russia.”

Construction to halt ‘for some time’

Kiriyenko then confirmed that the plan was to expand the site by adding several small-capacity reactors to the same location.

“[…] We are for now thinking of units of 40 megawatts. These are reference, proven reactors, reactors that have already served hundreds of reactor-years on icebreakers, these are reactors that have served thousands of reactor-years on submarines. We are simply doing a land-based version. The number is being discussed – between four to eight reactors, about 40 megawatts each […],” Kiriyenko said.

But Rosatom still holds onto the idea of building larger-capacity units as well at the site, according to Kiriyenko.

This will raise the plant’s total generating capacity to a potential 2,620 megawatts, including 2,300 megawatts in constant heavy-duty baseload output.

And with the sword of energy isolation hanging over the region, building these units will require an overhaul of the entire delivery system, according to Kiriyenko, because a “unified system is one thing, and ‘isolated’ output is quite another.”

The corporation is going ahead with continued manufacturing of all the equipment for the larger units, he said. But the additional work on the smaller ones will cause Rosatom to temporarily halt construction at the site.

“It would be silly now to continue to build a concrete wall that will then have to be torn down to lay the cable for a small-capacity unit,” Kiriyenko said. “So yes, I think, this will halt us [for some time].”

Still dreaming after all these years

Kiriyenko could not give an exact date when the station might be completed, saying construction will “definitely halt for a year to two years” – or possibly longer, accounted for by the need for additional designing and planning and a new round of consultations with the neighboring states, should these also cause delays. 

“But, on the other hand, this is not critical. Because we understand what we were aiming at. We understand there will be a shortage of consumption in this European region,” Kiriyenko said, according to the transcript. 

What Kiriyenko apparently meant here is probably a shortage of supply to meet an increased demand – a perceived gap Rosatom is hoping to fill with the Baltic project.

But if it is a slip of the tongue, it is a telling one. Given the rebuffs Rosatom has encountered finding consumers for the Baltic NPP’s power – deals have been negotiated unsuccessfully with almost all major European energy companies in Germany, Italy, and France, according to Ecodefense!’s Slivyak – the piece of the power market Rosatom is aiming at slips sliding further away, even as expenses keep accruing.

Speaking with Bellona in an email correspondence, Slivyak said Rosatom is trying to come up with excuses to justify the spending already done on the Baltic NPP in apparent absence of demand from customers. 

The strategic planning lapses Rosatom made, Slivyak wrote in his comment on Ekho Moskvy’s website, have already cost Russia up to $1 billion, in expert assessments.

“In point of fact, the only excuse here could be hoping for a future increase in demand and consumption,” Slivyak told Bellona. 

bodytextimage_kiriyenko_at_bnpp.jpg Photo: Source: rosatom.ru

“The small-capacity units will back up Kaliningrad and start step-by-step operation [for] export, and the market shortage that we are forecasting – we will still be in time. So we did not cancel anything in the project, but we have to react to the actions of our neighbors and partners. And we are now conducting very serious work with our commercial partners. Of course, our chief priority is the consumers of electric power who want to buy this electric power,” Kiriyenko said, according to the transcript. 

“But will [this future increase in demand] happen? When will it happen? I think it’s just a story, to explain away [this failure],” Slivyak told Bellona. “When the Baltic NPP construction agreement was signed in 2008, Rosatom thought then, too, that there would be demand, and now it is forced to stop construction because nobody needs this energy.” 

“Apparently, what we’re dealing with is Rosatom’s dreams that are completely unfounded. Well you can dream all you want, but no one invests billions in dreams. Rosatom tried and failed,” Slivyak said. 

Reputational losses irretrievable

The $1 billion figure Slivyak cited in his comment on Ekho Moskvy links to a highly critical article (in Russian), published on June 14 by Bulat Nigmatulin, Russia’s deputy minister of atomic energy in 1998 to 2002, on PRoAtom.Ru, a website frequented by the Russian nuclear community. 

According to Nigmatulin, the Baltic NPP’s planned capital expenses, complete with the cost of the necessary new power lines and substations in Kaliningrad Region and Lithuania, came to $12.2 billion in 2010 prices. The estimated $1 billion in increasing amounts already spent – and including 2013 expenses, if they are to remain on par with those of the previous years – has come both from the federal budget and the investment funding allocated by the nuclear operator company Rosenergoatom out of the revenues generated from sales of power to domestic consumers.

Commenting on two statements made since late last May by top Rosatom and Rosenergoatom officials – both read within the general “expanding capacity to ensure energy security options in an isolated region” line – Nigmatulin called them “awkward attempts to save face.”

“It’s odd, even, that in their interpretations of the causes of this fiasco they did not mention the little ‘green’ men on the payroll of evil competitors,” Nigmatulin wrote in his article, entitled “Stop embarrassing yourselves, dear sirs!.”

All the while the reason for what happened with the Baltic NPP is trivial, Nigmatulin said: Rosenergoatom has no money left to carry on this “insane” venture. He said the funds already spent could have been channeled into other energy options such as infrastructure upgrades to reduce distribution losses, energy saving measures or more secure gas supplies, among others.

“The financial detriment from the gamble with the Baltic NPP project is yet to be tallied up,” Nigmatulin wrote. “But the irretrievable reputational losses are apparent already today.”

Maria Kaminskaya