You're reading: Ukraine-Russia nuclear fuel project sidelines diversification

What has been touted by Ukraine’s government as the next big step toward energy independence began last autumn with a small stake being driven into a plot of land in the town of Smoline, some 300 kilometers southeast of Kyiv in Kirovohrad Oblast.

There, with the ceremonial laying of a stone, Ukrainian Prime Minister Mykola Azarov and Russia’s Rosatom Director Sergey Kiriyenko celebrated the start of construction on the country’s first nuclear fuel plant. When finished, the plant will produce more than 800 fuel assemblies per year for all but two of Ukraine’s 15 operating nuclear reactors, according to the government.

But skeptics say awarding Russia the job of constructing Ukraine’s fuel plant is proof that the country is afraid to stand up to its overbearing neighbor and defies the very idea of diversifying nuclear fuel supplies. As a result, it could strengthen Russia’s monopolistic grip on nuclear fuel sales here, a market worth over $500 million dollars.

Moreover, it remains unclear what Ukraine would gain financially by producing its own nuclear fuel. “I assume that (nuclear fuel) from our own plant will be cheaper for us than ready-made Russian (fuel) from TVEL company. But I cannot estimate by how much,” says Olga Kosharnaya, an energy security expert at the government-funded National Institute for Strategic Studies in Ukraine.

The right to build the facility was awarded to the Russian state company TVEL through an opaque public tender process in September 2010. The deal was signed on Oct. 27, 2010, during a visit by then-Prime Minister Vladimir Putin.

The Russian company won the tender after promising to invest its own money in the project. Its competitor, American nuclear fuel manufacturer Westinghouse Electric Company, made no such offer, TVEL told the Kyiv Post.

Ukraine is going to spend an estimated Hr 700 million (about $85 million) on the project, including Hr 100 million ($12 million) for the purchase of Russian fuel fabrication technology. This is roughly the cost of an annual fuel shipment from Russia, experts say.

Speaking to the Kyiv Post on July  1, Michael Kirst, Westinghouse vice president for customer relations and sales in the region, said it was his company which first floated the idea of building a nuclear fuel plant here and offered to find financing, but did not want to own the plant.

“We simply asked for some construction payments and a license for the technology,” he said. Under Westinghouse’s offer, he explained, “Ukraine would own 100 percent (of the fuel plant) and thus have full freedom to use the facility as it wished.” Under the scheme offered by Russia’s TVEL, Ukraine will only own a slim majority of the facility – 50 percent plus one share, with Russia holding 50 percent minus one share.

Rusatom, which along with TVEL belongs to the Russian Atomenergoprom holding company, is now building the nuclear fuel plant in Smoline jointly with Nuclear Fuel, a Ukrainian state firm controlled by the Ministry of Fuel and Energy. Nuclear Fuel did not respond to the Kyiv Post’s requests for comment.

The first phase of development in Smoline is underway, but moving at a snail’s pace. Originally it was slated to be completed in 2013. But during an April 27 site visit, Energy Minister Eduard Stavytsky said he believed construction would be completed in 2015.

The facility is supposed to start producing fuel from Russian components in 2015, and switch to Ukrainian-made components by 2020, according to Kosharnaya.

Some believe the slow pace of construction is no accident, but a way for Russia to hold onto its nuclear fuel monopoly. Ukraine is TVEL’s biggest client, buying more than half a billion dollars of fuel each year – almost 55 percent of the Russian company’s exports.

Oleksandr Hudyma, a member of the Verkhovna Rada’s nuclear energy committee and a major skeptic about the project, told the Kyiv Post in 2010 that he believed the Russians have no intention of ever building the plant.

“They (Russia) aren’t planning to build anything at all,” he said. Even if the plant is built, Ukraine would still be bound by its contract with Russia to purchase the country’s nuclear fuel for the lifespan of its reactors, he added.

“It would be better if Westinghouse had won (the tender),” Hudyma said in a telephone interview last week.

Ukraine is one of Europe’s biggest energy consumers, using almost twice the energy of Germany each year, according to the U.S. Energy Information Administration. About half of it comes from nuclear power plants.

Ukraine’s 15 nuclear reactors are situated at four nuclear power plants in Khmelnitsky, Rivne, Mykolaiv and Zaporizhia. The latter is Europe’s largest nuclear facility and the world’s fifth biggest. State-owned Energoatom operates all four power plants, which have an overall generating capacity of 13.835 gigawatts.

“Ukraine does not want to anger Russia in this sector, as it hopes to get (some help) from it,” said Ildar Gazizullin, a leading policy analyst at the Ukrainian Institute for Public Policy.

Kyiv Post editor Christopher J. Miller can be reached at [email protected], or on Twitter at @ChristopherJM. Staff writer Svitlana Tuchynska contributed to this story.