Russia’s economy, including its nuclear industry, appears to have weathered the storm of Western sanctions, with some companies even benefitting from the situation.
While Russia’s nuclear industry has not been directly affected by Western sanctions the general economic situation has led to cuts in planned programmes and project delays. However, most nuclear industry companies appear to be relatively unscathed, and Russia’s international nuclear projects remain unaffected.
The US and European Union first imposed sanctions on Russian and Crimean officials in early March 2014. Other individuals and legal entities were added over the following year and sectoral sanctions were imposed in the summer. Russia responded in August with a year-long embargo on imports of agricultural products and foodstuffs from countries supporting the sanctions.
The immediate impact on Russia’s economy was serious, but there are already signs of recovery. The ruble/dollar exchange rate crashed from 30 to 80 in mid-December, but rather than using currency reserves to prevent further depreciation, Russian central bank governor Elvira Nabiullina let the market find its own level. Within four months, the ruble recovered to 52.15 and is now just under 50 to the dollar. European food exporters, however, lost heavily when Russian imports fell from $1.2bn in March 2014 to around $790m. Although the collapse was initially due to sanctions, the weaker ruble also made Russian imports much more expensive for Europe.
Russian president Vladimir Putin, in an April TV speech, said the ruble’s recovery signalled renewed investor confidence in Russia, despite sanctions and the fall in global oil prices. He reported a 3.7% increase in agricultural production and low unemployment, but accepted that 11.4% annual inflation, although down from a high of 16.9% in March 2014, was affecting consumer budgets.
Official Russian estimates expect the economy to shrink by 3-5% this year. The International Monetary Fund forecasts a drop of 3.8% in 2015 and 1.1% in 2016, but Putin said it would be less. Russian companies remain excluded from international financial markets, and Russia has lost its investment-grade ratings.
However, Putin said sanctions had given Russia a strong incentive to diversify away reliance on oil and imports, and would encourage it to develop high-tech industries and boost agricultural production. He said he expected sanctions to continue for years but that this would ultimately strengthen Russia. And there are signs he may be right.
Recently, Newsweek commented: "Not only is Putin still standing, but the Russian economy, against most expectations, is recovering. Its stock market is one of the best performing globally this year; the ruble…is rebounding; interest rates have come down..; the government is taking in more revenue than its own forecast expected; and foreign exchange reserves have risen nearly $10bn from their post-crisis low."
Faced with this situation, the European Union (EU) is resisting US pressure to apply more sanctions against Russia, although it may extend those already in place, when they expire at the end of June. The 28 EU member states are split, but unanimous agreement is required to extend or increase sanctions. Quentin Peel, a senior fellow at the UK Chatham House’s Europe programme, points out that disagreements over sanctions were there from the start, with Germany trying to mediate between supporters such as Lithuania and Poland, and those less convinced, such as Italy, Greece, Cyprus, Hungary and even France.
Nuclear programmes cut
The Russian nuclear industry has clearly felt the effect of the sanctions. State nuclear corporation Rosatom said in March it would reduce its domestic nuclear power expansion plans.
Overall, Russia’s total investment in electricity generation could be down 17% in 2015 compared with 2014 and down more than 21% if anti-crisis package measures were not implemented, according to forecasts from the Ministry of Economy & Development. This will involve sequestering budget funding for nuclear power, it said.
Rosatom plans to cut investment for its RUB88.1bn ($1.4bn) sub-programme, Development of Nuclear Power Plant Generation Capacities by 32.3% to meet this requirement. According to reports, capital investments by Rosatom in 2015 will be reduced from RUB300bn to RUB260bn because of the "difficult financial situation". In particular, investments by nuclear utility Rosenergoatom will decrease from RUB190bn to RUB146bn.
The Ministry noted that some projects would be cancelled or postponed because of an increase in the cost of foreign equipment and component parts with higher interest rates. Key investment projects for 2015 remain the start-up of Beloyarsk 4 with its BN-800 fast reactor, and commissioning of Rostov 3. Rosatom has announced delays to the Novovoronezh-II and Leningrad-II projects.
Russia also announced in April that it was postponing a decision on construction of the BN-1200 sodium-cooled fast neutron reactor until at least 2020, with Rosenergoatom citing the need to improve fuel for the reactor and questioning the project’s economic feasibility.
Companies carry on
Many Russian nuclear enterprises are managing well in face of sanctions and economic recession, with many reporting increased revenue. Last year nuclear trading company Techsnabexport increased net profit to $191m, and its total revenue at RUB93.4bn, increased by 41.2% compared with the preceding period.
Increased revenue and orders were reported by nuclear utility Rosenergoatom, engineering holding Atomenergomash, nuclear facility repair company Atomenergoremont, design and construction companies OKBM Afrikantov, NIAEP and Atomenergoproekt, and fuel companies Angarsk Electro Chemical Combine and Chepetsky Mechanical Plant. In the uranium-mining sector, losses were reduced and efficiency increased at the Priargunsky Industrial Mining & Chemical Union, Russia’s biggest uranium mining company. Russia is also continuing to invest in reorganising and modernising its radwaste management system. So far only the Electrochemical Plant (uranium enrichment) and the NN Dollezhal Research & Development Institute of Power Engineering (NIKIET) showed revenue down on the previous year.
The nuclear companies have, to a large extent been cushioned by equipment orders for overseas projects, which remain a priority. Rosatom director general Sergei Kirienko said in April that Rosatom would not revise plans to build nuclear plants abroad despite the challenging economic situation. "On the contrary, the macroeconomic situation helps us," Kirienko said, adding that the company’s portfolio of foreign deals has tripled over the past three years. "The size of Rosatom’s foreign order backlog was $101.4bn in 2014, rising for the first time above $100bn. This includes 29 construction projects abroad as more and more countries entrust us with their nuclear technology development," Alexander Merten, president, Rosatom International Network told Nuclear Engineering International.
Nuclear fuel company Tvel in 2014 secured contracts with foreign partners that exceeded $3bn, keeping its 10-year order book above $10bn. Contracts were signed with Finland, Hungary and Slovakia, as well as for research reactors in the Czech Republic, the Netherlands and Uzbekistan. In March a deal was signed with India for the supply for fuel for Tarapur.
Rosatom is continuing to supply nuclear fuel to all Ukrainian operating nuclear plants despite the political turbulence, Merten told NEI. "We have completed the programme for 2014, and are fulfilling deliveries for 2015," he said.
Despite the difficult economic and political situation, Russia continues to hold its own in Central Europe, with projects and fuel contracts in Hungary, Bulgaria and the Czech Republic as well as in Finland.
In Hungary, Russia is contracted to build two new units at Paks, despite opposition from the EU. The Paks extension project is expected to cost nearly €12bn ($13.6bn), 80% of which will be provided by Russia in the form of a "highly preferential" 30-year loan of €10-12bn. Hungary’s Prime Minister Viktor Orban said the loan is not tied to the rouble, or to the forint, noting: "This is good news for everyone." He added: "If we implement everything the way we have planned, we shall have struck one of the best deals in the history of Hungary." Paks comprises four Russian-supplied VVER-440 pressurised water reactors, which started up between 1982 and 1987. In early 2014, Hungary and Russia signed a co-operation agreement for construction of two new units to be commissioned in 2023 and 2025. In April, the Euratom Supply Agency approved a contract between Hungary and Russia on nuclear fuel supply for the Paks expansion project. All nuclear fuel supply contracts signed by EU member states must be approved by Euratom, which imposes financial and technical requirements on fuel suppliers.
In Bulgaria, Russia is getting on with plant life extension work for Kozloduy 5&6 and continues to supply fuel for all the units at the site. Moreover, the cancelled Belene project, which would have seen Russia build a new two-unit plant, refuses to lie down and die with regular reports about its imminent revival.
In the Czech Republic, power company CEZ intends to call another tender in future for construction of new nuclear units in which Russia will undoubtedly participate. Meanwhile Russia’s Tvel continues to supply fuel to all Czech power reactors under long-term contracts.
Russia is also going ahead with construction of a new reactor in Finland and fuel supply for that project. Euratom has no issues with the project of Hanhikivi NPP, which is being implemented in Finland jointly with Rosatom, the Finnish Ministry of Employment & the Economy said in March. The fuel supply agreement for Hanhikivi was approved by the EC and Euratom in 2014. The 10-year contract was signed by Fennovoima Oy and Tvel following a tender for selection of the reactor technology supplier.
Rosatom acquired a 34% stake in Fennovoima through a Finland-based subsidiary named RAOS Voima Oy in March 2014. In April, Russia transferred RUB57.5bn from its sovereign wealth fund into preferred shares of Rosatom subsidiary Atomenergoprom, for the construction of Hanhikivi-1. In January, Russia’s Cabinet approved up to RUB150bn from the fund for the project.
Former Soviet Union
Russia is maintaining its position in the former Soviet states, apart from Ukraine, with projects in Belarus, Armenia and potentially Kazakhstan.
In March, Andrey Barkun deputy director general and head of capital projects at the Belarus NPP being built by Russia at Ostravets, said devaluation of the ruble will not affect the construction timeframe. Russia has agreed to provide a loan to cover 90% of the project’s cost, and financing of the plant is on schedule, he said.
However, suppliers of overseas equipment were facing financial difficulties because the contract price and the Russian loan was nominated in US dollars, while labour costs and supplies of equipment were in rubles with monthly conversion in dollars based on the currency exchange rate.
The devaluation of the ruble meant that the amount paid in dollars had halved and a number of foreign suppliers found they could no longer deliver at that price. A mutually acceptable solution was agreed in late April. Moreover, because costs were calculated in rubles while the $10bn Russian loan was in dollars, the overall dollar cost of the project has now fallen significantly below $10bn. "The [Belarusian] plant will be cheapest in the post-soviet space by the time of its start-up," said Belarus deputy prime minister Vladimir Semashko. Work is currently underway on 71 facilities at the plant.
In December 2014 an agreement between the government of the Russian Federation and the government of Armenia was signed on state export credit of up to $270m for financing works on Armenian NPP lifetime extension, to be carried out by Russian companies.
An agreement between the governments of Russia and Kazakhstan on the construction of a nuclear plant in Kazakhstan is expected to be concluded soon. In May 2014 Rosatom and Kazatomprom signed a memorandum of co-operation to build a plant with VVER reactors of 300-1200MWe in Kazakhstan. Anna Ushakova, director, Rosatom Central Asia says at the moment Russian and Kazakh sides are co-ordinating the text of the intergovernmental agreement and that the plant capacity will be determined following the results of the feasibility study.
Projects in Asia
In Asia, Russia is building nuclear plants in China, India, and is contracted to build plants in Bangladesh and Vietnam as well as to design a research reactor in Indonesia. Talks are also underway with Malaysia.
Good progress is being made at the Tianwan nuclear plant in China’s Jiangsu Province, where two Russian-built units are operating (1&2) with two others under construction (3&4) and two more planned. It is currently unclear whether Tianwan 5&6 will be Chinese designs or further Russian units. However, in April talks were underway on construction of units 7&8. Reports suggested that China and Russia were planning to increase bilateral nuclear co-operation. Rosatom announced plans to open a regional centre in China "as early as" the middle of this year.
The first Russian-built reactor in India came online at the Kudankulam NPP in 2013 and a second unit will begin operation later this year. Two more units are planned, and when Putin visited India in December 2014, the two governments confirmed that nuclear co-operation would extend to at least 10 more reactors in the coming years.
In Bangladesh, an agreement with Rosatom was signed in February 2011 for two 1000MW-class reactors to be built at Rooppur for the Bangladesh Atomic Energy Commission. Site works started in October 2013.
Russia and Vietnam were also preparing to sign an agreement on the Ninh Thuan-1 project in April. The intergovernmental agreement for construction of the two-unit plant was signed in October 2010 followed in November 2011 by an agreement for a Russian state loan of $10bn. Plant construction was due to start in 2014 for commissioning of unit 1 in 2020, but Vietnam decided to delay the project. Rosatom is also developing the Center for Nuclear Science and Technology in Vietnam.
Also in April, a consortium of Russian and Indonesian companies won the contract for the preliminary design of a 10MW high-temperature gas cooled reactor. The contact includes a feasibility study and preparation of the basic design documentation by January 2016. The consortium includes Indonesian companies Rekayasa Engineering and Kogas Driyap Consultant as well as Rosatom’s German subsidiary NUKEM Technologies GmbH, and Russian subsidiaries Atomstroyexport, OKBM and NII NPO Luch.
Middle East projects
Russia is also extending its nuclear market in the Middle East.
Russia signed an agreement in February to construct minimum two 1200MWe reactors in Egypt. Linked to this is a project for development of NPP-linked desalination technology, which Russia hopes to export widely. Two intergovernmental agreements are expected to follow on construction and financing, with contracts before the end of the year, Kirienko said.
At the end of March, Russia and Jordan signed an intergovernmental agreement that envisages construction of two 1000MWe VVER units in Az-Zarqa, Jordan. The construction agreement is to be concluded in 2016, and construction costs are expected to be about $10bn. Russia was selected in October 2013 as the preferred bidder for the project. Rosatom Overseas will be strategic partner and operator of the plant and Russia will contribute 49% of the project’s cost, with the Jordanian government providing the remaining 51%.
Meanwhile, in April 2015, ground was broken for Turkey’s first nuclear plant at Akkuyu in Mersin, on the Mediterranean coast. Construction work is expected to begin on the first of Akkuyu’s four 1200MWe AES-2006 VVER pressurised water reactors after receiving all the necessary documents. The plant is being financed by Russia under a build-own-operate model based on an intergovernmental agreement signed in 2010. The $20bn project is due to be completed in 2020. Rosatom has already placed orders for the reactor pressure vessel and steam generators, and construction of port infrastructure for the plant is underway.
Elsewhere in the Middle East, in 2014 an intergovernmental agreement was signed on construction of eight units in Iran (four at Bushehr and 4 on a new site). Pre-construction works have been started on the first two new units of Bushehr which are the part of that agreement. Russia’s Ambassador to Iran, Levan Dzhagaryan, said the project is on schedule and major work on the site could begin this autumn. By August the engineering assessment stage will be completed and the process of designing the power units to match the specific characteristics of the site will begin. Russia is increasing its nuclear staff at Bushehr in preparation for new construction and also to help with maintenance. Russia is also assisting with the construction of a fuel fabrication plant.
Looking to Africa and Latin America
In 2012 an intergovernmental agreement was signed on construction of a nuclear plant in Nigeria, and in April 2015 the parties confirmed their intentions to implement the project. Talks on nuclear co-operation were held with Ghana in 2013.
Russia is also optimistic that it will win contracts in South Africa for construction of nuclear power plants and other nuclear facilities as well as for fuel supply. But competition is intense. South Africa said it would sign strategic co-operation agreements with nuclear vendors and countries to launch a nuclear new build programme to construct 9600MWe of nuclear capacity. As part of the pre-procurement procedure, the government has begun negotiations with vendor countries and has signed inter-governmental framework agreements with Russia, France and China as well as with the USA and South Korea. Agreements with Canada and Japan are expected to be concluded soon.
During president Putin’s tour of South America in July 2014, a nuclear energy co-operation agreement was signed with Argentina. Then in April 2015 Rosatom agreed to build a reactor at Argentina’s Atucha nuclear plant outside Buenos Aires. Fuel Company Tvel signed memoranda of understanding with the Argentinean company INVAP and National Atomic Energy Commission of Argentina (CNEA) covering several areas, including Russian deliveries of low-enriched uranium fuel and its components for the research and power reactors, supplies of zirconium components, joint research and development projects, and establishment of a working group.
In February 2015, Rosatom concluded an agreement with Brazil’s National Nuclear Energy Commission to provide supplies of the radioisotope, molybdenum-99. Rosatom has also confirmed it is planning to open an office in Brazil in June.
All these projects make Russia the world’s leading exporter of nuclear technology, although Western experts regularly question whether it has the manpower, time or resources to follow through on all of them. Many of the contracts have been won in face of fierce competition from other international suppliers and Russia’s success has been attributed to the comprehensive services offered, including finance, fuel supply and training, plus the potential for involvement of local companies in construction.
Kirienko says considerable political pressure has been put on its customers by the West to try to prevent contracts being signed. But Russia, undeterred by political pressure or sanctions, continues to look to Europe as a prospective market. Kirill Komarov, first deputy director of Rosatom in April told a Brussels meeting that Rosatom could guarantee a levelised price for electricity of $50/MWh from new nuclear plants, if a client chooses the its services for their lifecycle. This price would cover everything including fuel supply for 60 years of operation, and eventual decommissioning.
“For 70 years, our technologies have proven their reliability and efficiency which is essential for our partners," said Nikolay Drozdov, director, International Business Department, Rosatom. "We are the only nuclear industry in the world able to offer complex technology partnerships. We are able to fully monitor all aspects of projects ensure quality. A single production chain from plant construction and equipment supply to design and fuel supply, with subsequent operation means that Rosatom can settle any problems that arise at the plants we construct."