Ukraine is trying to get Russia to lower prices for nuclear reactor fuel. The money it saves will go toward a program promoting the country’s atomic energy independence.

Though Russian and Ukrainian officials recently announced their willingness to form a single economic zone, economic problems between the two countries are multiplying. Along with disputes over pipes, sweets and pastries, cars, and cement chronicled on the pages of Expert, a new issue has recently emerged, the supply of Russian fuel to Ukrainian nuclear power plants.
Atomic energy is one of the most important sectors of the Ukrainian economy. The 14 reactor blocks at various Ukrainian plants generate around 45% of all Ukraine’s electricity at half the price of coal-powered plants. The equipment at these coal plants is obsolete and worn out and cannot produce any additional electricity. In many ways, the future development of the Ukrainian economy depends on the expansion of atomic energy.
All fuel for Ukrainian reactors is imported from Russia, which costs Ukraine $300 million a year. This figure has become the subject of a new scandal. This spring, many in the Ukrainian media argued that Ukraine was buying Russian fuel at artificially high prices. Deputies to the upper house of parliament followed fast on the journalists’ heels and at present the atomic issue is the concern of the highest levels of the Ukrainian establishment.

From the horse’s mouth

“For historical reasons, reactor fuel for the entire former Soviet Union is only produced in Russia by the TVEL Company,” Nikolai Shteinberg, former Ukrainian Deputy Minister of Fuel and Energy, explained to Expert. “This monopoly has led to the current situation, when according to our estimates Russian fuel already cost 10-15% more than on world market prices but is of lower quality.” Other Ukrainian specialists give even higher figures. “I think that the price of fuel should be calculated according to pure uranium content,” argues Mikhail Vatagin, head of the Kiev consulting firm Effektivnaya Energetika. “Then, as the world market price for uranium is around $980 a kilogram, Russia should sell us reactor fuel for $1200-1250.” Ukrainian nuclear experts are particular angered by TVEL’s policies toward Russian customers. “TVEL sells fuel to Russian plants at half the price it offers Ukrainian ones,” complains Shteinberg. “And as we give TVEL around 60% of our export earnings, we are in effect compensating their losses for supplying Russian plants.”
Not surprisingly, those in the Russian atomic industry have their own opinions. “In 1997 TVEL won a contract to supply fuel to Ukrainian nuclear power plants. We were competing against the American company Westinghouse,” TVEL Vice-President Anton Badenkov recounts. “We are now supplying Ukrainian plants based on that contract. All of its conditions are being fulfilled and no changes have been made. Supply prices are confidential and I am not at liberty to discuss them, but since 1997, when the contract was awarded, the world markets for both uranium and reactor fuel have changed dramatically. Thus, one could say that we are supplying Ukraine at 25% less than market price, not 25% more.”
There are some in Ukraine who confirm this. In the summer of 2002, Vitaly Gaiduk, who was the Ukrainian minister of fuel and energy at the time, noted in an interview: “According to our contract with the Russian company TVEL, the price of atomic fuel supplied to Ukraine is 25% below market for the third year in a row. This discount will continue for another four years, but will decline gradually.” In other words, until 2006 Ukraine will get Russian fuel for its nuclear power stations for less than world market price.
In addition to the alleged inflated prices for Russian fuel, the Ukrainians are also complaining about its low quality compared to Western products. “Western fuel generates around 50,000 megawatts a day per ton of uranium, while Russian fuel at best generates 40,000,” claims Shteinberg. “This means a loss of 10-15%. Moreover, Russian fuel assemblies have to be changed every two-three years, while Western ones last four. Changing the assembly means stopping the reactor for several months. Thus, if Ukrainian nuclear plants were using American fuel right now, it would cost 25% less.”
Here, Russian atomic specialists also do not see eye to eye with their Ukrainian colleagues. “The fact of the matter is that Ukraine only began this year to move to a new type of fuel,” says Badenkov. “For many years, it used the old type that naturally was of lower quality than the fuel we produce today. The quality of our new fuel is exactly the same as that of American products and this is proven by its record at plants in Eastern Europe. Just take a look at their reports and it’s clear as day. We are familiar with the specifications of both American and French fuel and for this reason we can boldly bid in any tender because we will win in terms of both quality and price. We have proven this in Eastern Europe, Finland, and Asia.”
Yet the Ukrainians refuse to relent. “If TVEL does not revise its pricing policies, we will be forced to change to American fuel,” says Shteinberg. “This will be a great loss for both countries and losing the Ukrainian market will mean bankruptcy for TVEL. The Russian parties should resolve this matter quickly because Westinghouse is ready to supply the first six assemblies for the South Ukrainian Nuclear Plant by as early as the end of the year. We will need to evaluate the fuel for two or three years, but by 2009 we will be able to completely change over to American fuel.”
The Russian parties involved remain undaunted. “I am very sorry that Ukraine wants to use American fuel and waste tens of millions of dollars, as we are very familiar with Westinghouse’s prices. They are much higher than ours,” says Badenkov. “The proof of this fact is the contracts we won recently in Eastern Europe. Even in countries that are now joining the EU, plants prefer to conclude contracts with TVEL until they close, thanks to the price and quality of our products.”

Chain reaction

The main goal of this recent campaign in Ukraine is obvious: to convince Russia to lower prices for reactor fuel. Those in the Ukrainian atomic industry are not just interested in saving money for its own sake. The country’s authorities see its dependence on other nations for reactor fuel as a direct threat to national security. For this reason, one of the most important positions in the policy document, Ukraine’s Energy Strategy until 2030, is a program to develop a Ukrainian domestic nuclear fuel cycle, or in other words, the entire atomic fuel production chain. This includes uranium ore mining and dressing, uranium hexafluoride production and enrichment, zirconium ore mining and dressing, zirconium alloy production, fuel assembly production, and finally fuel storage. Ukraine already has the capacity to do much of this and ranks sixth in the world and first in Europe in confirmed uranium deposits. Ukraine also has significant amounts of zirconium and facilities for dressing uranium and zirconium ores, as well as factories to produce zirconium rolled products. A fuel storage facility is currently under construction in the Zaporozhye region.
However, money for implementing this ambitious project is constantly short. Ukrainian experts estimate that the total cost of creating a full production cycle could come to almost a billion dollars. The program is supposed to be financed from Energoatom’s profits. Due to the low rates charged for electricity generated by nuclear plants, as of June 1st 2003 the program lacked around $200 million in funding. Attempts to raise rates met strong opposition from Ukrainian manufacturers. It turns out that the only way to increase profitability in the industry and free up money to finance the new production cycle is to squeeze fuel and parts suppliers. Ukraine hopes to get Russia to back down today in order to be independent tomorrow.

More in Russian>> www.expert.ru