Oil and natural gas usually dominate the media discourse on Russia’s energy policies and the role they play in the country’s foreign policy deliberations. From the European perspective, this is entirely understandable, given the paramount importance of Russia as a major supplier of the blue fuel. Tracking the development of major pipeline projects under the Black or Baltic Seas and the squabbles around the gas transit through Ukraine, one could easily neglect another pivotal industry under Moscow’s control – the nuclear one.
As the low oil and gas prices globally have squeezed Russia’s fossil fuel export revenues, an integral part of the country’s income, the nuclear industry has been looking for a worldwide expansion. Rosatom, Russia’s state-owned nuclear champion, has in the recent years set an ambitious course to deliver Russian nuclear power generating technology to both traditional partner countries as well as to new “developing“ economies.
Russia has currently 35 nuclear reactor units in commercial operation, generating roughly 25 gigawatts (GW) of power annually. This covered about 19 per cent of Russia’s total electricity production in 2015, according to the International Atomic Energy Agency (IAEA). The bulk of Russia’s reactor fleet in operation has been commissioned in the 1970s and 1980s and has already been through lifetime extensions beyond the initial 30 years of service.
Russia’s traditional market for nuclear technologies and nuclear fuel has been in Central and Eastern Europe and the post-Soviet space. Bulgaria, Hungary, the Czech Republic, and Slovakia (at the time Czechoslovakia) have all built and commissioned a number of Soviet-designed pressurised water reactors of the VVER type while they were virtual satellites of the Soviet Union (USSR). Ukraine remains the second largest operator of Russian-designed rectors in the world with its fleet of 15 VVERs.
Poland, Romania, and ex-Yugoslavia were the only “non-Western” European countries during the Cold War which did not use Russian reactor technology for power generation. Beyond Europe, Russian-designed nuclear reactors are being operated in India, Iran, and China.
Over the past decade state-owned nuclear corporation Rosatom and its network of subsidiaries have made direct or indirect commitments to build nuclear power plants in a number of countries around the world. As stated by a Rosatom official in a recent interview, Russia has signed intergovernmental agreements for the possible construction of 36 nuclear reactors overseas and is holding “active and consistent” tendering negotiations about 21 others. It is apparent that Russia seems to be looking away from Europe and its traditional markets in search of new business opportunities for its nuclear industry.
During the Russia – ASEAN (Association of Southeast Asian Nations) summit held on 19 and 20 May in Sochi, Russia’s president Vladimir Putin said his country is ready to provide a Generation III nuclear reactor technology to countries in Southeast Asia. Another Rosatom official called for Africa to invest in nuclear energy during an annual energy forum in Johannesburg in February 2016.
The overall expansion agenda seems really impressive, but in fact only some of the projects are in an active construction phase – such as those in Belarus, China, Finland, India, and Slovakia. The projects in Egypt, Hungary, Iran and Vietnam are also likely to get the go-ahead in the near future. As for the rest, the picture has not been so rosy.
Turkey’s Akkuyu project is becoming increasingly bogged down after the relationship between Moscow and Ankara embittered last November. Ukraine has denounced an agreement with Russia on the construction of two units at the Khmelnitsky site as the two countries have become increasingly hostile due to the looming Donbas and Crimea crises. China appears to have taken over the project for the expansion of the Atucha plant in Argentina. And nuclear development on the African continent (except for South Africa and Egypt) is nowhere closer to reality in the near future.
Looking back at Europe, both Finland’s Hanhikivi and Hungary’s Paks 2 nuclear new build projects have come under scrutiny of the authorities. In the Finnish case, the main condition set by Helsinki to allow the project was for 60 per cent of the ownership of Fennovoima, the company building Hanhikivi, to be held by investors from the EU. This meant Rosatom could only be a minority owner with its 34 per cent. As with Hungary, the European Commission (EC) has launched two procedures against the government in Budapest looking into the legality of the state aid and public procurement conditions around the Paks 2 project. The EC has expressed its doubts on whether the deal with Russia fully meets EU regulations and has been concluded on market terms. The EC said it would assess if a private investor would have financed the project on similar terms or whether Hungary’s investment constitutes state aid.
Economics and geopolitics
From an economic point of view, nuclear projects are specific with their high upfront capital costs. This fact often creates major hurdles for countries or companies looking to build nuclear capacities.
Costs of nuclear projects vary around the world. However, it is safe to say that the construction of a single reactor could be estimated between €3.5 bn and €8 bn on average, depending on local market conditions.
Apart from the initial investment, which is undoubtedly good business for Rosatom, even more attractive is the possibility for nuclear fuel supplies the Russian-designed reactors will be using over their operational lifetime. As this is on average 30-50 years, it is a brilliant opportunity for continued revenue over a very long period of time. Reactors need to be refueled approximately once a year depending on how intensively they are operated. Additionally, Russian VVER reactors require exclusively one type of nuclear fuel produced and delivered primarily by TVEL, Rosatom’s fuel manufacturing subsidiary. Perfect business and close to ideal monopoly, which does not depend on any transit routes unlike Gazprom’s natural gas.
In Europe, energy security became a hot topic which has reinvigorated geopolitical deliberation in many capitals. For many countries in Central and Eastern Europe, depending for the majority of energy imports on what is seen to be an aggressive monopolist Russia became a primary security concern. The EC has been trying to boost the energy market environment in the EU even prior to the Ukrainian crisis. The events of 2014 and 2015 just served as a catalyzer for often delayed projects on energy diversification.
In addition, Russia’s long-hailed pilot nuclear project in Turkey – Akkuyu – appears to have fallen victim to the worsening of relations between Ankara and Moscow. Ukraine has made public announcements that it is looking to reduce the dependency of its nuclear sector on Russia. According to recent reports, tensions between Ukraine and Russia over nuclear fuel continue to flare. Russian nuclear projects in other countries, such as Bulgaria, Finland, and Hungary, have also met obstacles from both local and European authorities. Though Bulgaria has cancelled its Belene nuclear plant project, construction in Finland is under way, while Hungary’s project is being scrutinized by the EC.
At the same time, Russia has firmly entrenched its presence in the nuclear sectors of Iran, India, Egypt, and Vietnam. Having all these problems and obstacles in Europe, it was only natural that Russia will be looking to the East for the realisation of its ambitions.
Business as usual
That said, it is easy to imagine that the civilian nuclear market worldwide is not free of competition and Russia remains a major player in that field. Although it may be experiencing some breaks to its expansion in Europe, still 5 of the 14 EU member states operating nuclear power rely on Russian technology and will do so for some decades to come. The essential question that Rosatom needs to answer is where the potential for large-scale expansion lies.
In terms of energy security, it is fair to note that no reports of “weaponising” nuclear technology and nuclear fuel supply dependency on behalf of Russia have made it to the public. In the past, there have been no tug-o-wars like the sort we have seen around gas supplies during the European winters of 2006 and 2009. Disturbing trust between buyer and seller in the way seen with gas deliveries would be highly detrimental to Russia’s image as a reliable supplier at a time when some of its competitors make gains on the VVER fuel market.
Importantly the nuclear sector worldwide enjoys a high degree of internationalisation due to its safety aspects and risks of dual-use. The IAEA hosts all nuclear countries and provides a framework for dialogue and cooperation. The Nuclear Suppliers Group oversees the export of materials, equipment and technology, which could be used in making nuclear weapons.
In the EU, the Euratom treaty has established the Euratom Supply Agency (ESA) whose mission is to provide oversight and ensure a regular and equitable supply of nuclear fuels to EU users. All bilateral nuclear fuel supply agreements signed by member states must obtain ESA’s approval before coming into force. Under the Euratom system, there is very little space for Russia to use its market leverage and manipulate its counterparts via bilateral agreements, even if it wanted to do so.
Forced to play by the common rules, Russia has to accommodate to open competition on EU terms. Therefore, it is looking for an ambitious expansion of its nuclear exports around the world, striving to “conquer” market shares as a first mover, while major nuclear industries in Europe and Japan are plagued by shrinking business opportunities, financial problems, and negative public opinions. The real contenders to Russia’s nuclear expansion in the short and medium term will become China and the US. It only remains to be seen where the business ends and geopolitics begins.
Kamen Kraev is the founder of Vox Orientalis, a blog aiming to express views and opinions on a wide variety of topics concerning the “East of Europe” and its periphery.