— TVEL is ready to build up production abroad for market retention and expansion

Moscow. August, 11. Since the start of the year Russian nuclear fuel producer TVEL OJS has been consolidating enterprises of the Russian nuclear power industry engaged in uranium enrichment as well as manufacturing centrifuges for the enrichment. Vice-President of TVEL Mikhail Kulikov told in the interview to Interfax about the purpose of the reorganization and the company’s strategy for the future.

Mikhail Kulikov, Vice-President of TVEL:

— This year unified Fuel Company is being established on the basis of TVEL. How does the consolidation go on?

 

— Yes, really, this year the nuclear fuel manufacturing unit which until very recently had been the basis of TVEL has been supplemented with centrifuge producing enterprises and  an enrichment and sublimation complex (enrichment integrated plants) with conversion redistribution as well as a powerful scientific unit.

 

Fuel Company consolidation is being performed according to the schedule. We have a precise plan of measures aimed at formation of a new ownership and management contour specified and approved by Rosatom State Corporation. And we proceed without delays, without any new instructions, there were not and won’t be any changes in the process.

 

— For some years TVEL has been implementing the optimizing and restructuring program «New Look» at enterprises producing nuclear fuel. Will it concern integrated and centrifuge plants?

 

— The process is going on, and rather actively. The experience gathered by TVEL in the field of manufacturing redistribution is a priceless know-how for us which we transfer to the integrated plants. In spite of the fact that these are different markets: the nuclear fuel market and the uranium enrichment segment

 

Considering the fact that the markets are different, it might be supposed that the program «New Look» working very well in the field of manufacturing wouldn’t be so efficient pertaining to enrichment or centrifuge production. But it is not so.

 

Although our enrichment technologies are able to meet competition at the global market due to efficiency of the gas centrifuge technology, as for these redistributions, today we are behind the Western benchmarks in terms of number and premises, and rather significantly, many times. It’s conditioned, in particular, by the history of establishment of enrichment and gas centrifuge integrated plants. The point is that the goals set at the moment of the branch formation do not coincide with todays ones. Then the branch was focused on nuclear shield creation but today – on safety and the most economically viable support of the peacetime nuclear power industry.

 

As a result, all our integrated plants are situated in closed cities except Angarsk integrated plant. But still the plant is located in a separate district of Angarks. There is a similar situation with the centrifuge producing plant in Kovrov: the city is not closed but rather remote.

 

So, the place of enterprises location is the first. The second is the existence of production of the nuclear weapon complex in these premises and the respective number of personnel employed. These two factors make us create almost a subsistent economy around an enrichment plant. As a result the integrated plants today are burdened with a number of non-core assets: collective farms, rabbit breeding farms, dairy plants, kindergartens and hotels, cultural centres, etc.

 

It is evident that nothing of the kind can be on the balance sheet of any plant of our western competitors, for example, Urenco.

 

Today our goal is to separate these non-core assets and to provide conditions for their independent business development. By the way, here is another nuance – production sites, (shops) again for reasons of safety, in those days were maximally dispersed within the territory of the plant. For peacetime power industry this is another extra cost factor .

 

Our competitors haven’t ever established peacetime production on the basis of war industries, in contrast to us. Abroad they usually closed military enterprises and constructed new, modern peacetime plants on the greenfield. In Russia there was quite another variant.

 

At the same time the volume of special purpose products order now is not the same as it was in the Soviet times, and everyone knows that. However, there is a nuclear of personnel that we are obliged to keep at the same level since from time to time the load grows up.

 

In conclusion I’d like to note that in the medium term we certainly won’t be able to ensure compliance with the western benchmarks. Even if we ideally improve all business components, still there are objective factors I listed, which constrain optimization. But we can come close to the benchmarks. This is the aim of the program «New Look».

 

— Enrichment integrated plants are in closed cities. Is there any risk that the separated non-core assets won’t be able to develop?

 

— There is no question whether it’ll work or not. Even now we see the future outcome as a whole, and in some years it’ll become evident. Keep in mind that heads of local enterprises are already following this ideology though the fuel manufacturing in 2006 also began with skeptic attitude in TVEL.

 

In the course of implementation of the program «New Look» everyone wins and the both parties have a lot of advantages. Let’s start with social issues. The main objectives of the introduced reformations are increase in labour productivity and employees wage-push. The current level of wages at enterprises, for example, OJSC “United Company “Enrichment and Sublimation Complex” is not able to meet competition as compared to western analogs. In view of globalization there is a great risk that the employees of these integrated plants will encourage their children to departure from these closed cities, and not even in Moscow but abroad. But if we imagine that the level of wages commeasures with wages at our western competitors enterprises, another question arises  – where people will spend this money. Because the main social and cultural facilities in closed administrative territorial formations are shops of integrated plants and are not focused on market development, the struggle for the customer. In the future such facility should increase in number and become more business-like, in other words, to fight for quality of services and be focused on the client.

 

The foundation stone in such case – I mean regional enclaves, closed administrative territorial formations, single-industry cities with substandard infrastructure for leisure activities – is development of the consumer cluster. In this case our restructuring kills two birds with one stone: allows an integrated plant to focus on its business – enrichment of uranium and contributes to creation of competitive environment consumer sector around it, development of the services cluster.

 

It stands to mention that we do not just separate non-core affiliates. We pay very much attention to creation of competition and if we see a significant monopoly position we certainly divide it for the companies to compete among themselves. Besides, before separation new companies defend their business plans before the restructuring commission. We must be sure that they won’t “sink” after they come to market. We also insist on competitive selection of the management. A foreman becomes a director of a separated firm not just by default.

 

Another nuance – after separation affiliates own only the property and the number of personnel required for their business activity. So, we separate companies in the most efficient for their further development configuration for them to be able to meet competition in the market environment. As a result, all that offers the opportunity to raise wages for the plants workers and develop a closed administrative territorial formations infrastructure for them to have what to spend the earned money on.

 

— When are you going to complete implementation of the program «New Look» at enterprises recently associated to TVEL?

 

— It’s not an infinite process. A short-term activity program is designed for this year. It has already allowed to solve some problems structurally. Thus, for example, by the end of the current year all social facilities (cultural centres, etc.) will have been transferred to local authorities, and the we’ve already reached the respective agreements.

 

Separation of business-oriented affiliates will take place in 2010–2011, rarely – in 2012. So, the lion’s share of the programs will last for 3 years. By analogy with the previous TVEL implemented similar plans at its fuel manufacturing plants during 2007–2009. And by the way, the effect is already evident.

 

Actually we’ll spend the current year on reorganization, comprehension of the situation considering the requirement for synergy and scope.

 

— Are you going to introduce any changes into the management system because of consolidation?

 

— We don’t want to overload anything, quite on the contrary. If there were no Fuel Company there would be 3 management structures: Enrichment and Sublimation Complex as related to enrichment, Russian Gas Centrifuge —  centrifuge enterprises, and TVEL as related to manufacturing. Establishment of Fuel Company allowed to reduce this number up to one management structure which has already resulted in almost two-fold optimization the target number of office and management personnel.

 

So, we are on the way to most transparent, compact and plain Rosatom – TVEL Fuel Company — enterprises management structure.

 

— What will be after the program «New Look»?

 

— After restructuring – separation of the core from non-core assets – we’ll have to do fine adjustment. As for the main TVEL contour we’ve already reached this stage. I mean compaction of production to cope with shops dispersion in the territory. It’s the whole enrichment market. Besides, we implement Rosatom production system. Meanwhile modernization o equipment is carried out.

Moreover, we are also engaged in the projects of specialization and centralization of supporting production, such as repair and mechanical, instrumental, tool, etc.

 

— What market effects will restructuring give to TVEL?

 

— Now we can work at the global market in another way. By the way, the annual value of Fuel Company foreign contracts is over $4 bln.

 

When TVEL was engaged only in fuel manufacturing the company was interested, essentially, in stable workload of plants capacities producing fuel assemblies. Localization of manufacturing redistribution abroad, construction of new plants заводов in Europe and Ukraine, may be in China and India are new possibilities of consolidated Fuel Company because we can «spend“ manufacturing localization projects on retention and expansion the enriched uranium and enrichment services market.

 

However, if we have a look at the nuclear fuel price structure we’ll see that manufacturing here is not more than 20%, the rest is cost of the raw material (uranium) as well as its conversion and enrichment. So, the logic of such “spending” is the logic of chess gambit: we lose pawn to get a queen.

Naturally we are very attentive to utilization of our load manufacturing capacities. But still tvel today is ready to implement manufacturing localization projects since they are strategically efficient.

 

— Are you preparing a new strategy of Fuel Company? When will it be ready? What are the basic parameters of the future strategy?

 

I think the strategy will have been finally elaborated approximately in the end of the year. I would not like to announce any separate pieces of information. I can say that during the whole year we stick to our basic principles: maintaining power at the enrichment market, preservation of nuclear fuel market share for VVER-type reactors and entering the fuel market for western-type reactors. We see that the development rates of the western reactor park essentially exceed the predicted development rates of the NNP park with Russian-type reactors. And it is natural that Fuel Company shall enter this market.

 

Moreover we are actively developing an innovative strategy, but I am not going to say any details about it. I will only say that we already have some certain ideas which help to develop prospective innovative products on the basis of interesting and prospective technological “embryos” of Fuel Company contour.

 

For instance, Areva company is actively involved in alternative energy sources. Our rivals also work with radiation medicine and other innovative directions. The close of a nuclear fuel cycle is also a very important and relevant issue. Thus, in parallel with traditional markets, where we hold the “conquer and maintain» position, we also speak about prospective innovative directions of development. Here we very carefully stick to the energy foresight, we also develop cooperation with serious partners, including a series of projects with Rosnano State Corporation.