— We are forming a structure based on market ideology

If the nuclear project of Beria was called Project N 1, today’s nuclear reforms can well be called Project N 2.

The recently adopted law «On the Peculiarities of the Management of the Property and the Shares of Organizations Acting in the Nuclear Power Sector,» the Federal Target Program for the Nuclear Energy Complex Development (approved by the Government in Oct 2006) and the Presidential Program for Nuclear Energy Development (approved in June 2006) are aimed at restoring Russia’s leadership on the international nuclear energy market, but, first of all, at covering the growing energy shortfall in Russia. Chairwoman of the Sub-Committee on Nuclear Power Complex Restructuring, First Deputy Director General of Technabexport, advisor of the head of Rosatom Anna Belova presents the goals and mechanisms of the reforms.
 
The Federal Target Program (FTP) is a nine-year project (till 2015) worth a total of 1,471.4bln RUR. Its goal is to launch no less than 12 GW of nuclear energy capacities and to increase the share of nuclear energy in the total energy output to 20% from present 16%.

The key actor of the program is Atomenergoprom, an integrated holding we are currently forming. The nuclear power industry the way it is now is inefficient and stagnant. The key obstacles are legislation and technology. The authors of the reforms say that, from the legislative point of view, it is impossible for us to form a vertically integrated structure similar to what they have in the West. Consequently, it is impossible to ensure effective management and high competitiveness on the world market. The major obstacle is that most of the nuclear companies in Russia are federal state unitary enterprises (FSUE).

The other problem is that, under exclusively federal ownership of nuclear materials, nuclear units and storage facilities, it is impossible to carry out any transactions with nuclear power units, to develop the resource basis. Article 5 of the Law «On the Use of Nuclear Energy» says that legal entities can only use nuclear materials. This makes their activities illegal, as, in fact — now that they are under market economy — they act as owners. For example, enterprises of different technological cycles pass nuclear materials to one another along the technological chain on a contractual basis. But since they are not the owners of nuclear materials under the law, their activities are formally unlawful. 

Exclusive federal ownership is equally bad for the export: it lowers Russia’s competitiveness in the world. For example, the law says that, when foreign uranium is imported for enrichment, it should be nationalized. Now, we have removed these obstacles.

The reformers say that the law will allow us to restructure the sector by the end of this year. FSUEs’ restructuring into state JSC and subsequent conveyance to Atomenergoprom will be carried out through a simplified procedure: the shares will be transferred into the authorized capital of Atomenergoprom without preliminary assessment of standard cost and state registration of FSUEs’ ownership rights. Similar scheme was applied during the reforms of the Ministry of Railways and the formation of Russian Railways OJSC. (Ms. Belova was the author and executor of that project).

The law provides legal entities with an ownership right over nuclear materials, nuclear units and storage facilities used for civil purposes (it is for the President to decide who exactly will enjoy this right and which federal nuclear materials should be placed under exclusive state control) and with the property they will need for their effective use. After being approved by the President, the owners of nuclear materials (only Russian legal entities) will have to get licenses. Foreign legal entities can own only imported (for reprocessing) nuclear materials (uranium), products of reprocessing (lowly-enriched uranium for foreign NPPs) and nuclear materials purchased in Russia for export. Thereby, we have removed the legislative barriers to the organization of international uranium enrichment centers (JVs) in Russia.

— The reforms stipulate that the nuclear complex be divided into military and civil sectors. But everywhere in the world nuclear energy is closely related to the military sector, isn’t it? In the US the allocations to Atomic Energy Commission are qualified as military spending…  

— As a matter of principle, the nuclear industries of all the four nuclear powers were meant to produce nuclear weapons. After the major geo-political changes 17 years ago, the nuclear powers agreed to stop enlarging their nuclear arsenals. Shortly afterwards, three of them restructured their nuclear complexes and divided them into nuclear weapons and nuclear energy sectors. It was a hard process for all of them. Before that, the whole nuclear complex had been controlled by the military, but the situation had changed: new geo-political tasks urged the countries to drastically reform their management systems, to set new priorities and to develop new decision-making schemes. Any infringement on dominance in a sphere receives resistance. In the US and France, it took them 2–3 years to convince their parliaments and governments that the reforms were effective. But it was a natural process. The first try is always the hardest: the followers can consider the mistakes of the predecessors and pass the way much quicker. You can’t make a decision without arguments — you have to weigh all pros and contras.

-  Arguments about money, ambitions or something else?

— Now that way. In fact, we had no special arguments. My task, as a manager, is methodology rather than ideology: to optimize all procedures and to ensure maximally safe transition from A to B. By the way, the reaction was surprisingly similar to what we had when we were reforming the Russian Railways five years ago. Then, most of the military executives in the government claimed that the privatization of the sector, «the sale of Transsib» (Trans-Siberian railway) would destroy the country. In fact, it was their profession to protect, and they did. I think that professionals should be ready to reassess risks once they are faced with some corporate changes. This is natural. You can respond only with well-grounded arguments. Now that several years have passed, many of the opponents have admitted that it was a right decision. Today, we are witnessing a similar situation, but, today, mentality is transforming much quicker. In fact, we are the last country to carry out such reforms: the US, France and the UK have long corporized their civil nuclear sectors and are effectively competing in the world, while we are wasting time and losing niches on the global market. I can’t say that we had any ideological confrontation. From the very beginning, we realized that this problem needs a consolidated approach. We set up an inter-department commission, chaired by Sergey Kiriyenko, and discussed all related problems within this structure.

— Who represented the presidential administration, was it Sobyanin?

— There were many people: presidential advisors, the head of the Expert Department, representatives of the Chief Legal Department, Security Council. There were also people from ministries, departments, the Government.

— How did you work, what were the priorities?

— There were a number of basic theses. They explained why we needed the reforms, in the first place. The key spheres were nuclear weapons, nuclear radiation safety, fundamental sciences and nuclear power industry. The logic and the key directions of their development are formulated in the Presidential Program for Nuclear Energy Development (approved on June 8 2006).

As the chairwoman of the Sub-Committee on the Restructuring of the Nuclear Energy Complex, I would like to focus on the work of my structure. We have two tasks: to cover the growing energy shortfall in the country by restoring the effective management of the process of NPP design, construction and operation and to make highly-competitive products and technologies for enlarging Russia’s presence on the international market in the light of the global nuclear «renaissance.»

The first task is formulated in the Federal Target Program: it clearly says what and when we need for developing the nuclear power generation in Russia and for increasing its share to 25% by 2030. The second task is related to the growing energy shortfall in the world and consequent economic slow-down. In this light, many countries — the US, India, China, the EU — have changed their approach to nuclear energy. If 10 years ago nuclear energy was almost a taboo in Europe — even in France and Belgium (where NPPs produce 75% and 60% of total energy, respectively) — today, the situation is quite different. Cambridge Energy Research Association forecasts that over 300 nuclear power units will be built worldwide by 2030: China says that it will build 80 units, India — almost 40. This is a vast international market (some $500bln). In order to take part in this market, we should be ready to accept its rules. For example, we should be able to place under IAEA control the facilities and technologies we will export abroad. This implies a new — corporized and transparent — system. We simply must do that if we want to have, at least, traditional 20% — the share the Soviet Union had in the world NPP construction market. 20% of 300 units makes 60 units. $1.5bln per unit — with the cost of fuel exclusive — makes quite a big market we must fight for.

Today, we have over 40% of the world enriched uranium supplies — due to our most effective centrifugal enrichment technology — but in other spheres (the export of nuclear plants, fuel, NPP construction, etc.) we are just beginning to restore the position we could have lost for ever. We must raise our quality, apply new, competitive technologies, reduce the period of NPP construction. Today, there are certain spheres of influence in the nuclear business. There are big trans-national corporations: French-German Areva-Siemens and Japanese-American Toshiba-Westinghouse. So as to be able to compete with them, we must put together all the debris of our civil nuclear sector into an integrated state holding.
 
— You have so big plans, but many experts say that by 2010–2015 — if the present development rate is continued — Russia will have to import uranium and will have to fight for uranium as hard as it is fighting for oil today.

— I think I know what they mean. Indeed, the basic uranium extraction companies of the Fist Chief Department of the Soviet Minsredmash were located in Kazakhstan, Uzbekistan, Ukraine. After the collapse of the USSR, a great part of uranium deposits were left outside Russia. But this does not mean that we are running short of our uranium resources. Russia is among the five uranium-richest countries. We have enough of prospected deposits, simply, the extraction costs there are much higher than in Kazakhstan. When the world price was $40/1 kg, they were unprofitable, now that the price has exceeded $100, they can give us real profit. Of course, this will require serious investment. I would like to say once again that we do have enough deposits of raw uranium. One more reason why they have been idle in the last decade is that we have sufficient reserves of highly-enriched uranium.

We have a big practice of diluting highly-enriched uranium for its use as fuel. We have a relevant contract with the US: we turn highly-enriched uranium into lowly-enriched one and the Americans use it as fuel for their NPPs. Few people know that the level of the US’ energy dependence on Russia, especially in the nuclear energy sector, is very high: each 10th lamp in their national energy system works due to Russian uranium. In the US the share of NPPs in the total energy output is 20% and 50% of their fuel is supplied by Russia. By the way, the US has almost no uranium deposits, but they take it easy as there is a developed international market. There are also active projects for converted technologies production. I mean MOX-fuel and closed nuclear cycle. I think that in the coming 50 years we will see some revolutionary solutions.

— In Europe our business is not so good, is it? As the EU is enlarging, we are being forced out of traditional markets. Recently, Bulgaria joined the EU, which means that Kozloduy NPP, built by Soviet specialists, will be closed down. How are we going to win those markets back?

— I don’t think that they will close it down. Otherwise, they will face a colossal energy shortfall. For regaining markets we should start making competitive products. All we did in the last decade was to complete two power units. This means that our technologies and personnel have seriously degraded. Fortunately, there was an almost similar situation everywhere in the world. But now Areva-Siemens and Toshiba-Westinghouse are investing huge money in new technologies (for building much safer NPPs much quicker). This is the priority of Aromenergoprom. That’s why, besides the strategic tasks for covering the growing energy shortfall and building an efficient corporate structure, there is a task for designing a universal module nuclear power unit (until recently we have built NPPs under individual projects) that can be built and safely launched in no more than 60 months. This unit should be high-tech, competitive and safe. The FTP has set ambitious construction pace and we should keep up with it. After all, we should first do it at home to be able to export it later. Only intensive internal development can give us access to the world market. 

— What structure will the new reformed sector have? What will you do with TVEL?

— I can’t give you the exact picture. First of all, this is outside my competence. This is the prerogative of Sergey Kiriyenko and the government officials. Now we have a law providing a legal basis for the formation of such a structure. The law says that it is for the President to determine the structure of Atomenergoprom. This company will comprise all the assets of the civil sector of the nuclear industry, particularly, the state shareholdings in JSCs (including TVEL), corporized FSUEs, specialized educational institutions. Many people wonder: why can’t we form such a structure on the basis of FSUE? First of all, because quite many JSCs have been formed in the nuclear fuel cycle in the last 12 years — with or without state control. Today, all of our uranium extracting companies are JSCs, and the stake of the Government therein is even less than 50%. The plants producing steam generators, centrifuges and other equipment have long been corporized. The fabrication and export of enriched uranium is carried out by state-owned JSC — TVEL and Techsnabexport, reactor building — by primate companies; until recently the Government had no control over Atomstroyexport — only last year it bought necessary shares to regain control over the company. Only enrichment plants, design and research institutes as well as NPPs are still FSUEs. Hence, of the 8 elements subject to corporization more than half have already been corporized. 

Today, we are facing the task of building a complex management system that will allow us to carry out research and innovative projects and to introduce new technologies all along the production chain. The final goal is certainly generation, but, if we fail to ensure proper quality at each individual stage of the cycle, we will not attain this goal. We need a complex approach. Consequently, we should integrate the state shareholdings in JSCs and the FSUE operating in the nuclear industry complex. This structure will not be very different from the general model of state corporation, except for safety requirements.

— Does this mean that the state-owned shares will not be privatized in the future, or, perhaps, they will?

— The law says that all the shares of Atomenergoprom belong to the state and all transactions with those shares can be effected only within the law. So, theoretically, there is such a possibility if the law is changed, but I think it makes no sense to speak about such a possibility today.

— Consequently, it makes no sense to speak about IPO either…

— As far as Atomenergoprom is concerned — yes: 100% of the shares belong to the state. As regards, its daughter and grand-daughter companies — here, we can have some variants. The law imposes very tough restrictions on stock trading for legal entities owning nuclear materials and nuclear units as well as on the shares of «daughter» companies. The other companies of the holding can attract investments through IPO on lower levels and in a specific order.

— Concerning investors. Such large-scale plans will require quite big investments. Isn’t there a certain contradiction between this structure and this task? After all, we will have to attract private investments too. What mechanism are you going to apply for attracting investments?

And one more question: for example, they in the UK are not very much pleased with their structure and are beginning to think about selling something. State ownership is not a universal form of management. For example, in the electric energy system, the reforms are moving in a different way. 

— They also have problems with attracting investments. They faced them six years after the reforms. You know, you can bring a horse to the water, but you can’t force it to drink…

— In the framework of private-state partnership you can force it to do even more…

— We will hardly change anything by saying: let’s urgently attract investors. By forcing the horse to drink we will do it no good. Any process should have an economic basis and can develop only if there is an economic interest. In any case, what we have today is worse than we will have tomorrow. Today, we have no single way for attracting investments. FSUE is not the owner of its property — that is the point. A management system sees no motivation in managing something it does not own. What we are building is a structure based on market ideology. And the key problem we have to solve today is to lay the foundations of effective management so that this system be internally set for raising the quality, increasing the incomes, reducing the costs, introducing new products, accumulating investments resources. The structure we are forming will do that.

As regards investments, we can put off their full attraction for a later period. This is always a balance between risk and need for money. When we say that the formation of an efficient nuclear energy complex is a task of national importance, we mean the formation of a relevant state infrastructure. The attraction of private investments is a secondary task. First of all, we should build a stable state infrastructure, set the system working, ensure its safety. Transition from the former system: when a nuclear unit could be federal property only, to the new mentality: when a nuclear unit can be owned by a legal entity, be it even 100% state-owned, is a very serious step. We should first guarantee that it will not result in some irreversible consequences. We should not seek to jump into the market at once. We are moving very slowly and carefully in line with the interests of the state and society because we realize that this is a risky venture. That’s why the attraction of private investors is not a priority for the time being. This is the first step towards the market — a step strictly controlled by the state.

One more weighty argument. When we were forming the Russian Railways OJSC, the question was what a 100% state-owned company could give us. Then too many people proposed attracting private investments in the very beginning. But when just a year later the company got an investment credit rating equivalent to sovereign rating and when the cost of borrowings dropped from 16% to less than 9%, we got a big additional investment resource. State corporation has many advantages.  

— So, your priority is the quality of management?

— Yes, it is.

— How much is it today to build an NPP in Russia?

— According to the draft program, $1,200/1 KW, i.e. $1.2bln-1.5bln.

— What are you planning for the near future?

— We have two directions: to finish existing construction projects and to launch new ones. When I say new construction projects, you should understand that these are not Rosatom’s own projects: construction is not yet effective operation. This problem requires coordination with the network economy. We have some sad example of Soviet planning: we have a 90% ready nuclear power unit in Kursk but we have no networks for transmitting its energy to the Central region.

— You mean that you have to coordinate your plans with RAO UES…

— Not only RAO UES. It is a joint program involving Industry and Energy Ministry, RAO UES, Rosatom and some other departments. In Mar 2007 the Government will consider a coordinated «road map» — map of new energy projects covering both nuclear power facilities and accompanying networks. 

— Will your holding benefit if they in the electric energy sector speed up their reforms?

— Of course, we will. And our next step will be to coordinate an asset development strategy — a strategy having both market (thermal generation) and state status (networks, hydro generation, nuclear generation). This strategy should cover both state regulation and economic activities.

— How many people does the nuclear power sector employ?

— Over 300,000.

— Do you pay them as much as the other natural monopolies do.

— Out wages are much different but, of course, in Gazprom and RAO UES, which have long been corporized, they pay more.

— Do you have mechanisms for raising the wages? Unless you ensure high wages, you will hardly be able to demand high responsibility and safety. Poor nuclear power engineer is a potential danger.

— Personnel policy, social security and career opportunities are our primary tasks for the moment. In the past year, our people have significantly changed their attitude towards their future. Many of them still remember the times of the «Nuclear Project N1,» the enthusiasm of people working towards one important state goal. In the past years this seething torrent has turned into dead-water: only 2 units in 10 years! When Sergey Kiriyenko announced structural reforms and the President approved a development program, people understood that it was time to wake up. People realize that from now on they will have a lot of work, lots of orders. And they are beginning to show initiative. I am receiving lots of letters from professionals: they suggest new goals, new technological solutions. This is a good sign. This means that people are getting motivated and are mobilizing their strengths.
 
— At the times of Beria the key motive was «go it!,» what is the key motive today?

— After graduating from Moscow Institute of Physics and Engineering, I was employed with the defense research institute that was once directed by the son of Beria. The veterans told me what they had gone through. They said: «Formerly, in this very place, we had a hangar with a lab and two ways out: in case of success — we would have got black Volga and high salary, in case of failure — uniform and hut in taiga.» I am sure that those times have gone for ever. Today, we have done much to train necessary personnel. This problem is very important: if you lack installers, welders, designers, researchers, you will not be able to make the products you need for fulfilling your task.

That’s why, on the one hand, people understand that now they will have predictable future, state order; they clearly see how they will live tomorrow, who and how much will pay them for their work. On the other hand, we understand where exactly we lack personnel and what we should do to get necessary people from universities and technical colleges. We understand how we should motivate people, what kind of social policy we should have. We have set one common task to all business entities acting in the sphere: to change the attitude of their people to their labor. The FTP has also made its contribution to this matter. Today, we are really eager to work and to create something our children will be proud of. 

Annex

Balance of electric capacity: potential and demand (mln. KW) (Expert analysis of RAO UES)

	2004	2005	2006	2007	2008	2009
Dynamics of demand for capacity (RAO UES analysis)	188.0	192.4	195.9	199.9	205.3	210.2
Dynamics of projected capacities with new capacities inclusive	207.7	203.6	204	204.6	203.8	205.5
Outstanding shortfall					-1.55	-4.7

Balance of electric capacity: potential and demand (mln. KW) (Expert analysis of Rosatom)

	2004	2005	2006	2007	2008	2009	2010
Dynamics of demand for capacity (Rosatom analys)	188.0	193.6	199.4	205.4	211.6	217.9	224.5
Dynamics of projected capacities with new capacities inclusive	207.7	203.6	204	204.6	203.6	203.8	205.5	207
Outstanding shortfall						-7.78	-12.44	-17.48
Probable time of shortfall

Estimated dynamics of electricity consumption in Russia till 2030 (bln.KWh)

	2005	2010	2015	2020	2025	2030
Forecast by RAO UES)	950	1030	1200	1480	1650	2000	3000
Forecast by Rosatom)	950	1110	1450	1610	1850	2600
Forecast by Energy Strategy of RF	935	1070	1205	1365
Source: Rosatom

Nuclear energy

Average share of NPPs in developed countries — 38%, share in Russia — 16%

	Production by NPPs, bln KWh	Share in electricity production, %
France	426.8	78
Belgium	44.9	55
Sweden	75	52
Switzerland	25.4	40
Germany	158.4	32
Japan	273.8	29
Finland	21.8	27
Spain	60.9	23
United States	788.6	20
United Kingdom	73.7	19
Source: Rosatom, WNA statistics, 2004

Expected shortfall

UES of Northern Caucasus	1.8	8.0	16.0
UES of Center	10.0	44.0	74.0
UES of Middle Volga	2.2	10.0	18.0
UES of North-West	4.0	15.0	29.0
UES of Ural	11.0	30.0	45.0
UES of Siberia	6.0	30.0	36.0
UES of East	2.6	7.0	15.0
Demand for capacities, GW
36 capacity shortfall, 2010 131 capacity shortfall, 2020 227 capacity shortfall, 2030
Loss of capacities by 2030, GW 45 Economic 61 Technical Total: over 300 GW Source: Rosatom

 
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