The Belene quagmire – the graceful exit

The Belene quagmire – the graceful exit


Whatever the feasibility study of the BASc recommends, it will bear little significance as the factors and circumstances that will define the choice of the Bulgarian government lie well beyond what the ‘academicians’ could preach.


Russia’s nuclear monopoly – Rosatom – has long been the source of national pride, often used to mock its US rival Westinghouse as the epitome of waning US global power. The newswire provided ample evidence, quoting at length the financial troubles and the hovering bankruptcy.


Rosatom’s backlog of orders and contracts cover more than 42 nuclear units well over 2025 and the cost is over $133 billion, against an annual revenue base of $5 billion. Yet these days, there are few smiles at Rosatom’s HQ in Moscow. Most of the contracts are projects abroad that include an obligation to finance in hard currency, which has been the key to the Russian company’s success in fighting off competition. In the era of pricey oil and gas, the Kremlin’s state coffers provided an ample cash pool. But the annexation of Crimea led to a chain denigration of capital and work environment that ultimately cut off access to global capital markets.


The State National Welfare Fund – the prime source of contingency funding literally dried up, which forced the Russian government to channel Rosatom funding needs to attracting bank loans from Russia’s largest banks – including Sberbank. However, not only did the capital needs of Russia’s nuclear energy giant exceed the lending capacity of these banks – tens of billions of dollars – but in most cases the capital need was not denominated in rubles, which could be “printed”. The net result was that Russian banks did not accept Rosatom corporate or project guarantees, insisting on Russian sovereign guarantees. Calls from the Kremlin did not help as finance minister Siluanov grudgingly approved some of the requests, making a stark public warning – the situation is reminiscent of the last days of the Soviet Union before its collapse.


Loans needed to fund NPP projects, notably when measured in their ruble equivalent, soared well beyond Rosatom’s capital reach. The cashflow of Atomstroyexport seems firmly in the negative on existing projects, and the government drained the company’s liquidity, dwarfing revenues streams.


Rosatom is fully dependent for its balance sheet on budget money, well above what it could hope to receive as proceeds from its commercial activities. In 2017 alone – the cumulative direct financial support from the state exceeded 130 billion rubles ($ 2.1 billion), which would barely cover the program on reactors within Russia, to say nothing of foreign based ones.


This forced Rosatom to seek deal restructuring and additional funding from local or third party partners. One of the largest capital outlays – over $20 billion – the NPP In Akkuyu saw the sale of a 49% stake to the Turkish Cengiz-Kolin-Kalyon (CKK) consortium, with each one of the parties holding an equal share of 16.3 percent.


Then Rosatom informed the Jordanian government about its intention to replace its part of the capital investment in the NPP project – two 1000 MW reactors at a cost of $10 billion – instead of state funding, the nuclear energy company intended to borrow from banks, despite recent failures and a totally negative track record in loan financing of NPP projects on a global scale. Moscow gave no specific details on the name of the bank(s) it had in mind. All the technical issues in the project have been agreed upon – the only thing remaining unresolved is financing. Under the original plan conceived back in 2013, both sides – Rosatom and the Jordanian government – agreed to contribute 15% each of the project loans, with the remainder to be borrowed under a project financing scheme. Today these plans seem totally irrelevant and unfeasible.


Rosatom is at risk of default on most of its contracts from countries ranging from China to Bolivia, due to inability to secure funding. Access to the capital market is not only impossible due to imposed sanctions, but investors are totally reluctant to buy debt instruments associated with nuclear power projects. In short, Rosatom has more trouble on its plate than it could deal with.




The situation closely mimics the times immediately after the dissolution of the Soviet Union, when the Russian government was forced to end subsidies to contractors, and engaged in NPP abroad, putting Atomstroyexport under duress.


The Nuclear power plant in Hanhikivi, Finland was built by the Fennovoima project company, in which Rosatom holds a 34% interest. This is the first and only construction in Europe for Rosatom over the last several decades. The construction is funded by Russian taxpayers – $1 billion so far, again from the National Welfare Fund of Russia. The NWF was originally intended to “become part of a sustainable mechanism for pension provision for citizens of the Russian Federation” and by constitutional requirement was never meant to serve the interests of foreign companies or countries.


There are open funding issues with contracts in Nigeria, Egypt, India and Bolivia. In Egypt alone, Rosatom has committed to provide a project loan of $25 billion for a 3+ nuclear reactor under the same old ‘charming’ offensive terms – finance, build, own, operate and transfer.


The construction of the new blocks on NPPs in Iran and China are a rare exception to the rule – as the Iranians and the Chinese investors are footing the development bill themselves.


President Putin reiterated Rosatom’s commitment to expand the nuclear power program in India and build ‘at least 12 power units of Russian design”. Under signed agreements for the next pair of reactors in Kudankulam, at least 50% of the project cost should be borne by a loan from Rosatom – $4.2 billion.


Rosatom’s general contract for the Rooppur NPP in Bangladesh, signed in 2015, again is fully contingent on $12.65 billion of Russian financing.


Russia’s nuclear energy Nigerian file comprises commitment to build four nuclear units worth more than $20 billion, and the first block should be put into operation in 2025. In return for a controlling stake in the project and a government commitment for power offtake, Russia has undertaken funding the project on its own.


In the interim, Vietnam backed off a similar arrangement with Rosatom, with the chairman of the state owned energy company of Vietnam Ziong Quang Thanh stating, “nuclear energy has lost competitiveness to other energy resources, and there is no urgency for a new unit”. Although the agreement for the two nuclear power plants in the province of Nying Thuan was approved back in 2009, it was followed by several delays at the behest of the Vietnamese side.  They had decided, with the assistance of IAEA experts, to further explore possible environmental risks from the operation of the nuclear power plant.


Sergei Kirienko’s departure, which judged against the state of and challenges facing Rosatom, looked like more of a rescue mission. After his safe landing as Deputy Head of President Putin’s administration, the true picture of the Russian nuclear energy industry came out in full light. Under his stewardship the company had planned to commission 20 new power units in the last 10 years, while the reality was a meager 4. The figure until 2020, back in 2007 when the promise was made, seemed even higher – 30 power units – all according to the strategic paper titled “General Scheme for New Power Generation Units of Russia” until 2020”.


Works on construction sites have been frozen – including in April 2014, the badge of honor – the Baltic NPP in the Kaliningrad region – was frozen after 70 billion rubles ($1.2 billion) spent.


Lack of demand, funding and inefficient management led Rosatom to focus on reactor life extension and the riskier operation of increasing the power load of reactors – meant to convince the public that nuclear energy can remain profitable and safe.


Today, the corporation has a work log of 34 power units in the area from Finland to China.


The Rosatom global expansion model, promoted at the expense of loans, backed by subsidies from the Russian state budget, sovereign funds or sovereign guarantees is unsustainable, spelling trouble for the company’s domestic and external work program and coincidentally to the Kremlin’s use of nuclear power to achieve foreign policy goals.


Russia’s budgetary limitations have opened a niche for China to explore. Chinese companies are making strategic inroads into Russian companies’ global nuclear business backyard in Latin America, Africa and Asia. Beijing has been able to profit from Russia’s standoff with the US and the EU and take control over critical infrastructure and assets, adding to its leverage base in Europe. That is not necessarily to the detriment of Bulgaria as it increases its options to dispose of the NPP Belene equipment.


Rosatom is not only a civilian “corporation”. Its self-described mission includes “to maintain national interests in defense” and implementing “national policy of nuclear deterrence”. Due to a lack of independent accounting and balance sheets between the military and civilian parts, until recently, Bulgarian taxpayers’ could not rest assured that a share of their Euro 601 million transfer for the nuclear plant equipment did not end up being invested in beefing up Russia’s nuclear missile attack potential, targeting Bulgaria and the EU.


Further budgetary cuts will inevitably touch upon Russia’s military spending and dump, at least in part, its plans to upgrade its strategic nuclear arsenal. Given the overriding strategic priority for the Kremlin in its global rivalry with the US, it is likely that Rosatom’s civil engineering program could be further eroded.


The upside for Bulgaria is that Rosatom should be more amenable to Sofia’s proposals for a dignified and less traumatic exit from the NPP Belene saga, cooperating in the resale of the reactors and equipment, including utilizing them in its long list of underfunded nuclear power projects across the globe.

The benefits of reactor resales for potential buyers are imminent and tangible, as their price will be competitive and they are already in stock – whereas funding and procurement in the future will become riskier. The equipment could be subject to a deferred payment scheme or transformed into an investment credit with additional services engaged by Bulgarian companies.


Both Rosatom and NEK and potentially the Chinese NNC could identify a strong business case in engaging with the NPP Belene reactors for projects in third countries.


By Ilian Vassilev

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