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Ukraine: EBRD Plans To Fund Controversial Nuclear Reactors

Prague, 29 January 1999 (RFE/RL) -- The European Bank for Reconstruction and Development (EBRD) is moving ahead with controversial plans to fund construction of two unfinished nuclear reactors in Ukraine.

The EBRD has given provisional approval to a loan worth as much as $190 million for construction of the Khmelnitsky 2 and Rivne 4 nuclear reactors in southern Ukraine. In 1995, Ukraine said it would close Chornobyl only if the two reactors at Khmelnitsky and Rivne, known as K2/R4, were completed to replace the lost capacity at Chornobyl, the site of the world's worst civilian nuclear accident in 1986.

The two reactors are about 80 percent completed, according to Ukraine's nuclear concern, Energoatom. Additional funding from Euratom to cover up to 50 percent of the project's cost hinges on approval of the EBRD loan.

Environmentalists and others, including the Austrian government, as well as one study commissioned then rejected by the EBRD, question whether Ukraine even needs to add to its already operating 11 nuclear power plants. They say Ukraine's economic collapse since the 1991 breakup of the Soviet Union has meant a sharp drop in energy demand that critics of the project contend won't increase above previous peak levels until 2010.

The EBRD official overseeing the loan project, William Franks, told RFE/RL that the EBRD Board of Directors would likely reach a decision on the loan by the end of April.

Some Ukrainian officials are wary of the terms for the EBRD loan. Mikhail Umanets, first deputy minister of energy and chairman of Ukraine's State Department on Nuclear Energy, told the nuclear industry weekly "Nucleonics Week" late last year that completion of K2/R4 under the EBRD's conditions requires about $1.7 billion, while only some $800 million would be required under a Russian alternative.

Umanets said the Russians also are offering much more favorable credit conditions than the EBRD. The London bank requires payback over 12 years, which would jeopardize the profitability of the new units, he said. Russia will accept repayment in Ukrainian goods or from a joint venture allowing Russia to share in profit from the reactors' operation.

The deputy minister of Russia's Minatom, Bulat Nigmattulin, told RFE/RL that unlike EBRD aid, Russian assistance would not include what he called costly obligations to the Western nuclear industry.

"We are offering or will offer Ukraine credit (and) the EBRD has its plan. What is Russian, or EBRD credit? ... EBRD credit means it also offering equipment by Framatome, Siemens; they don't simply give Ukraine money."

For loan approval, the EBRD requires each project meet four conditions: be financially viable, satisfy environmental and public consultation requirements, satisfy Western nuclear safety principles, and be part of a least-cost option. But some experts question whether the project satisfies these conditions.

Steve Thomas is a professor at Sussex University in England. In 1996, he took part in a study commissioned by the EBRD to analyze whether financing K2/R4 met the bank's "least cost" criteria. He tells RFE/RL what the study found:

"It became very clear that the case for completing the reactors was much weaker than had been suspected. One very strong element was that there didn't seem any reason to replace Chornobyl. Electricity demand had fallen so steeply after the fall of the Soviet Union, that Ukraine had twice the generating capacity to meet peak demand. A big problem that Ukraine electricity had was that it had no money, basically because most consumers in Ukraine do not pay their bills in cash."

According to a study by the CEE Bankwatch Network in Prague, 93 percent of energy costs in Ukraine were paid by barter last year.

The EBRD rejected the findings of the Sussex University group in 1997; then hired the American firm Stone and Webster, and headed to Kyiv to collect, what Franks called "better data."

"One of the things concluded from that is that if you used the assumptions in the Sussex report in the model Stone and Webster developed you came to the same conclusions that the Sussex report did. If you used the better data, you come to a different set of conclusions."

But Thomas says that so-called better data is suspect.

"The problem with the Stone and Webster report was that the assumptions going into the model were all determined either by the EBRD or by the Ukrainian company, Energoatom, that wants to build the nuclear power plants. So the report was far from independent."

Regarding whether it makes banking sense to loan to a business that receives some 90 percent of its payments through barter, the EBRD's Franks said that is an important issue.

"The loans to K2/R4 will be conditioned on very concrete programs on the part of the Ukrainians to improve the performance of the power sector, and in fact, there are several initiatives, the most recently initiated by the bank, to address that issue. That is a very important issue, a very critical issue to the project, and a critical part of the due diligence being conducted at the moment."

Ukraine may face other problems with spiraling costs. In the Czech Republic, Westinghouse has run into huge cost overruns and delays retrofitting the nuclear power reactors at Temelin. Both Temelin and K2/R2 are equipped with the same Soviet-type VVER-1000 reactors. But as International Atomic Energy Agency (IAEA) spokesman David Kyd explains, the Czech Republic, unlike Ukraine, is spending hefty sums to completely refit Temelin in what is a unique graft of Western technology onto the body of an Soviet-type reactor.

"In the case of the Ukrainian reactors, they are not looking to do something that ambitious at all. What they are looking to do is to stick with the Russian designers, largely with Ukrainian and Russian companies, to complete the standard VVER-1000 megawatt design, as basically put together from the start. They are not looking to revamp the entire reactor along Western lines and still such an effort will cost more than a billion dollars."

Kyd said such reactors would never be licensed in the West. Germany concluded that such upgrade costs were so exorbitant that it scrapped plans to retrofit two VVER 1000 reactors at Stendal in eastern Germany after the German safety agency, Gesellschaft fur Reaktorsicherheit, estimated that the project would cost between $2.3 and $2.9 billion.

So why would Ukraine pursue such a project that Germany found too costly, especially given the legacy of Chornobyl? Sussex University's Thomas explains that Ukraine did propose building a gas-power plant to replace Chornobyl in 1995, but the West reportedly rejected the plan, fearing Kyiv would become dependent on Russian gas. Thomas further suggests the reasons remain unclear, but he says Western powers with a strong nuclear industry, especially Germany, France and the United States, have all backed the project. Ukraine also has a strong nuclear lobby, which retains strong ties with its Russian counterpart from the Soviet era. All parties are interested in the profits construction projects bring.
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    Tony Wesolowsky

    Tony Wesolowsky is a senior correspondent for RFE/RL in Prague, covering Belarus, Ukraine, Russia, and Central Europe, as well as energy issues. His work has also appeared in The Philadelphia Inquirer, the Christian Science Monitor, and the Bulletin Of The Atomic Scientists.