VZCZCXRO7138
RR RUEHDBU
DE RUEHYE #1538/01 3060749
ZNY CCCCC ZZH
R 020749Z NOV 06
FM AMEMBASSY YEREVAN
TO RUEHC/SECSTATE WASHDC 4305
INFO RUCNCIS/CIS COLLECTIVE
RHMFISS/DEPT OF ENERGY WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 03 YEREVAN 001538 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR EUR/CARC, EUR/ACE AND ISN/NESS-PMETZ 
DEPARTMENT OF ENERGY FOR BOB MOFFITT 
 
E.O. 12958: DECL: 11/02/2016 
TAGS: ECON ENRG PNNL AM
SUBJECT: A GOOD START: GOAM COMMITS FUNDS TO NUCLEAR SAFETY 
UPGRADES AND PLANT DECOMMISSIONING 
 
REF: YEREVAN 910 
 
Classified By: CDA A.F. Godfrey for reasons 1.4 (b,d). 
 
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SUMMARY 
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¶1. (C)  The GOAM has pledged USD 5.3 million towards safety 
upgrades at the Armenian nuclear power plant (ANPP) and USD 1 
million annually to support Armenia's newly established 
decommissioning fund.  The European Commission and the U.S. 
also proposed between USD 6-7 million each for safety 
upgrades leaving a relatively modest (approximately USD 7 
million) shortfall in funds needed to complete the list of 
critical safety upgrades identified by the IAEA.  The GOAM's 
pledges are evidence of its willingness to cooperate with the 
international community on nuclear energy, but Armenia still 
must demonstrate commitment by reinvesting more energy sector 
revenues into plant safety and maintenance.  Continued 
targeted USG assistance makes sense, to promote safe and 
responsible energy policies.  END SUMMARY 
 
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GOAM PLEDGES USD 5.3 MILLION TO SAFETY UPGRADES 
--------------------------------------------- -- 
 
¶2. (C) An IAEA-supported donors' conference was held October 
12-13, as a follow-on to a December 2005 technical conference 
in Vienna.  At the Vienna Conference, the IAEA identified a 
list of priority safety upgrades needed at the ANPP the total 
cost of which was estimated by plant staff to be USD 35 
million.  Donor estimates of the cost were modestly higher. 
The objective of this follow-on conference was to identify 
funding for the various upgrades.  Many of the upgrades 
identified in the IAEA list are already underway thanks to 
support from the European Commission (EC), U.S. and U.K.  The 
GOAM has provided past support as well (both for safety 
equipment and operational safety improvements).  At this 
conference, the Deputy Energy Minister announced the GOAM 
would allocate USD 1.5 million annually to additional safety 
upgrades and the GOAM identified a total of USD 5.3 million 
in projects from the IAEA list which it intends to fund.  The 
EC and U.S. made similar proposals of USD 6-7 million each 
over the next three years contingent on budgetary approval. 
The U.K. program is scheduled to phase out in March 2008 and 
the U.K. was not able to commit any additional funds.  The 
remainder needed to complete the IAEA list (based on plant 
staff cost estimates) is approximately USD 7 million.  It is 
important to note, however, that some of the items on the 
IAEA list are diagnostics which may identify additional work 
that needs to be done. 
 
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POSSIBLE USG SUPPORT FOR REDUNDANT INSTRUMENTATION 
--------------------------------------------- ----- 
 
¶3. (C) Unfunded items on the IAEA list included a USD 3 
million project to develop enhanced instrumentation 
redundancy and construction of a back-up emergency control 
panel in a secondary location estimated to cost USD 2 
million.  These projects were identified as important, 
priority 1 and 2 improvements which the U.S. might usefully 
support if funding becomes available.  Apparently, these 
improvements had been included in past USG project lists, but 
were deleted due to funding limitations. 
 
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REGULATOR RECOVERING FROM MOVE TO MIN. OF NATURE PROTECTION 
--------------------------------------------- -------------- 
 
¶4. (C) Representatives from the Armenian Nuclear Regulatory 
Agency (ANRA) told conference participants that the status of 
the regulator has improved significantly.  Staff salaries 
have doubled, allowing the ANRA to rehire (or contract for) 
approximately one third of the staff who left when salaries 
were slashed when ANRA moved into the Ministry of Nature 
Protection in 2003.  ANRA has also started a program to hire 
and train a new generation of staff (at present most staff 
are 50 or older, leaving a vacuum in the junior ranks).  ANRA 
remains understaffed however, with only 16 full-time 
employees.  The EC is currently providing some support to 
ANRA, but conference participants agreed that additional GOAM 
and donor support is needed to strengthen ANRA to the point 
where it can effectively regulate nuclear issues. 
 
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A SIGNIFICANT STEP FORWARD ON DECOMMISSIONING 
 
YEREVAN 00001538  002 OF 003 
 
 
--------------------------------------------- 
 
¶5. (C) USAID-supported energy experts at PA Consulting raised 
concerns about the management of the decommissioning fund, 
level of GOAM support and the nonexistent role of GOAM 
regulators in fund management.  Conference participants 
agreed, however, that having the fund in place was a good 
first step.  The GOAM also pledged to work with donors to 
improve fund management.  (COMMENT:  The rushed approval of 
the decree on the eve of the conference appears to have been 
a successful effort by the GOAM to make sure that they had 
something to bring to the table.  END COMMENT).  A million 
dollars annually is woefully insufficient to accomplish 
shutdown and decommissioning beginning in 2016, the deadline 
to which the GOAM has agreed if replacement power is 
available.  The Energy Minister hoped for concessionary donor 
funding to make up the difference.  He called specifically on 
the EU to support the first phase of decommissioning as part 
of a 100 million Euro assistance package that has been under 
discussion for some time.  The USG did not commit any 
financial resources to decommissioning, but has provided and 
will continue to provide, extensive technical assistance to 
support development of the decommissioning plan. 
 
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POSITIVE CASH FLOWS, ANOTHER POSSIBLE SOURCE OF FUNDING? 
--------------------------------------------- ----------- 
 
¶6. (C) According to USAID-funded contractor PA Consulting, in 
the past two years there has been a significant positive cash 
flow from certain parts of the energy sector which could be 
redirected into either plant safety upgrades or 
decommissioning.  Revenues at the Voroton Hydro Power Station 
exceed operating costs by approximately USD 20 million 
annually if operations continue at normal levels.  ANPP 
revenues also include approximately USD 1.5 million annually 
for plant safety upgrades and additional funds for non-safety 
capital improvements (such as dry spent fuel storage 
expansion).  The GOAM's plans for the Voroton funds are not 
yet clear, though a portion is likely being spent on 
upgrading the transmission lines in southern Armenia.  These 
cash flows are also contingent on variable production costs; 
there is no certainty that Armenia will benefit from these 
positive cash flows in future years. (COMMENT:  While it is 
unlikely that the GOAM will dedicate all of these funds to 
the ANPP and/or decommissioning, it may be able to use a 
portion of these funds to redress the shortfall in the budget 
needed for safety upgrades. END COMMENT)  At the conference, 
the U.S. delegation underscored the need to develop a 
"culture of safety at the plant evidenced...by reinvesting a 
sufficient portion of the cash flow obtained from the energy 
sector into the plant to ensure plant safety and 
maintenance." 
 
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SUPPORT FOR A NEW PLANT 
----------------------- 
 
¶7. (C) The ANPP provides approximately 40 percent of 
Armenia's electricity and the GOAM has made it clear that 
they must identify replacement capacity before the current 
plant is decommissioned.  At a conference in July 2006, the 
GOAM, with technical assistance from USAID, identified 
construction of a new nuclear power plant as the least-cost 
option for developing replacement capacity (reftel).  The 
GOAM has asked the U.S. and other donors to support 
construction of a new plant.  At the October conference in 
Yerevan, we responded:  "Once Armenia has demonstrated its 
commitment to a culture of safety and a comprehensive 
decommissioning plan, the U.S. will be ready to engage with 
Armenia on the question of a new nuclear power plant.  We 
would consider for example, technical assistance to develop a 
proposal for a new plant, facilitating trips by private 
American investors interested in the project, and support to 
help Armenia identify other possible sources of funding for 
plant construction."  The GOAM reaction to our position was 
very positive and they welcomed our support. 
 
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COMMENT: CONTINUED SUPPORT MAKES SENSE 
-------------------------------------- 
 
¶8. (C) The GOAM's pledges to support safety upgrades and a 
decommissioning fund are tokens of good faith, but we need to 
see if the GOAM will follow through.  The U.S. plays a key 
role, providing not only financial support, but technical 
expertise and institutional knowledge which contribute 
greatly to improved safety at the plant.  USG-funded experts 
 
YEREVAN 00001538  003 OF 003 
 
 
have established strong working relationships with plant 
managers and personnel and with counterparts at the Ministry 
of Energy, the Armenian Nuclear Regulatory Authority and the 
Public Services Regulatory Commission.  We should match 
increased GOAM commitment with increased U.S. assistance to 
help the GOAM take prudent steps toward safer power 
generation.  END COMMENT. 
 
¶9. (U) Members of the U.S. delegation to the conference, 
including DOS Senior Coordinator for Nuclear Safety, 
ISN/NESS, Patricia Metz and USAID Energy Restructuring and 
Regulatory Specialist Walter Hall, have cleared on this 
telegram. 
GODFREY