VZCZCXRO8369
RR RUEHBC RUEHDBU RUEHDE RUEHDIR RUEHKUK RUEHLN RUEHPOD RUEHSK RUEHVK
RUEHYG
DE RUEHMO #0851/01 0930402
ZNR UUUUU ZZH
R 030402Z APR 09
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 2715
INFO RUEHSF/AMEMBASSY SOFIA 0616
RUEHKV/AMEMBASSY KYIV 0335
RUEHSK/AMEMBASSY MINSK
RUEHCV/AMEMBASSY CARACAS 0286
RUEHTRO/AMEMBASSY TRIPOLI
RUEHUM/AMEMBASSY ULAANBAATAR 0304
RUCNCIS/CIS COLLECTIVE
RUEHXD/MOSCOW POLITICAL COLLECTIVE
RUEHII/VIENNA IAEA POSTS COLLECTIVE
RUCNIRA/IRAN COLLECTIVE
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEANFA/NRC WASHDC
RUEHLN/AMCONSUL ST PETERSBURG 5295
RUEHVK/AMCONSUL VLADIVOSTOK 3181
RUEHYG/AMCONSUL YEKATERINBURG 3534

UNCLAS SECTION 01 OF 03 MOSCOW 000851 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: KNNP BTIO ETRD ETTC ENRG TRGY PREL ECON RS
SUBJECT: RUSSIA'S ATOMSTROYEXPORT CANNOT FULFILL EXISTING 
INTERNATIONAL NUCLEAR ENERGY CONTRACTS, BUT SEEKS NEW ONES 
 
REF A: ANKARA 111, REF B: 08 YEREVAN 1049, REF C: 08 MOSCOW 908 
 
MOSCOW 00000851  001.2 OF 003 
 
 
¶1.  (SBU) Summary:  Russian policymakers are relying on Russia's 
competitive advantage in civilian nuclear power to help it diversify 
its natural resources-based economy.  Atomstroyexport, Russia's 
international nuclear power plant constructor is diligently pursuing 
construction contracts for 11 new nuclear reactors in India, Iran, 
Bulgaria, and Ukraine.  It is in active discussions on another six 
reactors (two in China and a Build-Own-Operate plant with four 
reactors in Turkey).  At least four other countries have stated 
their interest in having Russian-design reactors as their entry into 
the nuclear power arena.  However, the crunch on credit, 
insufficient machine-building infrastructure, and a paucity of 
trained specialists make it unlikely that Atomstroyexport will be 
able to realize all of these plans soon.  End Summary. 
 
International Civil Nuclear Projects on the Books 
--------------------------------------------- ---- 
 
¶2.  (U) Atomstroyexport (ASE), Rosatom's international nuclear power 
plant (NPP) construction arm, is working on the 11 units to which it 
has committed: 
 
--  (U)  India - Kudankulam (two units under contract; four more 
being discussed):  India's Kudankulam nuclear power plant (NPP) 
units 1 and 2 are almost finished, with projected first criticality 
expected in early 2009 and end of 2009 respectively.  (Note: 
Initially, units 1 and 2 were expected to be commissioned in 2007. 
Delays in equipment delivery pushed dates for first criticality into 
¶2009.  End Note.)  The December 2008 umbrella agreement signed with 
India puts four more reactors in the queue.  The contract that is 
now under consideration will cover the delivery of design 
documentation and equipment only, with local Indian workers 
executing the construction.  The Russian government has announced it 
will provide loans for this contract. 
 
--  (U) Iran - Bushehr (unit 1): One load of nuclear fuel was 
delivered to the plant in early 2008 and is stored on site under 
IAEA monitoring controls.  The date of commissioning has been 
postponed many times.  Although it is hard to predict when first 
criticality will occur, most projections are for late summer or 
early fall 2009.  It is most likely the reactor will be operated by 
Russian personnel during first year of operation.  There are no 
indications of any Russian interest in building additional NPPs in 
Iran. 
 
--  (U) Bulgaria - Belene NPP (two units under contract):  Russia 
won the tender in October 2006 and a 'turn-key' contract was signed 
in 2008.  The cost is currently estimated at 3.997 billion Euros 
($5.4 billion).  Construction is scheduled to begin in spring 2009. 
 
--  (U) Ukraine - Khmelnitskaya NPP (two units under contract to be 
completed):  The GOU approved the tender committee's decision in 
October 2008.  ASE will finish the construction of two units, 
stopped in the 1990s due to economic reasons, that is at 75 percent 
and 28 percent complete respectively.  Russia has announced it will 
provide a loan equal to 85 percent of the contact cost. 
 
Not Yet Decided - But Probable 
------------------------------ 
 
¶3.  (U) ASE is aggressively pursuing new agreements and contracts in 
South America, the Middle East, and South Asia.  It continues to 
expand its market in China, a long-term buyer of Russian nuclear 
goods and services, and is floating tenders in Turkey.  If both the 
China and Turkey projects come to fruition, it would add another six 
NPPs to the 11 that are on the books. 
 
--  (U) China:  Russia and China began negotiating a contract on the 
further ASE construction of Tianwan NPP units 3 and 4 after units 1 
and 2 were commissioned.  The two sides are close to resolving 
pricing and technology transfer issues and the fuel delivery terms. 
Prime Minister Vladimir Putin and Chinese Premier Wen Jiabao signed 
a memorandum on cooperation in nuclear arena on October 28, 2008 on 
constructing these two additional units at the Tianwan site, a fast 
 
MOSCOW 00000851  002.2 OF 003 
 
 
breeder reactor, and a fourth centrifuge enrichment facility in 
China. 
 
--  (SBU)  Turkey:  ASE was the only company that participated in 
Turkey's tender for the construction of its first NPP.  Turkey's 
specialists are assessing ASE's proposal.  Following the February 
12-15, 2009 visit of Turkey's President Abdullah Gul to Moscow, ASE 
First Vice President Timur Ivanov on February 16 proposed a 
Build-Own-Operate (BOO) arrangement for four more reactors in 
Turkey.  If the BOO model were followed, ASE would be plowing new 
ground because no country has ever entered into a BOO arrangement 
for an NPP.  Director of ASE's External Affairs Division Leonid 
Yanko told EST on February 17 that not only would it be a first BOO, 
but that Russia would retain ownership for the lifetime of the 
reactor.  The initial agreement would specify the price per kilowatt 
(Kw) for the first 15 years, with the follow-on period pricing 
negotiated on a market price basis.  (Comment:  If Russia owns the 
plant and runs it for the entire lifetime, Turkey would have little 
negotiating leverage to use in price negotiations after the 15-year 
point.  End comment.)  Former MinAtom Deputy Minister and now First 
Deputy Director General of the Institute of Natural Monopolies 
Problems Bulat Nigmatulin told EST on March 3 that such a BOO 
arrangement could hardly be profitable with the 15-year set price 
per Kw.  He saw this as a showstopper.  (Note: Practically all of 
Turkey's natural gas comes from Russia.  This arrangement would 
deepen Turkey's dependency on the Russian energy sector, which some 
in Turkey oppose (Ref A).  End note.)  Nigmatulin told us that the 
tender could be cancelled for one of several reasons; the most 
likely being the high cost per Kw that Russia would charge for the 
electricity generated by the NPP and the uneconomically sound 
fifteen-year pricing scheme. 
 
Pre-tender status and announced plans 
------------------------------------- 
 
¶4.  (U)  Belarus:  Rosatom announced its participation in a tender 
for the construction of a NPP, the results of which should be 
announced shortly.  Belarus received preliminary proposals from ASE, 
China, Westinghouse-Toshiba, and Areva.  Belarusian officials 
claimed preference will be given to Russia as it is the only country 
which proposed units that already have a "documented operational 
history."  The project is expected to be executed using a GOR loan. 
(Comment: The loan probably has more to do with the decision than 
operational histories.  End Comment.) 
 
--  (U)  Egypt:  During his November 13, 2008 visit to Moscow, 
Egyptian Prime Minister Ahmed Nazif invited Russia to participate in 
the construction of an NPP.  In March 2009, Russia and Egypt signed 
a Civil Nuclear Cooperation Agreement (123 Agreement). 
 
--  (U)  Venezuela:  In September 2008, Prime Minister Putin 
announced that Russia was ready to build a NPP in Venezuela.  During 
his visit to Venezuela, President Dmitriy Medvedev on November 26, 
2008 signed a 123 agreement.  On November 18, 2008, Venezuelan 
President Hugo Chaves announced that that a construction site had 
been selected for the NPP potentially to be constructed by ASE. 
 
--  (U)  Libya:  On  November 1, 2008, Russia and Libya signed an 
agreement on cooperation in the area of the peaceful use of nuclear 
energy, with emphasis on reactor design, construction, and nuclear 
fuel supply.  The agreement did not specify what types of reactors 
(research or energy-producing) were agreed upon or when such work 
might be discussed. 
 
-- (U) Mongolia:  On March 17, 2009 Interfax reported that 
negotiations between PM Putin and Mongolian Prime Minister Sanjaa 
Bayar would result in Rosatom and the Mongolian nuclear energy 
administration signing an agreement on the peaceful use of nuclear 
energy.  No specifics were given.  However, ITAR-TASS reported on 
May 26, 2008 that Mongolia has forecasted uranium reserves of 1.3 
million tons and that uranium mining, not selling nuclear power 
reactors, seems to be Russia's interest in Mongolia. 
 
-- (U) Hungary:  On March 10, 2009, ITAR-TASS reported that Prime 
Minister Putin and Hungarian Prime Minister Ferenc Gyurcsany 
 
MOSCOW 00000851  003.2 OF 003 
 
 
discussed long-term cooperation between Russian nuclear fuel 
fabricator TVEL and Hungary's Paks nuclear plant.  If the contract 
is concluded, TVEL would provide fuel through at least 2032. 
Additionally, ASE would implement a program to upgrade the Paks NPP 
to increase its output from 1760 to 2000 megawatts. 
 
-- (U) Armenia:  There are also rumors of possible deals in Armenia 
(Ref B).  Since 2007, Russia has repeatedly indicated interest in 
competing in a tender for construction of a NPP, which the Armenian 
government has indicated will be issued later in 2009.  On February 
5, 2008, Armenia joined Russia's International Uranium Enrichment 
Center (IUEC) in Angarsk.  After February 6, 2008 talks between 
visiting Russian Prime Minister Viktor Zubkov and Armenian Prime 
Minister Serzh Sarkisyan, Rosatom and the Armenian Ministry of 
Ecology signed a protocol on joint geologic exploration, uranium ore 
mining, and processing. 
 
Atomstroyexport's Future 
------------------------- 
 
¶5.  (SBU) ASE's Yanko told us that while the economic situation 
isn't affecting ASE yet, i.e. no one has been laid off; there is a 
danger in the longer term because of the number of construction 
projects depending on GOR loans.  When asked if ASE could cover all 
of its current and projected projects, he said that the China, India 
and Bushehr projects were "no problem."  As for the other projects, 
Yanko commented, "well, maybe if all goes well."  Yanko stated that 
the Middle East was shaping up as a good market, ripe for expansion, 
especially the United Arab Emirates, Bahrain and Qatar.  He added 
that cooperation agreements and national legislation will have to be 
in place before anything can go forward. 
 
¶6.  (SBU) Yanko said two pathways are being explored to address 
insufficient Russian machine building capacity and related 
infrastructure needed to realize the projects.  The first is to 
recreate the former Soviet nuclear mega-entity, Atommash.  This 
would put the manufacturing of all the main components, such as 
reactor core pressure vessels and high-pressure pumps, under the 
Rosatom umbrella.  Nigmatulin separately told us that this is 
impossible economically because the few remaining components of 
Atommash are literally in ruins.  The other approach is to invest in 
existing companies, but not attempt to own the entire process. 
Yanko cited the Izhora steel fabrication plant in St. Petersburg as 
an example of this.  Izhora is currently able to produce only one to 
one and one-half reactor pressure vessels per year.  Yanko could not 
(or would not) say which solution the Rosatom hierarchy favors. 
 
¶7.  (SBU) Floating NPPS are another drain on ASE's expertise and 
materials.  While the first two floating NPPs now under construction 
are for domestic use, Yanko did allow that financing and building 
floating NPPs could be an issue down the road.  Although ASE isn't 
responsible for constructing them, it is the Rosatom responsible 
agent for floating NPPs sold internationally. 
 
¶8.  (SBU) Bulat Nigmatulin, Rosenergoatom Deputy Director Vladimir 
Asmolov (Ref C), and others have told EST that the lack of skilled 
nuclear construction personnel is the primary choke point for 
Russia's civil nuclear expansion plans.  Nigmatulin noted that in 
the 1980s, Soviet Russia had as many as 55,000 skilled workers 
active in nuclear construction.  Today, the number of Russia's 
skilled nuclear construction workers is closer to 5,000. 
 
Comment 
-------- 
 
¶9.  (SBU) Even without the crunch the financial crisis could put on 
GOR loans, the lack of sufficient nuclear industry infrastructure 
and trained specialists will make it hard for ASE to fulfill 
existing contracts on time.  It is extremely unlikely that ASE will 
be able to complete many of the NPPs in contracts it is currently 
negotiating within the timeframes being discussed.  Even so, ASE 
continues to seek still more new contracts.  As Nigmatulin declared 
bluntly, "these plans are a fantasy." 
 
BEYRLE