VZCZCXRO7216
RR RUEHIK
DE RUEHKV #1837/01 2951422
ZNR UUUUU ZZH
R 221422Z OCT 09
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC 8642
INFO RUCNCIS/CIS COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 02 KYIV 001837 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR S/EEE, EUR/UMB, EB/ESC/IEC 
DOE PLEASE PASS TO JELKIND, LEKIMOFF, CCALIENDO 
 
E.O. 12958: N/A 
TAGS: ENRG ECON EFIN EREL PREL PGOV UP
SUBJECT: UKRAINE: DIVERSIFYING THE NUCLEAR POWER SECTOR 
 
REF: A. KYIV 1761 
     ¶B. BRUSSELS 1385 
 
KYIV 00001837  001.2 OF 002 
 
 
¶1. (SBU) Summary: Ukraine's energy dependence on Russia is 
not limited to gas.  Russia provides 100% of Ukraine's 
nuclear fuel and stores 60% of its spent fuel, while 
Ukraine's nuclear sector generates approximately half of the 
country's electricity.  U.S. Department of Energy (DoE) 
assistance totaling $380 million has helped Ukraine boost the 
operational capacity of its reactors by ten percent, 
significantly improve safety, reduce reportable events, and 
develop the ability to diversify its nuclear fuel supply. 
 
¶2. (SBU) American firms Westinghouse and Holtec have projects 
in progress that would diversify Ukraine's nuclear fuel 
supply and store spent fuel domestically, although both have 
found their work stymied by Ukraine's difficult regulatory 
environment and GOU hesitation.  Nonetheless, we are seeing 
limited progress.  Ukraine recently announced that it would 
hold a tender for the construction of a nuclear fuel assembly 
plant and the Cabinet of Ministers has approved key 
legislation needed for Holtec's central spent fuel storage 
project.  The GOU's actions in the nuclear sector, however, 
seem to be limited by an attempt not to provoke Russia, which 
is trying to maintain its dominance in the nuclear sector. 
End summary. 
 
Nuclear Fuel Qualification Project 
---------------------------------- 
 
¶3. (SBU) Since 1998, DoE has worked with Ukraine to develop 
capacity in Ukraine to diversify its supply of nuclear fuel. 
Through the Ukraine Nuclear Fuel Qualification Project 
(UNFQP), DoE has provided Ukraine with technology transfer, 
fuel monitoring systems, and training for Ukraine's leading 
nuclear experts.  DoE support also led to the creation of the 
Center for Reactor Core Design at the Kharkiv Institute of 
Physics and Technology. 
 
¶4. (SBU) The UNFQP works with Westinghouse to develop an 
alternative supply of nuclear fuel for Ukraine.  Six 
Westinghouse nuclear fuel assemblies (lead test assemblies) 
were installed in the South Ukraine Nuclear Power Plant (NPP) 
in 2005 and are now nearing the end of the qualification 
process.  As a result of this positive testing, Westinghouse 
was able to sign a contract with the GOU in March 2008 
allowing it to supply nuclear fuel to the three units at 
South Ukraine NPP.  Westinghouse has already delivered 42 
fuel assemblies, which are to be loaded into one of the three 
units at the South Ukraine NPP in the first quarter of 2010. 
The successful licensing and loading of this "reload batch" 
of fuel assemblies would mark a major milestone for the UNFQP. 
 
¶5. (SBU) Despite positive early developments, personality 
conflicts between the State Nuclear Regulatory Commission of 
Ukraine (SNRCU), the Center for Reactor Core Design, and 
Ukraine's state-owned nuclear company Energoatom, have caused 
delays in licensing the reload batch of Westinghouse fuel 
assemblies.  These delays are threatening the success of the 
Nuclear Fuel Qualification Project and the commercial 
viability of Westinghouse to provide an alternative nuclear 
fuel supply (Ref A). 
 
Nuclear Fuel Assembly Plant 
------------------------------ 
 
¶6. (SBU) In response to a GOU request, in October 2008 
Westinghouse offered to cooperate in the area of technology 
transfer and construction of a nuclear fuel assembly plant in 
Ukraine.  Westinghouse's offer does not provide Ukraine with 
all of the components to establish a complete domestic 
nuclear fuel cycle.  It does address, however, critical 
energy security issues in an economical and feasible manner. 
Russia's TVEL has also proposed to build a fuel assembly 
plant in Ukraine.  Some GOU officials view TVEL's proposal 
favorably because it includes more manufacturing of fuel 
assembly inputs in Ukraine than Westinghouse's proposal. 
 
¶7. (SBU) Prime Minister Tymoshenko and other GOU officials 
have been reluctant to award Westinghouse with a contract for 
the fuel assembly plant.  In a July 9 meeting with 
Westinghouse and Holtec representatives, PM Tymoshenko 
explained that Ukraine could not sign an agreement with 
Westinghouse on the construction of the facility at this time 
because Russia could leverage Ukraine's dependence on Russian 
nuclear fuel supplies or gas to retaliate.  In an apparently 
 
KYIV 00001837  002.2 OF 002 
 
 
leaked memo from Russia's Rosatom that was published in the 
Ukrainian weekly "Dzerkala Tyzhnya" (Ref B), the company 
outlined proposed action steps to lock up the Ukrainian 
nuclear power market, while forcing Westinghouse out of 
Ukraine.  The document contains both political and commercial 
measures that could be taken by Russia to secure Ukrainian 
agreement on long-term nuclear fuel contracts with Russia and 
prevent the construction of a Westinghouse fuel assembly 
plant.  The strategy paper states that PM Tymoshenko should 
be told that Ukraine is responsible for delays in signing the 
contracts and that further delays could result in long-term 
nuclear fuel supply stoppages in 2011. 
 
¶8. (SBU) In what looks like a marginally positive step that 
could, in theory, improve the transparency of the decision 
making process, Ukraine announced on October 6 that it would 
conduct a tender to award the contract for the nuclear fuel 
assembly plant.  The tender had a very short deadline to 
submit bids and was vague in the criteria for a successful 
bid.  Deputy Minister of Fuel and Energy Sergiy Pavlusha told 
us on October 20 that a working group had been formed to 
evaluate bids and that the National Security and Defense 
Council (NSDC) was currently reviewing the tender.  It is 
unclear when a final decision on the tender will be made. 
 
Central Spent Nuclear Fuel Storage Facility 
-------------------------------------------- 
 
¶9. (SBU) Currently, Ukraine pays approximately $100 million 
per year for Russia to temporarily store and reprocess spent 
fuel from nine of Ukraine's 15 reactors.  In 2012 Russia will 
begin returning Ukraine's spent fuel and waste, per the terms 
of the storage agreement, to Ukrainian territory.  If Russia 
stopped taking Ukraine's spent fuel, Ukraine would run out of 
the limited storage space it has at its nuclear plants within 
three to five years, forcing it to reduce nuclear power 
generation.  Therefore, it is vital for Ukraine's long-term 
energy security for it to develop spent fuel storage 
capacity. 
 
¶10. (SBU) To meet Ukraine's needs for storing spent fuel, New 
Jersey-based Holtec International signed a contract with the 
GoU in 2005 to build a central spent nuclear fuel storage 
facility.  The 150 million euro facility would store fuel 
from nine reactors.  Holtec has offered to provide 90% of its 
own financing to commission the facility.  Since signing the 
contract, Holtec's work has been limited by various Ukrainian 
regulations.  Following the July 9 meeting with PM 
Tymoshenko, however, the Cabinet of Ministers did act to 
approve draft legislation that would give final approval to 
the design and construction of the facility; the legislation 
has been forwarded to Ukraine's parliament for its approval. 
 
¶11. (SBU) Comment: Although it is in Ukraine's interests to 
cooperate with the U.S. in the areas of nuclear fuel supply 
and storage of waste, Russia's dominance is making it 
difficult for our cooperative efforts to move forward.  It is 
possible that some of the bureaucratic delays that have 
hindered progress on Westinghouse's and Holtec's projects are 
the results of Russian influence in the process.  Ukraine's 
nuclear sector dependence on Russia is only part of the 
larger Russian energy dependence equation.  Russia will 
continue to use its leverage in other energy sectors, namely 
gas, in its effort to maintain its grip on this key segment 
of Ukraine's economy.  End comment. 
PETTIT