On December 16, 2006, AtomStroyExport, the arm of RosAtom (the Russian Federal Agency for Atomic Energy) in charge of constructing nuclear power reactors outside Russia, lost a long-coveted contract to build four nuclear reactors in China to a U.S. company, Westinghouse Electric Corporation. (See related story on China’s purchase of Westinghouse reactors.) Russian sources gave different total values for the contract, ranging between $5.3 billion and $8 billion. [1]

In late September 2006, Russian officials had seemed certain that the contract would be awarded to AtomStroyExport. [2] The contract loss dealt a severe blow to Russian plans to rapidly expand construction of nuclear reactors abroad. Moreover, Russia views foreign sales as a means to generate funding for planned large-scale construction of nuclear power reactors in Russia. [3]

In a departure from their usual perspective, Russian officials and media did not portray the contract loss as a manifestation of an anti-Russian “conspiracy” by the United States. Instead, they attributed the failure solely to the multiple shortcomings that had become apparent during the construction of two Russian-built reactors at the Tianwan Nuclear Power Station in China. The president of AtomStroyExport, Sergey Shmatko, admitted that multiple problems had surfaced with almost every major component of these reactors and that “about 30 thousand adjustments had to be made to the original blueprints during the construction process.” Chinese buyers were further irritated because Russian-supplied equipment was often of low quality and because the project suffered multiple delays. Furthermore, even Russian experts regard Westinghouse’s AP-1000 reactor as more advanced than the VVER-1000 offered by
Russia. [4]

At stake for AtomStroyExport now is another Chinese contract for construction of additional reactors at Tianwan. Of the two VVER-1000s in the initial contract, the first is already producing electricity and is expected to be transferred to the Chinese in the spring of 2007; the second is still under construction. China intends to add six and possibly eight reactors to that site. Until recently, Russian officials regarded a contract for the additional reactors as a “done deal.” For example, after his trip to China in October 2006, the head of RosAtom, Sergey Kiriyenko, expressed confidence that Russia would win the contract. [5] Similarly, Russian Prime Minister Mikhail Fradkov reported after his visit to China in November 2006 that his Chinese interlocutors had firmly promised him the Tianwan contract. [6]

After the Chinese government’s December decision favoring Westinghouse, however, the Tianwan contract is no longer regarded as certain, particularly given the problems that emerged during AtomStroyExport’s construction of the first two reactors at that site. In fact, Kiriyenko, despite his upbeat statements in October 2006, acknowledged one important challenge his agency faced with regard to the new Tianwan reactors: the Chinese wanted new reactors equipped with “slow” turbines, which are more efficient than the “fast” turbines Russia had supplied for the first two reactors. The difficulty, as Kiriyenko noted, is that Russia does not produce “slow” turbines and will need to create a joint venture with a foreign turbine producer to fulfill that condition. [7] Possible partners for that venture are the Ukraine-based TurboAtomProm, U.S.-based Westinghouse, British Nuclear Fuels, Ltd., and France-based Alstom. Notably, AtomStroyExport’s main competitors for the Tianwan deal, Westinghouse and the French firm Areva, can supply the turbines China wants.

Russia Wins Contract to Build a Nuclear Power Plant in Bulgaria
While China rejected AtomStroyExport’s latest bid, Bulgaria decided in late November 2006 to award a €3.99 billion ($5.27 billion) contract to AtomStroyExport for construction of a 2,000-megawatt nuclear power station at Belene. The new plant will include two VVER-1000 reactors. Construction will be conducted in cooperation with France’s Areva and Germany’s Siemens. [8] Russian media reported that the Belene nuclear power plant is part of Bulgaria’s plan to remain the top energy producer in the Balkans after it shuts down two Soviet-era nuclear reactors, a shut-down required as a condition for joining the European Union in 2007. As a novel inducement for the deal, Russia has reportedly agreed to give Bulgaria a credit worth €3.8 billion to finance the power plant. [9] Previously, Russia’s inability to provide credits, because of the weak state of the Russian economy, was regarded as a major impediment to the expansion of its reactor-construction business abroad. Due to lack of funds, Russia had to insist that the recipient country pay for each stage of construction in full.

Conclusion
The loss of the China contract does not bode well for RosAtom’s ambitious plan to expand reactor construction abroad, which is, in turn, a vital condition for the success of the plan to reinvigorate and expand the Russian civilian nuclear sector. RosAtom’s problems seem to be rooted in its reliance on technology that is no longer cutting edge, its inability to supply high-quality equipment, and its failure to meet deadlines. It is worth noting that similar problems haunt Russia’s Bushehr project in Iran. [10] Independent Russian analysts have already expressed concern that if RosAtom continues losing contracts in “legal” markets, it might be forced to limit its business to countries that cannot purchase reactors from the United States or France due to political conflicts, such as Iran and other countries of proliferation concern. [11]

Nikolai Sokov – Monterey Institute Center for Nonproliferation Studies

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