In January 2007, in rapid succession, both houses of the Russian parliament approved a new law on the reform of the nuclear industry – the upper house, the Federation Council, on January 24, and the lower house, the State Duma, on January 29. Russian President Vladimir Putin signed the bill on February 6. Among the many consequences of the reform, the following appear most significant from the perspective of nuclear nonproliferation:

• The Russian nuclear power industry will be consolidated and reorganized to operate as a profit-driven corporation, rather than a federal agency. The government will no longer have immediate control over the industry, although it will retain oversight authority and formal ownership of the new corporate-style entity; and
  
• The new entity created by the law is expected to increase significantly Russian nuclear industry activities abroad, through the acquisition of components of the Soviet nuclear industry that remained outside Russia after the breakup of the Soviet Union and through the expansion of exports of nuclear fuel and nuclear power reactors.

The new law, “On Special Terms of Management and Disposition of Assets and Shares of Organizations Operating in the Area of Atomic Energy Uses and Amendments to Certain Legislative Acts of the Russian Federation,” crowns a year of preparatory work, which began with the appointment of Sergey Kiriyenko as the head of the Russian Federal Atomic Energy Agency (RosAtom) in November 2005. Throughout 2006, RosAtom had developed a detailed plan of reform and had taken the first steps toward its implementation, to the extent allowed by the previous law. [1]

The parliament passed the bill with unusual speed. It was introduced into the legislature by Putin in November 2006, with the recommendation that it be given priority consideration. [2] The first reading in the State Duma (the lower house) took place on December 6, 2006, and the second on January 17, 2007. (The first reading puts a bill on the agenda and sends it to appropriate committees, while the second approves amendments made by committees and begins chamber-wide consideration of the measure). The interval between the second and the third stage – which was passage by the Duma – was only two days. The Federation Council (the upper house) worked at an equal pace. RosAtom underscored the urgency of the reform by stressing that energy demand in Russia was growing rapidly – at a rate of 5.5 percent annually – while reserves of fossil fuel were being exhausted at a faster than expected rate. Expanded nuclear energy production, RosAtom stressed, is rapidly becoming a vital condition for economic growth. However, the necessary expansion of nuclear power generation capacity, it argued, could not be achieved as long as Russia’s nuclear regulations and corporate structures remained essentially the same as during the Soviet era, when the nuclear sector was optimized for weapons production. [3]

The new law divides the nuclear industry into civilian and defense sectors. RosAtom will remain the government agency with oversight of the entire industry, but its direct control will be limited largely to the defense sector. The legal status and operation of the defense sector will remain unchanged under the new law. [4]

In the civilian sector, the law creates a new entity, “AtomProm” (some sources use the name “AtomEnergoProm”), which will consolidate and reorganize all assets involved in nuclear power generation. The list of enterprises subject to these changes will be approved by President Putin. These enterprises will then be transformed into joint stock companies with 100 percent of the stock being owned by the federal government; these shares will then be transferred to AtomProm. [5] According to Chairman of the Nuclear Energy Subcommittee of the State Duma Viktor Opekunov, AtomProm “will be a large full-cycle corporation controlling all technological aspects of the nuclear energy complex.” AtomProm will oversee uranium mining, uranium enrichment, fuel fabrication, energy production, the manufacture of equipment, and nuclear power plant construction in Russia and abroad; it will also pursue its own research projects. [6] The disposal or transfer of shares that belong to AtomProm will require the consent of the Russian president. [7] Nuclear materials and nuclear plants can only be owned, sold, or purchased by domestic legal entities (corporations) on a list approved by the President; all legal entities on that list must be Russian owned, and licenses to operate nuclear plants will only be issued to these entities. [8]

In testimony before the State Duma in December 2006, RosAtom head Kiriyenko explained that among the primary reasons for the overhaul of the industry’s status and structure was the need to attract private funding. Outside funding, he said, is critical for the implementation of Russia’s ambitious eight-year (2007-2015) plan to expand nuclear energy generation, because the government has allocated only 47 percent of the 1,400 billion rubles ($53.4 billion) required from the federal budget. The industry must raise the remainder on its own. [9] Under the previous system, nuclear enterprises were constrained from seeking loans or investors either by their legal status or because they had balance sheets that were too weak to attract outside financing. In addition, Kiriyenko stressed, not only is the existing aggregation of enterprises and firms unable to generate the funds needed to construct two reactors per year, as the state-approved program envisages, but it is also “unable to compete in the world market.” [10] The giant holding company AtomProm is expected to be more attractive to potential investors and lenders.

The law also introduces an important change regarding the rules of ownership of nuclear materials. In contrast to the requirements of the previous law, non-weapons-grade nuclear materials can now be owned by authorized legal entities, the list of which is subject to approval and periodic review by the President. Also, the new law allows foreign entities to import nuclear materials originating abroad into Russia and to process these materials on Russian territory for re-export, without altering the ownership of such materials. [11] According to Kiriyenko, among other benefits, removal of the previous restrictions on such transactions should facilitate creation of international nuclear fuel production and reprocessing centers. [12] These centers – the first of which is being created at Angarsk – will enrich uranium that belongs to participating states. (See “Russia Begins to Implement Initiative on International Uranium Enrichment Centers” in the December 2006/January 2007 issue of WMD Insights.)

Implementing the newly enacted reform of the Russian nuclear industry will be a major undertaking and is expected to require several years to complete. It remains to be seen whether it will yield the desired results – a boost in the development of the industry and associated enterprises, increased construction of nuclear reactors in Russia and abroad, and, above all, significant growth in domestic nuclear electric power generation.

Nikolai Sokov – Monterey Institute Center for Nonproliferation Studies