The Russian Agency for Nuclear Energy (RosAtom) has far-reaching plans to consolidate the nuclear industry assets of the former Soviet Union. RosAtom’s head Sergey Kiriyenko has described his goal as “recreating MinSredMash” – the Ministry of Medium Machine-Building, the Soviet agency in charge of the entire nuclear industry. [1] However, this plan has encountered serious challenges in recent months. Two states with the “crown jewels” of the former Soviet nuclear enterprise – Kazakhstan and Ukraine – have announced plans to reduce their dependence on and their integration with the Russian nuclear industry. In the near term, Russia will retain its dominance in the former Soviet sphere, even as Ukraine and Kazakhstan increase their independence by expanding their respective lists of nuclear trading partners. In response to these shifting alignments, Russia recently expanded its own list of nuclear trading partners by signing a nuclear energy deal with Australia.

Kazakhstan Develops Business Outside Russia
Kazakhstan, whose uranium deposits are second only to Australia’s, is a critical source of natural uranium both for Russia’s domestic nuclear power industry and for Russia’s highly profitable nuclear fuel export business. In 2006 Kazakhstan was the third largest producer of natural uranium with 5,279 metric tons (Canada produced 9,862 tons and Australia produced 7,593 tons). [2] Kazakhstan supplies concentrated natural uranium, or “yellowcake,” which is enriched at Russian facilities for use as reactor fuel in Russian and foreign nuclear power plants. According to Kazakh sources, Russia produces approximately 3,000 metric tons of yellowcake annually, but its overall annual requirements are estimated to be 9,000 metric tons of the material, making it dependent on yellowcake imports. Moreover, Russian demand could grow to 16,000 metric tons of yellowcake annually by 2020, if its nuclear industry reforms, including the construction of new nuclear power plants, were to be implemented as planned. [3] (Other sources estimate current Russian demand to have already reached 16,000 tons.) [4]

In April 2007, Kazakhstan signed an agreement for the acquisition of uranium processing technology with Toshiba official Atsutoshi Nishida during his visit to Kazakhstan. [5] The same month, Kazakhstan signed an intergovernmental agreement with Japan, under which Japan will import roughly one-third of its 9,500 ton annual uranium needs from Kazakhstan. [6] Russian experts are concerned that the new Kazakhstan-Japan uranium deal could lead Kazakhstan to halt its uranium exports to Russia, in coming years, although Kazakhstani officials believe that joint mining ventures with Russia in Kazakhstan, discussed below, will meet Russia’s needs. [7]

In July 2007, Russian observers were further shocked to learn of another deal, this one between Toshiba and KazAtomProm, the state-controlled company that is in charge of all nuclear industry assets in Kazakhstan. Under this arrangement, KazAtomProm, for an estimated $488 million, would purchase a 10 percent stake in Toshiba’s U.S. nuclear equipment manufacturing subsidiary, Westinghouse. The agreement is expected to be finalized by the end of 2007. Russian commentators have argued that that deal could give Kazakhstan access to technologies that would enable it to fabricate and export finished fuel rods for Western reactors, reducing its incentive to export natural and processed uranium to Russia. [8]

Anonymous sources in RosAtom tried to downplay the expected effect of the deal on Russian finished-fuel exports, which are made predominantly to Soviet-designed reactors. According to the source, “Westinghouse has not yet been able to master Soviet nuclear fuel technologies,” which is why the operators of Soviet-designed Finnish and Czech reactors that had switched to Westinghouse-produced fuel in the 1990s had to return to Russian suppliers. [9]

Long-term plans for the Kazakhstani nuclear industry are not limited to a series of joint ventures and other deals with Japan. In early July 2007, Zhanibek Karibzhanov, the head of the East Kazakhstan Region, announced that the Ulba Metallurgical Plant (UMP) had started building four new facilities at a total cost of $848 million. [10] Mukhtar Dzhakishev, the director general of KazAtomProm, later explained that the new enterprises, a joint venture with a Canadian company (Cameco), will produce uranium hexafluoride (UF6, the form of uranium used in the uranium enrichment process) and will also produce enriched uranium fuel pellets for Western nuclear reactors, as well as for advanced fast, or “breeder,” reactors. [11] The agreement with Cameco was signed in May 2007. [12] In addition to cooperation with Canadian, Japanese, and French companies, KazAtomProm has also decided to expand cooperation with the China National Nuclear Corporation (CNNC) and, more recently, with a second Chinese customer, Guandong Nuclear Power Corporation (CGNPC). [13] KazAtomProm has announced a plan to switch to export of high-end uranium products by 2014. [14] Implementation of these plans could considerably expand Kazakh exports and launch Kazakhstan into competition in high-end fuel products with the Russian nuclear sector.

Kazakh experts emphasized that the Japanese deals would not adversely affect cooperation with Russia. They pointed out that RosAtom and KazAtomProm had already established a uranium mining joint venture, Zarechnoe, and had recently signed an agreement for another joint venture involving Kazakhstan’s Budennovski uranium deposits, which can produce up to 4,000 tons of uranium per year. Together, Zarechnoe and Budennovski are capable of producing more uranium than Russia needs. KazAtomProm’s Director General Dzhakishev praised the Budennovski joint venture as a new type of agreement, because in exchange for giving Russia access to its natural uranium, Kazakhstan will obtain a stake in the recently established International Uranium Enrichment Center at Angarsk. The “exchange of access for business” principle, said Dzhakishev, favorably contrasts with the new joint venture deals KazAtomProm had concluded with France and Canada, in which firms in those countries became co-owners of uranium mining and processing enterprises in Kazakhstan. [15]

Kazakhstan also concluded plans with Russia for the latter to build a VBER-300 nuclear power plant at Aktau; construction is set to begin in 2013. [16] Furthermore, KazAtomProm has announced plans to vastly expand production of yellowcake. In 2007 alone, it is set to increase production by 36 percent to 7,200 tons. [17] This means that there should be enough uranium available to cover both Russia’s needs and Kazakhstan’s planned new exports.

The various agreements concluded by Kazakhstan in the last several months make clear that it intends to actively develop its nuclear industry outside of the Russian sphere of influence. A Kazakh commentator noted that the employees of the country’s nuclear industry no longer consider themselves an integral part of the Russia-centered nuclear complex. During the time of deep economic recession in the 1990s, Kazakhstani nuclear enterprises were cut off from their Russian partners and had to survive on their own. Their approach to foreign business is primarily pragmatic. Although Russia remains the country’s most important partner, Kazakhstan’s new agreements with Western states and companies, and similar agreements with Chinese entities, demonstrate that Russia is by no means regarded as the only customer with which Astana will work.

Ukraine Looks at Replacing Russian Reactors with Canadian “CANDU” Plants
Ukraine depends on Russia for enriched uranium fuel for its 15 nuclear reactors and serves as an important source of natural uranium for Moscow. Like Kazakhstan, Ukraine has announced plans to reduce its dependence on the Russian nuclear industry. In July 2007, Ukrainian Foreign Minister Anatoli Yatsenuyk announced the beginning of negotiations with Canada to explore construction of Canadian-built CANDU reactors in Ukraine. The ultimate goal, he said, was to achieve “uranium independence.” [18] A shift to CANDU reactors eventually could reduce or even eliminate Ukraine’s dependence on Russian fuel for its nuclear reactors because Canada is the exclusive manufacturer of fuel for these reactors. “It is extremely important for Ukraine to gain access to technologies that would reduce Ukraine’s dependence on other countries,” said Yatsenuyk. [19] Furthermore, closer cooperation between Ukraine and Canada on the CANDU plan could make Canada a major customer of Ukrainian zirconium (used in production of nuclear fuel assemblies) and, possibly, uranium (although Canada’s reserves are considerably greater than Ukraine’s). This could reorient the export of these materials to customers other than Russia. [20]

The CANDU plan does not enjoy unanimous support in Ukraine, however. Andrey Derkach, director general of state-owned UkrAtomProm, criticized Yatsenuyk’s statement saying that “experiments with selection of reactor types are an expensive and unnecessary exercise” because introduction of a new type of reactors would require large-scale replacement of the entire infrastructure, retraining of specialists, and similar changes. [21] Aleksandr Borovoy, a professor at the Kurchatov Institute in Moscow, echoed Derkach’s concern saying that since Ukraine already has 15 Soviet-design light-water VVER-type reactors, an optimal plan would be to replace them with modernized reactors of the same type. [22] Andrey Gagarinski, Research Secretary at the Kurchatov Institute, pointed out another possible problem with CANDU reactors. Referring to modifications to reduce the possibility of runaway nuclear reactions, he said that CANDU reactors had been recently redesigned to address certain “Chernobyl-type” shortcomings, and, as a result the reactor’s fuel had been switched from natural uranium to 1 percent enriched uranium. Since Ukraine lacks a uranium enrichment capability, adopting CANDU reactors, he continued, would not help Ukraine to overcome its dependence on foreign uranium enrichment services, although it would allow Ukraine to buy fuel from countries other than Russia. [23]

To further Ukraine’s independence from Russia, in July 2007, UkrAtomProm’s Derkach announced that his organization had signed a contract with Westinghouse for fabrication of enriched uranium fuel for Ukraine’s Soviet-built reactors. “A shift of Ukraine toward Western technologies could in the future deprive the Russian nuclear industry of a major market and source of uranium,” observed Nezavisimaya Gazeta commentator Mikhail Sergeev. [24]

In the meantime, in a move to protect itself from a possible interruption of Russian nuclear fuel supplies, the Ukrainian government has decided to create reserves of nuclear fuel and nuclear materials in 2008-2010. On August 9, 2007, the Cabinet of Ministers issued a decree establishing the legal and budgetary mechanism for the reserves, but much work remains to be done to put the plan into effect. [25]

As in the case of Kazakhstan, however, the underlying issue is Ukraine’s desire to diversify both customers for natural uranium and suppliers of enriched uranium, rather than the full termination of ties to Russia in either area. Thus, even as UkrAtomProm seeks to develop alternatives to its traditional partner, it is simultaneously planning to complete the transition of Soviet-era Ukrainian reactors to modernized fuel, supplied by the Russian nuclear fuel exporter Tenex. New fuel is already used at Ukraine’s Khmelnitsk nuclear power plant and, according to the plant’s Director General Nikolai Pahashchenko, “works wonderfully.” [26]

The Russian-Australian Uranium Deal
Russia is also seeking to diversify its uranium suppliers. During the September 2007 Asia Pacific Economic Cooperation meeting in Sydney, Russian President Vladimir Putin and Australian Prime Minister John Howard signed an agreement on the peaceful uses of nuclear energy, which provides for delivery of Australian yellowcake to Russia. RosAtom’s head Sergey Kiriyenko confirmed that Russia needed as much uranium as it can obtain: “One must have a serious supply because demand for nuclear energy in the world is growing. We actively work in all countries that have uranium deposits.” [27] He also emphasized that the agreement with Australia would “enhance the competitive advantages” of the Russian nuclear complex. [28] The estimated value of that agreement is $1 billion annually. [29]

As part of that agreement, Australia obtained guarantees that fuel fabricated from the uranium purchased from Australia would not be used in the Russian nuclear weapons program or sold to questionable customers, such as Syria or Iran. [30] It was not publicly disclosed whether or how these guarantees will be verified.

Speaking at a joint press conference with Howard, Putin publicly confirmed that Russia would not use Australian uranium for nuclear weapons: Russia has enough weapons-grade enriched uranium already, he said, and, indeed, instead of increasing its stocks, it is reducing the enrichment level of a portion of its weapons-grade material and selling the resulting low-enriched uranium to the United States for use as nuclear reactor fuel under the “Megatons to Megawatts” program. [31] Regarding the concern that low-enriched uranium sold to other countries could be used in the buyers’ military programs, Kiriyenko explained that “Russia never sells uranium to countries that are not part of the nonproliferation regime, and all international agreements give an absolute guarantee that the use of uranium for non-peaceful purposes is ruled out.” [32] Putin emphasized at the press conference that the reasons for concluding the agreement are purely economic: “Russia has big plans. Twenty nuclear reactors were built during the entire Soviet period, but we must build the same number in the next 15-20 years, which is why we need uranium from Australia.” [33] Russia has also proposed that Australia join the International Uranium Enrichment Center, at Angarsk, which would allow Australia to retain ownership of uranium enriched there. (Kazakhstan is already a partner in the Center. See “Russia And Kazakhstan Establish A Joint Venture For Uranium Enrichment,” WMD Insights, June 2007.)

Conclusion
Recent developments in the Kazakh and Ukrainian nuclear industries suggest that what previously seemed an almost monolithic former Soviet nuclear complex is eroding. Technological ties and mutual dependence are gradually fading, as former Soviet Republics increasingly integrate into the global nuclear market. Old ties will remain robust, but Russia will clearly not remain the only, and perhaps not even the dominant player in the region, as its key partners increasingly switch to alternative suppliers and customers for their products and services.

On the other hand, Russia itself is seeking to reach beyond its traditional networks, the talk about “restoring MinSredMash” notwithstanding. Russian concerns about the reliability of ties with old partners are easy to understand: RosAtom’s plan for restructuring and expanding Russia’s domestic nuclear energy program depends on a reliable supply of uranium. It needs uranium to fuel Russia’s domestic nuclear power plants – a program expected to grow at a rate of two new reactors per year – and for its program to export enriched uranium fuel in order to finance this expansion of nuclear energy generation at home. With Russia now facing competition from Western countries in markets it has traditionally dominated, Moscow will confront new hurdles as it seeks to implement its nuclear energy plans.

The outcome of these processes seems to point toward a deeper integration of the former Soviet nuclear industry into the global markets as nuclear industries of the newly independent states conclude “out-of-the-area” deals and increasingly compete for suppliers and customers. This process is, in principle, positive, because it will make the former Soviet nuclear industry better integrated into the global economy and more transparent. But it also carries with it one potential downside – the risk that some states, which do not currently have uranium enrichment capability, might seek to develop one. The United States, Russia, and a number of other countries are seeking to limit the spread of enrichment technologies and equipment, which can be used both to produce nuclear reactor fuel and nuclear weapons material. Pursuit of these capabilities by any of the former Soviet republics could undercut this effort.

Nikolai Sokov – Monterey Institute James Martin Center for Nonproliferation Studies