On November 15, 2005, Vladimir Putin appointed Sergey Kiriyenko head of the Federal Agency on Atomic Energy (Rosatom), the former Ministry of Atomic Energy (Minatom). It is widely expected that the new head of the agency will spearhead privatization of Russia’s nuclear electric energy generation
capacity – now the responsibility of a state-owned “unitary enterprise,” Rosenergoatom – and will work to expand other profit-generating elements of the country’s nuclear industry, such as production of civilian nuclear reactor fuels, for both domestic and international consumers. The defense element of Rosatom, responsible for maintaining Russia’s nuclear weapon arsenal and its nuclear-powered naval vessels, is expected to be left untouched.

Prior to his appointment, Sergey Kiriyenko was the Representative Plenipotentiary of the President in the Volga Federal District (2000-2005) and, from April to August 1998, served as Prime Minister of Russia. He is widely regarded as a liberal in economic policy (i.e., favoring private entrepreneurship) and as an ally of Anatoliy Chubais, “the father of Russian privatization.”

The first reaction of experts to Kiriyenko’s appointment was belief that the appointment of a professional manager to lead Rosatom, instead of the customary nuclear scientist, was intended to improve the image of the organization and of the Russian nuclear industry, in general, and to help generate new contracts for construction of nuclear power plants abroad. (One expert noted that there had been no new contracts for Russian nuclear reactors with foreign purchases since the late 1990s.) [1]

Kiriyenko is also expected to better integrate Rosatom’s nuclear power generation capacity into Russia’s broader energy production system to meet the growing demand of the Russian economy for electric power. [2] Indeed, a month after Kiriyenko’s appointment, Russia’s Security Council (a close analogue of the U.S. National Security Council) held a special meeting on “energy security.” Speaking at that meeting, Vladimir Putin singled out nuclear power as a priority area in the country’s energy policy. [3] Nuclear power generation capacity has grown steadily in Russia throughout the post-Soviet period and was the first energy sector to return to the output level achieved under the Soviet Union in 1989. In recent years, half of the increased demand for electricity has been covered by Russia’s ten nuclear power plant (NPP) stations. [4] Putin’s plans for the nuclear energy sector are ambitious: in a statement in Magadan, in November 2005, for example, he declared that Russia had an “obvious competitive advantage” in nuclear energy and should not lose it. [5]

Many Russian observers attribute the appointment of Kiriyenko to Putin’s desire to change the traditional, linear development of the nuclear energy sector, which is based on the steady addition of new reactors financed and operated by state enterprises. That mode of development worked reasonably well under the previous head of Rosatom, Aleksandr Rumyantsev, but the Russian nuclear energy sector is set to undergo significant restructuring. While Kiriyenko lacks education and experience specific to the nuclear sector, he is deemed capable of contributing corporate management skills, which professional nuclear engineers might lack. According to the plan, Rosenergoatom – the Rosatom unit that oversees the construction and operation of Russia’s nuclear power facilities, which is now effectively part of the federal government – will be transformed into a limited liability corporation in 2006. Although 100 percent of the shares of the new entity will be owned by the state, NPPs will be expected to behave more like “normal” business enterprises, with the ability to attract investment and put pricing on a commercial basis. Russia’s nuclear industry estimates that it will need $32 billion in new capital investments over the next 15 years, and, in its new status, it is expected to attract money through private capital markets. [6] Overall, the sector will operate on roughly the same principles as Gazprom, the Russian state-controlled gas monopoly, which has been highly successful in attracting outside investment, including foreign capital.

Although the Russian government will nominally preserve control over the nuclear power industry, its operations and routine decisions will be made by managers motivated primarily by profit. The widely reported plans to divide Rosatom into three separate parts – nuclear generation, exporting industries (fuel, reactors, etc.), and the defense sector – neatly fits into this scenario. [7]

Although Kiriyenko is, by and large, an outsider to the nuclear industry, he is well-qualified to restructure the nuclear complex along these lines and preside over commercialization of its non-defense elements – the only attractive area of state property that has not yet been commercialized. Moreover, Kiriyenko is not a complete stranger to nuclear affairs: his experience as the Presidential Representative in the Volga Federal District gave him experience in overseeing a number of nuclear enterprises located in his district, including, for example, the Balakovo NPP and the Arzamas-16 (Sarov) nuclear weapons laboratory. (Indeed, Kiriyenko’s appointment has been expected for quite a few months: Sergey Shcherbakov, a former deputy director general of Rosenergoatom, predicted the appointment of Kiriyenko, six months before the fact.) [8]

Regarding the defense nuclear sector, Kiriyenko himself has said that he viewed it as a “core of Russia’s security” and did not intend to change how it functions. [9] This attitude was confirmed by the director of the Arzamas-16 nuclear laboratory, Radii Ilkayev, during a November 28, 2005, press conference. Ilkayev emphasized, in particular, that Kiriyenko adhered to the “do no harm” principle in his approach to the nuclear weapons complex. Ilkayev was optimistic about the future of his institute and the relationship with the new head of the agency. [10]

Although penetration of market principles into the civil nuclear industry may be a welcome development, there are certain issues requiring further monitoring. In particular, it is unclear how commercialization of the civilian nuclear sector might affect policies and practices regarding the safety and security of fissile materials, as well as cooperation with the United States on these issues.
A related issue is how Kiriyenko’s appointment will affect the environmental impact of Russia’s nuclear activities. In one of his first acts after taking office, Kiriyenko cleared the management of the nuclear fuel processing and storage facility at the Mayak combine, in Chelyabinsk Oblast, of all charges regarding possible ecological damage to the region. Instead, he praised the management of Mayak for the contribution of their enterprise to the defense capability of the country. [11]

Finally, it is likely that, with Kiriyenko’s appointment, Russian nuclear export policy will become considerably more aggressive and perhaps more profit-driven than today. Upon assuming the new position, Kiriyenko declared that Rosatom “must expand outside [Russia’s] borders, beginning with Southeast Asia.” [12] The Director of the Moscow-based PIR Center, Vladimir Orlov, praised Kiriyenko’s experience as a businessman and an astute negotiator in commercial negotiations, as well as his international reputation as a reformist politician closely associated with the liberal wing of the Russian elite. [13] China and India are viewed as the key prospective markets for reactors, and Rosatom plans to greatly expand its exports to these countries in coming years. [14]

One of the first indications of this new attitude is found in the announcement by TVEL, the main Russian exporter of nuclear fuel, that it plans to increase prices on nuclear fuel sold to Ukraine. TVEL stated that the cost of producing nuclear fuel had risen from $25 to $88 per kilogram, while the price charged Ukraine for the fuel remained unchanged. TVEL announced that it was losing about $150 million a year because of this difference. This move to raise nuclear fuel prices charged to Kyiv coincided with the more highly publicized Russian effort to quadruple the price of natural gas sold to Ukraine and seemed to follow the same logic. As Ukraine has apparently left the Russian “sphere of influence” to align itself with the European Union and NATO, Russia is determined to put relations with Kyiv on a market basis and generate as much profit as possible, notwithstanding any possible worsening of political relations between the two countries. [See related story in this issue of WMD Insights on Ukraine’s response to the Gazprom price increases.]

Overall, it is expected that, under its new corporate structure and management, Rosatom, like other large state-controlled companies (i.e., Gazprom or Rosneft, the government-owned oil company), will seek to integrate two tasks: becoming a profitable business and acting as an agent of the government’s foreign policy. And, for its part, the Russian government is likely to support Rosatom’s efforts by ensuring the most favorable conditions for business activities.

SOURCES:
[1] Svetlana Borozdina, Mikhail Krasnov, Petr Kanaev, “Polpred Poluraspada” [A Representative Plenipotentiary of Half-Life], Gazeta.Ru, November 15, 2005; “Orlov on New Rosatom Head Appointment,” PIR-Center Newsletter, November 15, 2005; Alexei Breus, “Putin Says New Rosatom Head Must Reorganize Whole Nuclear Industry,” Nucleonics Week, December 1, 2005.
[2] “Orlov on New Rosatom Head Appointment,” PIR-Center Newsletter, November 15, 2005; Aleksei Shcheglov, “Kiriyenko Podchinit Mirnyi Atom” [Kiriyenko Will Take Control of Peaceful Atom], Strana.Ru, November 15, 2005.
[3] “Sovet Bezopasnosti Rossiiskoi Federatsii Obsudil Voprosy Energetiki” [RF Security Council Has Discussed Energy Issues], Rosatom News Bulletin, December 22, 2005 (http://www.minatom.ru).
[4] Andrei Vaganov, “Atomnoe Déja Vue” [Atomic Déjà Vu], Nezavisimaya Gazeta, November 28, 2005.
[5] Alexei Breus, “Putin Says New Rosatom Head Must Reorganize Whole Nuclear Industry, Nucleonics Week, December 1, 2005.
[6] “Russia’s Nuclear Industry will Need $32 bln in the Next 15 years,” RIA-Novosti, November 24, 2005.
[7] Andrei Vaganov, “Atomnoe De Jà Vue” [Atomic Déjà Vu], Nezavisimaya Gazeta, November 28, 2005; Vyacheslav Antonov, Svetlana Bocharova, Andrei Vaganov, “Dorvalsya do Atomnykh Milliardov” [He Has Finally Reached Atomic Billions], Nezavisimaya Gazeta, November 16, 2005.
[8] Sergei Shcherbakov, “Yadernye Igry” [Nuclear Games], Zavtra, July 13, 2005.
[9] Vyacheslav Antonov, Svetlana Bocharova, Andrei Vaganov, “Dorvalsya do Atomnykh Milliardov” [He Has Finally Reached Atomic Billions], Nezavisimaya Gazeta, November 16, 2005.
[10] A. Vinogradova,“Nadezhdy Dolzhny Opravdatsya” [Hopes Should Come True], Gorodskoi Kurier (Sarov), November 30, 2005.
[11] “Kiriyenko Snyal Obvinaniya v Adres Rukovodstva ‘Mayaka’” [Kiriyenko Has Removed Accusations of ‘Mayak’], Strana.Ru, December 14, 2005.
[12] Alexei Breus, “Putin Says New Rosatom Head Must Reorganize Whole Nuclear Industry,” Nucleonics Week, December 1, 2005.
[13] Anatoly Medetsky, “Kiriyenko Tapped to Run Rosatom,” Moscow Times, November 16, 2005.
[14] Aleksei Shcheglov, “Rosatom Raschityvaet na Kitai” [Rosatom Counts on China], Strana.Ru, November 10, 2005; PIR-Center Hot News, October 18, 2005.