MASARYK UNIVERSITY FACULTY OF SOCIAL STUDIES DEPARTMENT OF INTERNATIONAL RELATIONS AND EUROPEAN STUDIES
EXTERNAL VECTOR OF ROSATOM’S DEVELOPMENT: CASE STUDIES OF ACTIVITIES IN TURKEY, FINLAND AND HUNGARY
Master’s Thesis
Author: Nikita Minin UČO: 419802 Supervisor: PhDr. Tomáš Vlček, Ph.D. Study Field: Energy Security Studies Year of Enrollment: 2014
Brno, 2016 2
STATEMENT OF AUTHORSHIP
I hereby declare that this thesis I submit for assessment is entirely my own work and has not been taken from the work of others save to the extent that such work has been cited and acknowledged within the text of my work.
Date: Nikita Minin
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ACKNOWLEDGEMENTS
Sincere words of gratitude go to Tomáš Vlček, who was supervising and guiding me throughout the whole process of making this work happen. Unless for his much appreciated advice, this thesis would not look the way it does, neither it would contribute to my personal and academic growth the way it has done. I would also like to thank the whole department and lecturers for their individual approach towards the issues that were arising in the course of studies and thesis writing. In addition, I’m exceptionally grateful to my parents, who supported me no matter what and believed in me, even when I doubted myself.
Moreover, my personal huge thanks go to the European Commission as such that has provided an indispensable financial support for getting the degree at stake through the
Erasmus Mundus scheme. With this regard, I’d like to mention Violeta Osouchová, who was supervising my stay and has demonstrated outstanding care and understanding, when dealing with students’ requests, which can be referred to the whole team of the Masaryk University
Centre for International Cooperation. Last but not least, I’m thanking Jolana Navrátilová for patience and assistance she has provided, when it was much needed that helped me to go through all possible kinds of formal hurdles.
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TABLE OF CONTENTS
LIST OF ABBREVIATIONS ...... 6
LIST OF FIGURES AND TABLES ...... 8
ABSTRACT ...... 9
INTRODUCTION ...... 10
I. THEORETICAL ASPECTS OF ANALYZING ROSATOM’S EXTERNAL STRATEGY ...... 14
1.1. RESEARCH FRAMEWORK ...... 15
1.2. METHODOLOGICAL PREMISES OF ACADEMIC INQUIRY ...... 18
1.3. OPERATIONALIZATION SETTINGS OF THE RESEARCH ...... 24
1.4. TIMEFRAME, VALIDITY AND LIMITATIONS OF THE RESEARCH ...... 27
II. ANALYSIS OF ROSATOM’S EXTERNAL STRATEGY ...... 32
2.1. ROSATOM’S ORIGIN, AREAS OF COMPETENCE AND ORGANIZATIONAL STRUCTURE ...... 33
2.2. THE OUTLINE OF ROSATOM’S EXTERNAL POLICY ...... 41
2.3. DETERMINANTS AND CONSIDERATIONS OF ROSATOM’S EXTERNAL POLICY ...... 48 2.3.1. Overall Favorable Economics ...... 49 2.3.2. Support for Domestic Development ...... 52 2.3.3. Long-Run Perspective ...... 53 2.3.4. Prestige and Mindset ...... 55 2.3.5. Political Gains ...... 56
2.4. KEY FEATURES OF ROSATOM’S EXTERNAL STRATEGY ...... 60 2.4.1. Image-Making ...... 60 2.4.2. Expansionism ...... 62 2.4.3. Expedience ...... 64 2.4.4. Integrity ...... 66 2.4.5. Flexibility ...... 68 2.4.6. Superiority ...... 69
III. CASE STUDIES OF THE NUCLEAR PROJECTS IN THE CONTEXT OF ROSATOM’S EXTERNAL STRATEGY ...... 72
3.1. ROSATOM’S INVOLVEMENT IN AKKUYU NUCLEAR POWER PLANT IN TURKEY ...... 72 3.1.1. Image-Making ...... 74 3.1.2. Expansionism ...... 75 5
3.1.3. Expedience ...... 77 3.1.4. Integrity ...... 78 3.1.5. Flexibility ...... 80 3.1.6. Superiority ...... 82
3.2. ROSATOM’S PARTICIPATION IN HANHIKIVI NUCLEAR POWER PLANT IN FINLAND ...... 85 3.2.1. Image-Making ...... 86 3.2.2. Expansionism ...... 87 3.2.3. Expedience ...... 88 3.2.4. Integrity ...... 90 3.2.5. Flexibility ...... 92 3.2.6. Superiority ...... 93
3.3. ROSATOM AND THE EXTENSION OF PAKS NUCLEAR POWER PLANT IN HUNGARY ...... 96 3.3.1. Image-Making ...... 97 3.3.2. Expansionism ...... 98 3.3.3. Expedience ...... 99 3.3.4. Integrity ...... 102 3.3.5. Flexibility ...... 104 3.3.6. Superiority ...... 105
3.4. SUMMARY ...... 107
CONCLUSION ...... 109
REFERENCES ...... 115
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LIST OF ABBREVIATIONS
AEM AtomEnergoMash AEP AtomEnergoProm ASE AtomStroyExport BN Sodium-cooled fast reactor (from Russian: быстрый натриевый) BOO Build – Own – Operate BOT Build – Own – Transfer Lead- or lead-bismuth-cooled fast reactor (from Russian: BREST быстрый реактор со свинцовым теплоносителем) BWR Boiling water reactor CANDU Canada Deuterium Uranium CEO Chief executive officer CIS Commonwealth of Independent States CNNC China National Nuclear Corporation EC European Commission EIA Environmental impact assessment ENUSA Enusa Industrias Avanzadas EPC Engineering – Procurement - Construction ESA Euratom Supply Agency EU European Union EUP Enriched uranium product FSUE Federal State Unitary Enterprise HEU Highly enriched uranium Inc. Incorporation JSC Joint Stock Company kWh Kilowatt-hour LEU Low-enriched uranium Minatom Ministry of Atomic Energy of the Russian Federation MIR Modernized International Reactor MOX Mixed oxide fuel MW Megawatt MWe Megawatt electrical 7
NIAEP Nizhny Novgorod Engineering Company “Atomenergoproekt” NNL National Nuclear Laboratory NPP Nuclear power plant In Russian – АЭС Атомная электростанция (Atomnaya ElektroStancija) (AES) Experimental design bureau (from Russian: опытно- OKB конструкторское бюро; transliterates as opytno-konstruktorskoe buro) PM Prime Minister PR Public relations PWR Pressurized water reactor RAO Russian Joint Stock Company RF Russian Federation In Russian – РФ Российская Федерация RIN Rusatom – International Network Rosatom Rosatom State Nuclear Energy Corporation SC State Corporation In Russian – ГК Государственная корпорация SNPTC State Nuclear Power Technology Corporation STUK Radiation and Nuclear Safety Authority SWU Separative work unit TENEX TechSnabExport Heat-releasing element (from Russian: тепловыделяющий TVEL элемент) US (USA) United States of America USSR Union of Soviet Socialist Republics Water-Water Energetic Reactor (from Russian: Водо-водяной VVER Энергетический Реактор; transliterates as Vodo-Vodyanoi Energetichesky Reaktor) VVER-TOI VVER typical optimized, with enhanced information
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LIST OF FIGURES AND TABLES
FIGURE 2.1: MAIN AREAS OF ROSATOM’S ACTIVITIES ...... 37
TABLE 2.2: THE STRUCTURE OF ROSATOM’S NUCLEAR POWER COMPLEX ...... 38
TABLE 2.3: THE DYNAMICS OF ROSATOM'S OVERSEAS REVENUE AND ORDERS
PORTFOLIO ...... 44
TABLE 2.4: THE PROGRESS OF ROSATOM'S EXTERNAL STRATEGY ...... 46
FIGURE 2.5: ROSATOM'S POSITIONS ON THE GLOBAL MARKET OF NPP
CONSTRUCTION ...... 64
TABLE 2.6: THE INDICATORS OF ROSATOM'S EXTERNAL STRATEGY ...... 71
FIGURE 3.1: AKKUYU PROJECT ORGANIZATIONAL STRUCTURE ...... 79
TABLE 3.2: AKKUYU PROJECT EXAMINATION ...... 84
TABLE 3.3: HANHIKIVI PROJECT EXAMINATION ...... 95
TABLE 3.4: PAKS EXPANSION PROJECT EXAMINATION ...... 106
TABLE 3.5: CASE STUDIES OF ROSATOM’S EXTERNAL STRATEGY ...... 107
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ABSTRACT
There is no secret that Russia considers its energy sector being of paramount importance for the country’s global position. Nevertheless, the global nuclear market is highly competitive and special in a way, which influences the behavior of Rosatom and puts it aside from the other Russian energy enterprises. In addition, the Russian nuclear giant had set ambitious goals with regard to the company’s external growth. Hence, the goal herein is to devise and test on the prominent cases, comprised of Rosatom’s Akkuyu, Hanhikivi and Paks projects, the corporation’s external strategy, aiming at understanding what are the company’s chances to succeed in its implementation and how does the enterprise pursue it. The research also focuses on the underlying logic and reasoning behind the named strategy.
The structure of the work reflects the way the inquiry proceeds from the analysis of
Rosatom’s external strategy to the application of the proposed framework on the corporation’s undertakings in Turkey, Finland and Hungary. Apparently the work reveals that the chosen projects fit into the company’s course of behavior abroad, confirming the existence of the external strategy, which has thorough economic drivers and is characterized by a set of key features, i.e. image-making, expansionism, expedience, integrity, flexibility and superiority.
The analysis also shows that so far the implementation of the respective strategy has been quite successful, although political developments may complicate the process and lead to somewhat more moderate results in the long run. All this allows for the application of the results of this inquiry on the whole population of Rosatom’s overseas projects and provides a proper framework for approaching the corporation’s behavior abroad, including in the process of political decision-making. 10
INTRODUCTION
The nuclear energy sector has a number of structural differences when compared to crude oil, natural gas or coal; most typically it is not dependent on certain infrastructure and the uninterrupted flow of energy supplies1. The nuclear fuel cycle itself is comprised of:
(1) the front end, including all the activities necessary for the production of nuclear fuel before it is loaded into the nuclear reactor; (2) service period of the fuel being used inside of the reactor; and (3) back end, which is about fuel treatment after it has been off-loaded from the reactor that can be either its disposal or reprocessing. So looking at the front end, uranium is abundant and is mined in different parts of the world, so that there are many suppliers of uranium ore on the global market. However, the situation is somewhat different, when it comes to uranium enrichment necessary for the production of nuclear fuel. With this regard, only several countries possess enrichment technology due to concerns of nuclear proliferation.
Thus, the fact listed above and the historical development of the nuclear realm only in a limited number of countries with sufficient level of technical knowledge and experience have conditioned that nuclear market is also characterized by a limited number of nuclear technology providers on a global scale that are capable of delivering the whole scope of nuclear services ranging from construction of NPP and emergency response to nuclear education and staff training. What is remarkable here, Rosatom is one of those providers, actively competing for customers on a global scale and representing Russia.
There is no secret that Russia considers its energy sector being of paramount importance for the country’s global position. The Russian understanding of the overlap between its energy and foreign policies was reflected in the 2003 Energy Strategy, which noted that
Russia’s “significant energy resources and powerful fuel-energy complex” was “an instrument for conducting domestic and foreign policy” and that “the role of the country on
1 Jirušek, Vlček et al., 2015: 339. 11 global energy markets to a great degree determines its geopolitical influence”1. In this respect nuclear sector follows the track. Firstly, development of nuclear energy as the primary source of domestic power allows Russia to export more oil and gas, increasing the inflow of hard currency from the export of energy sources 2 . Secondly, it seems that Rosatom is to concentrate efforts first and foremost on those technologies and projects that have some conceivable prospects on the international market3. In this way, a considerable increase of
Rosatom’s activities abroad and export orders is understandable, if not ultimately logical. For example, Rosatom reported an increase of almost 31% in export orders in 2012, while calling for foreign operations to account for half of its business by 20304.
Nevertheless, nuclear sector is also special in a way, which influences Rosatom’s behavior and puts the corporation aside from the other Russian energy enterprises. Given the limited number of players on the market both on the demand and supply side, nuclear market is also characterized by a tough competition among suppliers for the deals. Needless to say that every single nuclear contract matters, once each of them has considerable revenue implications and far-reaching time horizon. Indeed, nuclear projects last for decades, because a particular reactor design implies the use of a certain nuclear fuel. Thus, it is frequently not the construction of NPP itself that is the most commercially attractive part rather than auxiliary services, like for example fuel supplies, that it implies. Switching to another provider is possible, but may be accompanied by higher prices and operational difficulties in the early stages5. Those features of nuclear energy market structurally hinder, if not eliminate, the possibility of market power abuse or politically motivated moves. That is why its reputation is crucial for Rosatom and its global performance. Accordingly, Rosatom has a strong incentive to avoid the perception of a country seeking to leverage its foreign and
1 Lough, 2011: 2-3. 2 Nuclear Diner, 2014. 3 Bellona, 2011. 4 World Nuclear News, 2013. 5 Jirušek, Vlček et al., 2015: 358. 12 security policy goals through its nuclear energy relationships1.
Rosatom’s long-term strategy, approved by its board in late 2011, calls for foreign operations to account for half of its business by 2030, aiming to hold at least one-third of the global enrichment services market by then, as well as 5% of the market for PWR fuel2. Quite understandably reaching such an ambitious goal can only be achieved if the corporation will manage to be an agile market actor that it capable of attracting new customers as well as preserving positions in the countries it already has its ground in. This requires Rosatom being flexible and offering different customer-adjusted financial schemes.
For example, the nuclear enterprise has come up with the ‘Build-Own-Operate’ scheme aimed at making nuclear projects more attractive for newcomers that lack experience and expertise as well as finance. An important project of this kind is supposed to be Turkey’s first
Akkuyu NPP. Another showcase of Rosatom striving for new markets is Hanhikivi NPP in
Finland that was agreed back in 2013. For Russia it means the acknowledgement of Russian technologies of design and construction of nuclear power plants as well as the possibility to enter the energy market of North Europe3. On the other side of spectrum, there is the case of
Hungarian Paks NPP extension, which represents Rosatom’s efforts to preserve its presence in countries that already have Russian/Soviet design reactors on their soil. The concluded agreement foresaw that ‘10 billion euros of 12.5 billion euro investment would be extended by Russia in a loan and the remaining 2.5 billion would be financed by Hungary’4. However, what is particularly important, the deal was originally made by two Heads of State out of the public procurement procedure. The supply contract was later approved by the ESA with the duration of the exclusive contract with Rosatom being cut from 20 to 10 years, after which time alternative suppliers would be able to bid to supply fuel5.
Taking into account what has been mentioned above, it seems that there is a need to
1 Jirušek, Vlček et al., 2015: 368. 2 World Nuclear News, 2013. 3 Rosatom, 2014c. 4 Daily News Hungary, 2014. 5 World Nuclear Association, 2015b. 13 focus on Rosatom’s export strategy, which is implemented in the conditions of the competitive global nuclear energy market. Thus, it is the interest of this research to unveil what is that export strategy comprised of and how is it constituted, once there are clear indications that Rosatom stays flexible and acts slightly differently depending on the deal at stake, prospects and the operational framework. It is equally important to examine the primary drivers and motives of the Russian energy enterprise, testing the grasp of Russian authorities on corporation’s behavior.
Today it is apparent that Russia’s international course and stance significantly troubles the realization of some projects that has previously been concluded from both economic and political perspectives. On the one hand, with the enacted sanctions in place the country’s economy goes through the hard times, which influences its ability to provide generous financing for energy projects abroad, especially once Rosatom’s budget is dependent on
Russia’s ability to pay. On the other hand, rising tensions in relation with some countries can hinder the realization of the energy projects on political level. Namely, Russia-Turkey discord over the situation in Syria comes into play here. Remarkably, yet in October 2014 Turkish
President Erdogan allowed for the possibility that ‘Turkey might reconsider the issue of
Russian involvement in the construction of Akkuyu NPP’1. In this way, the complexity of the situation and momentum adds to the timeliness of the work devoted to Rosatom’s export efforts and prospects abroad.
Thus, the goal of this particular research is to devise and test on the prominent cases, comprised of certain Rosatom’s projects abroad, the corporation’s external strategy, aiming at understanding what are the company’s chances to succeed in implementation of its external strategy and how does the corporation pursues it. The research also focuses on the underlying logic and reasoning behind that strategy, particularly, with regard to the economic/political dichotomy.
1 Инфокс, 2015. Here and subsequently in the text – translated by N. Minin. 14
I. THEORETICAL ASPECTS OF ANALYZING ROSATOM’S
EXTERNAL STRATEGY
Quite understandably, no sound and credible research can be conducted without the connection with theory and defined theoretical grounding. That is why this chapter will be devoted exactly to those issues, so that all the assumptions, approaches and choices made in the course of this research will be explained and substantiated. It will proceed in a way of moving from broad picture to a more specific research design issues.
At the beginning the research framework will be depicted, meaning the very basic assumptions about and approaches towards Rosatom’s environment. The most reasonable way to do so seems to be through the explanation of the paradigm choice, which leads to the necessity to conceptualize the topic and define the main concepts that are to be used in the course of the inquiry. Finally, the goal of the research should be outlined as well as the research questions in order to make the framework complete.
Having that done, the methodological part comes next. It is aimed at showing the logic and way of proceeding with the topic through substantiating the choice of methods and strategy to achieve the stated goals of the research. This will be followed by the subchapter on operationalization that will shed some light on the data collection and sources of information that are to be used as well as the way of data interpretation and applicability of the elaborated framework on the case studies at stake.
The last integral part of this chapter will be devoted to such issues as validity of the research, so that its limits would become apparent. It will also touch the issue of possible threats and drawbacks of the research, because only knowing and reflecting on them can boost the overall performance of the work and smoothen the negative effects of those factors. 15
1.1. Research Framework
To make a good start it is necessary to outline the basic approach towards the research as such and look through the research paradigms. It is crucial to assess in what way could they enrich the work and at the same time to spot the views implied throughout the analysis. What should be also noted is that it seems each of the three paradigms that will be under consideration has something to offer in the process of addressing the topic. However, there is clearly the one that is to play the key role within the research, because grounding it on those premises is to be the most fruitful. Indeed, both Realism and Social Constructivism could serve the goal of the work in a way, bringing different angles and aspects to the topic, but adopting any of those would lead the research in the wrong direction in terms achieving its goal. Quite oppositely, Liberalism provides the most suitable system of views and framework to work with this work’s topic and address the issues at stake, which needs to be substantiated and elaborated further.
What does the paradigm of Realism assume with regard to the topic? It clearly states that Rosatom’s development strategy is nothing, but a State-derived course of action aimed at promoting Russian interests in the nuclear energy sector abroad. According to Realism, non- state actors have rather marginal role, especially when compared to national states. Once
Rosatom is a fully state-owned energy enterprise, it makes no sense to consider it apart from the State and state decision-making process. In this way, commercial interests of the corporation would be at best subordinate to political considerations of the Russian elites.
Thus, the ultimate goal of Rosatom’s activities abroad would be gaining prominence and influence that could be used as a political leverage in the future. Such an approach seems to neglect Rosatom as an entity that acts in its own interests, while this research aims to focus exactly on the Russian nuclear corporation that presumably pursues its own policy and acts in its commercial interests. In line with that, as it was previously mentioned, Rosatom’s external strategy is formulated in a way of primarily increasing export-gained revenues. Moreover, in 16 the environment of global nuclear energy market, possible abuses of market power on the side of Rosatom are of low-probability even at first sight. Nevertheless, when addressed with moderation in this particular case Realism can be useful in terms of spotting the links between
Rosatom and the State, so that probable political implications would not be completely neglected and cast away as well as Russian state’s influence being undeservedly ignored.
When looking at the topic through the prism of Constructivism, the focus shifts from
Rosatom’s activities themselves to the way they are seen among both corporation’s top- management and Russia’s political elites. In this way the notion of Rosatom’s interests as such blurs out, making those dependent on the mutable consensus among people in charge.
However, when taken into account the environment and characteristics of the global nuclear energy market that were already mentioned, the overall picture gets less consistent, because
Rosatom operates and realized nuclear projects that take years or even decades. Thus, those cannot be conditioned to changing views and conditions, derived from the realm of politics.
However, what can be borrowed from this approach for the goals of this research is the attention to ideas, circulating among Rosatom’s leadership. It can be of use to address speeches and statements of those in charge of the corporation’s course in order to get some wider picture of the company’s strategic vision and future perspectives as they are currently seen, which would have its influence on the decision-making inside of the corporation.
Minding what has been stated above, approaching the issue through the Liberal paradigm seems to be the most fruitful option. Firstly, the energy company as such and its external strategy is to be under consideration, which does not fit the statist, realistic theory.
The whole notion of external strategy derives from the fact that no matter its shares, Rosatom is a company that has its commercial interests, especially given the nature of global nuclear market of tough competition. Secondly, the prospects of Rosatom abroad cannot be simply attributed to the global stance and position of Russia. The company mostly has to follow the rules of the commercial environment, thus, it is important to mention here the difference 17 between Rosatom’s and Gazprom’s rhetoric and behavior regarding the Russian foreign policy, when the former tries to abstain and distance from those developments, because reputation plays a crucial role in running nuclear business. Thirdly, facing threats to its commercial interests, Rosatom has to resort to the available tools to address the issue, which cannot be reduced to those, provided by the Russian state rather than, oppositely, trying to build up its capacities as an independent actor, operating in the realm of economics. Quite understandably, coming into foreign markets makes the company to submit to the existent operational framework there and obey the rules of the game, when those are properly enforced. Ultimately, even breaching those rules and capitalizing on the existent opportunity is rather typical behavior for players on the market that might have economic reasoning.
Have that said allows for the introduction and refining of the basic concepts that are to be used within the research. The chosen paradigm perspective provides for their incorporation into the work, delineating the meaning and functional role that are attributed to them. When starting the conceptualization of the topic, it is needed to address such terms as external vector and development, which brings the discourse to understanding external strategy. In this way, development for the purposes of this particular research is seen as the process of gradual advancement towards achieving the stated goals of an entity. Within this research it refers to
Rosatom’s path towards fulfilling its stated goals such as, for example, ‘calling for foreign operations to account for half of its business by 2030, aiming to hold at least one-third of the global enrichment services market by then, as well as 5% of the market for PWR fuel’1.
Remarkably, the focus will be put only a certain set of goals that refer to the realm of foreign operations, or external vector. That vector, as it is seen, unifies the course of the corporation’s development abroad, as contrasted with its operations inside of Russia. Quite logically, external strategy is an in-sight of the corporation’s development and prospects abroad that envisions prolonged time horizon as well as a set of activities, procedures and schemes aimed
1 World Nuclear News, 2013. 18 at fostering the above-mentioned vision. Given the fact that Rosatom is seen as an actor, which primarily operates in the realm of economics as it was substantiated above, the ultimate goal of the corporation is to maximize its revenues. On the external markets it is to be achieved through the exports of nuclear fuel as well as technological solutions (construction of NPP). Thus, for the convenience of this research it seems appropriate to use the term export strategy as being functionally close and synonymous to external strategy.
It is also important to note the way Rosatom as such is seen within the research. Being comprised of different divisions as well as staff members, including top-management, and having its own internal structure, Rosatom State Nuclear Energy Corporation is meant to be addressed in this work as an economic entity that possesses some kind of independence
(recognizing State’s influence) and has its own commercial interests. At the same time,
Rosatom is also understood as the aggregate of and appropriate level of analysis for its net of subsidiaries that ultimately serve corporation’s goals and are seen as its agents in their respective fields.
To finalize the research framework, it is needed to state its goal. In this way, the goal of this work is to devise and test corporation’s external strategy on the prominent cases, comprised of certain Rosatom’s projects abroad. It is to be done through answering the research questions, posed herein. Namely, the striking questions are what is Rosatom’s external strategy (including reflecting on what are the company’s chances to succeed in its implementation and what is its underlying logic and reasoning with regard to the economic vs. political debate) and how does the company pursues it.
1.2. Methodological Premises of Academic Inquiry
Addressing the research questions and topic as such requires an appropriate set of tools and approaches to deal with them. Thus, it is needed to choose a research strategy that suits the final goal of the work the best and will allow to proceed in the most optimal and fruitful 19 manner. Therefore, in the course of this research the Deductive research strategy1 will be used. The chosen strategy implies the use of hypothesis, which will help to guide the research towards its aims. In this way, the hypothesis of the research is formulated as follows:
“Rosatom deliberately pursues some external strategy and successively implements it, when competing for international projects, aiming at maximizing its revenues from foreign operations”. Working with this hypothesis is to make corporation’s areas of priorities and means of achieving its goals apparent.
Proceeding deductively, the research will stem from the notion that there is an export strategy, which is supported by evidence at first sight, meaning the already mentioned corporation’s development plans till 2030 that have discernible bias towards the outwards.
Therefore, it is necessary to study and examine the strategy at stake in terms of where does it aim and lead the company as well as the mechanisms of its implementation. This will require the analysis of Rosatom’s development plans and envisioned priority projects of interest.
Quite complicated political background adds up to the picture, increasing the prominence of the implementation part. Then the hypothesis is to be tested on three cases, which will be done through applying those cases on Rosatom’s external strategy, devised in the previous step, in order to assess whether it is actually viable and how does it comply with the originally stated objectives. Thus, it all makes the research a theory testing qualitative case study that should allow for insight into Rosatom’s external strategy and the path the corporation follows internationally as well as the prospects it has in terms of achieving its pronounced goals.
To start with, it seems that there is a need to test the hypothesis on more than one case in order to be able to make some worthy conclusions. However, simultaneously overextending the sample would make the research too bulky with no tangible benefits.
Therefore, the technique of case selection becomes of apparent importance. It is suggested that the most-different cases should be under consideration, meaning those cases, where
1 Blaikie, 2011: 85. 20
‘variation on independent variables is prized, while variation on the outcome is eschewed’1.
The process of theoretical pondering led to the selection of Turkey, Finland and Hungary, or particularly Rosatom’s projects there, namely Akkuyu NPP, Hanhikivi NPP and Paks NPP, respectively, as the cases for this research.
There are prominent reasons for such case selection technique. Indeed, Rosatom is to construct NPP in each of the mentioned countries, while adding those projects to its international portfolio. Moreover, it seems that it was the result of corporation’s deliberate actions that fit into its broader external strategy that is to be tested in the research. Thus, it is possible to test the hypothesis on the cases at stake, but what is more important, arguably, the cases of Turkey, Finland and Hungary are considerably different, which is meant to increase the representativeness of the sample and the research as such. This means that the population for the case study is to be the whole portfolio of Rosatom’s international projects and foreign operations.
At first sight, this might seem unreasonably ambitious and harming for the work’s overall performance. Nevertheless, it is believed to be credible enough for several reasons.
Firstly, as it has already been stated, global nuclear energy market is not that big and rather tough, so there is a limited number of orders and projects of interest. Secondly, the club of the countries playing on that market is even smaller, given the fact that some countries as China account for several projects at once. Nuclear energy after all is a technically sophisticated solution and rather expensive, when it comes to capital costs. Thirdly, related to the previous point, there is no point for Rosatom geographically differentiate between projects, implementing multiple strategies depending on the region at stake. Thus, the whole population of Rosatom’s external undertakings is quite confined, meaning that it can be credibly used as the level of generalization in the interests of this research.
1 Gerring, 2007: 139. 21
So why were those three particular cases actually chosen and what is so different about them? The projects at stake are relatively new ones, so that those can be credibly attributed to the currently viable external strategy of the Russian nuclear giant and its goals regarding foreign operations. However, this is where similarity ends up. The cases differ on previous experience with nuclear energy and Soviet/Russian reactor design, presence of competing nuclear companies on the market, operational and legal frameworks, financing and investment schemes that will be implied in order to make those projects happen as well as host country’s relations with Russia. Hence, those are the main variables that were taken into account in the process of case selection.
It seems necessary to address each of the case in more detail to make the choice clear.
The first case to be under consideration is that of Akkuyu NPP. When the Russian participation in the project was arranged, bilateral relations between two countries were on a fairly good level and even friendly. However, it all changed in November 2015 after the accident with the Russian military aircraft being shot down by the Turkish aviation, which was a showcase of growing tensions and discord over the situation in Syria. Regardless of some cues on the Turkish side that the Russian participation in the project might be ended, as for the time being it is still being realized by Rosatom, no matter the strained relations between two states. When it comes to another factor that mattered for the case selection, it is noteworthy that Turkey previously have not had any experience not only with the
Soviet/Russian designed reactors, but with nuclear energy in general, which means that its needs in counseling and expertise, including staff training, etc., are far more comprehensive than those of Hungary or Finland. While legal system assessment goes far beyond the scope of this research, Turkey is not a subject to the European energy law and its competition provisions, which means that the legal environment in the country is quite different with regard to the construction of NPP. Remarkably, the Akkuyu project was forged in a direct intergovernmental agreement between countries. Last but not least, Akkuyu project is to 22 pioneer newly proposed BOO scheme of investment, meaning that the contractor completely takes the burden of financing the project, however, when constructed, NPP belongs to it, so that it operates the energy facility in order to make profit. The scheme was designed to attract newcomers into the nuclear realm, which was the case of Turkey. However, quite startlingly,
Rosatom is not the only foreign nuclear company that operates in Turkey. In 2013 it was agreed that ‘a Japanese-French alliance led by Mitsubishi Heavy Industries and France’s
Areva will build Turkey’s second nuclear power plant’1. Furthermore, in November 2014
Turkey signed ‘an agreement with SNPTC of China and Westinghouse to begin exclusive negotiations to develop and construct a four-unit nuclear power plant in Turkey’2, which is to be the third NPP in the country. Hence, it can be seen that nuclear market in Turkey is rather competitive.
The second case that is to be under consideration within this research is the Finnish
Hanhikivi NPP. In a way it tangibly differs from the other two projects herein. To start with, historically Finland had very special relation with Russia (or Soviet Union). Their focus was on pragmatic bilateral cooperation, while not bound to amity/enmity dichotomy. This means that Finland was part of the West, however, it was refraining from any steps that could be seen as a security threat on the Russian side. As a result, nowadays Finland is not a NATO member state. Thus, even during the Cold War economic cooperation between parties was preserved. That is why Finland has two Soviet-designed VVER reactors on its soil, albeit modified as to comply with the Western standards. At the same time, there are also other technological solutions present in the Finnish nuclear sector. Namely, Olkiluoto NPP has two
BWR reactors of Swedish design as well as the third rector being under construction by
French Areva and German Siemens. As to the legal and operational framework in Finland, it is needed to say that the country is part of the EU and complies with its energy and completion law. However, it seems that those provisions and set of ideas are much more
1 Hurriyet Daily News, 2013. 2 World Nuclear Association, 2015с. 23 enforceable in the Finish case compared to the Hungarian one. For example, Finish government agreed to the Fennovoima Oy (joint venture company of a consortium of industrial and energy companies) plans to proceed with the Russian participation, conditional upon at least 60% of the company’s shareholders being Finnish or owned by parties domiciled in the European Union or a member of the European Free Trade Association1. Hence, it can be seen that Rosatom’s share is legislatively restricted, and the Russian giant has to comply with those requirements. Finally, the investment scheme chosen for the realization of the project at stake is somewhat different from the other two cases. Fennovoima signed a turnkey plant supply contract for the Hanhikivi NPP with Rosatom Overseas, meaning that the construction will be done by Rosatom, which is also responsible for arranging a loan, covering the major part of the investment needed, in exchange for the 34% share in the enterprise2. Although the project generally falls under BOO scheme, Rosatom in the Finish case will only have a minority share in the prospective NPP.
In case of Paks NPP the cornerstone provisions of the agreement were arranged with the direct participation of two Heads of State. Generally speaking, since the start of the
Presidency of Victor Orban in Hungary relations of that country with Russia has considerably improved. Even though Hungary already had nuclear reactors of Soviet design on its soil, in theory Rosatom was not the sole possible provider of the future blocs. Moreover, Hungary is a member state of the EU, which makes it subordinate to rather strict European competition law. In general, the legal system in the European countries is deemed to be enforceable and well-functioning. Nevertheless, the absent public procurement procedure was apparent in the case at stake due to a very financially attractive Russian offer. The decision to grant the project to the Russians was made by the Prime Minister and his closest collaborators without any consultations with other interested parties, industry experts, or the public at large3. The
1 World Nuclear Association, 2015a. 2 Nuclear Energy Agency, 2015. 3 Jirušek, Vlček et al., 2015: 146. 24 investment mechanism was settled, based on the Russian loan that is to cover 80% of project’s costs as for the moment of the agreement1. Thus, such solution was almost the only one appropriate for Hungary in terms of financing, especially given the fact that the country is limited in attracting public funds for those purposes due to the European-level energy policy.
As the result of all those factors, Rosatom is the only foreign player currently presented on the
Hungarian nuclear scene.
To sum it up, the methodological choices depicted above seem to be the most reasonable option to deal with the research. Proceeding deductively and stemming from the hypothesis that has been formulated should allow for the valuable insights into Rosatom’s external strategy that is to be tested on the selected cases. The most-different cases should foster the representativeness of the work, making it possible to generalize the conclusions and shed some light on the viability of Rosatom’s external strategy.
1.3. Operationalization Settings of the Research
As it has been previously said, answering the research questions formulated herein will be the research purpose that is to be achieved through the number of steps. Namely, it seems to be necessary to devise the essence of Rosatom’s external strategy, which solidifies company’s foreign operations and activities abroad. Outlining the corporation’s drivers and the way its strategic vision is bodied forth in some particular cases should provide for getting a better picture of Rosatom’s prospects in terms of its pronounced goals, acknowledging the possible threats such as current political course of Russia’s leadership.
However, the very way of applying Rosatom’s external strategy on the cases selected so far has been left without proper attention. It is needed from the start to outline and define the approaches towards the issue and explain the course of proceeding with the task. It was decided to proceed through the application of the cases at stake on a set of parameters, elaborated in the course of Rosatom’s external strategy analysis, limiting the case studies to
1 Daily News Hungary, 2014. 25 what actually matters with regard to the focus of this research. Namely, those indicators will be related to the company’s external behavior and specific characteristics of its foreign activities. Moreover, once external strategy is something intangible, it is hard to quantitatively approach it within the research, which yet again was one of the reasons to proceed with the qualitative analysis. Therefore, proceeding on the feature-by-feature basis should make it apparent whether overall the projects suit Rosatom’s external strategy, having its objectives in mind.
Here comes the issue of data collection and sources available, which should be given specific treatment. It is essential to address different sources of information, when proceeding with the research. Official documents 1 that create framework for Rosatom’s activities, including key legislative acts related to the issue at stake, are considered to be of utter importance, given that they provide primary information that is to be used for the purposes of this research. Additionally, accessible financial statistics2 are to be used, when needed, to make necessary calculations that are otherwise quite problematic. Moreover, for the aim of this project it is of course necessary to pay special attention to the Rosatom-derived sources, including official statements, annual reports and interviews with the corporation’s top management3. Particularly, corporation’s annual reports (including those of its subsidiaries) are treated as a source of primary data such as statistics and numerical data. However, it seems to be reasonable to compare it with the data from other sources, bearing in mind the possibility of imprecision of data, derived from one source, which will be addressed in the next section.
Hence, another group of data sources will be needed to test and in a way counterbalance
Rosatom’s ones in order to get clearer and more objective picture. In this respect, reviews and
1 Правительство Российской Федерации, 2014, 2015; Российская Федерация, 2007. 2 Центральный Банк России, 2012, 2015. 3 Akkuyu Nuclear JSC, 2013; Energy Post, 2015; Komarov, 2015; Nizhny Novgorod Engineering Company “Atomenergoproekt”, 2016; Rosatom 2011, 2012, 2013, 2014a, 2014b, 2014c, 2015a, 2015b, 2015c, 2016a, 2016b, 2016c; Saint Petersburg International Economic Forum, 2015; Нижегородская инжиниринговая компания «Атоменергопроект», 2015; Росатом, 2012а, 2012б, 2015, 2016а, 2016б, 2016в, 2016г, 2016д; ТВЭЛ, 2016. 26 commentaries of well-established NGOs and research firms as well as analytical works dealing with foreign operations of Rosatom1 could be of big help. They are also valuable as the source of factual information that insures the risks of imprecise information provided by
Rosatom. Similar in terms of its role and importance is the group of the nuclear-related organizations, non-Rosatom companies, portals and editorials2 that specifically focus on the nuclear realm. It is in the interests of this inquiry to address overviews of Rosatom’s activities as well as statistics related to the Russian corporation that they provide. What is significant about this group of sources is that even when it comes to the nuclear-related news, they provide more in-depth and sound coverage of the topics at stake than ordinary news portals.
Nevertheless, those news portals and reports3 are to be widely used in the course of the research, because they constitute a valuable add-up to the picture, which is especially important for the case studies.
The relevant academic articles, reports and books constitute another source of data that is to be used in the course of the research4. It is believed that this type of data provides diverse contributions to the topic, so it is fruitful to approach views from different sides of the academic spectrum in order to get a trustworthy outcome and conclusion. The last group here would be works5, specifically devoted to theoretical grounds of the research that were used in order to select and elaborate the appropriate tools for approaching this inquiry as such.
1 Andreev, 2011; Bellona, 2011; BMI Research, 2015a, 2015b; Brave New Climate, 2010; Daily Maverick, 2014; Energy Post, 2016; Fukushima Watch, 2016; Global Risk Insights, 2015; Greenpeace, 2013, 2014; Greenpeace Hungary, 2014; Kudrik et al., 2004; Pulitzer Center on Crisis Reporting, 2013; The Ecologist, 2015; Turkey Wonk, 2014. 2 Bulletin of the Atomic Scientists, 2015; Nuclear Diner, 2014; Nuclear Energy Agency, 2015; Nuclear Engineering International, 2014; Westinghouse, 2015; World Nuclear Association, 2015a, 2015b, 2015c, 2016a, 2016b; World Nuclear News, 2013, 2014a, 2014b, 2015a, 2015b; Атомный эксперт, 2014, 2016; Российское атомное сообщество, 2016а, 2016б. 3 Alawaba Business, 2016; Bloomberg Business, 2015; Budapest Telegraph, 2014; Daily News Hungary, 2014; Energy Post, 2013; Hurriyet Daily News, 2013; Interfax, 2013, 2016; Reuters, 2013, 2014, 2015a, 2015b; Russia and India Report, 2016; Russia Today, 2016; The New York Times, 2010; Инфокс, 2015, 2016; РИА Новости, 2014, 2015. 4 Bilgin, 2015; Frolov, 2014; Holden et al., 2015; Jewell, Ates, 2015; Jirušek, Vlček et al., 2015; Khlopkov, Lutkova, 2010; Lough, 2011; Marušiak, 2015; New Eastern Europe, 2015; Nuttall, 2005; Sovacool, 2011; Négh, 2015; Zeman, 2014. 5 Blaikie, 2011; Gerring, 2007. 27
A thorough work with the data is supposed to confirm that Rosatom’s export strategy has been coherently implemented and was the underlying thread that had united corporation’s foreign operations and activities abroad and so far has been quite successful. Hence, it is expected that the inquiry will lead to the comprehensive understanding and image of
Rosatom’s external strategy in terms of its motives, content, composition, goals and prospects on the time horizon. Particularly, given the company’s primary focus on export activities and relatable investments, it will assess Rosatom’s pronounced goals and the ways to achieve those that had been put forth, especially in the light of political developments. Namely, the current political discourse of Kremlin’s tensions with the West and economic sanctions imposed on Moscow pose serious threats to Rosatom’s expansion abroad and, thus, to the implementation of its export strategy, which is to depend on company’s ability to distance from the state, at least seemingly.
1.4. Timeframe, Validity and Limitations of the Research
Minding the explanations that have been previously made, there are still some necessary clarifications left without proper attentions. Namely, it is important to explicitly delineate the timeframe of the research, which consequently and logically puts the question of its overall validity on the agenda. In its turn the validity of the research is defined by those limitations that are always present when working on any topic. However, it is also paramount to state the possible pitfalls of the research in order to mind them and try to significantly smoothen or even avoid them. Ultimately nothing is perfect and thinking over the weak points can be actually fruitful and lead to tangible results in terms of increasing work’s performance.
So starting with the timeframe of the research, it is needed to state 2011 as the starting point of the academic inquiry, albeit not making this point overly stiff, which is to be commented on below. It was exactly in that year when the new goals for the Rosatom’s activities abroad were formulated, meaning a shift to a more export-oriented strategy of the 28 corporation. Thus, this is when it is logical to start referring to Rosatom’s external strategy within the research, once its interests are focused exactly on the currently pursued course of action, which has not been profoundly altered since then. Moreover, the cases that are to be under consideration are rather recent and added up to Rosatom’s portfolio around the year of
2011. Namely, both Paks and Hanhikivi deals were arranged in December 2013/January 2014, while the Russian participation in Akkuyu NPP was settled in 2010. However, it is necessary to understand that the formulation of the external strategy and its goals of such a big energy company as Rosatom does not happen in a moment and takes considerable period of time.
This means that even though the goals were proclaimed in 2011, the strategic vision that had given birth to them was formed slightly earlier. That is why the Turkish project can also be treated as the result of Rosatom’s current export strategy.
Regardless of the fact that the research focuses on the current Rosatom’s external strategy, meaning that it is to be studied as it has been implemented so far, it does not seem to be reasonable to set nowadays as the second temporal limit for this academic work. The point is that, as it was mentioned before, the work’s conclusions will go slightly beyond the current moment, making insights into Rosatom’s prospects on a certain time horizon. Albeit it is hard to define that time horizon, 2030 may be the most optimal solution as far as Rosatom’s goals abroad and its external strategy envisioned 2030 as the final year of the period. Thus, it allows for projections with regard to the 2030 goals.
Needless to say that in the temporal dimension the research’s validity is bound to its timeframe. Other than that, it is believed that the chosen theoretical grounds of the work are capable of allowing for tangible results and achieving the stated goals, making this academic inquiry valid. However, what is its reach? The concluding remarks that will be primarily based on the case studies are meant to be valid for the whole population of Rosatom’s foreign portfolio and projects abroad that are believed to prove the notion of the ongoing 29 implementation of the corporation’s external strategy that is foremost economically motivated.
At this point several reservations should be done. Firstly, when it comes to population, the Rosatom’s international portfolio is rather diverse, including projects in Finland and Iran,
Hungary and India, etc. – countries that do not actually have much in common. This fact provides for the assumption that there might be a case where the general line of Rosatom’s external strategy will fail to be substantiated. However, the aim of this research is to conduct primary theory testing on the selected cases that is believed to be representative. Thus, it is out of its scope to go into the detection of exception(s). This would probably make sense within further research aimed at finding and explaining the outlying case(s). Ultimately, every rule might have an exception.
Secondly, devising the motivation that lies behind the realization of some energy projects abroad may be quite complicated, because it is related to a subjective issue.
Moreover, as a rule, everything’s interrelated, so that there are chances of the motivation sometimes being of the mixed nature, meaning having both economic and political implications. Thus, in theory it might prove to be hardly possible to distinguish the prevalent motivation on the basis of the available data, which leaves the room for subjective interpretation and inference. The last point has led to the issue of the researches possible pitfalls.
It is necessary to explicitly state the factors that can hinder the work’s credibility and reflect on those in order to minimize their effects. The first group of the threats is related to the quality and availability of the data relevant for the research. When it comes to the quality of data and sources of information, Rosatom’s state-owned nature should be noted. That means that the corporation might have some kind of temptation to provide the partial information and slightly alter the publicly available reports it provides with the aim of depicting a bit more optimistic picture. At the same time, some assessments and reports that 30 are the result of NGOs’ work and inquiries might suffer the very opposite issue. On the one hand, Russia’s reputation abroad, arguably, has recently tangibly deteriorated and was always burdened with the country’s historical past. Thus, some authors might have anti-Russian stance that would affect the results of their inquiries. On the other hand, NGOs build their evaluations on the data that is available to them, which might be incomplete. Therefore, it is of paramount importance to combine those sources and approach them with caution, so that they could counterbalance each other in a way.
As it was said, there is also an issue with the availability of data. Out of all other
Russian state-owned giants Rosatom’s performance is one of the best: ‘in January 2015, a
KPMG audit confirmed that the Russian company introduces the highest standards and transparency in its daily work’1. The corporation and some of its subsidiaries recently have also won the Vision Awards Annual Report Competition organized by the League of
American Communications Professionals2 . Nevertheless, it is still a Russian state-owned enterprise, meaning that there is long tradition of secrecy on the background. Plus, many big companies are not eager to reveal some information, referring to the trade secret that can significantly harm the business when becoming public. It seems that Rosatom is no exception.
And it is not the only actor following this logic. Here the example of the Paks deal can be put forward, when the Hungarian Parliament, supported by Mr. Orban, had classified the provisions of the deal, making it illegal to reveal them. However, those provisions would be of high interest within this research.
Another hurdle that has arisen in the process of working on the topic is inherent to the technique of case selection. The point here is that the most-different cases should, indeed, be on the opposite sides of spectrum, when compared on the basis of a certain set of variables.
This also means that there is a need to dichotomize those variables allowing for binary comparison in order to meet the requirements of the case selection that is ideally reduced to
1 New Eastern Europe, 2015. 2 Rosatom, 2016a. 31 two cases. However, it is particularly difficult to pick up cases that would match this framework from the population of Rosatom’s international projects, because of the fact that some influential variables might be hardly put down to a clear-cut division, like for example, the type of the legal system and operational framework. Indeed, the perfect selection on the basis of this variable would be, for instance, of cases with and without working legal system respectively. However, that is not the case herein. Hence, some additional mediation had to be undertaken.
Namely, in order to avoid the fallacy in the process of case selection the number of variables was limited to five, while including only the most important ones, when comparing cases in terms of their differences. While presence of competitors in the nuclear sector of the host country allow for clear-cut comparison, this is not so simple with the other variables.
Namely, the assessment of previous experience with Soviet/Russian designed nuclear reactors and investment schemes would need some remarks to be made. The former includes the reservation for Western modifications in the Finnish case, while the latter, albeit formally falling into the BOO/loan-based division, yet again set the Hanhikivi project aside, because
Rosatom will construct NPP and procure finance in exchange for the minority share, unlike its full ownership in the Turkish case. Simultaneously, the differentiation between the legal systems was based on their relations to the European energy law and its enforceability that stresses competition as its cornerstone. Countries’ relations with Russia seem to cover the whole possible spectrum of options, namely amity/enmity (that were in a way absolutized) and the intermediate option of pragmatic cooperation. This whole process of adjustment of variables led to the selection of three cases, which seems to be credible and meeting the most- different cases criteria when assessed as the sum and interconnection of those variables. 32
II. ANALYSIS OF ROSATOM’S EXTERNAL STRATEGY
This chapter is devoted to Rosatom and, particularly, its external strategy. It seems essential to analyze company’s foreign operations and overseas behavior in order to see where and how does the corporation head as well as what lies behind those activities, which is aimed at providing appropriate framework for further inquiry into certain cases. Thus, a set of indicators is to be elaborated herein.
Logically, the analysis of Rosatom’s external strategy starts with the outline of its historical evolution as to better understand the corporation’s current competences and the legacy it bears. Then the structure of the company is put under consideration with particular focus on its external division and enterprises in charge of external activities, which provides for an insight into Rosatom’s institutional framework and its limits.
Subsequently, the external strategy of the Russian nuclear giant is outlined in terms of its design and objectives that it has been based upon. Another important integral part of the inquiry is devoted to the corporation’s progress and achievements so far as well as hurdles on the horizon it has to face related primarily to the Western sanctions and the country’s economic troubles. Altogether it allows for assessment of Rosatom’s chances to succeed with regard to the pronounced goals.
Afterwards, the focus is shifted to the underlying logic and considerations of Rosatom that are taken into account and play their role, when implementing the company’s external strategy. The study of corporation’s reasoning shows the relations between economic and political factors, while it also brings other considerations into the picture.
The last part of the chapter deals with the patterns of Rosatom’s overseas behavior and key features of its external policy. It is aimed at better understanding of company’s strategic vision and approaches towards implementation of its strategy and achieving the goals it strives for. Moreover, it creates appropriate framework for case studies analysis. 33
2.1. Rosatom’s Origin, Areas of Competence and Organizational
Structure
There is no way of understanding Rosatom’s external strategy and behavior on foreign markets without prior insight into corporation’s history and structure, which are paramount for getting a picture of what actually Rosatom is today. Only based on that knowledge it is possible to unveil the motivation behind company’s external vector of development as well as its overall strategic vision. Thus, proceeding from the historical overview to the outline of
Rosatom’s field of competence and organizational structure will give the soil for further inquiry into the topic of the work, while at the same time depicting corporation’s institutional characteristics and limits.
After the collapse of the Soviet Union in 1991, the newly born Russian Federation consolidated all civil and military nuclear activities under the Ministry of Atomic Energy of the Russian Federation, or Minatom1, which was generally in line with the Soviet model of the industry management. Particularly, this means that the state had preserved its direct control over the nuclear industry. Once the realm was governed through the Federal Ministry, political thinking on decision-making was noticeable. However, the country was living through hard times of shrinking economy and lack of finance, so that the civil nuclear development was not among the most prominent issues on the Russian agenda.
Yet at that period Russia signed its first contract for NPP construction abroad: it was the
Bushehr project in Iran, abandoned by the Germans in 1979. Minatom signed the construction contract in 1995, containing the commitment of the Russian side to maximize the involvement of Iranian subcontractors and provisions on the training of Iranian specialists to operate the plant as well as the nuclear fuel supply deal for the first 10 years of the plant’s operation2.
1 Greenpeace, 2014: 11. 2 Khlopkov, Lutkova, 2010: 1, 5, 7. 34
Tehran agreed to pay 80% of the value of the contract in cash, and only 20% in kind, which was one of the major incentives for Minatom to undertake the whole complicated project1.
At this point two important remarks should be made with regard to the Bushehr deal.
Firstly, it can be seen that the pattern of the Russian export offer has not changed much with the run of time and regardless of the industry’s institutional changes. Yet Minatom was offering a wide range of services related to NPP construction such as staff training and fuel supplies, which has later become part of Rosatom’s integral offer. Secondly, despite of the state control over the industry, the project in Iran was primarily chosen due to the economic logic of getting much needed at those times cash and keeping the industry running. Indeed, the Iranian case is pretty illustrative, because the nuclear project at stake was hardly decided based on political thinking. Due to proliferation concerns of international community and sanctions imposed on Iran as well as negative stance of the USA on the deal, the project had caused troubles for Russia, while bringing vague gains if any, from political perspective.
Going back to the track record of Rosatom’s genesis, the year of 2004 seems to be of particular importance. In spring 2004 Minatom was reorganized: its civil activities were passed to a new Federal Atomic Energy Agency (which soon after its establishment had become known as Rosatom), while its military functions were passed to the Defense
Ministry2. The changes effectively downgraded its status in the State hierarchy of the Russian
Federation, simultaneously ousting it from the Government and distantiating it from the decision-making: ‘the major change in the status of Rosatom is that it has become a solely executive governmental body with no policy-making functions’3.
However, Rosatom has not preserved in that form for long and followed the case of the
Russian energy industry, which was going through the process of corporatization with the leading role of the State. Since the end of 2007, the nuclear industry began to implement
1 Khlopkov, Lutkova, 2010: 9. 2 Nuttall, 2005: 202. 3 Kudrik et al., 2004: 28. 35 radical institutional reforms: the Federal Atomic Energy Agency was eliminated and the
Russian State Atomic Energy Corporation Rosatom was established on its basis1. During
2008 there was a major reorganization or ‘privatization’ of nuclear industry entities, belonging to Rosatom, involving change from FSUE to JSC2. Albeit the division of shares between different companies of Rosatom and their respective structure has gone through some minor changes since then, the State Corporation as such exists in that way till nowadays.
State in Russia has historically had a strong grip on the nuclear industry. Thus, decision- making in the realm was connected to broader interests of the country, which included political aspects of the issue. However, full and direct state control over the industry proved to be ineffective, which had caused the process of reforms. Consolidation of the Russian nuclear industry under the auspices of the State Corporation Rosatom turned out to be a better solution, which apparently also signified the shift in the decision-making logic towards economic considerations.
So what is Rosatom today and what is its area of competence? It is a vertically- integrated holding company with sophisticated structure. The State Corporation was established based on the federal law №317-FZ ‘On the State Atomic Energy Corporation
Rosatom’ of December 1, 2007. According to the article 5 of the document, the President of the Russian Federation has quite ample competences with regard to Rosatom, including appointing the corporation’s Director General and the members of its Supervisory Board, while the Government approves the long-term strategy of the Corporation3. Outside of the strategic direction of the Russian government and President, Rosatom has an unusually high degree of autonomy 4 . Namely, article 3, paragraph 14 stipulates that federal bodies, authorities of the entities of the Russian Federation as well as local governments have no right
1 Frolov, 2014: 531. 2 World Nuclear Association, 2016b. 3 Российская Федерация, 2007. 4 Greenpeace, 2014: 12. 36 to interfere with the corporation’s business and work of its executive officers1. Moreover, it seems that the State Corporation regained regulatory competences, previously borne by
Minatom: it has got the right of legislative initiative as well as was tasked with the elaboration of the draft regulatory acts needed to govern the realm.
Yet again, two important provisions should be noted here. Firstly, Rosatom is the result of the ongoing evolution of the industry’s management, which has not been linear. Federal
Agency’s lack of regulatory competences proved to be its disadvantage, so that there was a certain setback in their restitution within the State Corporation as well as its stake in the nuclear weapons complex. Secondly and arguably more important, as it has been previously demonstrated and can be derived from the named federal law, Rosatom bears considerable autonomy from the Russian authorities, when it comes to its day-to-day business, while
President and the government mostly only outline the general direction of the corporation’s development. Moreover, early in 2012 the government announced that Rosatom’s civil divisions might be privatized, at least to 49% share in individual entities2, which would be the next step of Rosatom’s evolution. Hence, performing its tasks Rosatom is capable of demonstrating certain independence and free will, especially when compared to the previous model of the industry management. Hence, there is a limited room for political considerations, when it comes to doing business, albeit potentially existent due to the state ownership.
Rosatom’s goals, depicted in the article 4 of the aforementioned federal law, outline five main areas of corporation’s activities (see figure 2.1): nuclear power complex; nuclear weapons complex; nuclear icebreaker fleet; nuclear and radiation safety, including non- proliferation; science, research and training3. However, it is the nuclear power complex that is of primary focus within this research, which is mostly unified in JSC AtomEnergoProm
(AEP), fully owned by Rosatom.
1 Российская Федерация, 2007. 2 World Nuclear Association, 2016b. 3 Российская Федерация, 2007. 37
Figure 2.1: Main Areas of Rosatom’s Activities
Nuclear Power Complex
Nuclear R&D and Weapons Training Complex Areas of Rosatom's Competence
Nuclear Nuclear and Icebreaker Radiation Fleet Safety
Source: N. Minin.
The nuclear power complex structure is as follows (see table 2.2)1:
ü The mining division is basically comprised of the Russian and foreign segments. ARMZ
Uranium Holding Co (JSC AtomRedMetZoloto) owns the Russian mine assets and is
specialized in uranium production inside of the country and in Kazakhstan, while
Uranium One Holding Co is responsible for all the other foreign uranium mining;
ü The Fuel Company TVEL, which is involved in enrichment and nuclear fuel fabrication
services, unites several enterprises and represents Rosatom’s fuel division, supplying
nuclear fuel to the Russian NPPs and abroad, including to the EU and the CIS.
TechSnabExport (TENEX) is involved in the foreign trade in uranium products and
services. It was also assigned as Russia’s nuclear fuel exporter to the United States
under the HEU-LEU program;
1 Compiled on the basis of Frolov, 2014; Kudrik et al., 2004; Rosatom, 2015a; World Nuclear Association, 2016b; World Nuclear News, 2015b; Росатом, 2016в. 38
ü Machine-building division’s main enterprise is AtomEnergoMash (AEM), which is the
holding company for a significant number of enterprises that specialize in
manufacturing of machinery and equipment for the nuclear and power energy industries,
including turbines, steam generators, and pipelines;
ü Engineering division is unified under the auspices of AtomStroyExport Group (ASE),
which incorporates such enterprises as Atomproekt, Nizhny Novgorod Engineering
Company “Atomenergoproekt” (NIAEP), AtomStroyExport, OKB Gidropress, etc.;
ü Power generation division deals with the nuclear power plants inside of the country and
is represented by the Rosenergoatom Concern, responsible for the construction and
operation of nuclear power generation in Russia;
ü External division of Rosatom is comprised of Rusatom Overseas Inc., which is
responsible for the global promotion of Rosatom’s integrated offer, while Rusatom
Energy International acts as a developer of Rosatom’s foreign projects, which are
implemented through the BOO scheme. In addition, Rusatom – International Network
was established in order to organize a network management of the foreign regional
centers of Rosatom.
Table 2.2: The Structure of Rosatom’s Nuclear Power Complex
Functional Cluster Main Enterprises Mining division ARMZ Uranium Holding Co; Uranium One Holding Co Fuel division Fuel Company TVEL; TENEX Machine-building division Holding Company AtomEnergoMash Engineering division AtomStroyExport Group: Atomproekt; NIAEP; OKB Gidropress, etc. Power generation division Concern Rosenergoatom External division Rusatom Overseas Inc.; Rusatom Energy International; Rusatom - International Network Source: compiled by N. Minin from open sources. 39
Due to the focus of this research on Rosatom’s external strategy and foreign operations it seems reasonable to have a closer look at the corporation’s external division. As such the division began to materialize after corporation’s external strategy approval in 2011, which has already been previously mentioned. Quite ambitious goals set back then required appropriate institutions and tools that were absent. An important step up in this activity was made in
August 2011, when Rosatom established Rusatom Overseas Company, with the aim of promotion of the Russian nuclear technologies in world markets1.
Quite logically, in order to be capable to perform the tasks of expanding abroad,
Rosatom had to tangibly raise its presence in foreign markets, so that the company would be duly represented there. Owing to its ties with the Russian state, as of the end of 2014,
Rosatom had its missions in the embassies of the Russian Federation in Bangladesh, Belarus,
China, India, Iran, Kazakhstan, Turkey and Japan as well as in Russia’s trade missions in
Argentina, Czech Republic, France, Hungary, USA and Vietnam2.
However, the corporation was determined to develop its own capabilities abroad independent of Russia as to improve its image and perception abroad and focus on economic activities. Thus, in order to strengthen Rosatom’s presence in particular markets, in 2013 it was decided to create a new Rusatom – International Network company, which became in charge of Rosatom’s global presence in the markets of interest, uniting regional offices of the company, created in all key regions. Namely, in Paris (France) for Western Europe; in Prague
(Czech Republic) for Central Europe, which is also in charge of the market offices in
Bratislava and Budapest; in Kiev (Ukraine) for Eastern Europe, which is also in charge of the
Minsk office; in Singapore (Singapore) for South East Asia; in Johannesburg (Republic of
South Africa) for Central and Southern Africa and in Rio de Janeiro (Brazil) for Latin
America; it is also planned to open offices in the Middle East, North America and broaden
1 World Nuclear Association, 2016b. 2 Росатом, 2015: 8. 40 representation in Asia1. Rusatom – International Network was entrusted with the functions of
‘identifying and promoting the development of new business opportunities for the divisions of
Rosatom, industry-wide marketing support and analysis of the market prospects of the products and services of divisions in overseas markets, industry-wide implementation of PR– strategy in the foreign markets and coordination of activities of divisions in the implementation of overseas orders portfolio’2.
With the run of time the scope of Rosatom’s activities abroad had remarkably increased, which brought up further changes on the agenda. In this way, in mid-2015 Rusatom Overseas was split into JSC Rusatom Overseas Inc. and JSC Rusatom Energy International. The former promotes the company’s integrated offer for the nuclear power plant construction projects in international markets, ensuring full back-up of the customer nuclear power programs at all stages of implementation, including financing, training, localization of the supply chain, fuel supply with take-back of used fuel for reprocessing, and decommissioning; while the latter, being 44.13% owned by Rosatom and 55.87% by AtomEnergoProm, is responsible for the management of foreign nuclear power plant construction and operation on the basis of BOO contracts, including attracting finance, ensuring implementation of projects to budget and on time, the safe and efficient operation of nuclear power plants, as well as the sale of electricity in foreign markets3. Rusatom Energy International is currently managing the Hanhikivi 1 and
Akkuyu nuclear power plant construction projects, in Finland and Turkey, respectively.
On the grounds of the external division’s overview it can be concluded that Rosatom is still performing some re-structuring in the area, which is caused by the dynamic development of its overseas operations. As for now, three companies constitute the backbone of Rosatom’s foreign activities. Rusatom Overseas Inc. promotes Rosatom’s integral nuclear offer abroad, while recently established Rusatom Energy International has taken over more practical tasks
1 Rosatom, 2014b; Rosatom, 2016c. 2 Rosatom, 2015a: 46. 3 World Nuclear News, 2015b. 41 such as the realization of BOO projects, including Rosatom’s whole new area of electricity sales abroad to end-consumers. Rusatom – International Network, in its turn, unites foreign regional centers of the corporation and coordinates the work and performance of the other
Rosatom’s subsidiaries in foreign markets. Overall, as for now the external institutional component seems to be adequate to the corporation’s goals, albeit further changes may follow, given its fast expansion. Namely, the development of new non-fuel and non-power services, such as nuclear medicine, etc., which is stressed in corporation’s strategy, may give birth to yet another company operating in foreign markets.
2.2. The Outline of Rosatom’s External Policy
Having outlined the evolution and institutional framework of Rosatom and understanding the role of main acting enterprises, it is now possible to have an insight into the corporation’s external strategy. It is logical to start with the examination of Rosatom’s goals in terms of its overseas operations, then moving to the actual performance of the company so far as well as conceivable hurdles on the way of their achievement.
Rosatom is a state-owned corporation, and the Russian government defines the general long-term direction of its development. Thus, it is reasonable to start with having a look into the state-originated goals and aspirations related to Rosatom’s functioning. For example, draft
Energy Strategy of Russia up to 2035 lists ‘the growth of export potential of the Russian nuclear technologies, further export of nuclear power and services as well as nuclear power plants’1 as one of five primary objectives for the nuclear industry. This definitely envisions a tangible stress on the exports and external development that Rosatom should reckon with. In line with that, state program of the nuclear power complex development envisions the increase of revenues from foreign operations of at least 53% till 2020 compared to 2011
(planned 7.6% for 2014, 13% for 2015)2. Remarkably, 2011 was chosen as the base year,
1 Правительство Российской Федерации, 2015: 30. 2 Правительство Российской Федерации, 2014: 20, 27. 42 because that is when Rosatom’s development strategy was endorsed, meaning the start of the company’s new line of behavior, activities and priorities.
As it was previously mentioned, in 2011 Rosatom’s Supervisory Body approved the new long-term development strategy, which turned out to be visibly export-oriented. Albeit some of its provisions seem to be treated with delicacy, its main content was presented to the public. The strategy is designed till 2030, when the share of revenues from foreign operations is expected to reach 50%; share of revenues from foreign assets – 25%; Rosatom is to become one of top-100 recognizable brands; company to be in top-3 in all segments of global nuclear market, to have contracts for the construction of 30 nuclear units abroad and to have up to 78 projects in its foreign orders portfolio1.
On the way there, in 2014 Rosatom has set the goals for a shorter time horizon, till
2020. It was aimed at company’s better focusing, once planning for decades ahead is too uncertain, especially when the situation goes off the business-as-usual scenario. It seems that the Western sanctions and Russia’s geopolitical complications, albeit not targeting the nuclear sector directly, play into the moderation of external aspirations, which is to be addressed later in this subchapter. However, going back to the corporation’s goals, the development strategy of 2014 envisions the increase of the foreign orders portfolio up to $190 billion 2 . The company also aspires to take over 15% of global nuclear service portfolio up from then- reached share of 7%, to preserve its leadership in uranium enrichment services and increase its share on the global nuclear fuel market from 16% up to 17.5%3. Rosatom also realizes the importance of the new businesses such as nuclear medicine, engineering and equipment for heat generating facilities as well as water desalination. In the next few years, it is planning to increase revenue from new businesses and plants by 30%4.
1 Росатом, 2012б. 2 Russia and India Report, 2016. 3 Российское атомное сообщество, 2014. 4 Interfax, 2016. 43
Overall, Rosatom aspires to become a global company, so that all strategic decisions are made in this context, since international markets contribute significantly to current corporate income and are expected to continue to do so1. It can be seen that the goals are impressive, indeed. However, will the corporation be capable of delivering those results? To answer the question, it is necessary to look into the company’s actual performance so far as well as to reflect on the challenges it faces striving for maximizing its presence abroad.
So far Rosatom’s performance and results achieved with regard to its external policy since its adoption have been remarkable, especially in the lights of Fukushima accident. In the two years following the Fukushima disaster in 2011, Russian foreign contracts jumped up by
60%, despite the slump in the global nuclear power market2. Company’s foreign stock of orders rose up to $73 bln in 2013 from $39 bln in 20113. The positive dynamic did not cease to be present, though. At the start of 2015 Rosatom’s foreign portfolio of orders totaled US$
101.4 billion, of which $66 billion was reactors, $21.8 billion was the contracted sales of EUP and SWU, and the remaining $13.6 billion was attributable to the sales of fabricated fuel assemblies and uranium4. In 2015 Rosatom’s foreign order portfolio for 10 years exceeded
$110 billion, while its total sum equals to $300 billion5.
Rosatom’s export revenues are also quite impressive. In 2014 they totaled $5.2 billion, which had exceeded the planned number for 1%6. What is particularly important within this inquiry is that almost $950 millions of Rosatom’s overseas revenues were earned in NPPs construction abroad7. Referring to the more recent developments, the growth of Rosatom’s revenue from foreign activity in 2015 amounted to about 20% in comparison with 20148, which brings the number to around $6.2 billion.
1 Holden et al., 2015: 232. 2 Bulletin of the Atomic Scientists, 2015. 3 Rosatom, 2014b. 4 World Nuclear Association, 2016a. 5 Interfax, 2016. 6 Росатом, 2015: 17. 7 Rosatom, 2015a: 41. 8 Interfax, 2016. 44
Table 2.3: The Dynamics of Rosatom’s Overseas Revenue and Orders Portfolio
2011 2012 2013 2014 2015
Overseas revenue 3.96* 4.58 4.97 5.2 6.24
Portfolio of overseas orders 39 66.5 72.7 101.4 110 in the 10-year period
Note: billion US dollars * Calculated by N. Minin, given the overall 2011 revenues of 388.2 billion rubles and average exchange rate for 2011 based on [Центральный Банк России, 2012] Source: compiled by N. Minin from open sources.
As for particular companies, for example, TENEX’s revenue in 2014 was over
$2.2 billion, and forward orders totaled almost $23 billion, including almost $6 billion in over
20 contracts with US utilities for enriched uranium product1. In 2014, TVEL’s 10-year order portfolio had surpassed $10 billion owing to the new fuel supply contracts with nuclear power stations in Hungary, Slovakia and Finland, and research reactors in the Netherlands, Czech
Republic and Uzbekistan that had exceeded $3 billion 2 . Overall, TVEL supplies fuel to nuclear reactors in 14 foreign countries, including Finland, Bulgaria, Hungary, Slovakia,
Czech Republic, Ukraine, Armenia, and China3.
It can be seen that now TENEX generates around 42% of Rosatom’s revenues from foreign activities. However, it can be expected to change relatively soon with the implementation of the corporation’s external strategy. Indeed, company strives for new businesses within the nuclear realm, as it has been previously mentioned, and is to generate considerable share of its foreign revenues in those segments of the market. At the same time, the share of overseas NPPs construction was about 18%, but it is also expected to rise due to the newly signed contracts.
1 World Nuclear Association, 2016b. 2 Rosatom, 2015c. 3 ТВЭЛ, 2016. 45
It is also reasonable to compare the export and total revenues of Rosatom for 2014.
Corporation’s total revenues equaled $13 bln1, which effectively means that the company got
40% of its revenues from overseas operations (up from 30% in 20112). In the light of this share, the statement of Rosatom’s Deputy CEO K. Komarov that the company might actually get 50% of its revenues from foreign operations in 20173 seems credible, meaning that this strategic objective will be accomplished ahead of the original time horizon.
At the start of 2015 Rosatom claimed to have the share of 13% on the global market of natural uranium, 36% of enrichment services (45% in 2011) and 17% (same share in 2011) of nuclear fuel fabrication for light-water reactors4. Also as of the end of 2014, Rosatom’s enterprises were engineering 29 nuclear units, which equaled to 41% of world’s projected reactors5. For comparison, till 2030 Rosatom plans to have around 42% share of enrichment market and 22% of nuclear fuel fabrication one6.
The company seem to have high chances for achieving its strategic goal of being in top-
3 in all the segments. It is so, because the market for natural uranium is quite scattered, meaning the existence of several suppliers, which naturally decreases the relative shares of each of them. What is alarming is that since 2011 Rosatom’s relative share on the market of enrichment services has actually decreased and stayed flat for fuel fabrication, while those segments have experienced tangible growth in absolute terms. Those trends can be partially attributed to the Fukushima syndrome and its effects on global nuclear developments as well as to the fact that competitors’ recovery was also fast enough. However, Rosatom’s shares should grow in the foreseeable future, when the contracted NPPs put into operation, once, as a general rule, they are to be supplied with the Russian fuel, and given the fact that the biggest
1 Originally in [Rosatom, 2015a: 84] the number is stated as 498.8 billion rubles. The amount was converted by N. Minin through the average exchange rate for 2014 due to its volatility, based on [Центральный Банк России, 2015]. 2 Росатом, 2012а: 145. 3 Albawaba Business, 2016. 4 Росатом, 2012а: 150, 181; Rosatom, 2015a: 28-30. 5 РИА Новости, 2015. 6 Rosatom, 2015a: 99. 46 share of the newly constructed NPPs abroad is realized by Rosatom. Thus, 5% growth in 15 years, when most of the current projects should be finished seems to be quite realistic.
The numbers above show that Rosatom actively pursues its external policy and is quite determined to reach the previously outline goals. What is important is that those results are not a one-year phenomenon rather than the positive dynamics of the development are clearly discernible over a period of time since the corporation’s external strategy had actually come into force. Another thing worth mentioning is that ‘a stock of orders, since it is meant for a long period of time, is always a little ahead of revenue in its growth, because atomic projects are long-term’1. Thus, given the interim period is over, further growth of company’s income from foreign operation can be expected, generated from the recently concluded contracts.
Table 2.4: The Progress of Rosatom’s External Strategy
Targeted Indicators 2011 Baseline 2014 Results 2030 Goal
Overseas portfolio 21 units 29 units 78 units
Share of revenues from foreign 30% 40% 50% operations
Share on global market of:
enrichment services 45% 36% 42%
fuel fabrication 17% 17% 22%
Source: compiled by N. Minin from open sources.
However, as it frequently happens, not everything is so immaculate. There are factors that play against the company’s expansion aspirations, particularly those related to Russia’s current economic troubles and its political course. Albeit the corporation cannot do much about Russia’s economic complications, which effectively means that it becomes more difficult to access state money, Rosatom ably lobbies in favor of the nuclear industry that is still among the Russian priority areas.
1 Rosatom, 2014b. 47
Nevertheless, there are already some concerns voiced over Rosatom’s financial well- being. Some experts, like Edward Kee, the Finnish analyst for National Economic Research
Associates, stay moderate in their assessments: ‘While sanctions could damage Russia's credit rating and the ability of the Russian government to raise funds from international sources,
Rosatom's nuclear construction program is unlikely to be affected, unless they get a lot more severe’1. Another layer of complexity is that competition from Rosatom may be tempered by a lack of capital due to plunging oil and gas prices, which are drying up funds to finance new builds2. Taking those factors into consideration, financial analysts have raised doubts about the economic feasibility of Rosatom’s external ambitions, suggesting that it would be difficult for Rosatom to financially support so many expensive projects even with the state funding, while the impact of Western sanctions due to the Ukraine crisis, the potential vulnerability of the ruble and the downgrading of the country’s credit score cast further doubt on whether the
Russian corporation will have the financial means to meet its advertised ambitions3.
Although the most pessimistic opinion has been expressed by Greenpeace, which traditionally bears anti-nuclear stance on developments and companies in the realm, meaning that the situation is apparently not that grim, the problems actually exist, at least potential ones. Even Rosatom itself in 2014 for the first time has recognized the risks associated with the possible sectorial sanctions and politicized decisions with regard to the choice of nuclear technology supplier4. Indeed, ‘limited investment resources of Russia for project financing, limited access to foreign loans and the rise of their costs’5 have been marked among the high risks that the corporation faces.
Once Rosatom’s finance to a certain degree depends on the state budget, the company is probably to face difficulties in the foreseeable future. The recently announced Kremlin’s plans to issue the Eurobonds for $3 billion, which virtually failed in March 2016, when the US
1 Zeman, 2014. 2 Energy Post, 2016. 3 Greenpeace, 2014: 27. 4 Российское атомное сообщество, 2014. 5 Нижегородская инжиниринговая компания “Атомэнергопроект”, 2015: 34. 48
Department of the Treasury followed by the European Commission discouraged their banks to participate in the deal 1 , show that the country actually needs money to cover its bills, especially if minding the track record of its financial history, when throughout 2000s Russia was consistently getting rid of its foreign debt and tried to abstain from foreign lending.
Even more startling, according to Rosatom’s Director for Economics and Finance
I. Rebrov, ‘the corporation needs to broaden the scope of available tools for attracting finance’ and might even issue its own Eurobonds2. This confirms the notion that Rosatom soon might need extra money for its overseas investment projects. As it will be discussed in the respective part of the work, the money attracted through this way most likely to be used in the most vulnerable projects that might lack adequate finance such as Akkuyu NPP in Turkey or Hanhikivi in Finland. Therefore, Rosatom certainly will strive for fulfilling its obligations and sticking to its external strategy as long as it is possible.
2.3. Determinants and Considerations of Rosatom’s External
Policy
Now it is clear where the Russian nuclear corporation heads and what does it aim at in the future. It is also evident that Rosatom’s external strategy plays a key role in the overall company’s plans. However, it is still to be tested what lies behind that particular strategy and what are the drivers for pursuing it. Quite understandably there is a complex of reasons and considerations that had been taken into account when elaborating the company’s global approach, yet conceivably there should be a dominance of one underlying logic and reasoning. In general, this leads to the economics vs. politics issue with regard to Rosatom’s foreign operation. However, such intangible phenomena as prestige and mindset should be also addressed in order to get a complete picture.
1 Инфокс, 2016. 2 Атомный эксперт, 2016: 57. 49
Rosatom’s representative Mr. Komarov expressed it quite univocally: “When Rosatom makes a decision concerning some project, we are guided, first of all, by economic considerations. I do not know any precedent when something would drive us to accept a wittingly unprofitable project”1. However, there is nothing else to expect from the company’s executive. But is it that simple in reality? To answer the question, it is needed to look into the factors that influence Rosatom’s external behavior.
2.3.1. Overall Favorable Economics
Recently one repeatedly hears that nuclear power is uneconomic or uncompetitive, however, in fact, the economic fundamentals of current nuclear power plant designs are not as unsound as is often suggested2. For example, looking at the levelised cost of energy, which is the basis for comparison of the different power generation options, the cost for Rosatom’s new VVER reactors is no more than $50-$60 per MWh in most countries, which allows it to compete with other nuclear vendors and also with conventional energy sectors3.
The nuclear industry has moved a long way in improving its economic attractiveness to investors: improvements in plant availability and operating efficiency have led to reduced electricity production costs for nuclear power4. Indeed, there is no secret that new reactor designs have prolonged life span of at least 60 years and capacity factor of around 90%, while the United States reported an energy availability factor of 91.4%; Korea, Finland and
Switzerland – 91.9, 93.3 and 92.8% respectively5. The existing light water reactors – which make up a majority of the world’s nuclear power fleet – produce electricity at costs between
2.5 cents/kWh and 7 cents/kWh, which makes them cheaper than almost any other source of
1 Rosatom, 2013. 2 Nuttall, 2005: 41. 3 Energy Post, 2015. 4 Nuttall, 2005: 49-50. 5 Brave New Climate, 2010. 50 electricity on the global market today1, while there is always a room for improvement owing to technological progress.
When comparing those figures to, for example, the guaranteed price of electricity secured for Akkuyu NPP for 15 year, which equals to 12.35 cents/kWh2, it becomes apparent that Rosatom is to make profits on the Turkish project. Although not all the power produced will be purchased for that price, which will be addressed in the next chapter, considerable difference between production costs and revenues, which will be certainly preserved for a long period of time, should not only allow for covering the huge capital costs of NPP construction, but also for gaining tangible profits. Given the internal rate of return of foreign projects of 8%-12%3, the investment should re-coup far earlier than the expected end of exploitation. Even sceptics that are far from supporting Rosatom’s activities admit that the costs of nuclear construction projects implemented by Rosatom abroad are noticeably higher than in domestic projects and, thus, may cover the real expenses incurred4.
Another remarkable issue to note here is that recently Rosatom has started to work over the logic of the kW/h cost, which is the most important point for a consumer5. That model of the project evaluation and preparation was used, when preparing for the Hanhikivi project in
Finland, which landmarked a point, when the corporation clearly showed the prevalence of economic logic and considerations. However, it is frequently claimed that the real costs of nuclear projects are much higher than usually admitted, owing to the costs related to the plant decommissioning and spent nuclear fuel treatment. Nevertheless, although costs of decommissioning a nuclear power plant are high, they do not play a major role in the formal calculation of profitability of this or that investment project, since, being deferred far ahead
1 Sovacool, 2011: 39. 2 Росатом, 2016б. 3 Energy Post, 2015. 4 Andreev, 2011: 11. 5 Rosatom, 2014b. 51 into the future, they decrease significantly when discounted1. This point refutes one of the concerns over economic viability of Rosatom’s project assessments.
Profitability rate of foreign projects is another consideration that incentivizes Rosatom to expand. Indeed, comparing the average expected profitability rate of projects inside and outside of the country, the former is 2.3%, while the latter is 6.1%2. Having profitability rate abroad almost 3 times higher than the domestic one, it is economically logical for the corporation to focus on the overseas operations that generate more money.
Unlike public conviction, Rosatom actually cares about financial terms of the deals and does not possess unlimited resources, especially in the currently complicated environment, when owing to the Western sanctions it has become harder for the corporation to get foreign loans and finance, albeit as such it was not targeted. Thus, the company does not blindly offer money rather than elaborates its offers depending on the needs of a customer. In this way,
China and Iran pay for NPP construction directly, India benefits from substantial Russian finance, Belarus, Bangladesh and Hungary will rely on major loans, Turkey will pioneer build-own-operate using Russian finance but with guaranteed long-term electricity price,
Finland will involve Russian 34% equity3. Even when it comes to loans with the use of state finance or the money of the state bank of the Russian Federation, Rosatom makes sure that
‘the funds will be returned with an interest’4.
But it is not all as rosy as it may seem. Nuclear industry bears plenty of risks that may slightly gloom the economics of the projects in the realm. Namely, long construction times place nuclear power plants at great risk of unforeseen changes in electricity demand, interest rates, availability of materials, severe weather, and labor strikes, all of which contribute to severe cost overruns5. In its turn, delays and additional work are natural components of the
1 Andreev, 2011: 39. 2 Нижегородская инжиниринговая компания “Атомэнергопроект”, 2015: 55. 3 World Nuclear Association, 2016a. 4 Energy Post, 2015. 5 Sovacool, 2011: 104. 52 construction process1. According to the industry expert Nigmatulin, one year behind schedule results in a 10% increase in costs2. It can be seen on the example of Areva’s Olkiluoto project in Finland, which is to be 9 years behind the schedule with the original estimated construction costs of €3.2 billion being scaled up to about €8.5 billion3.
2.3.2. Support for Domestic Development
Foreign undertakings constitute an important source of industry orders inside of the country as well as contribute to the economy of scale, which is a visible competitive advantage of Rosatom. Moreover, since the very start of the Russian nuclear industry, when country’s economy was crippling, leaving almost no money for the domestic nuclear development, those were the foreign orders that kept it going. For example, as a result of the
Bushehr project, the Russian fresh-nuclear-fuel production market has revived, because the
Novosibirsk Chemical Concentrates Plant was contracted to produce a full set of fuel rods for the firing-up of the Bushehr reactor core, similarly to the Tianwan NPP in China4.
As it has already been stated, construction of NPPs abroad supports domestic development in different ways. Namely, 4-unit NPP construction by Rosatom provides 24 thousand people with work in different segments of the nuclear industry inside of Russia, while each ruble of the nuclear loan brings 1.8 rubles into economy by way of orders for
Russian enterprises, including fuel supplies, staff training, decommissioning services, etc. as well as each ruble provides for 0.54 ruble of direct income into the Russian budget5. Thus,
Rosatom’s foreign projects of NPP construction increase Russian GDP at the rate of 1:2 compared to the invested money as well as indirectly stimulate economic growth through the creation of additional jobs in the industry6.
1 Jirušek, Vlček et al., 2015: 353. 2 Andreev, 2011: 17. 3 Jirušek, Vlček et al., 2015: 354. 4 Kudrik et al., 2004: 142. 5 Российское атомное сообщество, 2016б. 6 Росатом, 2016б. 53
The nuclear industry is, indeed, among the locomotives of the economy, being also an extremely science-intensive and high technology sphere 1 . Construction and subsequent operation of a nuclear station change the structure of government revenue from exports, which is extremely important amidst falling oil and gas prices2. In general, Russia and its budget are heavily dependent on the exports of raw materials, especially hydrocarbons. This leaves the country vulnerable to the energy price hikes on the global market, which is never a good thing to cope with. Thus, the growing exports of the Russian nuclear technologies bring considerable hi-tech element into the overall Russian exports and additionally provide the country with a stable tax income, regardless of the oil prices.
In this way, in 2014 the corporation paid ₽101.9 bln (+2.9% compared to 2013) in taxes into budgets of different levels 3 , which equaled to $2.66 bln 4 . The US Department of
Commerce projects $740 billion in revenue generation from nuclear power technologies between now and 2025; vast swaths of that revenue will be siphoned into the budget of the
Kremlin, with nuclear energy standing firmly alongside oil and gas as an adhesive to the otherwise troubled economy5. Overall, NPP construction abroad constitutes a high-added- value export income for the energy supplier.
2.3.3. Long-Run Perspective
Longevity of the projects is a typical feature of nuclear business. Long-term character of the contracts and deals in the realm points to the need of strategic overview and thinking, so that future prospects should be taken into consideration for decisions made today. It seems that this perspective explains some of Rosatom’s moves and investments that would otherwise be dubious. Thus, it is fruitful to remember that modern nuclear units have planned operating life of 60 years with possible extension, which effectively means that Rosatom, obtaining a
1 Rosatom, 2012. 2 Rosatom, 2016a. 3 Rosatom, 2015a: 195. 4 The amount was converted by N. Minin through the average exchange rate for 2014 due to its volatility, based on [Центральный Банк России, 2015]. 5 Global Risk Insights, 2015. 54 new contract abroad, simultaneously gets an opportunity to offer its goods and services not only for the NPP construction period, but also throughout its whole operation.
By investing in the construction of nuclear power plants in other countries Rosatom gets a foothold into the technical, regulatory and fuels services, which is a high profit business that continues for the lifetime of the plant1. Thus, for Moscow the focus may be less on making a profit on the reactor itself than on operating the plant and on supplies of fuel over its lifespan2.
It is primarily those additional services and goods contracted alongside the NPP construction itself that will generate the long-term revenues for Rosatom. With the implementation of the
BOO model Rosatom will also be getting profits from direct electricity sales in the markets of respective countries, which is expected to be a profitable business.
Another service, provided by the company and aimed at the long-term perspective, is a nuclear waste disposal. Albeit Russia is the only or almost only country that is ready to accept it on its territory, the business itself is deemed to be profitable. However, apart from the money Rosatom gets for the services, it also might get extra benefits in the future.
Particularly, the service at stake is connected to the breeder reactor projects, because it is inclusively from this foreign spent nuclear fuel that the Russian nuclear industry assumes it can extract energy-grade plutonium3. Thus, completing the program, which is currently under way, with the BN-800 reactor being recently connected to the grid and capable of working on
MOX fuel, Rosatom will start making profits on what is considered as waste today.
Moreover, taking over unattractive nuclear project such as, for example, Bushehr NPP in Iran, which had brought political headache due to the proliferation concerns and had financially repulsive track record (in July 1979 Germans suspended all operations at the
Bushehr site after Iran ran up big debts for the work already completed4), has its own logic. In the long-run the completion of one unit, which might be questionable economically, may pay
1 Nuclear Diner, 2014. 2 Reuters, 2013. 3 Kudrik et al., 2004: 161. 4 Khlopkov, Lutkova, 2010: 1. 55 off with a vengeance, once subsequent contracts are concluded. That is what had happened, when after finishing the first Bushehr unit, Moscow and Teheran signed an intergovernmental agreement making it possible for Russia to build eight nuclear units using Russian technologies and a contract to build two new Bushehr units based on a Russian design; or after finishing first two units in India, Rosatom also has got contracts for the construction of two new units in Kudankulam and a roadmap for another 12 units1. It can be seen that on the markets of newcomer developing countries that are hungry for energy there is a wide room for multiplying effects in the long-run that Rosatom takes into consideration.
2.3.4. Prestige and Mindset
Nuclear power has, since its inception, been associated with complex notions of progress and modernity that make it seductive 2 . It is pretty common that prestige considerations play into a country’s decision to embrace nuclear energy. In this respect Russia is no exception. Quite oppositely, this notion is far more pronounced in a country that has historically used to consider itself as a great power and used to be (or is a successor of) one of two superpowers during the Cold War. There is a certain mindset regarding the issue that the
Russians has inherited from the Soviet Union. It is widely believed that the countries involved in the nuclear developments have remained global leaders in science and engineering and continue to lead in all measures of technological innovation3.
That is exactly why the Russian public opinion in general is quite positive about nuclear energy, caring, for example, far less about environmental concerns. The Russian Public
Opinion Research Center took a poll in April 2012 on the anniversary of the Chernobyl accident, which found that 27% of Russians support nuclear power development – up from
16% in 2011, 38 % agree with the present level4. The positive dynamic is present, with the majority of the population supporting nuclear energy, while 2011 results can possibly be
1 Saint Petersburg International Economic Forum, 2015. 2 Sovacool, 2011: 250. 3 Nuttall, 2005: 44. 4 World Nuclear Association, 2016b. 56 attributed to Fukushima accident. However, it is hardly possible to find anyone in the country, who would oppose nuclear technology in general, including nuclear weapons. As Rosatom’s
CEO S. Kirienko expressed it:
“It is the fact that atomic energy is not just nuclear power plants. Atomic energy is the entire nuclear weapons shield of this country. And in many respects in the 1990s, after the country's disintegration and with failure of our economy, we remained among countries termed as great powers and had to recon only because of this. I can say for sure. If a country phases out civil nuclear power, then it's a matter of time... Maybe 10 years, maybe 15 years, 20 years if you are lucky, and you don't have a competitive weapons complex”1.
Thus, the perception of the nuclear industry in Russia is tightly connected to the notion of national pride and prestige, while growing nuclear exports are seen as a sign of country’s technological advancement and economic power. Those notions definitely contribute to
Rosatom’s growing overseas aspirations as well as foster Russia’s support to the corporation, being part of the company’s reasoning for pursuing its current external strategy.
2.3.5. Political Gains
It is a widespread perception of Russia and its state energy enterprises that the energy relations are commonly manipulated and misused by the country’s political elites, which has historical origins. Since the Soviet era, Moscow’s energy supply and pricing schemes have been ‘dual use’ in nature, serving both as a hard currency revenue generator and a source of ever-expanding strategic leverage over consumer countries and their energy sectors2.
With the implementation of the BOO model, according to some analysts, things might only get worse, because it will effectively mean that Russia through Rosatom will control and operate an important object of infrastructure, essential for the host country’s energy supply, leaving it hostage to the Russian political will and giving that country an unjustifiable grip on
1 Rosatom, 2011. 2 Jirušek, Vlček et al., 2015: 24. 57 its client. Additionally, Russia’s presence abroad will provide Moscow with intelligence opportunities that would otherwise be extremely difficult or next to impossible to obtain1.
Thus, it is frequent that Rosatom’s bids are perceived through the political lens. While the corporation is separate from the state, its funding is closely tied to the state budget2. This means that to an extent it is dependent on the Russian political decision-making and also might strive for maximizing country’s influence abroad through whichever means at its hands, following the strategic line of the state.
Nevertheless, this political reasoning for Rosatom’s foreign activities should definitely be taken into account with modesty. The point is that Rosatom globally faces tangible competition from other companies of the nuclear sector that are capable of replacing it as nuclear technology or even fuel supplier. For example, albeit the Russian offer is more financially attractive due to the economy of scale, Westinghouse, joined by its partners, is capable of fabricating fuel assemblies for the Russian design reactors: namely, Westinghouse
(Sweden and United Kingdom), ENUSA (Spain) and NNL (United Kingdom) have considerable experience in developing, licensing and manufacturing Westinghouse VVER-
440 fuel in combination with operating experience at the Loviisa NPP in Finland from 2001 to
20073. Westinghouse Electric Company also supplied fuel to the Czech Temelín NPP (having two VVER-1000 units) since 2002 to the end of 20094. In addition, in 2008 Westinghouse signed a contract for the fuel supplies of nuclear fuel assemblies to the three VVER-1000 pressurized water reactors at the South Ukraine nuclear power plant, which in 2014 was amended, extending Westinghouse deliveries of fuel through to 20205. Moreover, in 2015
Westinghouse Electric Company and eight European consortium partners announced that they have received 2 million euros in funding from the EU to establish the security of supply of nuclear fuel for Russian-designed reactors in the EU, aimed at diversifying nuclear fuel
1 Fukushima Watch, 2016. 2 Daily Maverick, 2014. 3 Westinghouse, 2015. 4 Jirušek, Vlček et al., 2015: 356. 5 World Nuclear News, 2014a. 58 sources in the short- to medium-term1.
China is also capable of fabricating VVER nuclear fuel due to technology transfer, albeit it is entitled to do so only for its own Russian-design NPP in Tianwan. Particularly, in
2009 CNNC started VVER fuel fabrication at Yibin, while another contract with TVEL for generation 2 ‘zirconium’ fuel supplies was signed in 2010, also implying technology transfer; thus, as for now fuel for the Tianwan 2 is fabricated in China under the Russian technology2.
Therefore, facing competition, Rosatom must by any means avoid politicization of its actions in the foreign markets. Any misuse of its position due to political reasons would irreversibly harm the company’s business. That is why Rosatom desperately tries to stay out of politics, refraining from breaching its obligations, even when the political situation gets over-complicated, as in the case of Ukraine.
Another point to make here is that nuclear sector has reduced window for political manipulations due to its inherent characteristics. Namely, it is not dependent on the physical infrastructure: there is no need for pipelines or any special means of fuel transportation, for example. That is why when in 2014 Ukraine banned the transit of Russian nuclear fuel for its
European customers, Rosatom had no problems substituting land transport with the airborne one, which is an alternative licensed mode of transport that allowed for uninterrupted supplies of fuel, including to Slovakia and Hungary3. Moreover, nuclear reactor does not require a lot of fuel for its operation and is not dependent on an uninterrupted fuel supply. Thus, even a small stock of fuel at the nuclear facility is sufficient for securing possible risks, although recognizing probable disadvantages of nuclear fuel stockpiling that can worsen the economic output of the reactor’s operation, when not linked to the operational cycle of a particular unit.
To sum it up, it seems that Rosatom, indeed, has multiple reasons for taking on its external strategy. Apparently, those reasons belong to different logics and are intertwined,
1 Westinghouse, 2015. 2 Jirušek, Vlček et al., 2015: 299-300. 3 Nuclear Engineering International, 2014. 59 forming a mixture of economic and political considerations. However, the analysis of the factors that influence Rosatom’s rush for orders shows that economic reasoning is prevalent, including direct and indirect benefits, while political gains are more of a by-product of the current strategy. Moreover, those are tangibly mitigated by the highly competitive nature of the nuclear market, so that the company pronouncedly tries to keep away from politics.
Rosatom’s close ties to the state per se do not mean that the corporation focuses on serving political interests of the country, which would contradict its own development goals.
Similarly, state support for the corporation does not signify policization of the nuclear energy issues. It is rather economically conditioned: apart from generating state revenues from taxes, support for nuclear projects is logical, because it promotes hi-tech domestic products and is economically feasible for the Russian industry, because the lion’s share of project-related orders goes to the Russian-based companies1.
At the same time, with the run of time those ties become of lesser importance allowing for increasing independence of Rosatom in terms of financial matters. The share of the federal budget funds in the total NPP construction budget is decreasing gradually, and at some point
Rosatom is expected to commission power units out of its own funds2. This is particularly possible, firstly, due to the growing foreign activity of the corporation that generates a good share of its overall revenues. Secondly, domestically the threshold volumes of trades concluded at regulated prices are decreasing gradually for Rosenergoatom enterprises, and the
Concern is starting to sell more and more electricity on the open day-ahead market, where trading is done at higher prices, which starts to bring in significant profit3.
1 Росатом, 2016б. 2 Andreev, 2011: 13. 3 Ibid: 47. 60
2.4. Key Features of Rosatom’s External Strategy
At this point it is necessary to focus on particular patterns of Rosatom’s behavior, with regard to the company’s external policy. Distinguishing those features of corporation’s external strategy is essential for the analysis herein.
2.4.1. Image-Making
Rosatom puts tangible efforts in improving its image and perception worldwide as well as in particular markets. Indeed, since the adoption of the company’s external strategy, the issue became of paramount importance and is among top priorities on Rosatom’s agenda, especially given the currently complicated political environment.
As corporation’s CEO S. Kirienko denoted it: “The most important for us is our reputation. We understand that we are in a difficult political situation. Even a slight omission will be used against us and this mobilizes us”1. Realizing that it operates in a very competitive business, the corporation zealously lobbies against any sanctions on nuclear sector. Rosatom has been trying to minimize the negative impact of the crisis in Ukraine on business with the
West, distantiating from it and presenting itself as a transparent and reliable partner, using visibly different rhetoric than Gazprom2. As the head of Rusatom – International Network
Mr. Merten put it: “We don’t go in politics; we do business, which is mutually beneficial”3.
It can also be seen that Rosatom’s PR play an important role. The informative coverage of Rosatom’s activities has drastically risen: it sponsors radio and TV channel domestically as well as some periodicals, including in English aimed at the outside public. In this way, since
2012 Rosatom has published monthly journals, presenting main developments in the realm.
Albeit not all the information presented there is impartial, ultimately that is what PR is about.
It can also be said that Rosatom’s openness to public is growing. Corporation’s annual reports
(including those of its subsidiaries) are publicly accessible both in Russian and English and
1 Saint Petersburg International Economic Forum, 2015. 2 New Eastern Europe, 2015. 3 Rosatom, 2014a. 61 constitute a source of valuable information. Rosatom also annually organizes AtomEXPO aimed at prospective customers abroad. In addition to presenting itself to the foreign companies and energy experts, the corporation also reveals some updates on its activities and performance there.
The company also tries to establish firm connections with the stakeholders in different countries as well as local communities. The wide range of events it takes part in also vividly shows those efforts. For example, in 2014 representatives of Rosatom participated in the work of 6 round tables, 3 committees, 6 parliamentary hearings, 7 conferences and forums, 7 expert councils, 6 working groups, and 20 committees of the State Duma and the Federation
Council1. Another example, the meeting of Rosatom’s executives with the parliamentarians of the Turkish Republic to discuss the NPP Akkuyu draft and the issues of legislative support of nuclear energy and face-to-face meetings of ASE with representatives of Turkish companies and a seminar for prospective vendors on the fields of the 20th International Energy and
Environment Fair and Conference2.
Also particularly with those tasks in mind, Rosatom has developed a network of its regional centers that increase its global representativeness. As it has been previously mentioned, Rusatom - International Network is in charge of their work and performance. It aims at 30% growth of the international proceeds and the reduction of overall sectorial expenditures for the foreign economic activity by 30%, owing to the fact that regional centers substantially reduce business trip and consultancy expenses as well as significantly reduce expenses for regional and local PR events3. By the way, Rosatom frequently has recourse to the latter. For example, in spring 2014 it made certain steps to improve its image on the
European market, including an advertising campaign in several national languages4.
1 Rosatom, 2015a: 116. 2 Ibid: 116, 206. 3 Rosatom, 2014a. 4 New Eastern Europe, 2015. 62
All in all, given Rosatom’s external orientation, the company cares a lot about its reputation. Indeed, in the nuclear realm company’s perception on the side of prospective customers is essential for the business. That is why Rosatom has organized a set of activities aimed at promotion of its good image. With regard to the tense political situation, the corporation tries to distance itself from politics and always stresses the economic nature of its interests and policies pursued. Thus, information support of its activities and global promotion is an important feature of corporation’s external strategy.
2.4.2. Expansionism
As it might be seen, Rosatom is very serious about its external strategy and it is quite determined to achieve the originally stated goals. Striving for maximizing its exports and revenues from foreign operations, the corporation acts assertively wherever it sees market expansion opportunities.
The analysts noted this feature of Rosatom’s behavior on the onset of its external strategy. For example, Renaissance Capital stated that ‘Russia will be a bidder on every tender, globally; Russia will go everywhere’1. Mr. Komarov quite confirmed that notion in one of his interviews somewhat 2 years later: “We work all over the world. If we look at the map of Rosatom activity, we can see that we are everywhere, may be, except for Antarctica, and this is only because nobody needs nuclear technologies there; but if needed, we will also come there”2. In line with that logic, unlike the other competitors, Rosatom had not been discouraged by previous turbulent track record of nuclear tenders in Turkey, so ‘its offer was the only one, because all other potential contenders had just had enough of this nuclear merry- go-round’3. The moral of the story is that Rosatom will bid wherever it is possible.
Remarkably, on the one hand, Rosatom clearly realizes the trends of the nuclear market, where the shift towards newcomers outside traditional regions like Europe and North America
1 The New York Times, 2010. 2 Rosatom, 2013. 3 Bellona, 2011. 63 is becoming more and more apparent. That is why the company lists South-East Asia, Africa,
Middle East and the CIS countries among the most prospective regions for the business1. On the other hand, being well positioned on the market and playing over its competitive advantages such as flexibility and integrity (which will be addressed later in this section), the corporation seems quite attractive to potential buyers, especially those trying to introduce nuclear energy into their energy mix for the first time. In this way, Rosatom is developing cooperation with the Republic of South Africa, Algeria, and Nigeria; negotiations are under way with Egypt, the Emirates, Saudi Arabia, and Latin American countries2.
Apart from that, in order to increase its overseas portfolio Rosatom has no problems with taking over existing programs that have lost the interest of their original investors3. For example, it entered into the Hanhikivi project, which originally had E.ON as its strategic partner. However, when the German company had withdrawn from the enterprise, Russian nuclear corporation saw an opportunity and was quite successful. Ultimately, it is the main contractor for the new Finnish NPP today.
Moreover, in pursuit of the overseas orders, Rosatom is ready to make business with pretty much any interested country, including when it might have some undesirable political implications. The most evident example, which comes up with regard to the point at stake is
Iranian Bushehr NPP. As it was previously mentioned, Minatom (Rosatom’s predecessor) entered the construction deal in 1995, despite of the American tangible opposition to the project and growing Western concerns over proliferation issues, albeit on the conditions that at any stage Iran will not get access to enriched uranium. At the same time, the case is an example of Rosatom taking over the previously abandoned enterprise. Originally Germans were in charge of the Bushehr NPP construction, however, in July 1979 they suspended all operations at the Bushehr site after Iran ran up big debts for the work already completed4.
1 Нижегородская инжиниринговая компания “Атомэнергопроект”, 2015: 28. 2 Komarov, 2015: 50. 3 Greenpeace, 2014: 7. 4 Khlopkov, Lutkova, 2010: 1. 64
Figure 2.5: Rosatom’s Positions on the Global Market of NPP Construction
Source: Rosatom, 2015a: 49.
Thus, Rosatom indeed aims at considerable expansion globally (see figure 2.5), contracting new NPP on different continents and has a special focus on newcomers. Russian nuclear giant is ready to deal with almost any interested state capable of covering the bills as well as entering into the previously abandoned projects.
2.4.3. Expedience
Another feature of Rosatom’s external strategy is arguably essential for doing a successful business. The point here is that making profits drives the corporation’s behavior.
Thus, it uses all the tools available for achieving that goal, including those being questionable from moral point of view. The wide scope of corporation’s methods include ‘offers that the
Western competitors cannot match, such as pricing discounts, higher percentages of subsidized financing, the willingness to waive standard contractual provisions, offers of substantial local subcontracting, pipeline transit deals and the lure of strengthened economic 65 and financial relations with Russian entities more broadly’1. It seems that Rosatom willing utilizes whichever advantages it has as well as opportunities, emanating from regulatory loopholes or positions it has on the recipient markets.
Being a state corporation, Rosatom definitely benefits from the state support, which can take different form. Either state can support company’s activities diplomatically and promote it on the intergovernmental level or it can provide finance for Rosatom’s overseas activities and projects. Rosatom is backed up by the provision of substantial competitive finance for nuclear construction in client countries, as well as readiness to take equity or even build-own- operate2. However, it is worth noting that Rosatom is not exceptional with this regard: hi-tech exports, as a rule, are supported by national governments in a variety of forms and ways such as export loans made by the government and often channeled through dedicated export import banks, governmental guaranties, or direct financing3.
The Russian nuclear corporation is also keen on capitalizing on Russia’s ties and good relations with other countries. It seems that the company has better chances on the markets of countries that have special bond with Russia. For example, as it has been previously explained, Finland historically has special relations with Russia. Therefore, despite the currently complicated situation, Finland is still focused on preserving bilateral economic ties and mutually beneficial cooperation.
Another point here would be Rosatom’s slight neglect for competitive procedures, meaning that the company focuses more on the result rather than the process of achieving it.
In this regard, what matters is the deal concluded and order gained, not the way it was won.
Thus, the corporation does not mind concluding bilateral deals with the prospective customers that bypass public procurement procedures, if regulatory framework or circumstances allow for that. However, if this is not the case, the company follows established rules of the game,
1 Jirušek, Vlček et al., 2015: 27. 2 World Nuclear Association, 2016a. 3 Росатом, 2016б. 66 as in the case of the tender for Czech Temelín NPP expansion, where ‘each bidder [Rosatom included – the author] provided the Czech side with the documentation exceeding 10,000 pages each, while the procurement period itself took several years’1.
Nevertheless, it can be said that Rosatom generally favors bilateral deals as they are more streamlined and take less time. As Deputy CEO of Rosatom’s subsidiary
‘Atomenergoproekt’ D. Paramonov depicted it: “Neither transparency of procedures, tender nor competitive selection is a general requirement and does not mean that the ultimate result will be better than that of direct negotiations. If not for the national law provisions, tenders are reasonable only in newcomer countries that plan massive nuclear energy development, but lack experience, expertise and in-depth understanding of market offers”2.
Overall, Rosatom has recourse to multiple methods and tools aimed at securing deals and new overseas orders. The company benefits both from the direct and indirect state support, when competing for the international projects. In general, it focuses more on the result than on the means of achieving it. Thus, concluding bilateral deals, bypassing competitive procedures and slightly neglecting morals, is deemed to be acceptable.
2.4.4. Integrity
Yet another important feature of Rosatom’s external policy as well as its visible competitive advantage is the integrity of corporation’s offer. Indeed, the Russian nuclear enterprise is arguably the only actor on the nuclear market that is capable of offering the whole scope of goods and services in the realm. According to Rosatom’s Deputy CEO
K. Komarov: “Rosatom is the world’s only nuclear company that operates in all the segments of the value chain, from uranium mining to construction and operation, decommissioning and spent fuel processing”3. Rosatom has a unique offer: it can be a one-stop nuclear shop4.
1 Jirušek, Vlček et al., 2015: 147. 2 Атомный эксперт, 2014: 5. 3 Energy Post, 2015. 4 Pulitzer Center on Crisis Reporting, 2013. 67
Remarkable specificity is that Rosatom came into nuclear waste disposal business.
Under a law signed by Putin in 2001, Moscow also offers to take back radioactive waste, an offer few vendors can match1. This is very important and tempting for prospective customers.
As Saiful Hoque, Bangladesh's envoy to Moscow, said: “We chose Russia because they will take back the spent fuel – no other country has agreed to do that”2. That service, offered by no other country, ‘is a tremendous marketing advantage for the Russians’, says Alan Hanson, who joined the Massachusetts Institute of Technology after 27 years as an executive at Areva,
Rosatom's French competitor3. In addition, once this segment is of considerable interest for prospective customers and Rosatom is one of few, if not the only one, providers, ‘there are no extant prices for such services’4, thus, the price should logically allow for company’s financial benefits. That is why storing of the spent fuel is profitable today, and possessing it could become even more so as plutonium-based fuels become more widely used5.
Moreover, by agreeing to take back and permanently store nuclear waste, Russia is providing something very worthwhile from a nonproliferation perspective and the Russians are good at keeping in compliance with regulations6. Indeed, Russia is one of the key actors of the existing non-proliferation regime, possessing nuclear weapons. Thus, Rosatom’s fuel disposal offer is far safer than national programs of some states that opt for nuclear energy.
Furthermore, apart from goods and services directly related to the nuclear cycle,
Rosatom also offers staff training and education of prospective specialists for the overseas power plants. Rosatom now trains more students in nuclear engineering from around the world than any other nation7. This is yet another important issue for newcomers, who have no experience with operating NPP on their own. Thus, with the Russian assistance they can count
1 Reuters, 2013. 2 Ibid. 3 Pulitzer Center on Crisis Reporting, 2013. 4 Kudrik et al., 2004: 140. 5 The New York Times, 2010. 6 Pulitzer Center on Crisis Reporting, 2013. 7 Nuclear Diner, 2014. 68 on having their nationals properly trained, so that they are capable of operating the plant, when it is connected to the grid.
To sum it up, Rosatom’s competitive advantage on the global nuclear market is its integral offer, possible due to the corporation’s structure, uniting the whole nuclear industry.
The offer means that the company provides the customer with all the necessary services, including nuclear waste disposal, which is exceptional and lowers the proliferation risks.
Apart from that, Rosatom also offers staff training for the countries lacking own experience with nuclear energy. That is why Rosatom and its offer are quite attractive for newcomers.
2.4.5. Flexibility
Quite related to the previous feature and Rosatom’s structure as such, the company is flexible in terms of the offers it makes with regard to particular reactor designs, financial means and terms of construction. This makes Rosatom’s bids customer friendly and provides them with better chances of being selected.
Already concluded arrangements, indeed, demonstrate that Rosatom is capable of agreeing to very different terms of the contracts and models of project implementation. For example, China and Iran pay for NPPs directly, India benefits from substantial Russian finance, Belarus, Bangladesh and Hungary will rely on major loans, Turkey will pioneer build-own-operate using Russian finance but with guaranteed long-term electricity price, while Finland will involve Russian 34% equity1.
Once nuclear projects are very capital intensive, not every country is capable of financing them on its own. However, the needs and capabilities of prospective customers differ considerably. Rosatom’s success in building its book is widely ascribed to the financing terms it is able to offer2, which are quite diverse: ‘attraction of strategic and institutional investors, debt financing, export credits, Russian government credit or the participation of
1 World Nuclear Association, 2016a. 2 Daily Maverick, 2014. 69
Russian state banks, which means that lending rates can be optimized, and up to 85% of the finance may be provided by government credit from Russia’1.
Rosatom also has a certain degree of flexibility, when it comes to reactor designs it offers. Namely, in its current offer the corporation has the VVER-1000 design implemented in projects in China and India with variations, differing on safety and cooling systems as well as seismic features; VVER-1200, which has a slightly modified version for Europe (MIR-1200 or AES-2006E) with extended list of accidents and external impacts including higher seismic tolerance; and VVER-TOI with VVER-1300A as its cheaper version2.
In this way, flexibility of Rosatom adds up to the key features of its external strategy, which helps it to successfully expand overseas. Remarkably, the corporation not only offers different ways of financing, as it could be expected, but also of project implementation as well as reactor configurations.
2.4.6. Superiority
It seems that Rosatom’s external strategy is superior to its internal counterpart, being a driver for the domestic developments. On the one hand, the corporation’s development requires large financial expenditure, which can only be afforded with sufficient money flow, but in this sense, Russia is not a so big market, so only the world nuclear energy market can give sufficient resources for those purposes3. On the other hand, domestically the efforts and investments go into areas that have some prospects in terms of exports. If we look at what is happening inside of the country, at the sites where new reactor construction is underway in
Russia, the obvious export angle will be hard to miss4. Namely, new units at Novovoronezh
NPP and Leningrad NPP are meant to be a referent model for the VVER-1200 reactor design.
It is noteworthy that Rosatom reinvests 5% of its revenues in R&D to safeguard its technological leadership, so that the company will probably be the first one in the world to
1 World Nuclear Association, 2016b. 2 World Nuclear Association, 2016a. 3 Rosatom, 2013. 4 Bellona, 2011. 70 commercialize fast-neutron reactors, floating nuclear power plants and low-capacity reactors1.
According to Rosatom, other prospective areas are services, electric power sales business, isotope production, radiation technology and nuclear medicine, production of fuel assemblies for nuclear reactor of foreign design, water treatment, and energy storage system2.
In this way, apart from the benefits of having closed nuclear fuel cycle, breeder reactors attract attention of the foreign partners: ‘fast reactors represent a technological advantage for
Russia and the BN-800 has been picked up by China, while there is also significant export or collaborative potential with Japan’3, which wants to revitalize its nuclear program. Similarly, low-capacity reactors are on the Rosatom’s agenda, because it is believed that ‘low– and medium–power reactors, are called for all over the world and such projects have a future’4.
Similar story can be observed in the area of floating nuclear units or desalination facilities, where prospective customers have already expressed their wish to cooperate with Rosatom.
Namely, in May 2014 the China Atomic Energy Authority signed an agreement with Rosatom to cooperate in construction of floating nuclear cogeneration plants for China offshore islands; in August 2015 similar agreement was reached between Rosatom and Indonesia’s counterpart; additionally, exports of combined power and desalination units are planned, with China,
Indonesia, Malaysia, Algeria, Cape Verde and Argentina being mentioned as potential buyers
5. However, all that does not mean that technologies are developed solely for exports: floating nuclear power plants, for example, are devised as a means of providing a convenient supply of energy to remote and barely accessible regions of Russia’s Far North6.
All in all, Rosatom’s external strategy is defining for the internal developments, because it is an important source of revenues and add-up to the economy of scale. The export angle is apparent both in NPP construction objects inside of Russia and areas of company’s focus.
1 Energy Post, 2015. 2 Rosatom, 2015a: 78. 3 World Nuclear Association, 2016a. 4 Rosatom, 2013. 5 World Nuclear Association, 2016a. 6 Andreev, 2011: 51. 71
The summarization of the key characteristics of Rosatom’s external strategy is shown in the table 2.6. Therefore, the following framework is to be used in order to approach case studies in the next chapter.
Table 2.6: The Indicators of Rosatom’s External Strategy
Feature Indicators
Image-making Work with local stakeholders
Promotion and information campaigns
Distantiating from politics
Expansionism Related prospects on the other markets
Prospects on the targeted market
Taking over existing or trouble-some programs
Expedience Capitalizing on Russia’s good relation and competitor’s failures
Neglect of competitive procedures
Additional ‘carrots’
Integrity The scope of the offer
Flexibility Financing
Implementation model
Reactor design
Superiority Export angle of domestic projects
Prioritization of overseas projects
Effects on domestic economy Source: N. Minin. 72
III. CASE STUDIES OF THE NUCLEAR PROJECTS IN THE
CONTEXT OF ROSATOM’S EXTERNAL STRATEGY
As the previous chapter shows, Rosatom is guided by its external strategy, when making business overseas. The strategy in its turn is well elaborated in terms of the goals and tools it envisions, allowing for its successful completion. The analysis of that strategy has led the research to devising key characteristics of Rosatom’s behavior overseas that unite and order the corporation’s foreign operations, therefore, providing means for insights into particular international projects in the company’s portfolio.
In this way, the chapter is to be devoted to testing those characteristics or parameters of
Rosatom’s external strategy that have been previously elaborated on the chosen cases of NPP construction projects in Turkey, Finland and Hungary. Hence, the chapter is divided into three sub-chapters respectively, which are identically structured. In the beginning of each sub- chapter short introduction into the case at stake is given, which includes the outline of agreements achieved between the parties and the progress of the projects so far. Ultimately this allows for better understanding of the case and obviates the need to repeatedly give certain factual explanations later on throughout the sub-chapters. Then each case is applied on
Rosatom’s external strategy, particularly its key characteristics. Testing each parameter on three cases allows for better picture of Rosatom’s policy abroad and company’s means for proceeding with it, which is the ultimate goal of this inquiry.
3.1. Rosatom’s Involvement in Akkuyu Nuclear Power Plant in
Turkey
Before starting the testing of Akkuyu NPP case on the external strategy of Rosatom, it seems reasonable to briefly outline the core of agreements concluded, regarding Rosatom’s implementation of the project as well as the current progress on the issue. The 73 intergovernmental agreement on Akkuyu NPP was signed in 2010 as the result of bilateral negotiations, which envisioned Rosatom to be in charge of the project. Once the BOO scheme was arranged, in the end of the same year Akkuyu Nuclear JSC was registered in Ankara as the company, responsible for the project’s implementation with the following shares:
Rusatom Energy International – 74.915%; Concern Rosenergoatom – 21.948%;
AtomStroyExport – 2.267%; Inter RAO – 0.820%; Atomenergoremont – 0.025%;
Atomtechenergo – 0.025%1. Critically Rosatom retained the right to sell 49% of its 100% equity in the project, and it has since sought to do so on multiple occasions, but has failed to find a partner2.
The plan is to build a nuclear power plant at Akkuyu with four 1200 MWe units;
Rosatom also plans to start construction of the Akkuyu nuclear power plant in 2016 and to connect the first unit to the grid by 2020 with the other units connected each following year3.
The Turkish side in its turn guaranteed the price of electricity, produced from the nuclear units, at the rate of 12.35¢/kWh for the first 15 years of each unit’s operation; however, this price applies only to 70% of electricity generated for the first and the second units and to 30% for the third and the forth units, while the rest of the electricity Akkuyu Nuclear JSC will sell on the free market4.
However, so far the progress on the preparatory stage of the project has been relatively slow. Only in December 2014 the Ministry of Environment and Urban Planning of the
Republic of Turkey approved the environmental impact report related to the Turkey’s first nuclear power plant construction project, which allowed laying the memorial capsule at the construction site of marine hydraulic structures of the Akkuyu NPP in April 2015 5 .
Nevertheless, Rosatom expects the project to proceed according to its schedule, regardless of the political strains in the relations between Russia and Turkey.
1 Росатом, 2016г. 2 Turkey Wonk, 2014. 3 Jewell, Ates, 2015: 279. 4 Росатом, 2016г. 5 Komarov, 2015: 64. 74
3.1.1. Image-Making
Rosatom actively lobbies in favor of its interests overseas on the markets of presence and works hard on the establishment of good relations with local stakeholders and on the promotion of its image. Particularly in Turkey, for example, Rosatom in 2012 opened the nuclear power information center with a state-of-the-art infrastructure and a special point on the novelty and uniqueness of information presentation, which is every year visited by hundreds of pupils, students, and residents of the NPP construction region1. Another example here would be that in 2014 Rosatom’s executives had a meeting with the parliamentarians of the Turkish Republic to discuss the NPP Akkuyu draft and the issues of legislative support of nuclear energy as well as face-to-face meetings of ASE with representatives of Turkish companies; the company also organized seminar for prospective vendors on the fields of the
20th International Energy and Environment Fair and Conference2.
As it was previously mentioned, Rosatom puts a lot of efforts into staying out of politics and forging the company’s perception overseas as the commercial player rather than
Kremlin’s tool for pursuing its policies. This feature of the nuclear corporation’s external strategy has become even more apparent in the case of Akkuyu NPP due to the relatively recent considerable worsening of the relations between Russia and Turkey, related to their disagreement over the Syrian crisis. Regardless of the economic sanctions that Russia imposed on Turkey, including those in gas sector with TurkStream negotiations being suspended3, nuclear realm was pronouncedly left out of the political developments. Namely,
Russian President V. Putin stated: “The future of Akkuyu project should be decided on the corporate level. It is purely commercial issue … and business of Rosatom and its partners”4.
Given the Russian reality of strong ‘backstage’ lobbying of different groups, where hard- liners recently got firmer stance, such statement can be the result of Rosatom’s actions,
1 Komarov, 2015: 64. 2 Rosatom, 2015a: 116, 206. 3 Business Monitor International Research, 2015b: 13. 4 Атомный эксперт, 2016: 51. 75 because corporation’s vital interests and positions were threatened by the turbulent developments of bilateral relations between countries.
The Turkish side would also prefer Rosatom to finish the project and leave it out of politics, probably, due to the previous lack of nuclear program implementation consistency and stability as one of the reasons: Turkey has had six attempts at introducing nuclear power, while the reasons for failure have changed over the decades1. As the resigned Turkish Prime
Minister Ahmet Davutoglu said: “There is no reason to halt the planned Akkuyu nuclear power plant with Russia”2. Therefore, the fact that the project’s destiny was set aside of political realm on the level of high politics means that Rosatom should be able to minimize the reputational losses and the image harm.
3.1.2. Expansionism
Turkey is a newcomer country on the nuclear market that so far has no nuclear power generation in its energy mix. This means that the country presents a prospective market with an impressive nuclear power growth potential in the future. Current trends on the Turkish electricity market confirm the notion: according to the Turkish Ministry of Energy and
Natural Resources, the demand for energy has been growing by 5.7 percent yearly on average in the last 12 years and is expected to grow by about 6 percent per year until 2020, which is primarily driven by the power generation sector3. The trend requires Turkey to think about security of supply, once the country already imports a lot of gas, including from Russia.
Therefore, there is a significant nuclear power growth potential in the future, once nuclear energy is frequently referred to as a quasi-domestic source of energy. That is why the Turkish market is of tangible importance for Rosatom and its overseas expansion plans.
Even the fact that Rosatom got a contract for 4 units of Akkuyu NPP at once, when it is more typical to get an order for one or two new units in the Western countries, illustrates that
1 Jewell, Ates, 2015: 275. 2 Reuters, 2015b. 3 Bilgin, 2015: 69. 76
Turkey is a very promising market in terms of volumes that can significantly contribute to fulfilling Rosatom’s expansion goals. Therefore, finalizing Akkuyu project will allow
Rosatom to secure a large presence in the developing Turkish electricity market 1 , also allowing for further contracts and possible expansions in the future.
Those considerations played their role, when Rosatom was consistently bidding for the
Akkuyu project. The point is that Turkey’s fifth attempt to contract NPP took place in 2008, but the tender was consequently cancelled. In line with Rosatom’s expansionism, only a
Russian-led consortium submitted a bid in 2008, despite the lack of interest of other players2.
This confirms the notion that Rosatom is willing to go anywhere, even when the other players hesitate to do so due to various reasons.
Another point to make here is that so far Rosatom has been determined to finish the
Akkuyu project no matter the political developments out of fear of losing its positions on the
Turkish market and share on the global market in general. As for now Turkey will continue to pursue the development of nuclear power stations at three sites – Akkuyu, a Russian-led effort, Sinop on the Black Sea, a joint venture by Mitsubishi and Areva, and at a third as yet to be named site on the western shore of the Black Sea, which is likely to be a Westinghouse- led effort3. That makes the Turkish nuclear market very competitive. Moreover, if Rosatom pulls out of the project, it can be expected that Chinese nuclear companies will attempt to capitalize and win the contract4. That is why despite the crisis in the relation between Russia and Turkey, the Akkuyu licensing process is still progressing, while ‘Russia and contractor company continue the project’s realization’, according to the Turkish Minister of Energy and
Natural Resources5.
1 Greenpeace, 2013. 2 Daily Maverick, 2014. 3 Energy Post, 2016. 4 Business Monitor International Research, 2015b: 32. 5 Российское атомное сообщество, 2016а. 77
3.1.3. Expedience
Rosatom uses the full range of available tools to its best in order to get the contract it is interested in. The company has also demonstrated that, when competing for the Akkuyu project in Turkey. It all started with the 2008 tender, when, as it has been mentioned above,
Rosatom turned out to be the only bidder, while six vendors had planned to participate1.
However, when the tender got cancelled, rather than pursue a new nuclear tender, Turkey and
Russia opted for negotiating bilaterally and came to an agreement for four reactor units2. This definitely shows Russia’s and consequently Rosatom’s neglect for procurement procedures, which are frequently deemed to be unreasonable and excessive.
Interestingly, when a nuclear power plant project was under negotiation with Turkey, for instance, the amount settled on was in the vicinity of $5 billion per power unit, a price that was on level with the initial offer by the French3. The fact that Rosatom was the ultimate winner and contractor for Akkuyu NPP seems to indicate that the company ably uses the whole scope of available means to influence the outcome, even when having similar financial terms with the competitors. Another indicator here is that the Japanese-led consortium that is to build the second Turkish NPP is guaranteed an electricity rate of 11.80¢/kWh4, while
Rosatom secured the price of 12.35¢/kWh for a similar project, which is even in excess of
Turkey’s wholesale price for natural gas – some 9¢/kWh5. This means that Rosatom is quite successful, when compared to its competitors, allegedly precisely due to the fact that it is ready to achieve what it strives for by any means.
Furthermore, Rosatom carefully follows the expectations of the contracting party, being ready to offer various ‘carrots’. For example, in case of Akkuyu NPP the corporation clearly pronounced that the realization of its project will contribute to the infrastructure development
1 Jewell, Ates, 2015: 277. 2 Daily Maverick, 2014. 3 Bellona, 2011. 4 Jewell, Ates, 2015: 279. 5 Turkey Wonk, 2014. 78 of the nearby cities through the construction of new roads, hospitals, schools, sport facilities, as well as it is planned to widely use Turkish sub-contractors for up to 95% of the construction, 40% of the assembly work and 20% of the equipment and materials supplies1.
That clearly made Rosatom’s offer more attractive and was important for the Turkish side, when making the final decision.
Moreover, when the Akkuyu NPP was awarded to Rosatom and in the subsequent couple of years, relations between Russia and Turkey were on their historical high. State involvement in the massive investments such as Akkuyu NPP is decisive, and intergovernmental agreement played an important role in establishing long-term relations2.
The deal with Rosatom showed the good will and among other factors allowed for further intensified cooperation in various spheres. Thus, Rosatom capitalized on the good relations between countries, while, at the same time, the prospects of strengthened relations with
Russia made its offer more attractive.
3.1.4. Integrity
Once Turkey is a newcomer to the nuclear realm, Rosatom’s ability to offer the whole scope of nuclear services was an important factor that played into hands of the Russian corporation. As a result, Rosatom is fully responsible for all the project-related works and services throughout the life span of the NPP. Namely, the corporation is not only in charge of engineering, procurement and construction of the units, but it is also expected to perform service maintenance, upgrading of the NPP physical protection, fuel supplies, spent fuel management and decommissioning of the cite3. In addition, Rosatom will also operate the
NPP and collect the revenues from that (after the 15-year period of guaranteed price Rosatom will pay 20% of its revenues to the Turkish government4). Then Akkuyu might be transferred to Turkey after investment recoupment period under the BOT variation of the BOO scheme.
1 Akkuyu Nuclear JSC, 2013. 2 Bilgin, 2015: 71. 3 Нижегородская инжиниринговая компания “Атомэнергопроект”, 2015: 73. 4 Атомный эксперт, 2016: 51. 79
Figure 3.1: Akkuyu Project Organizational Structure
Source: Akkuyu Nuclear JSC, 2013.
Thus, the whole divisional structure of Rosatom is to be used for the sake of the project
(see figure 3.1) through the sophisticated net of contracts for different works and services. For example, in 2014 in addition to the general construction and fuel supplies contracts AEM signed the first contract for the complete supply of equipment for the NPP island reactor, so that it will provide the nuclear steam supply systems for the four Akkuyu NPP units1.
As it was mentioned, not only the fuel will be supplied by Rosatom’s TVEL company, but also the spent fuel produced at the Akkuyu nuclear plant will be the responsibility of
Rosatom, which may have been an incentive for Turkey to agree to the terms of the contract, because Turkey has no infrastructure to manage spent nuclear fuel, either technically or in regulatory terms2. Indeed, the ability to offer the spent fuel treatment services seem to be paramount for the Turkish side and helped Rosatom to secure the contract.
However, Rosatom’s integral offer went even further. According to the US Nuclear
1 Rosatom, 2015a: 101. 2 Greenpeace, 2014: 31. 80
Regulatory Commission Chairman Allison Macfarlane, Turkey is relying on Rosatom ‘to handle all aspects of the new program, from the construction to the day-to-day operation, and even the regulation’ 1 . The last point is important, because Turkey as well as the other newcomers, lacking previous experience with nuclear energy, might really need an assistance with regard to the regulatory framework that would allow for the smooth introduction of nuclear energy into the country’s energy mix.
Moreover, Turkey lacks any nuclear expertise and people trained to operate nuclear units, after they are constructed. Therefore, Rosatom also provided the educational program of specialist training for the needs of Akkuyu NPP: education is performed in the Russian
National Research Nuclear University in Moscow and its branch in Obninsk as well as in
Saint-Petersburg State Polytechnic University, and in total it is planned to educate up to 600 persons 2 . This project includes stages from the preparation of highly qualified construction/installation and operation personnel to management retraining – both for the nuclear power industry and for the national nuclear regulatory bodies 3. It is particularly remarkable that it was all part of the arranged deal and Rosatom’s offer for the Akkuyu NPP construction, something that is hard to beat.
3.1.5. Flexibility
Another key feature of Rosatom’s external strategy is flexibility. Indeed, Rosatom is capable of negotiating the financial terms rather than sticking to its original offer. It was shown throughout the 2008 tender and subsequent developments. The Russian bid originally offered 21.16¢/kWh, which was nearly three times as high as Turkey’s average wholesale energy price at that time, so in 2014 ASE revised its bid, dropping the price to 15.35¢/kWh4.
However, throughout the course of bilateral negotiations Rosatom agreed to even lower price.
1 Turkey Wonk, 2014. 2 Rosatom, 2015b. 3 Komarov, 2015: 64. 4 Turkey Wonk, 2014. 81
Another issue is the project implementation scheme. In 2008 Russian bid was the only one, because Turkey insisted on its BOT financing model and the tight construction deadlines imposed, and Rosatom at that time was the only player, willing to go for it1. Rosatom was flexible enough to adjust to the expectations of the contracting party, which afterwards played into the corporation’s hands, when it had elaborated its external strategy and started to use its integral offer that perfectly suits into the BOO model as its competitive advantage.
Yet again Turkey preferred the BOO scheme, because it was a newcomer and was not capable of financing such a capital-intensive project on its own. Therefore, Rosatom’s ability to offer attractive financing was crucial for the project. Late in 2012 JSC Akkuyu NPP quoted the cost of the project as $18.7 billion, and in December Russia’s President announced that
Russia would finance the project; later on Turkey’s Prime Minister said that the equity capital of the JSC Akkuyu NPP would be increased to $2.4 billion, and the overall investment in the project would total $22 billion2. Such a considerable amount of money to be offered clearly was possible due to the Russia’s finance provided to Rosatom and variety of tool the company counted on in order to attract funds. Namely, it was planned that Russia will provide 20% of the project’s cost ($4 billion), while 80% will be lent by Rosatom through the state loan or export credit for the equipment; plus, the money obtained from the operation of the first unit was to be used in finalizing of the construction of the other units3.
The last point here is that Rosatom is also relatively flexible, when it comes to the reactor design. The VVER-1200 reactors were contracted for Akkuyu NPP, and the corporation was working on the different configurations and evolution of its AES-2006 design. As a consequence, V-509 modification was arranged for Akkuyu NPP based on the consultations with the Turkish side4.
1 Daily Maverick, 2014. 2 World Nuclear Association, 2015c. 3 Атомный эксперт, 2016: 51. 4 World Nuclear Association, 2016a. 82
3.1.6. Superiority
Superiority, within this research, is meant as the dominance of the external agenda over the domestic developments, so that the former actually conditions the latter. Therefore, to demonstrate this feature on the case of Akkuyu NPP it is necessary to start with the reflections on the effect of the project on the Russian economy. Namely, according to the project plans, the Russian companies would provide about 60% of total volume1. This also means that performing the project at stake Rosatom increases a volume of orders for domestic products and services, which will yield a substantial outcome needed for the development of the national industry: namely, somewhat 10000 new jobs at the active construction phase at the plant itself (with the big share of the Russian specialists) and taxes to the Russian federal budget2. Thus, it can be seen that such a big project as Akkuyu helps Rosatom to keep the domestic nuclear industry running, contributing to the economy of scale that allows the corporation to successfully compete on the global market in terms of price.
Financially the project is very attractive and promising for Rosatom and could contribute to the company’s well-being and economic independence. With the payback period of 17-18 years, which is quite short given the 60-year expected life span of the NPP, internal rate of return of 11.9% and average annual revenue of $4 billion, Akkuyu NPP, indeed, constitutes ‘one of the most attractive investment projects of NPP construction in Rosatom’s portfolio’3. Hence, Rosatom has vested interests in keeping the project going and finishing it.
According to the corporation, ‘in the coming years, the attraction of external debt financing is planned, primarily for large projects on the construction of nuclear power plants abroad, especially the projects on the construction of Hanhikivi-1 NPP in Finland and Akkuyu NPP in
Turkey’4. It can be seen that Akkuyu NPP is one of the main priorities on the Rosatom’s
1 Rosatom, 2015b. 2 Rosatom, 2012. 3 Атомный эксперт, 2016: 52-53. 4 Rosatom, 2015a: 147. 83 agenda, so that the money gained through the possible issuance of Eurobonds by Rosatom is likely to be used to finance it.
The aforementioned facts show that the company ascribes more prominence to its external operations, which are more beneficial than the domestic ones. The fuel supply contract for Akkuyu confirms the notion. As Rosatom’s representative put it: “It is absolutely clear that we will profit more on the fuel supplies to Turkey than on the ones inside of Russia, because we cannot sell fuel within Rosatom more expensive than when exporting it”1. Quite logically this makes foreign projects in general and Akkuyu NPP in particular more tempting than the domestic ones.
Another startling example of the Akkuyu importance and prioritization for Rosatom, which lobbies in favor of the project in Kremlin, is the funding schedule. Rosatom received government funding for the construction of the Akkuyu NPP in Turkey ahead of schedule, in
2013-2015 rather than in 2014-2016, which was funded by changing the schedule for the implementation of the national arms program2. The fact that even the arms program was re- scheduled and slightly postponed, given traditional Russian stress on that area, clearly demonstrates superiority and prominence of external projects, including the Akkuyu one.
The final point to add here is that, as it has been mentioned before, there is an observable export angle of the projects inside of the country, and Akkuyu is part of that angle.
Namely, the reactor design that was agreed on for the NPP in Turkey is based on the
Novovoronezh specimen: the Turkish regulatory authority acknowledged Russian
Novovoronezh NPP-2 with the VVER-1200 reactors as a reference plant for Akkuyu NPP3.
Therefore, it is due to the prospects overseas and the fact that Rosatom needs a reference plant inside of the country in order to attract foreign customers that Novovoronezh NPP-2 project is prioritized domestically.
1 Атомный эксперт, 2014: 25. 2 Interfax, 2013. 3 Komarov, 2015: 51. 84
Table 3.2: Akkuyu Project Examination
Image-making
Work with local stakeholders Meeting with parliamentarians, seminars, etc.
Promotion and information campaigns Modern information center
Distantiating from politics Putin: “Commercial issue”; project is still on
Expansionism
Related prospects on the other markets BOO pilot as the model for newcomers
Prospects on the targeted market Growing electricity market
Taking over existing or trouble-some The track-record of failed tenders since 1950s programs
Expedience
Capitalizing on Russia’s good relation The only bidder in the last tender, friendly and competitor’s failures relations at the time of negotiations
Neglect of competitive procedures Arranged through bilateral negotiations
Additional ‘carrots’ Infrastructure development, local sub-contractors
Integrity
The scope of the offer Full specter of nuclear services, including EPC, maintenance, unit operation, fuel supplies, waste- management, staff training, regulatory assistance
Flexibility
Financing Entire investment on the Russian side
Implementation model BOO model
Reactor design V-509 modification
Superiority
Export angle of domestic projects Novovoronezh NPP-2 reference project
Prioritization of overseas projects Applicable (Eurobonds)
Effects on domestic economy Positive effect, economy of scale, etc. Source: N. Minin. 85
3.2. Rosatom’s Participation in Hanhikivi Nuclear Power Plant in
Finland
This section is devoted to the Hanhikivi project in Finland, which has quite an interesting background. In June 2007 a Finnish consortium of industrial and energy companies created Fennovoima Oy in order to construct a new NPP, with the German company E.ON holding a 34% share, which was eventually sold to the Finnish majority owner and subsequently acquired by Rusatom Overseas in December 20131 . Then three determinant documents on the Hanhikivi NPP were signed: the shareholding agreement, which sets forth responsibility provisions and ratio of shares; the plant construction contract with terms and obligations of the parties; and the contract for nuclear fuel supply2.
Following the 2015 re-structuring of Rusatom Overseas, Rusatom Energy International took over the Rosatom’s shares in the project. Hanhikivi NPP turns out to be another BOO project in Rosatom’s portfolio. However, in contrast to Akkuyu, the Russian corporation has minority share in the Finnish project. Nevertheless, Rosatom was tasked with arranging the adequate finance for Hanhikivi, in addition to the NPP construction as such. While the building cost is estimated at €6 billion, Fennovoima said that when the plant starts operating, the price of electricity for shareholders would be no more than €50/MWh (5 cents/kWh), including all production costs, depreciation, finance costs and waste management3.
In Finland Rosatom will build a one-reactor nuclear power plant with a VVER-1200 reactor to the AES-2006 design; the construction is planned to start in 2017 to commission the power unit for the commercial operation in 20244. Due to the shareholding changes and a new
NPP configuration after Rosatom entered the project, Fennovoima submitted a new EIA in
February 2014, while the whole deal with the Russians was approved by the Finnish
1 Nuclear Energy Agency, 2015. 2 Rosatom, 2014c. 3 World Nuclear Association, 2015a. 4 Rosatom, 2014c. 86
Government in September 2014 and ratified by Parliament in December 20141. In January
2015 Rusatom Overseas announced sub-contractors for the Hanhikivi project, and a year later in January 2016 the digging of the foundation pit on the site of future NPP started.
3.2.1. Image-Making
As it has been previously stated, Rosatom puts considerable efforts into forging its positive image and perception in the targeted markets. The Finnish one, where the Russian corporation is in charge of Hanhikivi NPP and there are already two operating Soviet- designed units in Loviisa, is no exception Thus, it is not hard to imagine that Rosatom has vested interests in Finland and works there to safeguard them. Remarkably, somewhat more than a year before it signed the contract for Hanhikivi NPP, Rusatom Overseas employed
Jukka Laaksonen, a former long-time general manager of the Finnish regulatory authority
(STUK), who became vice president of Rusatom Overseas, where her work was ‘to promote
Rosatom’s technology in the world market in all possible ways’, because she personally knows all the world’s leading regulators from her past activities2. While the tricky side of this transfer will be addressed in the respective part later on, it can be said that Rosatom takes PR and promotion of its products and activities seriously. The case with Ms. Laaksonen also shows that Rosatom deliberately focuses on particular markets of interests, because it is clear that STUK’s ex-head would contribute to the corporation’s promotion in Finland the most.
Furthermore, Rosatom is proud to operate on the Finnish market and cooperate with
STUK, because it is an independent regulatory body in one of the Western countries. So that the Russian nuclear company gladly brands such cooperation as an important indicator of corporation’s matureness and reliability. That is how Rosatom’s Deputy CEO depicts it: “On the one hand, STUK is rightfully considered as one of the world most rigorous and reputable nuclear regulators. On the other hand, the professionalism and experience of Rosatom’s
1 Nuclear Energy Agency, 2015. 2 The Ecologist, 2015. 87 companies ensure full compliance with the stringent requirements, while maintaining the plant cost attractive to the customer”1.
Quite skillful PR of Rosatom seems to be fruitful enough. That can be tracked through the corporation’s perception among the main stakeholders in Finland. For example, Pekka
Ottavainen, who is the Chairman of Voimaosakeyhtiö, the cooperative of Finnish companies that own Fennovoima, claims that ‘Rosatom is very experienced, because Russians have never stopped building reactors’ and that Rosatom’s design ‘complies with Finnish standards and with the highest international safety standards’2. Those are expressions that might be expected from Rosatom’s representatives rather than the head of an independent commercial body. On the other side of the spectrum, there is a public opinion in Finland. In relation to the
Hanhikivi plant, Fennovoima (where Rosatom has 34% share) had started local information campaigns3. As the result, in the end of 2014 social polls showed that ‘two thirds (66%) of the locals support the construction of Hanhikivi NPP’4. The figures seem to confirm the notion that overall Rosatom’s image-making in Finland is present and pretty successful.
3.2.2. Expansionism
Pursuing the project in Finland, Rosatom does not only extend its orders portfolio and geography in line with its expansion plans, but also counts on the tangible future prospects.
Namely, it is the first time in the post-Soviet era that the Russian company will be building a new nuclear power station in the EU5. Therefore, successful realization of the project may prove the company to be a reliable partner for prospective customers, which would subsequently lead to new orders inside of the EU. In a way this can also help Rosatom to preserve its positions in Central and Eastern Europe, which has historically been the traditional area of its interests.
1 Komarov, 2015: 51. 2 Energy Post, 2013. 3 World Nuclear Association, 2015a. 4 РИА Новости, 2014. 5 Energy Post, 2013. 88
Even when it comes to the Finnish market solely, the Russian corporation anticipates expansion prospects. Indeed, Finland is very short of power, so that the country has to import sizeable amounts of electricity it consumes1. Hence, there is a clear demand for building up domestic generation, with nuclear being a viable option, at least because the country already has considerable experience with this source of energy. An interesting note here would be that the Russian sources and Rosatom as such always refer to the project as Hanhikivi NPP-1, which implies that subsequent units are expected in the future.
As it has been stated in the overview of the expansionism characteristic of Rosatom’s external strategy, the corporation is ready to take over the already-existent or even previously abandoned projects. The Hanhikivi project is actually a perfect example of this trend.
Particularly, originally German E.ON held 34% share in Fennovoima Oy, the company tasked with the new nuclear project, however, after Fukushima accident E.ON’s stake was sold to the
Finnish majority owner Voimaosakeyhtiö SF2. Nevertheless, as it is already clear at this point,
Rusatom Overseas took over the project through effectively obtaining E.ON’s shares. An important difference here is that E.ON was just a 34% shareholder in Fennovoima, whereas
Rosatom will, in effect, be in full control of the project3.
3.2.3. Expedience
Russia and Finland have historically had special relations, so that regardless of the international context both countries strived for a mutually beneficial cooperation. Rosatom, using all the means available and opportunities it sees on the foreign markets, seem to have capitalized on those good bilateral relations and previous cooperation. “The Hanhikivi project continues the tradition of large-scale joint Russian-Finnish projects in nuclear power”, according to Igor Igoshin, member of the State Duma Committee on economic policy,
1 World Nuclear Association, 2015a. 2 Nuclear Energy Agency, 2015. 3 The Ecologist, 2015. 89 innovation and entrepreneurship development1. The Finnish side seems to be perceptive to this sentiment. As Mr. Ottavainen expressed it: “I am glad we are the first to sign up with them. We believe they have very capable engineers. Russia is an important trading partner for
Finland and we like to do business with them”2.
Rosatom has also benefitted from Areva’s complications, if not failure, with regard to the construction of Olkiluoto-3. The cost overrun, in addition to considerably breached deadlines, is considerable, to about €8.5 billion and Areva has already made provision for write-down of €2.7 billion on the €3.3 billion project in its accounts, though in mid-2014
Areva’s losses to completion were €3.9 billion3. So quite understandably the Finnish side closely followed what has been going on at Olkiluoto and this has influenced the decision to award Hanhikivi to the Russian corporation4. Rosatom in its turn pronouncedly contrasts itself with such developments, stressing its ability to meet the temporal and budgetary requirements of contracting parties. Albeit it cannot be related to all of the corporation’s projects domestically, Rosatom is capable of sticking to the deadlines, which can be demonstrated on the example of Rostov NPP. Due to the high availability of the third unit of the NPP at stake, it was commissioned and connected to the grid in December 2014, two months ahead of the scheduled date (early 2015)5. However, in general such developments are not typical for the nuclear industry, where ‘delays and additional work are natural components of the process’6.
Furthermore, in line with Rosatom’s conviction that there are no bad ways of achieving the desired outcome, it had recruited Jukka Laaksonen, a former general manager of STUK, to become vice president of Rusatom Overseas. Moreover, Rosatom has also repeatedly expressed its attitude towards the public procurement procedures as towards the necessary evil, at best. For example, Deputy CEO of Rosatom’s subsidiary ‘Atomenergoproekt’
1 Russia Today, 2016. 2 Energy Post, 2013. 3 World Nuclear Association, 2015a. 4 Energy Post, 2013. 5 Nizhny Novgorod Engineering Company “Atomenergoproekt”, 2016. 6 Jirušek, Vlček et al., 2015: 353. 90
D. Paramonov explicitly said: “Direct negotiations are reasonable with customer that has already had experience with nuclear technology. Therefore, call for tender is more of expressing intentions to build NPP and invitation for negotiations with the interested parties.
That was the case of Hanhikivi, when the Russian offer prompted Fennovoima to change the rules of the game” 1 . It can be seen that Rosatom sees such developments as a natural procedure, which can be credibly used, including in the EU country.
On top of that yet again Rosatom is capable of including some important ‘carrots’ into its offer that are attractive for the contracting party. For example, the corporation claims that the project at stake will have a positive impact on the economy of the region in terms of tax revenues and creation of new jobs2. The company also readily involves local sub-contractors in the construction process. For instance, in Finland Titan-2 holding company, which is
Rosatom’s general contractor for the project, in February 2016, signed a contract for 5 years with Finnish Ruskon Betoni Oy on the concrete supplies for the needs of the Hanhikivi NPP construction; the contract means that there will be two new concrete-mixing plants build in
Finland3. This will definitely contribute to the economic development of the region, which plays its role in positive vision of the project on the Finnish side.
3.2.4. Integrity
Once Finland is not a newcomer to the nuclear realm and has its own experience with nuclear energy as well as expertise to operate NPPs, Rosatom’s integral offer for the
Hanhikivi project was less comprehensive than in the case of the Akkuyu one in Turkey.
Nevertheless, there is still an evidence that this feature of Rosatom’s external strategy is present, when applying on the Finnish case.
Firstly, Rosatom signed the EPC contract with Fennovoima, meaning that it will be in charge of all parts and integral stages of the construction process. In this way, as it has been
1 Атомный эксперт, 2014: 5. 2 Russia Today, 2016. 3 Росатом, 2016а. 91 mentioned above, Rosatom, for instance, assigned holding Titan-2 as the general contractor, so the holding will be, in effect, dealing with the works on site till the unit is connected to the grid. Another example of Rosatom’s commitment to fully perform Hanhikivi construction is that in October 2014 the corporation through Rusatom Oversea signed an agreement to develop design documentation for the project with the Russian Atomproekt, while also a low- speed Arabelle turbine from Alstom AEM was contracted 1.
Secondly, along with the quite industry-typical EPC contract, back in 2013 Rosatom also signed a shareholding agreement, which allows Hanhikivi NPP to be classified as the
BOO project. Rusatom Energy International, which was created for and tasked with management of the Rosatom’s BOO projects, via its subsidiary owns 34% of Finland’s
Fennovoima – owner of the Hanhikivi NPP2. Although Rosatom has a minority share in the enterprise, it was entitled with the control over it not only through the construction phase, but also with arranging the adequate financing, which is often branded as part of the corporation’s integral offer. Moreover, the BOO model means that Rosatom will get a direct access to the
Finnish electricity market and will sell its share of generation there. Additionally, the Russian nuclear company also has shared responsibility for the spent fuel treatment and future decommissioning of the plant.
Thirdly, another contract signed in 2013 regarding the Hanhikivi NPP was with TVEL for the fuel supply for the first core and ten years’ reloads3. In this way, fuel supplies to the future NPP were also part of the deal, extending the scope of services provided by Rosatom for the project to yet another area. Overall, the fact that three contracts, covering different aspects of the project, were signed in single package shows that Rosatom, indeed, comes with an integral offer and is ready to provide whichever nuclear-related goods and services a contracting party is interested in.
1 World Nuclear Association, 2015a. 2 World Nuclear News, 2015b. 3 World Nuclear Association, 2015a. 92
3.2.5. Flexibility
Another characteristic of Rosatom’s external strategy is its flexibility, meaning that the corporation makes offers with adjustable provisions and means of financing a project. This is clearly a company’s competitive advantage, because the packages Rosatom can put together are hard for competitors to rival, including due to the strong financial backing from the federal government1. Fennovoima’s share of the capital cost is funded to about 25% by equity contributions and the balance by a loan, which Rosatom is responsible for arranging2. In this way in January 2015 the Russian government approved up to ₽150 bln (€2 billion) in funding from the country’s sovereign wealth fund for the Hanhikivi project, mostly in the form of a loan guaranteed by the export credit agencies3.
It can be seen that, as in the case of Turkey, Rosatom agreed to the BOO model, even with the minority share, because it was the only way for it to get into the project. The point is that the Finnish government agreed to the project, conditional upon at least 60% of the company’s shareholders being Finnish or owned by parties domiciled in the European Union or a member of the European Free Trade Association4. Therefore, Rosatom, indeed, adapts to the legal environment and stakeholders’ expectations on the particular market of interest.
This notion is also applicable to the issue of the future electricity price. Mr. Ottavainen expressed the Finnish negotiation position in the following way: “The price will not be higher than €50/MWh (5 cents/kWh). If it goes higher than that, there will be no deal”5. Hence,
Rosatom did not actually had much of a choice rather than to adjust its offer in line with those conditions, meeting the requirements of the contracting party.
As Rosatom’s spokesperson denotes flexibility that the company had to demonstrate, when contracting Hanhikivi: “In order to get into the project all the enterprises had to make
1 Zeman, 2014. 2 World Nuclear Association, 2015a. 3 World Nuclear News, 2015a. 4 World Nuclear Association, 2015a. 5 Energy Post, 2013. 93 some concessions with regard to the expected revenues. However, they still will not face zero profitability”1. In this way, being flexible enough is crucial for Rosatom’s business and its achievements overseas. Remarkably, Rosatom agreed to accept the price of 5 cents/kWh, compared to 12.35 arranged in Turkey. The difference vividly depicts the extent of corporation’s flexibility, when it comes to the terms of its offer.
The last point here would be Rosatom’s flexibility in terms of reactor design, which played its role in the Finnish case. Indeed, Fennovoima’s Chairman Mr. Ottavainen has clearly mentioned this point when speaking about reasons for choosing Rosatom, indicating that ‘the Russian option was clearly the best’, because the size (1200 MW) of the Russian reactor suited Fennovoima better than the 1600 MW offer from Areva2. Out of its VVER offer, for Europe Rosatom markets MIR-1200, which was also selected for Hanhikivi in
Finland, as AES-2006E, with ‘extended list of accidents and external impacts’, including higher seismic tolerance, and was elaborated into specific V-522 Hanhikivi version3. Thus, the ability to offer some difference with regard to the reactor configurations plays into the hands of the Russian corporation.
3.2.6. Superiority
Yet again, such an important overseas project as Hanhikivi in Finland is expected to have a significant positive effect on the Russian economy in general and domestic nuclear industry in particular. To start with, the Russian side, when deciding on financing has included the Hanhikivi project in the list of the ‘self-supporting infrastructure projects in terms of financial assets’4, so that, by definition, it is regarded as an economically attractive undertaking. Namely, the overall positive effect on the Russian economy is expected to equal
€17.5 billion5. Moreover, Hanhikivi-1 is expected to provide revenues to the Russian federal
1 Атомный эксперт, 2014: 24. 2 Energy Post, 2013. 3 World Nuclear Association, 2016a. 4 World Nuclear News, 2015a. 5 Росатом, 2016д. 94 budget totaling ₽338 billion ($5.2 billion) throughout the whole duration of the project1.
Clearly the corporation is interested in and strives for keeping the share of the Russian works and services at the considerably high level, which contributes to Rosatom’s economy of scale and adds orders to the nuclear industry enterprises inside of Russia, which results into a positive effect of the external operations the corporation focuses on.
Indeed, it is hard to ignore the company’s stress on the external vector of its development, which dominates the internal agenda with regard to the nuclear realm.
Interestingly, as it has already been noted, in the coming years Rosatom plans to attract the external debt finance, primarily for the large nuclear power plant construction projects abroad, especially for the construction of Hanhikivi-1 NPP in Finland and Akkuyu NPP in Turkey2.
This clearly demonstrates that the corporation considers Hanhikivi as one of its most prominent projects in its current foreign orders portfolio. Therefore, it is most probable that
Rosatom will spend the money it might get from the Eurobonds issuance inclusively on the
Finnish project. It seems that the corporation, facing strained funds, ascribes more importance to the projects abroad, also because those are more vulnerable to the cuts in the Rosatom’s financing from the federal budget.
The final point here would be that domestically Rosatom’s nuclear projects it puts most efforts in have an export angle. Similar to the case of Akkuyu NPP, Hanhikivi is also part of that angle. Namely, the Finnish reactor design also has Novovoronezh NPP-2 as its reference project. In May 2014, STUK completed safety assessment of the plant design and explicitly stated that the AES-2006 rector can be designed and constructed in accordance with the
Finnish safety requirements 3 . Therefore, domestically Rosatom works hard on the
Novovoronezh NPP-2 completion, particularly owing to the fact that it needs a reference plant for its most prominent projects overseas.
1 World Nuclear News, 2015a. 2 Rosatom, 2015a: 147. 3 Nuclear Energy Agency, 2015. 95
Table 3.3: Hanhikivi Project Examination
Image-making
Work with local stakeholders Cooperation with STUK
Promotion and information campaigns Public opinion consistently addressed
Distantiating from politics Regardless of Western sanctions on Russia
Expansionism
Related prospects on the other markets EU markets
Prospects on the targeted market Market is short of power, further units
Taking over existing or trouble-some Substituted E.ON programs
Expedience
Capitalizing on Russia’s good relation Russia’s historically good/pragmatic relations, and competitor’s failures Areva’s troubles with Olkiluoto-3
Neglect of competitive procedures Final decision based on bilateral negotiations
Additional ‘carrots’ Positive effect in the region, local sub-contractors
Integrity
The scope of the offer EPC, fuel supplies, unit operation with other shareholders
Flexibility
Financing Rosatom arranges finance
Implementation model BOO model with minority share
Reactor design V-522 modification
Superiority
Export angle of domestic projects Novovoronezh NPP-2 reference project
Prioritization of overseas projects Applicable (Eurobonds)
Effects on domestic economy Positive effect, economy of scale, etc. Source: N. Minin. 96
3.3. Rosatom and the Extension of Paks Nuclear Power Plant in
Hungary
Before the analysis of the Paks extension project in Hungary and its place in Rosatom’s external strategy itself, it seems reasonable to briefly outline the history of Paks NPP and conditions of the concluded deal, regarding Paks 5 and 6. As for now Paks NPP consists of
4 Soviet designed VVER 440 units that were constructed between 1974 and 1987 and underwent uprate afterwards to 500 MWe each1. In the 1980s, the Hungarian government planned to construct two VVER-1000 units as Paks 5 and 6, but the project was cancelled in
1989 due to the decreased power demand; somewhat 20 years later the situation in the electricity market had changed and in 2009 the Hungarian Parliament gave preliminary approval to two new 1000 MWe units for the Paks site2.
The Hungarian company, responsible for the realization of the project, is MVM Paks II, a subsidiary of a state-owned MVM, which in October 2014 was announced to be sold to the state through Hungarian National Asset Management Company for more than $41.9 million3.
Therefore, direct state ownership over the company shows the grip it has on the Paks project.
Neglecting public procurement procedures, in January 2014, Hungary and Russia signed an intergovernmental agreement, concerning Paks NPP expansion. In line with the agreement, the construction could start in 2018, with the first reactor coming online in 20254. In April
2014 a loan agreement followed, stating the terms of the project’s financing with the Russian assistance. Under the terms of the deal, the Russian Federation will grant Hungary an interest- only loan at an annual rate of 3.9%, starting in 2014, while the 21-year payment period will start in 2026, with an interest rate of 4.5% for the first seven years, 4.8% for the next seven,
1 Jirušek, Vlček et al., 2015: 152-153. 2 World Nuclear Association, 2015b. 3 World Nuclear News, 2014b. 4 Daily News Hungary, 2014. 97 and 4.95% for the final seven1. The credit is worth up to €10 billion, representing 80% of the total project budget, while the levelised power cost for the new nuclear units is projected at
€55/MWh 2. In December 2014, three contracts specifying the details of the project were signed regarding EPC, future service maintenance and fuel supplies.
However, the future of the project in its current configuration might not be certain. The deal was already amended, owing to the position of the EU institutions. Namely, fuel was to be supplied solely by Rosatom, but this aspect of the deal was challenged by the EU’s
Euratom Supply Agency, backed by the EC, so the duration of the exclusive contract with
Rosatom was cut from 20 to 10 years3. Moreover, in general the shady way the deal was concluded raised a lot of questions on the side of the European Commission. In November
2015, it announced it had started a legal action against Hungary over the Rosatom contract for the Paks project, expressing concerns about its compatibility with EU public procurement rules, and opened a state aid investigation into the project financing for Paks4.
3.3.1. Image-Making
Rosatom cares about its perception in the markets of interest, so that the corporation tries to increase its presence there and forge its positive image through PR campaigns, building up the network of its offices abroad, etc. With this regard Hungary is no exception.
Namely, at the beginning of 2013 Rosatom opened its Hungarian Marketing Office in order to represent corporation and promote its general business plans as well as to identify local partners and possible suppliers, who are capable of providing quality services or products for
Rosatom’s projects5. Interestingly, the opening of the Office preceded the Paks deal of 2014, so that it was gradually working on preparing the grounds for the Russian participation in the project, because Rosatom definitely had plans to take part in it already at that point of time.
1 Jirušek, Vlček et al., 2015: 148. 2 World Nuclear News, 2014b. 3 World Nuclear Association, 2015b. 4 Ibid. 5 Rosatom, 2016b. 98
Another point that is worth noting here is that according to the organizational structure of Rusatom – International Network, as it has been previously indicated, the Hungarian market falls within the jurisdiction of the company’s regional center in Prague, which is in charge of the whole Central Europe. The presence of a separate office in Hungary shows the importance of the Hungarian market for Rosatom and aims at enhanced PR and promotion of the corporation’s activities there, with the Paks expansion being its major project there.
Particularly, Rosatom does its best to build up good relations with the local stakeholder.
With this respect its Budapest office comes in handy: since its establishment the office works on the localization process. 146 Hungarian companies took part in the first localization seminar, and following a further round with another questionnaire, 60 companies remained on the short list, so that those potential partners are still being examined, regarding their reliability, production capacity, stability, financial results and experiences1. This whole work aims at better connections of the corporation with the local business circles and improving its image through engagement in cooperation.
3.3.2. Expansionism
Similar to the Finnish case, when dealing with the Paks project, Rosatom does not only think about prospects there rather than also takes a broader picture into consideration. The point is that Hungary is a member state of the European Union, and although Paks is expected to be finished after Hanhikivi NPP, successful construction and realization of the Hungarian project may advance Rosatom’s plans within the EU and show that Rosatom is exaggeratedly feared of, especially in the regional context. In this way, Paks expansion falls in line with the expansionism feature of Rosatom’s external strategy.
At the same time, Paks project is important per se in the context of the Hungarian market. In order to successfully expand overseas business, a company should be capable of preserving niches and positions it already has in various national markets. Hence, Rosatom
1 Rosatom, 2016b. 99 has vested interests in the project, which will allow it to safeguard its positions in Hungary.
“Russian reactors are the only experience we have, and we are really satisfied with the design,” said Kristof Horvath, deputy director of the Hungary Atomic Energy Authority1.
Thus, losing the Paks project to competitors would effectively mean that the Russian corporation loses grip in the region of its traditional interests, which would consequently scale down the corporation’s overall expansion plans.
Another layer of complexity that should be referred to here is that Rosatom also might expect further nuclear prospects in Hungary. As for now nuclear power is a major element of
Hungary’s power mix, comprising around 43% of its overall generation capacity2. However, the country is heavily dependent on the energy imports, particularly those of gas. Therefore, increasing share of nuclear, which is deemed to be a quasi-domestic source of energy, can actually increase country’s security of supply, reducing its dependence on foreign imports, which is quite tempting for the Hungarian political circles. To illustrate this, at the end of
2000s the need to build about 6000 MWe of new generating capacity by 2030 was envisioned, which prompted the Hungarian Parliament to give preliminary approval to the plan in March
20093. As it was mentioned before, currently Hungary has 4 nuclear units with the total output of around 2000 MWe, which leaves the room for further expansion even beyond Paks 5 and 6.
Moreover, end of the operational lifespan of the existing units will also contribute to the new opportunities in the Hungarian nuclear market, and Rosatom seems to count on them.
3.3.3. Expedience
Paks NPP project in Hungary is arguably the most illustrative example of Rosatom’s expedience, when it comes to its external strategy and foreign activities. First of all, Rosatom strives for capitalizing on the relations of the targeted country with Russia, whenever it is possible. With this respect Prime Minister Orban’s ‘Eastern opening’ policy, which he
1 Reuters, 2013. 2 Business Monitor International Research, 2015a: 12. 3 World Nuclear Association, 2015b. 100 announced in 2012, played into the hands of Rosatom. Indeed, according to V. Orban, Russia was to play a special role in the Hungarian economy’s recovery in the energy sphere and as a destination for Hungarian exports1. With V. Orban at power, Hungary significantly improved bilateral relations with Russia, which can currently be even classified as friendly. For example, the country supported the South Stream project, which was subjected to the heated debates at the EU level. Furthermore, the Hungarian government, under Prime Minister
Orban, has repeatedly voiced strong criticism over the European Union’s sanction policy toward Russia, stating that it would fail to achieve the EU’s goals and would harm EU member states’ economies2. In June 2015 Hungary was also one of the very few EU member states, besides Finland, Austria and Slovakia to hold bilateral talks with President of the
Russian Federation Vladimir Putin 3 . Due to those reasons, Hungary is often viewed as
Russia’s new Trojan horse in the European Union4.
Quite understandably, such an environment is favorable for Rosatom’s activities and offers in Hungary, and the corporation seems to utilize that to its best. Namely, in January
2014, Rosatom, neglecting procurement procedures, which are, as it has been previously clearly demonstrated, often deemed to be excessive and unreasonable, went for bilateral negotiations and contracted Paks expansion with the Hungarian Government, backed by
Russia and the state loan that was to cover 80% of the project finance5. Furthermore, in March
2015, the Hungarian side classified all business and technical details related to the Paks-2 project for 30 years, so that the public can only guess as to which exact data the decision was based on, as no official feasibility studies on Paks-2 have been made available6. It can also be assumed that such a decision was gladly met by the Russian side, which would perfectly suit into the traditional mentality of secrecy in that country.
1 Marušiak, 2015: 36. 2 Végh, 2015: 55. 3 Marušiak, 2015: 43. 4 Végh, 2015: 47. 5 World Nuclear Association, 2015b. 6 Végh, 2015: 60. 101
Such an obscure deal and the relative rush it was concluded in allowed experts to assume that there were some supplement ‘carrots’ included in the Russian offer to make it more attractive for the Hungarian side. For example, Mr. Biro, senior staff member of the
History Institute operating within the Hungarian Academy of Sciences, indicates that ‘it is probable that the Russian offer included additional components we know nothing about, perhaps regarding a cut in gas prices’1. Indeed, just a year after the Paks deal, Orban agreed with Putin to avert a €3 billion gas payment by rolling over unused volumes from a 20-year- old contract that was expiring that year and to prolong gas supplies for as many as five years, without a new long-term contract 2 . Although stating whether those two agreement are connected or not seems to be unreliable due to the lack of data, if so, such a line of behavior would totally suit into the broader context of Rosatom’s external strategy and conviction that there are no bad means of achieving the desired result.
Nevertheless, Rosatom also had other ‘carrots’ included in its offer in the course of the negotiations. For example, the concluded agreement envisaged that the parties would “make their best efforts” to reach 40% localization level during the construction phase3. It can be noted that involvement of the local companies into the projects is quite typical for Rosatom.
Moreover, other positive economic effects are foreseen: the construction could add 1% to
Hungary’s economic growth per year and up to 10000 jobs4. Thus, in the Hungarian case
Rosatom also used all the available tools to get into the project, also benefitting from the state support in the form of the loan. Moreover, according to the deal, the loan has a variable interest rate, which will rise over time, and the Hungarian side will have to repay in euros instead of national currencies, absorbing the full risk of changes in exchange rates5, which seems to be more favorable for the Russian side.
1 Budapest Telegraph, 2014. 2 Bloomberg Business, 2015. 3 World Nuclear News, 2014b. 4 Reuters, 2014. 5 Greenpeace, 2014: 30. 102
3.3.4. Integrity
As it was briefly depicted at the beginning of this sector and will be circumstantially addresses later on, significant loan from Russia for the purpose of the Paks expansion financing was part of the deal, which played a considerable role in the final decision of the
Hungarian side. Thus, the ability to offer money for the projects abroad adds-up to the corporation’s integral offer that is one of the key traits of its external strategy.
Similar to Finland and unlike Turkey, Hungary has experience with nuclear power, which is an important part of country’s energy mix. As a result, Hungary is certainly competent to run its own nuclear plants without an external assistance, including the provision of parts and maintenance1. In its turn, this means that Rosatom’s integral offer for Hungary is less comprehensive than the one provided for Turkey, because, for example, there is no need for staff training and professional education on the side of the Russian company. However, the aforementioned does not mean that the integrity of Rosatom’s offer cannot be observed in the Paks case and ceases to exist. On the contrary, as in the case of Hanhikivi project, Paks expansion deal consisted of several contracts, dealing with different aspects and segments of the nuclear undertaking.
Namely, in December 2014, MVM Paks II signed three implementation agreements with Rosatom’s NIAEP-ASE, which signified that the construction of the new reactor units will be managed by the Russian nuclear companies, with their technology, and with them providing the fuel as well2. The first document was an EPC contract, meaning that the Russian contractual party shall build a turn-key nuclear units at Paks, the operational life of which is designed to be 60 years3. The second contract was devoted to the service support of the future
1 Jirušek, Vlček et al., 2015: 151-152. 2 Greenpeace Hungary, 2014. 3 World Nuclear News, 2014b. 103
NPP: most of the nuclear energy contracts for maintenance of Paks’ two reactors after completion, worth €6 billion, Hungary awarded to Rosatom’s Atomenergoproekt1.
The third of the signed documents was dealing with the future fuel supplies for the new two units. When it comes to the Hungarian case, Hungary already relies on Rosatom’s TVEL for the fuel supplies for the needs of the already existing units: Paks power plant signed a long-term contract in 1999 and the contract is valid as long as its reactors are operating, including the new service life extensions2. However, the new fuel supply contract covered future Paks 5 and 6 units and stated that Hungary will buy nuclear fuel from Russia for twenty years, while the Russian party had guaranteed a discount to the owner of the plant, in light of the agreement’s timeframe3. The contract was subsequently approved by the ESA with the duration of the exclusive contract with Rosatom being cut from 20 to 10 years, after which time alternative suppliers would be able to bid to supply fuel4.
Another important issue for Rosatom is spent fuel treatment, which is a service that is not typical on the global nuclear market, as it has been previously described. As Mr. Biro from the Hungarian Academy of Sciences noted: “From what the chief of Rosatom has said, it is apparent that the really big business for them is the removal, return to Russia and re- processing of the spent fuel rods, which could suggest that they would cost Hungary an amount comparable to overall project construction costs”5. Indeed, the provisions on the spent fuel were included into the third contract, signed in December 2014. Namely, the parties agreed that the used fuel can be stored in Russia for 20 years or reprocessed by them before being possibly returned to Hungary6. Overall, the Paks case shows that Rosatom prefers comprehensive deals, with multiple goods and services being contracted.
1 Business Monitor International Research, 2015a: 13. 2 Jirušek, Vlček et al., 2015: 151. 3 World Nuclear News, 2014b. 4 World Nuclear Association, 2015b. 5 Budapest Telegraph, 2014. 6 World Nuclear News, 2014b. 104
3.3.5. Flexibility
Rosatom is quite flexible, when it comes to the terms of the deal it can offer. To start with, the Russian corporation willingly negotiates project’s implementation scheme, trying to fulfill expectations of the contracting party. In relation to the case at stake, Prime Minister
Viktor Orban’s chief of staff Janos Lazar said that ‘no supplier other than Russia’s Rosatom would have met the government’s demand of keeping the plant in Hungarian state ownership permanently, while also no investors were interested in the deal under that arrangement’1. The fact that Rosatom was the only bidder to accept Hungary’s requirements indicates that the company has wide opportunities for adjusting its offer to the local environment.
Rosatom’s ability to manage different financing models is to an extent dependent on the state backing. In the case of Hungarian Paks 5 and 6 units, Russia made tangible efforts to support Rosatom’s offer in terms of finance on the conditions that would be attractive for the
Hungarian side. As it was previously outlined, the loan will cover the majority of the project building costs, while the interest rate is flexible, so that overall ‘the loan conditions are good, especially with such low interest rates’2. Definitely not every nuclear supplier would be able to provide such conditions for the project’s financing.
Another point here is that Rosatom is pretty flexible in terms of the technical characteristics of its offers, which are mostly adjustable to a specific project. The Hungarian case poses no exception: following the agreement’s entry into force, the Russian contractor started to design the new units in accordance with site-specific conditions and the technical specifications contained in the agreement3. As a result of negotiations, for Paks expansion the
AES-2006E reactor design of the VVER family was arranged with the contracting party, with its specific configuration V-527 having been modeled for the Hungarian NPP4.
1 Reuters, 2015a. 2 Végh, 2015: 64. 3 World Nuclear News, 2014b. 4 World Nuclear Association, 2015a. 105
3.3.6. Superiority
Owing to the fact that so far the Hungarian project is the least advanced of the cases under consideration in this research, there is not much data and projections available, dealing with the issue of the project’s effect on the Russian nuclear industry and its place within
Rosatom’s strategy. However, it can be said that two units contracted (which is twice as much as in Finland) on the established nuclear market is quite an important order for Rosatom, which will keep its enterprises working: ASE and TVEL were already mentioned as the ones involved and benefiting from the Paks expansion. Therefore, the project is a source of additional orders for the Russian nuclear industry, contributing to the economy of scale.
Additionally, the project is expected to have a positive output and be beneficial for the
Russian budget as such in comparison to far less attractive economics of the projects inside of the country 1 . For example, comparing Paks expansion to Rosatom’s project in Turkey,
Greenpeace concludes: “The Hungarian deal to build two VVER-1200 reactors in Paks certainly was much better for Rosatom than the Turkey contract – at the expense of the
Hungarian government and taxpayers”2. Given that the previous analysis herein shows that overall the Akkuyu project is profitable for Rosatom and Russia, at least the same can be referred to the Paks 5 and 6. For 21 years, Hungarian taxpayers will have to pay almost €1 billion annually, making a total cost of the loan of about €20 billion3, which is as much as double the amount of money that has been originally lent.
The last point here is that the AES-2006E reactor design was approved for the Paks 5 and 6, which implicitly means that the nuclear units also have Novovoronezh NPP-2 as its reference project inside of Russia. Therefore, the export angle of the Hungarian undertaking becomes even more apparent, meaning that Paks extension is yet another project overseas that drives domestic developments.
1 See Andreev, 2011. 2 Greenpeace, 2014: 30. 3 Greenpeace Hungary, 2014. 106
Table 3.4: Paks Expansion Project Examination
Image-making
Work with local stakeholders Localization process
Promotion and information campaigns Hungarian Marketing Office
Distantiating from politics Regardless of Western sanctions on Russia
Expansionism
Related prospects on the other markets EU markets
Prospects on the targeted market Further expansion of nuclear capacity
Taking over existing or trouble-some Not applicable programs
Expedience
Capitalizing on Russia’s good relation Orban’s ‘Eastern opening’, good bilateral and competitor’s failures relations
Neglect of competitive procedures Arranged through bilateral negotiations
Additional ‘carrots’ Gas contract and price, local sub-contractors
Integrity
The scope of the offer EPC, maintenance, fuel supplies and provisional waste management
Flexibility
Financing 80% Russian state loan
Implementation model Permanent ownership of the Hungarian side
Reactor design V-527 modification
Superiority
Export angle of domestic projects Novovoronezh NPP-2 reference project
Prioritization of overseas projects Applicable (loan granted regardless of troubles)
Effects on domestic economy Positive effect, economy of scale, etc. Source: N. Minin. 107
3.4. Summary
All in all, Turkish, Finnish and Hungarian cases that had been chosen for the analysis herein suit into Rosatom’s external strategy and show that the corporation demonstrates a pattern of behavior in its overseas operations. Thus, the case studies of the chosen international projects in Rosatom’s portfolio confirm the notion that the nuclear corporation consistently follows and is guided by its external strategy, when doing business abroad.
Albeit all of the studied cases fit into the framework herein and show some similarity in terms of the strategy implementation, there are some points of particular interest. Namely, image-making shows equal importance, however, the means of dealing with it are quite country-specific. Expedience is also pretty extensively demonstrated in all cases, highlighting company’s preference for bilateral negotiations, which characterizes all of the cases at stake, regardless of the countries’ relations to the EU law. At the same time, the parameter of integrity tangibly differs depending on the customer’s needs. Finally, while all of the features of the company’s external strategy can be traced in the named projects, superiority shows the least of variance, meaning almost the same effect on the overall projects’ implementation. The overall results of the company’s external strategy examination are presented in the table 3.5.
Table 3.5: Case Studies of Rosatom’s External Strategy
Turkish Akkuyu Finnish Hanhikivi Hungarian Paks Indicators NPP NPP NPP Image-making Meeting with Cooperation with Localization Work with local parliamentarians, STUK process stakeholders seminars, etc. Public opinion Promotion and Modern information addressed through Hungarian information campaigns center information Marketing Office campaigns
Putin: “Commercial Regardless of Regardless of Distantiating from issue”; project is still Western sanctions on Western sanctions politics on Russia on Russia 108
Expansionism
BOO pilot as the Related prospects on EU markets EU markets the other markets model for newcomers
Further expansion Growing electricity Market is short of Prospects on the of nuclear market power, further units targeted market capacity Taking over existing or The track-record of trouble-some programs failed tenders since Substituted E.ON Not applicable 1950s Expedience The only bidder in Historically Capitalizing on the last tender, good/pragmatic Orban’s ‘Eastern Russia’s good relation friendly relations at bilateral relations, opening’, good and competitor’s the time of Areva’s troubles with bilateral relations failures negotiations Olkiluoto-3 Final decision based Arranged through Arranged through Neglect of competitive on bilateral bilateral bilateral negotiations procedures negotiations negotiations Infrastructure Positive economic Gas contract and Additional ‘carrots’ development, local effect in the region, price, local sub- sub-contractors local sub-contractors contractors Integrity EPC, EPC, fuel supplies, maintenance, fuel Full specter of The scope of the offer unit operation with supplies and nuclear services other shareholders provisional waste management Flexibility Entire investment on Rosatom arranges 80% Russian state Financing the Russian side finance loan Permanent BOO model with BOO model ownership of the Implementation model minority share Hungarian side V-527 Reactor design V-509 modification V-522 modification modification Superiority Novovoronezh Novovoronezh NPP- Novovoronezh NPP-2 Export angle of NPP-2 reference 2 reference project reference project domestic projects project Applicable (loan Prioritization of Applicable Applicable in the overseas projects (Eurobonds) (Eurobonds) environment of financial troubles) Positive effect, Positive effect, Effects on domestic Positive effect, economy of scale, economy of scale, economy economy of scale, etc. etc. etc. Source: N. Minin. 109
CONCLUSION
All in all, it seems that the goal of devising and analyzing Rosatom’s external strategy as well as testing it on the particular cases of the corporation’s projects abroad has been achieved throughout the research. It has also become apparent what factors and considerations lie behind that strategy and how does the company proceed and implements the named strategy, having tangible chances for success in terms of accomplishing what it had pronounced. Moreover, the complicity of the situation and momentum added to the timeliness of such inquiry.
The research strategy implemented herein has conditioned the structure of the work and allowed for making conclusions it sought. In this way, the analysis of Rosatom’s external strategy and its various aspects has indeed provided suitable framework for addressing the chosen cases and testing it on the prominent overseas projects of the Russian corporation.
Once it was revealed that those projects fit into the company’s course of behavior abroad, the existence and elaborated parameters of the external strategy at stake were confirmed in this research, allowing for its application on the whole population of Rosatom’s portfolio of international projects and foreign operations and providing proper framework for approaching
Rosatom’s behavior overseas, including in the process of political decision-making.
At this point it seems to be necessary to sum up the findings of this inquiry and state the main conclusions herein. Therefore, those turned out to be as follows.
1. State in Russia has historically had a strong grip on the nuclear industry. However, full and direct state control over the industry proved to be ineffective, which had caused the process of reforms. Indeed, the Federal Law that established the State Corporation1 implied
Rosatom’s considerable autonomy from the Russian authorities, concerning its day-to-day business, with the President and the Government mostly outlining the general direction of
1 Российская Федерация, 2007. 110 corporation’s development. Moreover, early in 2012 the government announced that
Rosatom’s civil divisions might be privatized, at least to 49% share in individual entities1.
With the run of time Rosatom’s independence in terms of financial matters increases.
The share of federal budget funds in the total NPP construction budget is decreasing gradually, and at some point Rosatom is expected to commission power units out of its own funds 2 . This is particularly possible, firstly, due to the growing foreign activity of the corporation, and secondly, due to the fact that ‘domestically the threshold volumes of trades concluded at regulated prices are decreasing gradually for Rosenergoatom enterprises, and the
Concern is starting to sell more and more electricity on the open day-ahead market, where trading is done at higher prices, which starts to bring in significant profit’3. In this way, in general Rosatom’s evolution proceeds in the direction of the political component demise and strengthening of the company’s economic nature. Therefore, performing its tasks Rosatom is capable of demonstrating certain independence and free will.
2. Rosatom in its present form is the result of a series of reforms and transformations, aimed at more effective management of the Russian nuclear industry. Moreover, the process is still ongoing, so that the corporation adapts to the pace of its development and the trends on the global nuclear market. This notion is confirmed by the evolution of Rosatom’s external division, regarding which Rosatom is still performing some re-structuring caused by the dynamic development of its overseas operations. As for now, three companies constitute the backbone of Rosatom’s foreign activities. Overall, the external institutional component seems to be adequate to the corporation’s goals, albeit further changes may follow, given its fast expansion. Namely, the development of the new non-fuel and non-power services, such as nuclear medicine, etc., which is stressed in the corporation’s strategy, may give birth to yet another company aimed at foreign markets.
1 World Nuclear Association, 2016b. 2 Andreev, 2011: 13. 3 Ibid: 47. 111
3. Rosatom’s external strategy, while being pronounced in 2011, was not conceived in an instance rather than represents the result of the historical development of the Russian nuclear industry, because the pattern of the Russian export offer that later on became an integral part of the corporation’s overseas strategy can be tracked back to the Bushehr deal with Iran. For instance, yet Minatom was offering a wide range of services related to NPP construction such as staff training and fuel supply. Moreover, despite of the State control over the industry, the project in Iran was chosen due to the economic considerations of getting much needed at those times cash and keep the nuclear industry running, which is also an important component of Rosatom’s current external strategy.
4. Rosatom aspires to become a truly global company. With this regard the corporation had set quite ambitious goals up to 2030. So far Rosatom’s performance and the results achieved with regard to its external policy since its adoption have been remarkable, especially in the light of the Fukushima accident. Overall, it can be concluded that the corporation is on a good track with regard to achieving its strategic goals overseas. What is important is that the positive dynamic of development is clearly discernible over a period of time since corporation’s external strategy had actually come into force.
However, there are factors that play against company’s expansion aspirations, particularly those related to Russia’s current economic troubles and its political course. Once
Rosatom’s finance to a certain degree depends on the state budget, the company is probably to face difficulties in the foreseeable future. The fact that the corporation considers the possibility of the Eurobond issuance confirms the existence of financial complications and the notion that Rosatom soon might need extra money for its overseas investment projects. The money attracted through this way most likely to be used in the most vulnerable projects that might lack adequate finance such as Akkuyu NPP in Turkey or Hanhikivi in Finland. In its turn this demonstrates that Rosatom certainly will strive for fulfilling its obligations and sticking to its external strategy as long as it is possible. 112
5. It seems that Rosatom, indeed, has multiple reasons for taking on its external strategy such as economic benefits, including those in the long run and positive effects on domestic development, prestige and political gains. Apparently, those reasons belong to different logics and are intertwined, forming a mixture of various considerations. However, the analysis of the factors that influence Rosatom’s rush for orders shows that economic reasoning is prevalent, including direct and indirect benefits, while political gains are more of a by-product of the current strategy. Moreover, those are tangibly mitigated by the highly competitive nature of the nuclear market, so that the company pronouncedly tries to keep away from politics. Thus, there is a limited room for political considerations, when it comes to the company’s business.
6. The analysis of Rosatom’s external strategy has led the research to devising the key characteristics of Rosatom’s behavior overseas that unite and order the corporation’s foreign operations, therefore, providing means for insights into particular international projects in company’s portfolio. Those characteristics are meant as follows.
ü Image-making. Information support of its activities and global promotion is an important feature of corporation’s external strategy. With regard to the tense political situation, the corporation tries to distance itself from politics and always stresses the economic nature of its interests and pursued policies.
ü Expansionism. Rosatom aims at considerable expansion globally, contracting new
NPP on different continents and has a special focus on newcomers. The Russian nuclear giant is ready to deal with almost any interested state that is capable of covering the bills as well as entering into previously abandoned projects.
ü Expedience. Rosatom has recourse to multiple methods and tools aimed at securing deals and new overseas orders. In general, it focuses more on the result than on the means of achieving it. Thus, concluding bilateral deals, bypassing competitive procedures and slightly neglecting morals, is deemed to be acceptable in the course of corporation’s foreign operations. 113
ü Integrity. Rosatom’s competitive advantage on the global nuclear market is its integral offer, possible due to the corporation’s structure that unites the whole nuclear industry. The offer essentially means that the company is capable of providing the customer with all the necessary services, also including nuclear waste disposal, staff training and regulatory assistance.
ü Flexibility. The corporation is capable of adapting and adjusting its offers to the needs of a particular customer. Namely, the corporation is keen to negotiate different ways of financing, project implementation as well as reactor designs details, whenever it is possible.
ü Superiority. All in all, Rosatom’s external strategy is defining for the internal developments, because it is an important source of revenues and an add-up to the economy of scale. Indeed, the export angle is apparent both in NPP construction inside of Russia and areas of company’s R&D such as fast reactors, desalination and floating units, etc.
7. The case studies of the chosen international projects in Rosatom’s portfolio confirm the notion that the nuclear corporation consistently follows and is guided by its external strategy, when making business overseas. Therefore, the research’s approach towards depicting and characterizing Rosatom’s external strategy seem to be appropriate for addressing the issue at stake. Albeit all of the studied cases fit into the framework herein and show a certain similarity in terms of the strategy implementation, there are some points of particular interest and relative difference. Namely, image-making shows equal importance, however, the means of dealing with it are quite country-specific. When it comes to expansionism, Rosatom’s aspirations are quite optimistic with regards to the future market growth prospects. Expedience is also pretty extensively demonstrated in all cases, highlighting company’s preference for bilateral negotiation, which characterized all of the cases at stake, regardless of the countries’ relations to the EU law. At the same time, the parameter of integrity tangibly differs depending on the customer’s needs (by definition, same with flexibility, which owes a lot to the state’s support): in Turkey Rosatom provides the 114 whole scope of nuclear services that are related to having nuclear energy in the country’s energy mix, while deals with Finland and Hungary do not include neither staff training nor regulatory assistance. Finally, while all of the features of the company’s external strategy can be traced in the named projects, superiority one shows the least of variance, meaning almost the same effect on the overall projects’ implementation.
In this way, based on what has been depicted above, it can be concluded that the hypothesis of this research, which was formulated in a way that ‘Rosatom deliberately pursues some external strategy and successively implements it, when competing for international projects, aiming at maximizing its revenues from foreign operations’ was confirmed throughout the work. Indeed, the corporation’s external strategy became apparent and proved to be followed through the case studies, while simultaneously having thorough economic grounding and drivers. The analysis also showed that its implementation has been quite successful so far, although political developments may complicate the process and lead to somewhat more moderate results in the long run.
At the end it seems reasonable to outline the prospective areas of further research.
Rosatom’s external strategy is promising and contributes to the understanding of the Russian nuclear corporation’s behavior. Therefore, it might be of added value to analyze some other international undertakings of the company and their place in the overall strategy abroad, including with the aim of finding the outlying cases. Moreover, it might be useful to reflect on the prospective projects and their possible outcome, bearing in mind what has been revealed herein. At the same time, given the importance of the traditional European region for the company, it is also feasible to conduct an inquiry that would deal with the corporation’s presence and prospects in the European Union, which is quite a new environment for
Rosatom. 115
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