Rosatom's Role in Russian Foreign Policy with a Case Study of The

Rosatom’s Role in Russian Foreign Policy with a Case Study of the Astravets Plant in Belarus

MSc Thesis Political Science: Political Economy Research Project: The Political Economy of Energy University of Amsterdam. Graduate School of Social Sciences Amsterdam June 22, 2018

Author: Sarah Poss #10880887 Supervisor: Dr. M.P. (Mehdi) Amineh Second reader: Dr. H. (Henk) Houweling

Table of Contents

Acknowledgements 3 Maps 4 List of Abbreviations 5 List of Tables and Figures 6 Abstract 7 Chapter 1: Research Design 8 1.2 Literature Review 10 1.3 Theoretical Framework . 16 Chapter 2 - Russia’s Political & Economic Structure 21 Introduction 21 2.1 Political Structure: Who Rules Russia? 22 Rising to the top: A profile of Sergei Kiriyenko 28 2.3 Foreign Policy: Principles and Goals 39 2.4 Conclusion 45 Chapter 3 - Inside Rosatom 46 Introduction 46 3.1 About Rosatom 46 3.2 Leadership 48 3.3 Performance & Prospects in the Domestic Market 48 3.4 Rosatom’s Expansion Abroad 52 3.5 Rosatom’s New Industries 58 3.7 Conclusion 61 Chapter 4: A Case Study of the Astravets NPP in Belarus 61 Introduction 61 4.1 A Timeline of Nuclear Energy Developments in Belarus 62 4.2 Financing & Ownership 63 4.3 Russia-Belarus Relations & Justifications for the NPP 64 4.4 Safety Concerns 67

4.5 Political Fallout 70 4.6 Conclusion 72 Conclusions: Rosatom & Russian Foreign Policy 73 References 78

Acknowledgements

A special thank you to Mehdi Amineh, whose advice was as invaluable as his enthusiasm for the politics of energy is contagious. I would also like to thank Dr. Houweling for being the second reader. It is both an honor and an source of motivation to have these two scholars read my work. And to Roman Artyushkin, who supports me endlessly and generously indulged me in my constant talk of Rosatom over the past five months. And finally, I would like to thank my parents for helping me pursue my dreams throughout my life.

Maps Map 1: Russia

Map 2: Belarus

Source: CIA Factbook

List of Abbreviations

NPP - Nuclear Power Plant

CIS - Commonwealth of Independent States

MoU - Memorandum of Understanding

BOO - a reference to Rosatom’s “Build, Operate, Own” model

EAEU - Eurasian Economic Union

FSB - Russia’s Federal Security Service

CSTO - Collective Security Treaty Organization

SCO - Shanghai Cooperation Organization

FAEA - Russia’s Federal Atomic Energy Agency

List of Tables and Figures

Figure 1. Correlation between Russia’s GDP and the price of oil………………………….34

Figure 2. Inflation, disposable income, and labor compensation in the Russian economy....38

Figure 3. Nuclear power plants in Russia…………………………………………………...50

Abstract

The Russian state atomic corporation, Rosatom, has quickly expanded its business abroad since it was formed in 2007. The objective of this research is to clarify the connection between this expansion and the political motivations of the Russian government. Rosatom offers to finance, build, operate, and own nuclear plants in client states, which makes a compelling opportunity for developing countries with increasing electricity demand and little or no experience in the nuclear industry. However, becoming dependent on a Russian state corporation for energy supply is a definitive risk, explored in this research by looking at past occurrences of political involvement by the state in oil, gas, and nuclear energy deals. The case of the Astravets plant under construction in Belarus shows how the political impact of a Russian plant can extend far beyond the borders of the client country, and connects the construction of a nuclear plant with the objectives of Russian foreign policy. The outward expansion of Rosatom is found to coincide with the development of a more globally-oriented yet neomercantilist foreign policy, driven by economic and geopolitical factors.

Chapter 1: Research Design

Objectives The topic of this thesis is the expansion of Rosatom internationally, and how this expansion plays into Russian external policy goals. The primary objective of this research is to understand the extent and nature of Rosatom’s activities with respect to promoting and expanding the use of nuclear energy internationally. A second objective is to understand Rosatom’s role in the global nuclear energy industry now and in the medium term. The final objective is to ascertain how Rosatom’s activities coincide with the Russian foreign policy agenda.

Research question What are drivers of Rosatom’s international expansion, and how does this expansion coincide with the Russian foreign policy agenda?

Sub-questions 1. How do Russian state corporations fit into the political, economic, and foreign policy agenda? 2. How has the role of Rosatom developed over time, and what is the outlook and strategy for the future? 3. What are the potential consequences of reliance on Rosatom for energy security?

Social Relevance The social relevance of this research is multifaceted. First, as a matter of national security for other states, monitoring the changes and development of the Russian sphere of influence is

10 paramount. The Russian government has proved it is willing to forcefully defend its perceived sphere of influence using diplomatic, economic, covert, and military means (Sokolsky, 2017). The promotion of Russia-backed nuclear energy to create long-term dependence in energy-deprived states has the potential to significantly expand Russian influence around the world, and this research seeks to identify if and how this is taking place under the auspices of Rosatom.

Second, for all the scholarship on Russia as an oil and gas giant, Rosatom is a leader in the nuclear energy industry and the ever-growing list of countries Rosatom has made agreements with is a neglected topic of study given the potential influence Russia could gain from pushing nuclear energy adoption around the world, especially in the recent past as the number of deals with Rosatom have more than doubled (Rosatom, 2018). There is a debate among scholars about the nature of Russian energy giants, with some pointing to the economic logic behind their actions while others emphasize actions perceived to be politically motivated, and this research will bridge the gap between those arguments. The work of Minin & Vlček (2017) provides the most comprehensive argument in the peer-reviewed literature in favor of an economic explanation for Rosatom’s expansion, but there are flaws in this argument that this research attempts to address. Lastly, those who are working toward a future powered by renewable energy must be aware and contend with the fact that Russia’s vision of the energy transition includes the use of nuclear energy, making this research is relevant as it highlights the actions Rosatom is taking to ensure that Russia is central to the future of global energy supply and security.

Delineation of Research This thesis is centered on how Rosatom fits within the framework of Russian foreign, economic, and security policy, and how Russia gains influence through Rosatom’s newly-acquired reach into all regions of the world. The research is delineated into the space of Russian policy and outcomes, over the time period since 1991, with brief references to ways the Soviet system has influenced the current behavior of the Russian state.

The main actors in this research are organs of the Russian state, from Rosatom and its subsidiaries, to the Kremlin, security services, the Ministry of Foreign Affairs, and other ministries. Since arrangements regarding nuclear energy are typically organized at the state level, the foreign actors in this research are primarily state actors and state-run companies as well. An exception is in the analysis of Rosatom’s competitors, some of which are private companies.

The time frame under consideration is from the collapse of the Soviet Union until the present time. This research is focused on role of Rosatom in foreign policy, and therefore the development of Russian policy from its Soviet roots through its evolution under the Russian flag will be referenced, but the primary focus is the development of nuclear expansion under Vladimir Putin.

1.2 Literature Review

There is a debate among scholars about the nature and existence of the Russian energy “weapon.” Some conclude that political meddling in the energy industry by the Russian government is a rare occurrence or coincidental byproduct, while others see Rosatom or Gazprom as being inherently political in nature. This literature review covers both sides of this debate in terms of the economic as well as the political arguments to highlight different perspectives on the drivers and motivations of Russian energy giants. It draws on experiences in the oil and gas industry as well as the nuclear energy industry to create a broad view of the motivations and involvement of the Russian state in energy issues.

The Economic Argument

Minin and Vlček (2017) assess whether concerns regarding Rosatom as a political tool is warranted, and conclude that economic motivations are sufficient to explain Rosatom’s external strategy to the extent that political factors are coincidental. They note the competitiveness of the

12 global nuclear industry, emphasizing that regardless of ownership, Rosatom could not survive in the competitive environment if political considerations routinely superseded the economic.

The economic argument highlights the fact that nuclear power plants are becoming more efficient through technological advances that lower the production costs of electricity generated by nuclear energy (Minin and Vlček, 2017). Despite the push for renewable energy on economic grounds, modern nuclear power plants (NPPs) remain an economically sound form of electricity production that is profitable for companies such as Rosatom. For example, light water reactors, the most common type of reactor in service today, have operating costs between USD 0.025/kWh and 0.07/kWh to produce electricity (Sovacool, 2011). Turkey’s first nuclear power plant, the Akkuyu plant being built by Rosatom, has a guaranteed price of USD 0.1235/kWh over a period of 15 years (Rosatom, 2016). Out of four total units, Rosatom receives this price for 70% of the first two units and 30% of the third and fourth (Minin & Vlček, 2017:39). This favorable margin and long time period leaves Rosatom with a handsome profit, especially when considering the growing demand for energy in Turkey, which is expected to grow 6% every year until 2020 (Bilgin, as quoted by Minin & Vlček, 2017). Since the free market will set the price of electricity produced outside the USD 0.1235/kWh agreement, rising demand will result in a similarly rising profit for Rosatom (Minin & Vlček, 2017:39). With a life of 60 years and a payback period of 17 years, Rosatom has made a sound investment (Minin & Vlček, 2017).

The economic argument pertains not only to Turkey but also to Rosatom’s other projects abroad. Compared to domestic projects, the expected rate of profitability from foreign projects is at 6.1% compared to 2.3% inside of the Russian Federation (Minin & Vlček, 2017:39). Making triple the profit can explain Rosatom’s foreign investments outside of any political considerations, though these numbers do not include decommissioning costs or spent fuel management (Minin & Vlček, 2017).

Part of the economic argument is that Rosatom’s engagements abroad are also beneficial to the Russian economy. The construction of NPPs employs around 25,000 people inside Russia, and

13 every ruble invested in a foreign NPP, two rubles come back to the Russian economy, according to Kiril Komarov, the first deputy director general of Rosatom (Rosatom, 2016). Nuclear energy is a high-tech sector that facilitates the development and diversification of the Russian economy. In 2015, Rosatom paid the ruble equivalent of $2.7 billion in taxes to the Russian government, with nearly half (45%) coming from international projects (Rosatom, 2015). In this sense, Rosatom acts in a theoretically liberal fashion, based on economic prospects and opportunities, with the benefit of providing jobs and tax revenue back home.

Another piece of the argument is that unlike with fossil fuels, NPPs don’t rely on a steady, uninterrupted flow of nuclear fuel in the same way that gas does, and fuel can be stored at the facility for a certain period of time in the event of disruption (Jirušek, Vlček, & Koďousková et. al., 2015). The transportation of nuclear fuel is relatively more difficult to interrupt, leaving less room for political manipulation. For example, when the Ukrainian government banned Russian nuclear fuel from being transported by rail through Ukrainian territory, Rosatom was able to fly the fuel to their customers in Bulgaria, Hungary, and Slovakia instead (Nuclear Engineering International, 2014). This disruption was minor and had practically no impact compared to threats to the flow of gas, which relies on pipelines for transit. However, if Russia is the supplier of fuel and politically-motivated actor, the ease of changing transportation methods or routes is irrelevant.

Finally, Rosatom has a number of competitors for new projects but also faces the threat that other companies will replace Rosatom as a technology and fuel supplier. Westinghouse Electric Company LLC and its partners, for example, has a contract with the EU to produce nuclear fuel for a Russian-built reactor in an effort to diversify their sources (Westinghouse, 2015). If Rosatom is perceived as a political actor, other companies can take over their services over the medium-term. It is therefore in Rosatom’s interest to appear apolitical to thrive in a competitive environment.

To conclude this section on the economic argument to explain Rosatom’s activities, there are substantive economic reasons for Rosatom to expand abroad. In terms of Rosatom’s strategy, political advantages for the Russian government are coincidental, and not a part of the logic of expansion. While there are convincing aspects of this argument, other literature presents evidence that Rosatom cannot extricate itself from the political motivations of the Russian government.

The Political Argument The former CEO of Rosatom Sergei Kiriyenko said that, “It is a fact that atomic energy is not just nuclear power plants. Atomic energy is the entire nuclear weapons shield of this country...If a country phases out civil nuclear power, then it's a matter of time …20 years if you are lucky, and you don't have a competitive weapons complex” (Kiriyenko as quoted by Minin & Vlček, 2017). Expressed in this quote is an explicit connection between peaceful nuclear energy use and weapons at the very heart of Russian power. The alignment of foreign and energy policy became explicit in the 2003 Energy Strategy, which stated that: “energy resources and powerful fuel-energy complex were instruments for conducting domestic and foreign policy’ and also that ‘the role of the country on global energy markets to a great degree determined its geopolitical influence’ (as quoted by Minin & Vlček, 2017). To carry out this strategy, federal law states that it is the president’s duty to appoint the Director General and Supervisory Board, and Rosatom’s long-term strategy is approved by the government (Brunnengräber, Di Nucci, Losada, et.al, 2018).

As leaders in the developing world look for sources of cheap electricity, Rosatom has been busy signing a slew of bilateral agreements to promote the use of nuclear energy. In 2017, Rosatom’s international orders made up two-thirds of the market for new plants worldwide. These 34 NPPs in 13 countries were valued at over $300 billion (WNA, 2017). This success is partly due to funding by the Russian government, allowing Rosatom to offer cheaper financing and lower- cost reactors (Saha, 2017). State involvement, however, goes beyond undercutting the market price. Installing a NPP in a foreign country requires a degree of trust and level of strategic

15 mutual understanding, which Sitaras (2018) compares to selling advanced weapons systems. When Rosatom constructs a NPP, the customer state is signing up to become dependent on a Russian state corporation led by people appointed by the Russian government for 60 years, which signifies a strengthening of ties between Russia and the client state (Sitaras, 2018).

Another Russian energy giant, Gazprom, which concede is used as a political tool, is useful for making some comparisons with Rosatom. While Gazprom is limited by geography due to the economics of building pipelines over 4500 kilometers, Rosatom has no such restrictions Sitaras, 2018:28). Gazprom’s clients are mostly European countries with only modest economic growth expected in the coming decades, with the exception of Turkey and China. Rosatom’s clients, on the other hand, are primarily in developing countries with enormous potential for growth (Sitaras, 2018).

In the hydrocarbon sector more generally, supply disruptions were found to occur 55 times in Commonwealth of Independent States (CIS) countries from 1991-2006, with mostly political motivations (Hedenskog & Larsson, 2007). In 2007, the Russian ambassador to Ukraine publicly stated that the outcome of the upcoming election would determine the gas price. After newly-elected president Yanukovych extended the lease at Sevastopol, Russia offered a discount of 30% on exports for a period of ten years (Oldberg, 2011:51). In Latvia, upon a failed bid to get a controlling stake in the Ventspils oil terminal, Russia decided to stop the flow of oil in the pipeline that fed the terminal. Blaming technical problems, the oil pipeline feeding the Mazeikiu refinery in Lithuania was shut down upon the sale of the refinery to a Polish company (Oldberg, 2001:51). These examples put the intersection of foreign and energy policy on display.

A primary aim of Russian energy policy is to decrease reliance on transit countries, which has been achieved to an extent with the Nord Stream pipeline originating in the ports at the Gulf of Finland and the Turkstream pipeline (Oldberg, 2011). Coming back to nuclear energy, it suits the Russian energy strategy well if cutting middlemen in the transport of resources is a key goal since that is not an issue with transporting nuclear fuel. Given the history of Russia using energy

16 supply as leverage in pursuing political interests, it is unclear why Rosatom would not be used in a similar way if deemed politically necessary. In the above examples, carrots and sticks were offered by the Russian government that were outside the purview of the oil and gas companies, so even if Rosatom acts as a purely profit-seeking entity, the government can use a client state’s dependence on Rosatom to extract political concessions or punish ungrateful partners.

Ziegler (2010) writes about oil and gas in ways that are comparable to nuclear power. Like oil and gas, uranium is a strategic commodity, and as the country with the largest reserves of gas and uranium, Russia is involved in relationships of interdependence with its customers. With nuclear power, client countries also become dependent on the services provided by Rosatom throughout the lifetime of their reactors under the BOO model. There are alternatives to both nuclear power and Rosatom as a service provider, but the costs associated with changing types and sources of energy are so high as to be prohibitive, especially in the poorer countries Rosatom is signing agreements with (Rosatom, 2018) (Oldberg, 2011).

The long term commitment constructing a pipeline is similar to the commitment of constructing and maintaining a NPP. A trend of liberalization under Yeltsin was reversed by Putin, who centralized control over strategically important industries. It would be incongruent with Russian policy for the nuclear energy industry to be treated differently than the oil and gas sector. Ziegler contends that Russian policy is neomercantilist, explaining the political nature of energy policy on paper and in practice. He notes that energy relationships are not inherently conflictual, citing the relationships between the US and Canada and the EU with OPEC (Ziegler, 2014). It is a choice to politicize energy policy. If the Russian government subscribes to neomercantilism, Rosatom is at risk of becoming political tool, however, as the economic argument highlights, Rosatom would fail if it couldn’t offer competitive services. Going forward, this research explores a synthesized argument, that Rosatom acts competitively but is nonetheless subject to political influence from the state. That is, regardless of whether the management at Rosatom wants to base business decisions strictly on the profit motive, government ministers, the Presidential Administration, or other officials can quickly destroy the credibility of Rosatom as a

17 neutral actor. For example, in March 2014, Deputy Prime Minister Dmitri Rogozin made comments about nuclear fuel supplies going to Ukraine in light of the unfolding crisis in a meeting of ministers with Putin. He remarked that, “There is also the issue of transit of nuclear fuel via Ukrainian territory to our partners in Eastern Europe, and the issue of fuel supplies for the nuclear power plants in Ukraine itself… A ban on fuel transit through Ukrainian territory is in place at the moment because of the unstable situation in the country” (Kremlin, 2014). Rosatom’s Director General was quick to deny that there was a ban in place and said fuel deliveries would continue on schedule, and this was supported later by Foreign Minister Sergei Lavrov as questions continued over the discrepancy between the public comments on the existence or potential for a ban on sending nuclear fuel to Ukraine (Digges, 2014). Rosatom can quickly become politicized, with or without input or consent from its leadership.

1.3 Theoretical Framework The theoretical approach of this research draws from the fields of international relations and political economy to help explain the role Rosatom serves in Russian strategy. Realism provides the first block of the theoretical foundation, complemented by neomercantilist theory to explain the ideological position of Russian power brokers. This research also draws on the energy weapon model, which adds context to the actions of Rosatom abroad. Prospect theory is used to further understand the Russian government’s actions when engaging in risky behavior, and finally, neopatrimonialist theory will help explain the political and economic structure of Russia to improve the analysis of Rosatom. Following the description of these theories,, three hypotheses are developed.

Neomercantilist Approach Rooted in the realist school of international relations theory where international anarchy, balance of power, and zero sum gains are central concepts, the neomercantilist approach focuses on the connection between economic relationships abroad and competition among rival powers, an apt theory for studying the role of Rosatom as an economic, political, and strategically important entity (Ziegler, 2010). Neomercantilism provides a theoretical framework to interpret the political and economic facets of competition among states in a hierarchical system.

Unlike the liberal view, where economic interdependence theoretically leads to mutual, peaceful development, the neomercantilist view sees the accumulation of wealth as a tool when jostling for a better position in the hierarchy of states (Ziegler, 2010). The mercantilist state intervenes in the economy to facilitate the development of industries considered to be in the national interest, and will protect these industries from external forces through various measures even at the expense of economic efficiency. This includes limiting foreign investment or having outright state control over strategic industries, as seen in the Russian oil and gas sector. (Ziegler, 2014).

Neomercantilism guides this research as it assesses how the state is protecting its nuclear energy industry through direct ownership, building economic ties with other states through the promotion of nuclear energy use, and using business models designed to control different aspects of the global nuclear energy supply chain.

The Energy Weapon Model Stegen (2011) outlines the conditions that facilitate turning sources of energy into political capital. These conditions are: state consolidation of resources, state control of transit routes, and the state using its consolidated resources and control of transit routes to accomplish political goals. This includes not only punishment or threats, but it can also be used to persuade or as a reward. Stegen proposes a fourth stage, the reaction of client states to threats or punishment, to build a more comprehensive energy weapon model, since the strength of an energy weapon depends on the reaction to its use. This model, alongside the realist and neomercantilist approaches, provides a framework for understanding the role that Rosatom plays in the Russian external policy sphere.

Prospect Theory Displeased with the status quo, if Putin’s comment about the greatest geopolitical disaster being the collapse of the Soviet Union is any indication, Russia’s military activities in Georgia, Ukraine, and Syria can be seen as an attempt to recapture the Soviet’s geopolitical might

(Lampert, 2016; Sloat, 2014). These acts of aggression are not for the risk averse. This lack of risk aversion is observable in situations when a perceived loser is attempting to return to a previous, more favorable, status quo, such as when a losing gambler tries to win back his losses or as Putin strives to recover Russia from its weakened state. This is prospect theory. In its essence, prospect theory explains why actors that perceive themselves to be losing are more likely to engage in risky behavior than perceived winners who avoid risks that could upset the favorable status quo (Lampert, 2016). This propensity for risk-taking and the explanation provided by prospect theory guides the analysis and understanding of Russian strategy.

Neopatrimonialism Russia’s political structure can be described as neopatrimonialist, meaning that informal personal networks shape the political and economic environment. In a neopatrimonialist system, loyalty is demanded in exchange for rents within a legal bureaucratic system. Gelman (2016) explains the continuance of neopatrimonialism in post-Soviet states, how the political structure that developed after the Soviet collapse was forged to suit the interests of the elite, which fostered an environment of excessive rent-seeking. Attempts to reform the economic structure of these countries revealed the ineptitude of institutions to serve broad interests, so small reforms often have negative effects. Since major reforms would undermine the system of the ruling elite, they lack the will to do so which disincentivizes reform and perpetuates the cycle of slow development (Gelman, 2016).

Gelman describes the Russian social order as neopatrimonial for several reasons. First, collecting rents is described as a main goal of governance throughout the government. This system lends itself to a hierarchy with decision-making monopolized by single power base. Autonomous decision-making outside the power base is subject to conditions or reversal, and the formal power of institutions reflects the hierarchical system or power vertical, which is comprised of rival groups that fight for influence up the hierarchy (Gelman, 2016). Neopatrimonialist theory sheds light on the political structure in Russia, which contextualizes Russian policy as well as Rosatom’s role domestically and internationally.

1.4 Argumentation and Hypotheses

This thesis puts forth three hypotheses to be tested. These hypotheses are rooted in the literature and theory regarding the nature of Russian efforts using economic tools to forge a dependence on Russia for energy security. These hypotheses form the argumentation to answer the research question: What are drivers of Rosatom’s international expansion, and how does this expansion coincide with the Russian external policy agenda? This research considers the expansion of Rosatom in the context of Russian external policy goals. Russian foreign policy is has been historically geared toward using energy giants to political ends, therefore, Rosatom’s growing influence in the nuclear energy sector will likely impact Russian external policy options. This research aims to specify the relation between Rosatom’s activities and the external agenda. With this argumentation, the following hypotheses are developed:

1. Rosatom’s foreign NPP and mining projects are subject to political interference, even if business decisions are based on sound economic judgement. In accordance with neomercantilist theory, economic relationships abroad are pursued to the extent that they strengthen the security situation at home. The inseparability of the state and economic affairs in theory and the observable dynamic in practice in the oil and gas industry, it is reasonable to hypothesize that, despite the claims to the contrary, political factors help explain Rosatom’s expansion.

2. Rosatom seeks to increase its importance in the global nuclear energy supply chain, though its efforts are only moderately successful. While the number of countries Rosatom has made agreements with has risen, it is unlikely that all of these states will one day host a Russian NPP. While many agreements have been signed, there have also been a number of projects that have been cancelled. This research aims to examine the extent to which Rosatom is successful in managing a project from start to completion, and how much of a threat it poses to opponents of Rosatom’s expansion.

3. Rosatom has successfully increased dependence worldwide on the Russian nuclear sector,

21 resulting in increased foreign influence for the government. The analysis of Rosatom’s activities reveals the extent of their involvement in the energy affairs of other states. This involvement may have positive effects for the Russian external policy environment, to be explored through the case study. This topic is explored in the final sections of this research.

1.5 Data and Method

This research uses a qualitative method. The influence that nuclear energy development brings to Russia via Rosatom and the extent that Rosatom act as a tool of external policy cannot be directly measured. This research therefore relies on indirect measures to understand this phenomenon. To understand Russian foreign policy, official documents and statements as well as scholarly interpretations of Russian policy and actions will be used to see how promoting the use of nuclear energy suits foreign policy goals. An assessment of the Russian economy and political system to bridge the gap between aspirational policies and realistic opportunities will draw on data from the OECD’s Economic Forecast Summary (2017 & 2018) and academic articles to grasp the challenges and future prospects for the Russian economy.

The current state of Rosatom’s engagements will be established through data acquired from the Rosatom website, and informed by data from BP’s Nuclear Energy Statistical Review, the Nuclear Threat Initiative organization’s Russia page, and academic articles that shed further light on the issue namely NTI (2017), Rosatom (2018), and BP (2017). With an understanding of Russian politics, economy, policy, and how Rosatom is affected by these areas, it becomes possible to address the research question and sub-questions.

1.6 Structure of Thesis

This research is divided into five chapters each with multiple sub-sections. The first chapter focuses on the research design and has six sections covering the research objectives, research questions, the literature review, relevant theory, hypotheses, research methods, and thesis structure. The theoretical approach provides a framework to understand Rosatom’s place in

Russian external policy. The literature review outlines the debate over the drivers of Rosatom’s expansion, with one side favoring an economic argument and the other viewing political and economic drivers as inseparable. In the second chapter, the first of six sections examines the political structure in Russia, with particular emphasis on the consolidation of institutions, management of the elite, and how the existing power structure under Putin evolved and shaped the political and business environment. The second section is about the Russian economy, from the current state of the economy to the effect of authoritarianism and the role of energy in the economy. The third section covers Russian foreign policy, regionally and globally, particularly regarding the ways energy issues have played an important role in foreign policy and the relationship between energy giants and Russian energy security. These sections will uncover the political, strategic, and economic drivers underlying Rosatom’s expansion abroad. Each section balances official policy and statements with outside analysis of how stated policy and aims have worked in practice. The final section concludes the chapter by connecting the economic and political environment to the tenets of neomercantilist theory, which begins to answer to the first hypothesis regarding Rosatom’s vulnerability to being used as a political tool.

Chapter three will examine the nature of nuclear power in Russia and analyze Rosatom itself. The original aspect of this research lies in the analysis of Rosatom, in terms of identifying the scope of its international activities and how Rosatom’s outreach abroad has changed over time. The data for this section is sourced from the Rosatom website and reports from the partner ministries in client countries (Rosatom, 2018). This will answer the second sub-question about the development and scope of Rosatom’s reach. It is divided into six sections, from the history of Russian nuclear energy agencies, the structure and leadership at Rosatom, the domestic nuclear energy industry, Rosatom’s expansion abroad in terms of building power plants and opening mines, Rosatom’s new industries beyond nuclear energy, and a conclusion.

The fourth chapter is focused on assessing the possible implications of growing Russian influence in a Rosatom client country. A case study is used to examine how Rosatom’s activities

23 and Russian political aims are intertwined in a specific example. The subject of this case study is the Astravets NPP under construction in Belarus. The first section provides a background on the use of nuclear energy in Belarus. The next sections focus on Russia-Belarus relations, financing of the plant, safety issues which reflect on Rosatom’s performance, and the political repercussions of building this plant for Russia, Belarus, and their neighbors. This chapter addresses the final hypothesis and concludes with a review of how the Astravets case exemplifies the overlap of NPP construction and Russian foreign policy goals using prospect theory.

Finally, after describing the domestic situation, foreign and energy policy, and gaining a deep understanding of Rosatom’s activities abroad, conclusions are made about the findings. Chapter five revisits the research questions, hypotheses, and objectives of the research to draw conclusions.

Chapter 2 - Russia’s Political & Economic Structure

Introduction

The role that Rosatom plays in the Russian economic and political sphere can only be understood by thoroughly grasping the nature of the Russian economy, political system, and relevant policy areas, which is the focus of this chapter. This chapter covers sub-question #1: How do Russian state corporations fit into the political and economic structure? It also explores the first hypothesis, that Rosatom’s activities are inherently political, even if they are based on sound economic judgement, in line with the neomercantilist leanings of Russian policy. Another purpose of this chapter is to set the groundwork for later chapters analyzing the activities of Rosatom.

The first of five sections examines the Russian political structure. The second section is about the economic structure and energy sector in Russia, reviewing the current state of the Russian economy as well as the medium-term outlook to help understand the capabilities of the Russian government. The third section covers Russian foreign policy, regionally and globally, particularly regarding the ways energy issues have played an important role in foreign policy. These sections will uncover the political, strategic, and economic drivers underlying Rosatom’s expansion abroad. This chapter concludes in the final section by connecting the economic and political environment to the tenets of neomercantilist theory, which begins to answer to the first hypothesis regarding the inherent political nature of Rosatom.

2.1 Political Structure: Who Rules Russia?

This section focuses on the development of the power structure in the Russian political sphere. As Vladimir Putin has secured a fourth term as President, having developed his power base since becoming acting president in 1999, it is worth considering how he consolidated institutions and

25 managed the elite to form the system we see today. The “power vertical” or hierarchical structure, applies to both the neopatrimonialist personal networks and shaping of institutions to increase the power of the president.

Consolidation of Institutions One of the early moves in Putin’s administration, in May of 2000, was to undermine the power of governors by appointing presidential envoys in seven federal administrative districts that would report to the president and execute his orders (Carbonnel, 2013). In July of that year, the president gained the power to unseat governors if they broke federal law. In 2004, the nomination of governors came under the purview of the president, though the nominee required consent from the regional assembly. If the regional assembly voted against the president's nominee twice, the president was permitted to appoint an acting governor and dismiss the entire assembly. Under these arrangements, regional assemblies and governors faced pressure to act in accordance with the president’s preferences. The presidential powers were nominally weakened under Medvedev’s presidency, when the nomination process changed so that the president would pick the governor from a selection of three nominated by the regional assembly with the president being allowed to request an additional three nominees to choose from if the first set were considered unacceptable. By this point however, the president’s party, United Russia, had come to control most regional assemblies, so it was rather safe to allow the party to nominate a satisfactory candidate. In 2011 some of this power was repealed after protests, and the ability to elect certain governors by popular vote was reenacted though the president could still remove governors from their posts (Gill, 2016:53). This change over time from consolidation of the power of the president to a more systemic rather than personal type of control relied on the domination in party politics of United Russia.

In his work, Gill refers to United Russia as a “party of power,” or one with a top-down structure rather than a grassroot approach, with members comprised of government officials with funding from the state. United Russia has no discernable ideology, platform, or principles that inspire popular support, the party serves to support the president and maintain the pocket parliament

(Gill, 2016). United Russia politicians over time became unpopular, earning the title of the “Party of Crooks and Thieves,” acknowledged by Putin to the extent that he ran as an independent candidate for president in 2018 (Reuters, 2017). The Levada Center found that in 2013 that 62% of Russians thought Putin’s underlings were only interested in money and power (Yashin, 2016). The party has nevertheless been successful in keeping the Duma from being a center of opposition to the president as it had been under Yeltsin’s presidency, maintaining enough seats to control the parliament since the party’s inception (Gill, 2016). There is a benefit to membership in United Russia if desire for personal gain is taken into account. If one views electoral politics as a competition for state resources and a chance for personal gain then it follows that rubber-stamping legislation from above would be the norm.

The control United Russia has over the Duma grew in 2008 after they passed a measure that allowed the party to strip deputies of their seat if they voted against their party or if they switched parties after they were elected. This further consolidated power under the president as disagreeing with the president and voting against his policies in the Duma would mean losing that position. As the government is molded to serve the president, and as loyalists come to dominate the bureaucracy and administration, a system becomes entrenched whose purpose is solely to execute the will of the president (Gill, 2016). The role and development of United Russia was integral to forming the power vertical that Putin currently sits atop. This institutional power over the Duma and regional officials helps secure and reinforce this political structure.

Management of the Elite In contrast with institutional reforms that consolidate the president’s power, the personal relationships that characterize patrimonialism are evident in the management of elites. Gill (2016) highlights this contradiction, that on one hand Putin consolidates power by institutionalizing his hold on power, while on the other, personal relationships are allowed to prevail over rules and norms of institutions, inherently undermining them. Gill notes that leaders often try to balance the two, typically leaning toward either institutionalization or patrimonialism over time.

In his first term as president, Putin began replacing Yeltsin holdovers in his inner circle and among the oligarchy with people he had personal relations with. These replacements are often divided into two groups: people he had served with in the security services, known as the siloviki, and people from his hometown of St. Petersburg, the Pitersy (Gill, 2016). The influence and cohesiveness of these groups is discussed in a later section, the point here is that Putin filled important positions with people in his personal orbit. There is a certain stability in this system where loyalty begets loyalty. There is relatively low turnover, for example, Putin has had four prime ministers over 15 years compared to the six in Yeltsin’s eight years (Gill, 2016:58-59). If a loyal official finds him or herself removed from their post, they can expect to be moved to a comparable position elsewhere in the system (Gill, 2016). A notable exception is the former prime minister Mikhail Kasyanov who is now an opposition figure that regularly receives death threats and various types of harassment, and became the highest ranking opposition figure since the assassination of Boris Nemtsov (Osborn, 2016). Keeping what would otherwise have been former officials within the hierarchy, there is a lesser chance that an opposition block of former officials can emerge and it also incentivizes loyalty if officials understand that loyalty trumps job performance or policy outcomes.

Putin has taken some measures to reduce the chance of fracture and discord among elites. Unlike under Yeltsin where conflict was unavoidable due to the overlapping responsibilities of ministers, Putin has separated the ministries into their own domains. Rather than overruling ministers, he works with them which fosters a sense of security (Gill, 2016). The is unlike in the Trump administration, for example, where cabinet secretaries are undermined and even fired on Twitter in a culture of leaks and intense division (Mangan, 2018). Loyalty, security, and stability between Putin and the elite in their discrete, but interchangeable positions characterize the patrimonial nature of the Russian political structure. Putin found a way to make institutionalization and patrimonialism work fairly well together, if he appoints loyal friends to important positions they can use institutions to further entrench the hierarchy.

In industry, the oligarchs that built their fortunes during the privatization drives in the 1990s in ways Putin perceived as to the detriment to the state were stripped of their positions, freedom, and lives in the cases of the “Seven Bankers” who are either dead like Boris Berezovsky or unlikely to set foot in Russia again like Mikhail Khodorkovsky, formerly of Yukos (See Shinar, 2015). Concurrently, re-nationalization of companies such as Yukos, the appointment of loyalists such as Alexey Miller to Gazprom, and the appointment of loyal officials to lucrative positions on boards of directors, Putin has created a way to reward political loyalists by giving them access to the wealth generated in private business (Gill, 2016). With the possibility of becoming very wealthy, officials face strong incentives to remain loyal to the president.

The absence of a definitive ideology has allowed Putin to unite under him people who were fiercely ideologically divided in the early years of the Russian Federation. He was able to bring the nationalists opposed to Yeltsin into the fold, which reduced the likelihood of a nationalist opposition block, but he also did not so offend the so-called liberal clans to alienate them (Miller, 2018, Gill, 2016). The big ideological questions to be resolved after the Soviet Union collapsed were mostly settled by the time Putin became president, a capitalist system has been already set and a return to communism wasn’t a realistic option. Putin was able to take perspectives from communists, nationalists, and liberals to make the different groups sense their voice was being heard, which coincided with his patrimonial institutionalist measures to foster loyalty (Kiriyenko, 1999; Gill, 2016).

Another tool for elite management is mobilizing popular support. If Putin is perceived to have popular support, elites will be less likely to revolt if doing so would bring derision from the masses. Legitimacy through popularity is a shield against opposition. Putin’s electoral victories have been substantial, earning in 2000, 2004, 2012, and 2018, 52.9%, 71.3%, 63.6%, and 76% of the vote respectively (Gill, 2016:62). Though Putin enjoys popular support, bolstered by state media and image management that portrays him as a strong, determined leader in the face of crisis, his electoral victories have been aided by manipulation. From barring opposition figures from participating in elections to stuffing ballot boxes on election day, Putin relies on local party

29 officials and governors to ensure a favorable result (Gill, 2016) (Meyer, 2018). Putin can take credit for rising living standards when oil and gas prices are high, and blame the West for Russia’s troubles when they are low, a view repeated often in Russian state media widely watched by the Russian electorate (EFIS, 2018).

The conceptualization of the power vertical as a pyramid with Putin sitting at the top provides a clear visualization of the power structure. Reality is not quite that simple, however. This visual could be seen as a top-down structure, one where Putin dictates and his subordinates follow. But consider that Vyacheslav Nikonov, grandson of Stalin’s foreign minister Vyacheslav Molotov - former employee on Putin’s staff, Duma member, head of the fund to spread Russian culture and language globally called Russkiy Mir, and holder of other roles - said that he had counted over 1,800 instances of Putin’s decrees failing to be carried out (Sakwa, 2011; Laurinavičius, 2016:121). If the orders coming down from the peak of the power vertical go unfulfilled en masse by subordinates, it is difficult to consider Putin as the omnipotent leader implied by the power vertical model. Stanislav Belkovsky, a political analyst once considered to be close to Putin who most recently had joined the presidential campaign of Ksenia Sobchak, said, as translated in Laurinavičius (2016):

“The “Power Vertical” is no more than just a propaganda cliché. Russian power is a conglomerate of clans and groups that compete with one another over resources. Vladimir Putin’s role in this system remains unchanged – he is an arbiter and a moderator but a powerful arbiter who has the last word, at least for the time being, in conflict situations.”

This view is referred to as the “collective Putin” by Laurinavičius, emphasizing how Putin’s role is less dictatorial and that decisions are made collectively, a holdover from the Soviet era KGB mentality. As such, a primary goal of the Soviet successor state is to regain the lost geopolitical position and international standing the Soviet Union once commanded. Another implication of the “collective Putin” view is that the demise of Vladimir Putin does not necessarily entail the end of this system. Out of 75 key officials identified from Putin’s regime before Medvedev’s

30 turn as president, none of them were removed from their posts during the latter’s presidency (Laurinavičius, 2016:123). It is an arguably likely possibility that whoever succeeds Putin will oversee the continuation of the structure observable today. The collective Putin versus the power vertical models are not entirely contradictory, though. Either way, loyalty begets rewards, rival clans compete for influence and power, and Putin remains in power whether he is mainly an arbiter or mostly a dictator.

In conclusion, according to Hale (2016), patronal systems, as he calls them, will survive as long as the benefits in exchange for loyalty are likely to be realized. If such a president becomes a lame duck or loses popularity, and the prospect of collecting rewards becomes uncertain, the regime becomes unstable (Hale, 2016). This explains the acceptance of Putin serving two terms, becoming Prime Minister and then returning to the presidency two more times, because it assured the continuance of reaping rewards by the loyal elite. Since the president can only serve two terms at time, Putin’s reelection in March 2018 will be the last unless he changes or disregards the constitution to run again or he waits through another placeholder term to regain the presidency (AFP, 2018). Regardless of whether he runs again or appoints a successor, there is an uncertainty about the future that Putin will be unable to ignore. The consolidation of power under Putin by exercising power over institutions, the elite, party politics, industry, and media has kept Putin in power for 18 years. This is a brittle type of political stability, however, emblematic of a patrimonialist system.

Rising to the top: A profile of Sergei Kiriyenko

The career of the first Director General of Rosatom, Sergei Kiriyenko, is a case that demonstrates the political dynamics in Russia outlined in the preceding sections. The following shows how Kiriyenko had a role in the consolidation of institutions and continued to build Putin’s trust over many years, how he remained unscathed despite his liberal views, and how the government can influence and be influenced by the ideology of those in power. The first Director General played a major role in shaping what Rosatom has become. His position as the

31 first Director General of Rosatom was just one of many influential jobs in his career. In 1998, he was made Prime Minister under Yeltsin, nicknamed “Kinder Surprise” for his sudden appearance in the political scene. Just 35 at the time, he was the youngest ever prime minister, but just four months into his tenure, the ruble crisis and default led Yeltsin to fire Kiriyenko and the rest of his government. Having the government default on its debts under his watch turned out not to be a devastating hit to his career, he went on to serve as the director of Rosatom and is currently the First Deputy Chief of Staff of the Presidential Office. Kiriyenko’s career makes an interesting case in the rise to power in Russia.

His first job in politics was as a deputy in Gorky’s Regional Council of People’s Deputies. When the Soviet Union fell, he went into business, leading a Komsomol-organized goods and services provider. He also took part in organizing a scratch-off lottery game that he patented in 1997. He started the Garantiya Bank and also began trading in oil, becoming in 1996 the CEO of the company NorSea Oil. It was during this time in Nizhny Novgorod that he met Boris Nemtsov, who would ascend the political ladder becoming prime minister, then becoming a leader of the opposition until he was assassinated just outside the Kremlin in 2015 (Virtop, 2018). Kiriyenko went from deputy to minister to prime minister in short order, having impressed Yeltsin with his managerial skills and professional manner.

Though his time as PM only lasted four months and ended as the Russian economy was in crisis, he was able to stay in politics. Upon learning of his dismissals from government, he said that, “all the bad things in Russia’s economy stemmed from the magnates and he himself was to blame neither for crises nor for the devaluation” (Russiapedia, 2018). Kiriyenko went on to run for the mayor of Moscow in 1999, only receiving 11.2% of the vote, but his campaign for a State Duma seat was successful, running with the Union of Rightist Forces under the slogan, “Putin for President, Kiriyenko for Duma” (Rescheto, 2016) (Russiapedia, 2018).

Putin’s relationship with Kiriyenko likely began during their work in Yeltsin’s administration. An unknown figure at the time, Putin was appointed head of the Federal Security Service (FSB),

32 and it was Kiriyenko who introduced him to the public. The two reportedly developed a positive relationship over this time (Rescheto, 2016). Putin appointed Kiriyenko as a Presidential Envoy to the Volga District in 2000, a position he held for five years. Alongside his work as a Presidential Envoy, he led the State Commission for Chemical Disarmament, spearheading the negotiations with the US, giving him experience in the international security realm (Virtop, 2018). The appointment as an envoy was notable at the time because all the other Presidential Envoys in these newly-formed districts had been generals. Known as a good manager, Kiriyenko said Putin tasked him with finding a model to manage the districts which could be applied nationally. His model was to create a hierarchy, making regional leaders loyal to the federal government (Russiapedia, 2018). Regional governments had been trampling on the authority of the federal government and importantly, not paying enough in federal taxes, so this authoritarian move was not warrantless (Miller, 2018). However, the power the federal government now exercises over local and regional officials described in Section 2.2.1 has stifled free society.

In 2005, Kirienko became head of the Federal Atomic Energy Agency (FAEA). He proposed the consolidation of nuclear facilities under a state corporation that became Rosatom in 2007. He said that Russia should increase its control over the nuclear energy market, aiming for 20% control by 2025 (Yasmann, 2006). Kiriyenko’s legacy at Rosatom is mixed. Many promises and agreements were made but few became more than pieces of paper. There many more plans for NPPs than were actually built. Planned NPPs built abroad are said to be worth $130 billion, a figure that is touted by Rosatom and in the media, but is difficult to independently calculate (Rosatom, 2018). Senior members of his staff were arrested on embezzlement charges, marring his legacy. By the time Kirienko left Rosatom, there were only three reactors being built, in Belarus, India, and China, the latter two resulting from cooperation over nuclear energy that preceded Kiriyenko’s involvement in the nuclear energy sector. He proved capable of getting many memorandums of understanding signed, but less capable of making concrete plans for further cooperation (Slivyak, 2016).

After spending more than a decade at the helm of Rosatom, he left to join the Presidential Administration in 2016 as First Deputy Chief of Staff. It would appear that Putin was pleased with Kiriyenko’s service at Rosatom. He became the chairman of Rosatom’s Supervisory Board to maintain influence over projects he initiated and oversee the development of corporate strategy (Grobman, 2016). Appointed to the Presidential Administration to help with the March 2018 election, Kiriyenko reportedly told his staff to create Russia’s own version of Cambridge Analytica, a company that did microtargeting, directing ads at people based on specific characteristics using psychological profiles and data gathered from Facebook, famously for the Brexit and Trump campaigns (Arkhipov, Kravchenko, & Pismennaya, 2017). Cambridge Analytica (now defunct) is currently under investigation in the UK and US over the improper possession and use of data gleaned from Facebook. Curiously, Kiriyenko is on a list of 40 names the US Senate provided to the Trump campaign to turn over all communications with or regarding those on the list (Grassley, Graham, Feinstein, & Whitehouse, 2017).

Kiriyenko aptly described the development of the political system of today, notably in his articles for Project Syndicate in 1999. According to Kiriyenko (1999): “The key task now is... to overcome the corrupt and inept bureaucratic/oligarchic state in which bureaucrats are simultaneously entrepreneurs and politicians, and in which obeying the law is not mandatory but somehow negotiable. Most Russians know that such a state is dangerous and cannot succeed….If [the state] limits itself to setting clear rules and applies them equally, society will benefit. But if the state follows the old Russian tradition and attempts to manage everything, the consequences will be as grave as those of the absence of state power in the first four years of the Yeltsin era.”

On the two ways Russia could reach its economic potential, from Kiriyenko (1999a):

“One [way] is through the continuation of market reforms and the strengthening of democratic institutions; the other is through pursuit of the stagnant authoritarian power model and a strengthening of state control over a monopolized economy...If society fails to organise effective

34 resistance to the state's attempts to increase its control over the economy, sooner or later, this will lead to a stronger authoritarian political regime.”

Clearly, Kiriyenko recognized the authoritarian path that was ahead and hoped Russia would veer away from it. It did not, but he has nevertheless remained. He can understand the system he is in, be in (past) public disagreement with it, and still expertly operate within it. His mentor Boris Nemtsov was not so fortunate. With knowledge of Kiriyenko’s background, it is easier to understand Rosatom’s place in the political and economic spectrum. His role in the consolidation of power under the federal government helped to shape the authoritarian system of today. Moving from Rosatom to the Presidential Administration while maintaining oversight of his projects at Rosatom shows the overlap between politics and state corporations. The trajectory of his career also indicates that Putin was satisfied with Kiriyenko’s work at Rosatom, which aids the analysis of Rosatom in later sections.

2.2 The Russian Economy

This section is about the economic structure and influence of the energy sector on the Russian economy, reviewing the ideological underpinnings and the current state of the economy to see how the political and economic structure complement each other.

The Neomercantilist, Patronage-driven Economy The Russian economy is patrimonial and neomercantilist in nature. As such, the economy is not oriented toward increasing the standard of living of the population, but for highest, most well-connected echelon of society to increase their own wealth and influence. Instead of facilitating a competitive market environment, the Russian economy is driven by patronage and

35 manipulations for the national interest. Government contracts are awarded based on personal connections to the extent that the Russian media assess the influence of different companies based on the earnings they make from government contracts (EFIS, 2018). See Macfarquhar (2018) for the example of Yevgeny Prigozhin, known as Putin’s Chef, who has come to run the Internet Research Agency (the notorious troll factory), send mercenaries to Ukraine and Syria, and receives other enormous contracts in other areas such as catering and logistics for the military. Prigozhin, who at the time of the Soviet collapse had just been released from prison and opened a hotdog stand, is now among the wealthiest, most well-connected people in Russia (Macfarquhar, 2018). With a weak civil society, a corrupt justice system, and the lack of a competitive environment, the Russian economy fails to live up to its potential and entrepreneurs face an uphill battle to survive in this atmosphere. These detriments to the economy are exacerbated by the lack of diversification and sanctions. The price of oil continues to dictate the direction of the economy (see figure 1), and necessary structural reforms have not materialized (EFIS, 2018).

Figure 1: Oil Price and Russian GDP

Source: World Bank GDP Data, OPEC data from Statista

The (re)nationalization of the economy under Putin’s leadership is further evidence of the neomercantilist, patrimonial system. In 2005, the state sector made up 35% of GDP, and by 2015 this figure reached 70% (Mereminskaya, 2016). At its best, state capitalism can provide public goods and give a boost to valuable sectors of the economy. In practice, people in Putin’s inner circle are appointed to leadership positions who in turn give their own friends procurement contracts or sell assets below the market price (Åslund, 2017). In May 2018, a Sberbank analyst was fired because he wrote a publicly-sourced report that the primary beneficiaries of Gazprom’s major projects (Power of Siberia, Turkstream, and Nord Stream 2 pipelines) are the contractors involved, namely the companies of Putin’s long time, currently-sanctioned friends Arkady Rotenberg and Gennadi Timchenko. The analyst said that, “we find the decisions of Gazprom

37 very clear once we assume that the company is managed in the interests of its contractors, and not for extracting commercial profits" (BNE Intellinews, 2018).

Corruption and inefficiency in large state enterprises contrasts with other businesses that have experienced dramatic growth and productivity gains since the early 1990s. The barriers to entering the oil and gas sector, for example, are difficult to overcome and the sector is therefore prone to becoming monopolistic and intertwined with politics. An oil company is also relatively easier to nationalize than a chain of retail stores, because the oil wells will remain in place while a competing retail chain unencumbered by state involvement can capture the market, leading to a situation where the state’s assets lose value as their business becomes less competitive over time (Miller, 2018). This logic has nonetheless been ignored by the government as of late, for example when the founder of the Magnit supermarket chain (worth $8 billion) recently sold most of his shares to the VTB bank and stepped down as CEO (Orlova, 2018). Though the founder Sergei Galitsky said he sold his shares willingly, he had indicated in the months before the decision that he would not sell his shares and witnesses to the sale announcement said he was visibly upset (Orlova, 2018). Regardless of whether this was a voluntary arrangement, running a supermarket chain, especially one that Miller (2018) compares to Walmart in terms of the Walton family’s unending drive to maximize efficiency and lower prices, requires a crew of capable managers without which the company will decline. Galitsky was perhaps as ruthless as he was successful at the helm of his company; he was even known to make executives submit to polygraph tests (Miller, 2018:33). Taking on Galitsky’s role will be difficult for his replacement and the consequences of doing even a mediocre job could be significant for the company. Orlova (2018) suggests that VTB acquired its stake in Magnit to have a successful business bring in cash to help balance book given the government projects VTB is involved with. VTB receives more support from the state than any other bank in Russia, taking in more than $18.4 billion dollars from the state since 2008 (Seddon, 2016). An analyst at Standard & Poor’s found that VTB relies on state funds to remain profitable, and the bank is alleged to take on pet projects of powerful officials, especially after Sberbank began reforms to improve transparency (Seddon, 2016).

As expected in a patrimonial system, executives who are loyal retain and reap the rewards of their positions regardless of performance. Alexei Miller has been the CEO of Gazprom for 16 years (Åslund, 2017). Under his leadership, the market cap hit its peak in 2008 at $369 billion, compared to $57 billion in 2018 (Bloomberg, 2018). Miller made $25 million in 2013, the last year his income was published by Gazprom (Podobedova, 2015). In exchange, Gazprom was used as a tool of foreign policy when cutting gas supplies in the instances outlined in the literature review, to the detriment to Gazprom’s reputation as a commercial entity. Patrimonialism also lends itself to nepotism. Young children of ministers and officials find themselves in leading positions in state companies. For example, the 25-year old son of Putin’s former chief of staff held the position of first vice president at Gazprombank and later became president of the state-owned diamond company, Alrosa (Åslund, 2017). The children of the director of the FSB, the National Security Council Chair, as well as officials from the Presidential Administration have found employment at VTB (Seddon, 2016) This rather feudal system is prone to crack when the certainty of rewards wavers and structural problems in the economy go unreformed.

Current State of the Economy The Estonian Intelligence Report (EFIS, 2018) found four factors at the center of Russia’s current economic problems. First, the role of the state in picking winners is at odds with the development of a market economy. Entrepreneurs without connections have little ability to survive in an environment created by and for those linked to the state. Starting a business is a risk-laden endeavor and the existing system is a disincentive to starting a business.

Second, to add to the first point, large companies have an advantage over small and medium size businesses. Small business owners must contend with corrupt low-level bureaucrats and mafias that larger companies with links to higher-level officials can avoid (Furtuna & Ravinskaya, 2012). Where small business isn’t a viable path toward upward economic mobility, there is little competition from below and big businesses can be complacent and inefficient.

Third, when crisis hits, instead of the labor market shifting to a more profitable, diverse array of sectors, there is a tendency to retain workers and ride out the crisis collectively. Finally, broad economic reform requires an openness to change, and the attitude among the population to be wary of change and people outside their social circles makes the prospect of reform not as appealing as the economic situation may lead one to believe (EFIS,2017).

Since economic prospects are set in large part due to location, people wishing to improve their living stands can move to a different city, region, or country rather than retraining, opening a business, or otherwise reinventing themselves. This reduces the tax base of less prosperous regions and further exacerbates economic problems. From 2011 to 2017, income leftover after basic expenses for a family of four has declined by 15% while income inequality has increased (EFIS, 2017:14). Since structural reforms would infringe on privileges enjoyed currently by the elite, there is little appetite for extensive reforms. If the rewards for loyalty become uncertain, the current political structure will collapse. The Kremlin faces the problem that structurally improving the economy would threaten the integrity of the power structure, so it directs attention away from the economic problems it will not fix.

In terms of the effect of sanctions, the anticipated effect on the economy is to reduce GDP growth by one percent in 2018 (EFIS, 2018:16). Propaganda focused on the unfairness of sanctions shields the government from blame over the persistent structural problems (Reuters, 2014). The counter-sanctions and import substitution regime stoked some patriotic sentiment, though it has not had a discernible positive effect and the illegal import of banned products signals that this sentiment is limited. There is difficulty in substituting certain products, particularly in the energy sector, and raising capital has become difficult. High interest rates and a lack of foreign investment further inhibit economic growth. While the longer term effect of sanctions is uncertain, it is questionable whether the government can keep blaming sanctions for economic troubles and ignore the deep structural issues (EFIS, 2018). Before the 2012 presidential election, Putin promised that by 2020, wages would increase between 60--70%

(RIA, 2012). The average income in 2011 was 25,600 rubles and reached 38,000 rubles by 2017, but inflation rose 53% so Putin not only failed to deliver on his promise, but wages fell by over 5% and real income by 10% (Zhavoronkov, 2017). Initiatives to increase salaries have had some poor results. Doubling a doctor’s salary entailed firing other healthcare employees, and three years after promising to raise salaries doctors still make around $12,000 a year, half that of state officials (Moscow Times, 2018).

Figure 2. Inflation, disposable income, and labor compensation in the Russian economy

Source: OECD (2018)

With ⅔ of Russians earning less than the average wage, this loss in income has strained the finances of the majority of the population (Zhavoronkov, 2017). Pensions are supposed to decrease by 2.7% by 2020 (RIA, 2017). Military spending, meanwhile, has risen from 2.1 trillion rubles in 2013 to an expected 2.8 trillion in 2020, not including the extra spending that

41 goes to the military through other means in the budget (Zhavoronkov, 2017). Military spending has fallen recently, however, with a drop of 20% from 2016 to 2017 due to economic considerations (Tian, Fleurant, Kuimova, et. al., 2018). In contrast, other European countries have increased spending; Central European countries spent 12% more on defense and Western Europe 1.7% more in 2017, partly in reaction to Russian military aggression (Tian, Fleurant, Kuimova, et. al., 2018).

The 2018-2020 budget is problematic on other accounts. Half the profits of state owned companies are supposed to go into the budget, yet large companies including Gazprom and Rosneft have not made these contributions in the past, while other large companies like Russian Railways, the bank VTB, and power company Rosseti have posted losses or only meager profits (Zhavoronkov, 2017). In the case of Rosneft, its intermediary with the government, Rosneftegaz, reported a loss of 167 billion rubles for 2017, so no dividends were paid (RBC, 2017). Calculating the budget based on profits from state owned companies is questionable when these companies have not contributed according expectations in the past. There are other cases of wishful thinking within the 2018-2020 budget. The GDP is expected to increase by 2.1%, 2.2%, and 2.3% in 2018, 2019, and 2020, respectively (Zhavoronkov, 2017). This is on contrast to other reports such as from the World Bank which forecasts 1.7% and 1.8% GDP growth in 2018 and 2019 (World Bank, 2017). The economy is not on the brink of collapse, and aside from any economically cataclysmic events it shall continue to slowly trod on. Nevertheless, the government will inevitably have to face its challenging problems which are complicated by Russia’s growing diplomatic and economic isolation.

The Role of Energy in the Economy Renationalization of the hydrocarbon industry after a move toward privatization in the 1990s had a significant impact on the economy. From 2004-2007 alone, there were 15 private oil and/or gas companies nationalized including Yukos, whose founder Mikhail Khodorkovsky was ultimately jailed, alongside other companies in banking, media, manufacturing and resource production- the core of the economy (Tompson, 2008). The consolidation of hydrocarbon and

42 banking industries alongside efforts to control the media has impacted other economic sectors and further entrenched the patronialist system. The government, meanwhile, has become highly dependent on hydrocarbon revenues. In 1998, Russia exported oil worth just $28 billion but by 2008, oil and gas revenues made up nearly 70% of the budget (Crane, Oliker, Schwartz, et. al., 2009). The GDP and budget revenues closely correlate with the price of oil, and like many oil- dependent economies, the currency exchange rate has hindered the growth in other sectors. The independent services sector and non-mineral sector production accounted for just 10% of GDP in 2013, and a mere 18% of GDP comes from small and medium size business, compared to the 40% plus that is conventionally advisable (Movchan, 2017:10). In 2014, of the 38% of budget revenues that came from foreign trade, only 8% came from industries outside the natural resource export sectors (Movchan, 2017:10). Natural resource production contributes to the budget in other ways, too. Movchan found that when including the various resource-related taxes and fees, VAT from imports, and income taxes on employees in this sector, the 35% contribution to the budget increases to 83% of the budget (Movchan, 2017:10). Russia has a truly resource-dependent economy.

One tenet of neomercantilism is that the government prioritizes perceived security issues over economic growth. Tompson (2008) points out that state-run firms generally perform worse than their private counterparts, and as a steward of the Russian economy, the government is not proving to be an exception. Not only does mismanagement affect the companies and the economy, but it reflects on how capable the government is in managing large firms. The reason state-run firms are problematic is as follows: industrial production in Russia is capital intensive, requires economies of scale and has a high asset specificity. With these characteristics, there tends to be a few large companies and significant barriers to entry. These companies place high demands on the state, being so large and inflexible due to the high specificity of assets. In the event of a crisis, these behemoths would preferably turn to the state for protection over facing the prospect of reform. This makes these companies very politically powerful. For governments such as Russia’s that found private ownership and joint-ventures to be threatening, state-ownership is the clear option (Tompson, 2008). This explains the power of energy

43 companies and their outsized role in the Russian economy. Big banks and energy giants command political power while regular Russians are facing declining living standards. The structural problems that persist are unlikely to be addressed since those who could implement reforms would be hurt by them, risking the collapse of the political system. Seeing how ingrained the traditional energy giants such as Gazprom have become, it is possible that Rosatom plays a similar role, to be determined in the next chapter.

2.3 Foreign Policy: Principles and Goals

According to a 2018 report from the Estonian intelligence service, the main goals of Russian foreign policy are to create the perception that Russia is an integral player in the management of global affairs, to come out of the political isolation imposed after the annexation of Crimea and incursions into Eastern Ukraine while maintaining its adversarial position vis a vis the West. Gaining influence in the near and further abroad is attempted by exploiting conflict and bucking norms that guide relations with the West. Ambitions to reach a more influential status begin in Russia’s near abroad, where keeping the neighbors from joining Western institutions is a primary goal. Outside Russia’s immediate neighborhood, the fight against alleged terrorists has become a tool to grow Russian influence both in the domestic politics of affected countries but also in institutional settings (EFIS, 2018).

Stronski & Sokolovsky (2017) outline the tactics of the Russian foreign policy agenda, including the use of diplomacy, the military, security services, cyber infiltrations, trade issues, finance, and importantly here, energy to gain influence around the world and assert Russia as a state that demands respect and recognition on the international stage. Some of these measures are very cost effective, for example the work of online trolls to influence public opinion, so one aspect of Russian policy, given its financial situation, is to pursue influence building as cheaply as possible (Tamkin, 2018). Additionally, domestic political trends in Europe and the US have become points of exploitation as the Kremlin stokes and capitalizes on populist, anti-establishment

44 rhetoric and supports divisive political parties. Internationally, the Kremlin is keen to step up where American or European influence has lapsed (Stronski & Sokolovsky, 2017).

Since 2012, when Putin returned to the presidency after swapping positions with Dmitri Medvedev, Russian foreign policy has become more focused on gaining influence internationally. At the time, Putin issued an executive order on the aims of his new administration's foreign policy aims, which included, “a multiple-vector approach in forming a new, polycentric system of international relations” (Kremlin, 2012). The aim is to undermine the current international order led by the US while fracturing the relationships between Western countries. Domestically, Putin wins favor by having Russia appear important on the world stage. Further global reach also benefits Russian industry, particularly in the energy sector. So where Russia was once perceived as primarily concerned with retaining its sphere of influence in the near abroad, Russian foreign policy is now on the offensive and geared toward actively pursuing a multipolar order by raising Russia’s position while simultaneously trying to undermine the West (Stronski & Sokolovsky, 2017).

Lessons from Russian Regional Policy

In the former Soviet states, the goal is to keep countries from joining Western institutions such as the EU or NATO, keep states like Belarus and Armenia in Russia’s orbit, and to undermine the political system in countries that have left the Russian sphere such as Ukraine, Georgia, and Moldova. In states that were formerly under Soviet influence such as in the Balkans, Orthodox Christians and nationalist groups are tools for the Kremlin to detract from pro-Western sentiment (Sokolsky & Stronski, 2017). Meddling can take numerous forms, from the alleged coup plot against the Montenegrin president devised by Russian military intelligence officers, to the trip of the “Night Wolves” across the Balkans, the nationalist pro-Putin biker gang that was banned from Bosnia to stop them from stoking ethnic tensions before an election (Tomovic, 2017; RFE/RL, 2018). Putin has empowered the Orthodox Church, developed a network of corrupt

45 oligarchs across Eurasia, supported elites in government, political parties, and private business sympathetic to Russian interests, and worked to infiltrate foreign security services (Cooley, 2017: Hersh, 2018). In the Middle East, particularly Syria, Putin has used the war to prove Russia’s importance in handling world affairs, show (potential) partners that Russia will stand by regimes under attack by the West, protects its interests in the country, have Russian companies rebuild Syria, and prevent a Western-backed regime change (Sokolsky & Stronski, 2017).

The policy toward post-Soviet states served as a trial-run of measures to use against states outside Russia’s sphere of influence. In the early years after the Soviet collapse, resources were too few to pursue an ambitious global agenda and there were innumerable issues to work out with Russia’s former Soviet neighbors. The primary concerns were centered around gaining possession of nuclear weapons scattered around the Soviet space, resolving issues about handling Soviet-era debts, and divvying up control of Soviet assets (Sokolsky & Stronski, 2017). But as these issues were addressed and the resources and appetite to pursue a geopolitical agenda returned, the Kremlin began to use measures against its neighbors that would come to exemplify its stance towards other countries. Stronski (2017) attributes the shift towards a globally-oriented policy as an answer to the perceived meddling by the US in Russian internal affairs that sparked protests in 2011 and also in the various color revolutions that have taken place in states in Russia’s perceived sphere of influence. He describes a view among the Russian foreign policy and security circles that it was the intent of the US to make Russia weak from within, so Russian meddling in domestic affairs in the West is perceived as an equivalent retaliatory measure (Stonski, 2017).

Given the weakness of other post-Soviet states relative to Russia, economically especially, gaining influence in these countries focused on using economic tools. There were certain carrots offered for cooperation, such as advantageous trade agreements, discounts on exports of oil and gas, cancelling debts, selling discounted arms, and financially supporting governments in need of a bailout (Stronski & Sokolovsky, 2017). For example, in 2009 Kyrgyzstan was offered a bailout to incentivize closing the US military base that had opened to fight the war in Afghanistan. After several years of applying pressure, the Kyrgyz government conceded to

Moscow’s wishes and in 2014 the base was closed (Ott, 2014). As for Ukraine, Putin offered in 2013 a bailout worth $15 billion, meant to persuade then-president Yanukovych to stop the EU Association Agreement from going through, a decision that would have major consequences for all involved parties leading to the current conflict in Ukraine (Walker, 2013). This fits the patrimonialist, neomercantilist view, that there are rewards for loyalty and punishment for disloyalty, in a system where economic ties with other countries are meant to bolster the security situation in the neomercantilist state.

The Eurasian Economic Union (EAEU) became another project meant to secure Russian influence in the post-Soviet space that had come under threat by the growing clout of the EU and China. Conceived as an answer to the EU in the form of a trade and economic bloc, the EAEU was to strengthen Eurasian integration and keep the member states in Russia’s orbit. Kazakhstan and Belarus were the first to sign on, establishing the EAEU in 2014 by treaty, with Kyrgyzstan and Armenia joining the following year. In Armenia’s case, they allegedly faced pressure, as Ukraine did, to block an EU Association Agreement in favor of EEU membership, or else Moscow would withhold support for Armenia’s military (Cooley, 2017). Losing Russian support would certainly weaken Armenia’s position relative to Azerbaijan in the conflict over Nagorno-Karabakh, and opens the possibility that Moscow would shift this support to Baku instead. As another measure to persuade reluctant prospective members, migrant workers from outside the EAEU would be restricted in their right to work in Russia. States dependent on remittances such as Kyrgyzstan would be devastated economically if working in Russia was restricted (Stronski & Sokolovsky, 2017). A full quarter (25.68%) of the Kyrgyzstan GDP came from remittances in 2015, with 590,000 migrant workers in Russia in 2017, almost 10% of the population (FRED, 2017) (Pew, 2017). While Armenia needed to be persuaded not to join the EU, Kyrgyzstan was attracting enough investment from China for the Kremlin to give the Kyrgyzstan government key concessions in negotiations to join the union (Cooley, 2017). Kyrgyzstan’s membership in the EAEU has had a positive overall effect on the economy, and the EAEU has an 81% approval rating in the country in part because of the government’s successful negotiations (Cooley, 2017; Kucera, 2017) Of course, the act of embarking on these endeavors does not always equate to success. Losing Ukraine and the aftermath was an indelible blow to

47 the Eurasian project. Not only would Ukraine not be joining the EAEU, but Russia’s neighbors clearly saw how far Putin would go to get his way, and how he would not peacefully accept a sovereign nation’s decision to take a different path.

Increased cooperation in the security realm has also been an object of the Kremlin’s attention. The Collective Security Treaty Organization (CSTO), founded in 1992, was the result of an effort to maintain military ties among former Soviet states. CSTO members train together for counter-terror, anti-narcotics, disaster relief, peacekeeping, and warfare operations (de Haas, 2017:9). All members use Russian weapons, and Russian bases have become a fixture in Kyrgyzstan and Armenia with military installations dotted throughout the region (Cooley, 2017). The number of joint military exercises per year has increased since 2012; exercises went from one per year until 2006, then to two or three until 2011, moving up to five in 2012 and 2013, and six in 2015 (de Haas, 2016:8).

Looking East, as China has become a formidable geopolitical force, Putin must strike a balance between taking advantage of economic or strategic opportunities and ensuring that Chinese influence doesn’t erode Russia’s own. The Kremlin turned toward Asia in the aftermath of the 2008 financial crisis and later as sanctions set in, in efforts to reduce Russia’s exposure to Western economic and political developments (Malle, 2017:137). The two countries have developed deeper relations with the Power to Siberia gas pipeline set to be completed in 2019, the multi-billion dollar sales of anti-aircraft missile systems and Su-35 fighter jets to China, undermining the US dollar in trade, and membership in organizations such as the Shanghai Cooperation Organization, to name a few examples (Malle, 2017:141). As both Russia and China aim to expand their global presence, their relationship and ability to cooperate will be a decisive factor in the political and economic future of Eurasia.

Further abroad, Russia’s diplomatic and military involvement in Syria and financial assistance to Venezuela demonstrate the willingness and ability to shape international affairs. Recent examples of Russian state-owned corporations fulfilling foreign policy goals were risky, perhaps a sign of prospect theory in action. Venezuela, in the midst of social and economic collapse received $10 billion worth of assistance from Rosatom and the Russian government, keeping the

Maduro regime from default (Krauss, 2017). The prospects for new Chinese loans, upon which the regime had come to rely, had dimmed and the apparent decision in Moscow was to fill the vacuum. Rosneft acquired a 49.9% stake in a subsidiary of PDVSA, the Venezuelan state oil company. This subsidiary, Citgo, is based the US. This sale to Rosneft kept the PDVSA above water while simultaneously becoming a thorn in the side of the US. Members of the US Congress said that it would be considered a national security threat if Rosneft gained a controlling share of Citgo. In 2017, another $1 billion from Rosneft helped the Venezuelan economy avoid default to pay out $3 billion to bondholders. These investments are being made when Venezuela is under extreme strain, socially, politically, and economically. American sanctions, dilapidated oil fields, and the withdrawal of foreign companies complicate the troubled situation in Venezuela. As of 2017, Venezuela is second only to Russia in terms of Rosneft’s crude suppliers. There have been negotiations for Rosneft to sell its stake in Citgo to avoid further sanctions from the US in exchange for Venezuelan oil fields (Krauss, 2017a). Either way, through Rosneft, propping up the regime serves to advance the Russian foreign policy agenda.

Stronski (2017) emphasizes that these methods of building and maintaining influence are not new, and in fact holdovers from the Soviet era. They went into disuse in the aftermath of the Soviet collapse, but they were revived as Russia became able to engage in these tactics once again at a regional level. Now, as Russian foreign policy becomes more globally oriented, these same tactics can be observed outside of Russia’s sphere of influence and should be expected in the future. Rosatom’s expansion internationally coincides with the expansion of Russian foreign policy, and must be viewed in this context.

2.4 Conclusion

This chapter set out to understand the political and economic landscape in Russia, and how state-owned corporations are intertwined with the economy, politics, and foreign policy. Revisiting the question posed at the beginning of this chapter, about how Russian state corporations fit within the political and economic structure, these corporations are deeply

49 embedded in the political and economic structures. With the consolidation of institutions and management of elites, Putin has fostered a patrimonialist political power structure. The Russian economy, as a result, is geared towards benefitting these elites to the detriment of the general Russian public, and faces deep structural economic problems that are nearly impossible to address without upending the corrupt, inefficient system. Large state-owned corporations try to maintain the appearance of independence but time and again their activities coincide with foreign policy goals in risky endeavors that less politically-motivated actors have decided to avoid. Moving forward, the analysis of Rosatom is informed by the political, economic, and policy factors in this chapter.

Chapter 3 - Inside Rosatom

Introduction

This chapter examines Rosatom as a state corporation, identifying the scope of its international activities and how Rosatom’s outreach abroad has changed over time. This will answer the second sub-question: How has the role of Rosatom developed over time, and what is the outlook and strategy for the future? It also addresses the hypothesis that Rosatom seeks to increase its importance in the global nuclear energy supply chain, though its efforts are only moderately successful because while the number of countries Rosatom has made agreements with has risen, it is unlikely that all of these states will one day host a Russian NPP. It also addresses the second objective: to understand Rosatom’s role in the global nuclear energy industry now and in the medium term. This chapter is divided into six sections: on the structure of Rosatom, its leadership, the domestic market, international expansion, and a look at Rosatom’s activities outside the traditional construction of NPPs.

3.1 About Rosatom

The State Atomic Energy Corporation Rosatom is the federal agency that promotes the peaceful use of nuclear power. This promotion includes “the establishment of favourable international, legal and political conditions” for the Russian nuclear industry in international markets (Rosatom, 2018). Rosatom also represents the Russian Federation in international non-proliferation and safety matters, partnering with the IAEA, the OECD’s Nuclear Energy Agency, and other organizations (Rosatom, 2018).

In 2017, the current head of Rosatom, Alexey Likhachev, outlined the priorities for Rosatom and the direction of the nuclear industry. Closing the nuclear fuel cycle (i.e. solving the problem of disposing of nuclear waste by putting it back into the fuel cycle) is a technological breakthrough coming, hopefully, in the near future. A second priority is to support the IAEA in building on

51 safety standards. Third, Likhachev stressed the need for international cooperation to spread a positive image of nuclear energy, “not simply to ensure acceptability of nuclear power by society, but also to provide conditions for its demand by the public” (Rosatom, 2017). Additionally, he sees renewable energy not as a competitor to nuclear power, but complementary (Rosatom, 2017).

Rosatom holds more than 300 different enterprises and organizations, with products and services ranging from uranium production, manufacturing of equipment and isotopes for medical purposes, research, fuel production and disposal, construction of NPPs, management of the nuclear icebreaker fleet, development of wind energy, and more (Rosatom About Us, 2018). Rosatom controls enough uranium reserves to supply Russia and its partners for 100 years, and is looking to expand its position in the nuclear industry where it currently has corned ⅓ of the global market in uranium enrichment services covering nearly 18% of the nuclear fuel market (Rosatom About Us, 2018). Rosatom is not only one of the three major producers of nuclear fuel, but it is also the only company in the industry that is fully vertically integrated (Belta, 2016). This one-stop shop model is marketed to governments that have little experience with nuclear technology to streamline a path towards having nuclear-generated electricity. In the nuclear sector and beyond, Rosatom’s goal is to make products out of new and upcoming technologies for domestic use and international sale (MEPhI, 2018).

In terms of government assistance, starting in 2008 Rosatom was to receive 1 trillion rubles until 2015. Rosatom was to bring another trillion rubles by 2015 and yet another by 2020, with the plan that government subsidies would end by then. From 2008 until 2020, Rosatom promised to build 26 reactors and increase nuclear energy’s share of electricity production to twice the 2008 level of 16% by 2030, though the share in 2017 had only increased to 17.14% (IFPM, 2008) (Rosatom, 2018). Rosatom has teamed with the Russian Bank for Development and Foreign Economic Affairs, Vnesheconombank, to entice customers with financing for their projects. The bank’s chairman said he considers Rosatom to be a “strategic partner” and has agreed to support Rosatom projects in the interest of enhancing Russian energy security, boosting the Russian

52 economy, and assisting Rosatom in growing its share in the global nuclear industry (WNN, 2016). In combination with subsidies, having a state bank willing to assist in financing efforts is a distinct advantage for Rosatom as it expands overseas.

3.2 Leadership

Rosatom is governed at the helm by the Director General, appointed by the President. Strategy, policy, and objectives are set by the Management Board. There is additionally a Supervisory Board and a Public Council, which is made up of volunteers from civic and scientific organizations. The Management Board is comprised of individuals primarily from technical backgrounds. The Supervisory Board consists of assistants to the president, the energy minister, the head of the FSB’s Economic Security Service, and other high ranking officials including the current and former Director General (Rosatom, 2018).

The first Director General Sergei Kiriyenko and his successor, Alexey Likhachev, have known each other for many years. His position before taking over Rosatom in 2016 was the first deputy minister of economic development, beginning in 2010 as he helped negotiate Russia into the World Trade Organization (Slivyak, 2016). Falling in the liberal clan, he has been a vocal proponent of the idea of free trade (GFP, 2016). Earlier in his career, much like Kiriyenko, he was involved with communist party organizations before going into the private sector in the early 90s. Likhachev also was elected to the State Duma, a position he held until 2007. He then joined the Ministry of Economic Development, rising to the level of First Deputy Minister until his appointment at Rosatom (Rosatom, 2018b). He has overseen the continued expansion of Rosatom domestically and in the international market.

3.3 Performance & Prospects in the Domestic Market

Before looking at Rosatom’s international expansion, it is worth looking at how and if domestic plans for expansion have turned into reality. Rosatom’s Atomenergoprom is the holding

53 company in charge of Russia’s ten nuclear power stations, with a total of 34 reactors in operation and nine more under construction as of 2017. Rosatom uses holding companies and subsidiaries to manage the civil, military, R&D, and nuclear icebreakers that fall under Rosatom’s responsibility (NTI, 2017). The use of nuclear energy has expanded in recent decades, but has missed targets for expansion. In the mid-1990s, nuclear energy provided an average of 11.8% of all electricity generated in Russia, which grew to 17.14% in 2017 (NTI, 2017). If plans from 2000 for the expansion of nuclear energy use would have been successful, nuclear energy would have made up 40% of electricity generation in 2010. Rosatom now has a more modest goal, which is to increase nuclear power’s share to 25% by 2025 (NTI, 2017). A growing economy and the inclination for Gazprom to increase exports rather supply for domestic needs is supposed to increase demand for nuclear energy (NTI, 2017). The 2016 BP Statistical Review notes that total energy consumption was down in Russia by 1.4% that year, and that nuclear energy made up only 6.6% of primary energy consumption (BP, 2016). Weaker than expected demand for electricity and the 2008 financial crisis caused plans for new plants to be postponed and ultimately lower aims for the number of units that were to be built by 2025. Rosatom’s target in 2007 was to add 26 units by 2020, then in 2009 the number was lowered to 10, then in 2015 the plans changed to put one new reactor online per year until 2025 (NTI, 2017).

Figure 3: Nuclear power plants in Russia

Source: World Nuclear Association (2018)

In the longer term, Rosatom’s strategic goals include closing the fuel cycle, making nuclear energy more safe by generating power without creating radioactive waste. Rosatom embarked on the Breakthrough Project to become a leader in developing new technologies to close the fuel cycle, which would give Rosatom an unparallelled competitive advantage (WNA, 2018). An upcoming challenge for these and other ambitious projects is the proposed end of support from the government to pay for new units beyond 2020. Likhachev stated in 2017 that international projects will make Rosatom independently able to support new projects in Russia. He said that the consolidation of the nuclear industry into Rosatom was in part due to “large-scale” contributions from tax payers, and that the company will need to focus on becoming able to operate independently (WNA, 2018).

Adding to this difficulty, Likhachev faces the aging of existing nuclear power plants. In 2015, a plan was proposed to decommission nine units, of 37 total reactors, by 2023 (WNA, 2018).

Instead of moving toward independence from the government purse and investing in new technologies and nuclear plants in Russia and around the world, money will need to be spent decommissioning these old units. This can cost from 50-100% of the construction cost of a new plant, and there is no profit to be made or way to recoup the enormous costs (Slivyak, 2016). It is unclear how Rosatom will be weaned from government funds when Rosatom is attempting to aggressively expand its operations, advance technologically, and also pay for decommissioning reactors and extending the life of those that have outlived their original lifespan.

In a review of Russian regulation of the nuclear industry in 2009, the IAEA recommended strengthening legislation related to nuclear safety and increasing coordination among relevant state organizations. While the IAEA followed up with an overall positive view of improvements to safety, there are still evident gaps in safety measures (NTI, 2017). In 2017, as a cloud of the radioactive isotope ruthenium-106 wafted into Western Europe, Russian officials denied reports from the EU that tracked the cloud’s origin to southern Russia. There was a two month gap between the meteorological agency noticing the leak and admitting that it originated in Russia. Although the source of the leak has not been officially confirmed by Russian officials , the greatest concentration of the isotope, a byproduct of the nuclear fuel production process, was found in the town of Argayash, next to Rosatom’s Mayak Production Facility. In the weeks preceding the acknowledgement, residents had been told on several occasions to stay inside due to “pollution” (Foy, 2017) Rosatom has denied numerous times that the facility was the source of the leak, inviting foreign journalists for a tour of the facility. Officials say there are no health risks to the population, but this site has long been victim to nuclear mishaps. Mayak began as a secret facility producing weapons-grade plutonium in the 1940s, pumping nuclear waste into nearby waterways in the process (Foy, 2017). In 1957, in what was the worst nuclear disaster after Chernobyl and Fukushima, tanks holding nuclear waste failed, spewing the contents across the area and affecting hundreds of towns. Trouble struck again just a decade later when a lake used to manage waste went dry and the area was inundated with radioactive dust caught in the wind. The facility was still a secret during these events, so the public was not aware of the contamination until more information came out in 1980. In 1993, the government said 450,000

56 people had been affected, but environmental activists later proved in court that nuclear waste was still released into rivers as late as 2004 (Foy, 2017). It took until 2015 for Rosatom to close off the lake that led to the radioactive dust disaster. In 2017, when asked about the ruthenium-106 cloud, Dmitri Peskov, Putin’s spokesperson, said they have “no information” about its cause or source (Foy, 2017). A lack of transparency and willingness by Rosatom to respect the concerns of citizens and foreign authorities as well as evidence of the cloud’s origination undermine Rosatom, showing it is not far removed from the legacy of denying and underplaying serious threats to health and the environment.

Russia is on the path to increase domestic use of nuclear energy despite setbacks. In the medium-term, Rosatom will attempt to fulfill its promises to build more domestic reactors, but must contend with the currently weak economic environment, competition to bring new technologies to the market, decommissioning old plants, and safety issues as the withdrawal of state support looms. These factors that affect the domestic nuclear energy situation will shed light on the operations of Rosatom abroad.

3.4 Rosatom’s Expansion Abroad

Rosatom has significantly increased its activities overseas. According to the Rosatom website, the number of countries Rosatom has an agreement with of any type went from 28 in 2013 to 44 in 2016, and the worth of foreign orders has reached $133 billion (Rosatom, 2018). This section seeks to examine the nature of this expansion as it relates to building nuclear power plants, mining uranium, and new projects in Rosatom’s portfolio.

In recent years, Rosatom has signed a slew of agreements with developing countries (see Appendix for a full list of Rosatom projects by country). One analysis of the spate of MoUs is that they are not necessarily meant to be followed through, but to establish a presence in different markets to hopefully gain the advantage in the future when the fulfillment of an agreement is more likely. The current help Rosatom receives through subsidy from the government may be

57 cut in 2020, so Rosatom is currently trying to turn the subsidies into loans, making the company look profitable, at least on paper (Digges, 2018). And as the previous section highlighted, the economics of building plants in Russia are less attractive than building plants abroad, which has pushed Rosatom to become a more export-oriented enterprise. This research focuses especially on NPPs because they have a potential geopolitical impact and MoUs with developing countries are designed to move step by step toward the construction of an NPP. The sale of isotopes to Australia, for example, does not have any discernible geopolitical impact compared to the commitment involved with building a NPP with a life of 60 years or more financed and serviced by Russian state enterprises. The examples in this section are primarily cases of Rosatom’s involvement with developing countries, as opposed to plants within the EU. This is because Rosatom’s growing list of client states are increasingly comprised of developing countries without the expertise, regulation, or political or economic might that the EU has to protect against unwanted Russian influence or dependence. The countries with only MoUs in place signify the most recent agreements and are developing economies without experience in the nuclear industry, such as Ethiopia, Laos, Cambodia, Republic of Congo, and Uganda, to name a few (See appendix for a full list). These are the countries that would likely rely on Russian expertise, management, and financing, which gives the Russian state considerable leverage over the client state’s energy security.

Nuclear Power Plants Rosatom offers a “complete solution” for an energy program (Sokolov, 2013). Rosatom will build a NPP, arrange financing, provide the human capital, and help with forming legislation regulating a nuclear program. Rosatom is currently building NPPs in nine countries, through this section will focus on representative examples of the types of NPP agreements. There are two types of contracts: the Build Operate Own (BOO) model and turnkey contracts to Engineer Procure and Construct (EPC) (Sokolov, 2013). The first BOO model plant is the Akkuyu plant in Turkey. BOO includes training locals for certain jobs, giving support for the development of legislation and public opinion about nuclear energy, cooperating over safety and licensing, providing fuel, managing spent fuel, following social responsibility initiatives, as well as taking

58 care of upgrades, maintenance, and decommissioning the NPP (Sokolov, 2013). Under the agreement for the plant in Turkey, Rosatom will be paid 12.35 cents USD per kilowatt-hour for 15 years, and once the cost of the plant is repaid Rosatom would still receive 20% of the plant’s profits (Reuters, 2017). The BOO model is convenient for developing countries without experience with nuclear energy, but comes with the drawback of tying energy security to a Russian state corporation. This appears not to bother President Erdogan as he forges a better relationship with Russia and alienates NATO allies, though critics decry allowing Russia more involvement in Turkish energy supply and security (Taussig, 2017).

The plant in Egypt makes a good example of the EPC turnkey model, which began with an agreement signed in 2015. The Egyptian government chose Russia as a strategic partner instead of going through a bidding process (Abouelhassan, 2017). In late 2017, a further agreement was signed that gives Egypt a loan to cover 85% of the costs of construction, which is $21 billion in total (Reuters, 2017a). If construction proceeds according to schedule, the plant will be finished by 2029. Over the 60 year life of the plant, Rosatom’s specialists will service it, supply fuel for it, handle spent fuel, and provide training (Reuters, 2017a). Though Rosatom will build and service the plant, the Egyptian Nuclear Power Plant Authority technically owns and operates it.

Rosatom is also currently constructing two units in Lianyungang, China at the Tianwan NPP having already completed two units (Rosatom Projects, 2018). China would make an attractive market for Rosatom to expand into, considering the Chinese plan to triple its production of electricity via nuclear power, but China is capable of financing, staffing, and managing plants of their own, unlike most countries (Trickett, 2018). As Chinese firms meet goals to increase nuclear energy production and look abroad for deals as Rosatom does now, they will become formidable competitors for Rosatom (Trickett, 2018). For example, Rosatom had a contract to build a NPP in Bulgaria that was cancelled by the Bulgarian government in 2012 (the government paid a fine to Atomstroyexport of 620 million euros), but the government has recently sought to lift the ban on the construction of the plant to enter talks with the China National Nuclear Corporation (Koseva, 2018). Lack of investors and political pressure from the

EU and US to refrain from becoming more dependent on Russia for energy security stalled the project the first time, but in a visit by the Bulgarian president to Sochi, Putin and Likhachev raised the prospect of Rosatom building the plant again, and the parliament must now decide whether or not to lift the ban (Reuters, 2018).

Another example of an ill-fated project was the NPP in Vietnam, with the host country stopping the project because of domestic concerns unrelated to Rosatom or Russian involvement. The Vietnamese government signed an agreement in 2010 with Atomstroyexport, and the plant was supposed to be ready for operations by 2020. Russian financing for the $10 billion project was going to cover 85% of the cost of the plant, and Rosatom would provide fuel and collect spent fuel (Froggatt & Schneider, 2011:52). The project was officially cancelled because the cost had risen to $18 billion, the government had nearly hit its permitted public debt limit, and demand for electricity was less than expected (Nguyen & Minh, 2016). Rosatom nonetheless maintains a presence in Vietnam, according to a Rosatom official who elaborated little on the nature of their activities (Nguyen & Minh, 2016).

The construction of NPPs by Rosatom has political and economic implications. For countries without homegrown nuclear expertise, even if the state owns the plant, as in the case of Egypt, they rely on Russian expertise and services and therefore could be subject to interference from the Kremlin in the future. A foreign state corporation having complete control over fuel deliveries alone creates a significant reliance on the supplier state. The complete package BOO model, which as mentioned, can include Rosatom helping to form regulation of the nuclear industry in a client country. It is a risk for client countries to let Rosatom create regulations for itself, especially when considering the lack of transparency over safety issues at the aforementioned Mayak Production Facility and as will be discussed in the Belarus case in the next chapter. The use of energy giants to influence political outcomes in other states begins with building a dependence on Russia for energy security. In the aforementioned instance when the Deputy Prime Minister spoke of a ban on transport of nuclear fuel to Ukraine in the early stages

60 of the ongoing conflict, a clear example emerged of how dependence on Russia for nuclear fuel can be used as leverage in a political dispute.

Securing Uranium Supply With plans to build, own, and operate nuclear power plants in Russia and around the world, Rosatom must secure a sufficient supply of uranium. Russian sources of uranium constitute 4.8% of global supply while Russia consumes the third highest amount of uranium behind the USA and France (Statista, 2018). Mines in Kazakhstan provide 39% of global demand, making the country a key player in the nuclear power industry (WNA, 2017). Kazatomprom, the Kazakhstan state atomic corporation, controls 21% of production globally with the remainder of Kazakhstan’s share of global production primarily controlled by subsidiaries of Rosatom, ARMZ and Uranium One (Hess, 2018). Rosatom’s website mentions having mining projects in the US, Kazakhstan, and Russia, with prospective operations in Tanzania and Namibia through the aforementioned subsidiaries (Rosatom 2018). With the demand for uranium set to double between 2015 and 2025, there is a concerted effort to secure uranium supplies around the world (Reuters, 2016). This section covers Rosatom’s activities with regard to uranium mining.

With Kazakhstan’s dominant position in the uranium market, President Nazarbayev has been keen to take advantage. Though uranium prices are often negotiated on a long-term basis, the state atomic corporation of Kazakhstan, Kazatomprom, has made an effort to increase the price of uranium in the spot market. It began in January 2017 when Kazatomprom declared a 10% production cut and the market responded with a 10% increase in the spot price to $24.25 per pound, which had fallen from $67 since the Fukushima disaster (Sharples, 2017) (Reuters, 2016). The price retreated to around $20 per pound until December when Kazatomprom announced a decision to cut production by 20% until 2021 which raised the spot price back to the $24 level (Els, 2017). The first week of April 2018 saw spot prices back to $21 per pound, undermining hopes that these cuts would bring the lower range of uranium prices into the mid-20s (Els, 2017) (UxC, 2018). Low uranium prices have a major effect on the viability of mining projects and also Rosatom’s ability to secure supplies for the future.

In this price environment, opening new mines is not profitable. The prospective mine in Tanzania was put on hold by Rosatom due to the low price of uranium, which is not expected to recover until after 2020. The Mkuju River project was the first uranium mine licensed in Tanzania, but has been fraught with complications aside from low uranium prices. Rosatom’s activity in Tanzania began with Rosatom’s purchase (through ARMZ) of Mantra Resources Ltd., an Australian company that held the uranium deposits at the Mkuju River site in 2011. The deal was signed just three months after the Fukushima disaster, and the $1.5 billion sale came to appear less attractive considering the uranium price was triple then what it is now (Basov, 2017). Tired of delays, authorities in Tanzania have also put pressure on Rosatom. Environmentalists, meanwhile, have criticized the Mkuju River project because the site was part of the Selous Game Reserve, and wildlife poachers began to use the road constructed by Rosatom (Basov, 2017).

The elusive Namibia mining project, still counted as a “perspective [sic] project” on the Rosatom website, does not appear to exist. In March 2018, Sputnik News reported a trip by foreign minister Lavrov to negotiate a Memorandum of Understanding with Namibian counterparts about furthering cooperation on the peaceful use of nuclear energy. This discussion covered the range of Rosatom’s services, from resource extraction to building NPPs (Sputnik, 2018). This implies that there is no current collaboration in these areas. Rosatom had applied to develop Namibia’s Rossing South deposit in 2010. At the time, Kiriyenko suggested that Rosatom’s Turkish plant may be fed with Namibian uranium on top of other enticing projects beyond the initial promised $1 billion investment. The bid failed (Sputnik, 2010). There are no mines in Namibia owned or jointly operated by Rosatom according to the World Nuclear Association (WNA, 2018). Rosatom’s attempts to impress, by keeping Namibia as a prospective project on its website despite no public evidence this is the case, is an indication of a questionable PR operation and a desperation to appear more active than Rosatom really is.

In January 2018, an agreement was signed in Moscow between the foreign minister of Argentina, Uranium One, and the head of UrAmerica, a private uranium exploration company operating in

Argentina and Paraguay. The purpose of the signed Memorandum of Understanding (MoU) is to increase cooperation between the two countries in matters of uranium exploration and mining, though details about the $250 million are few (WNN, 2018). Whether this this MoU leads to more cooperation with Rosatom remains to be seen, but it is unlikely to progress quickly if the low price environment persists. A potentially more successful mining project is a joint operation with Chinese investors. In March 2018, the Chinese National Nuclear Corporation (CNNC) invested 16 billion rubles into a Russian uranium mine in Priargunsky District, in a joint venture with Rosatom subsidiaries. This deal gives CNNC a 49% stake in the project and 600 tons of uranium per year, half the capacity of the new mine. The Russia-China Investment Fund for Regional Development (RCIF) is to contribute 2.5 billion rubles to the 18.5 billion ruble project (Abbasova, 2018). Despite geopolitical competition between Russia and China, a joint venture of this type shows how the two countries can cooperate to secure uranium supply for their respective reactors.

In 2010, Rosatom via ARMZ, bought a controlling stake in the Canadian mining company, Uranium One. At the time of the purchase, Uranium One had two mining operations in the US state of Wyoming that constituted 20% of production capacity as well as exploration operations in Utah, Arizona, and Colorado. The deal required the approval from the Committee on Foreign Investments in the US, and it should be noted that uranium mined in the US is not exported to Russia. Since 2010, Rosatom has become the sole owner of Uranium One, and its activities in the US revolve around supplying American reactors. In 2014, Uranium One produced 11% of US uranium needs and almost 6% of total domestic production. So while Uranium One makes money by selling uranium to American plants, it cannot be exported, with the exception of going to Canada for processing before being returned to the US for use (Kiely, 2017).

To conclude this section, Rosatom’s activities in the uranium mining industry have had mixed success. The price of uranium dictates the industry, which has suffered under low prices in recent years. Attempts to increase the price of uranium by Kazakhstan have been largely unsuccessful. In this low price environment, Rosatom has dropped its project in Tanzania,

63 though it is in the early stages of making an agreement with the Argentinian government, and further along is the joint Chinese-Russian mine set to open in Siberia. The Namibian project appears to be imaginary, and Uranium One’s operations in the US are guided by strict rules that limit Rosatom in what it can do with mined uranium. This period of low prices makes it difficult to pen new mining arrangements, though the growing demand for uranium over time is increasing, as should the price, eventually. Rosatom is caught in a situation not unlike in the oil industry, where a glut of resources causes prices to drop, making extraction less profitable, discouraging the opening and acquisition of new extraction sites, while under the longer term pressure to secure resources as demand is projected to rise and supply becomes more scarce in the future.

3.5 Rosatom’s New Industries

Examining the data on the Rosatom website, Rosatom has agreements with 67 countries. In seven countries Rosatom is constructing research reactors, with five prospective research reactors in the works. Seven countries use Rosatom’s services in spent fuel management, 11 countries use other services and modernization, 13 NPPs are in some stage of development, 33 countries rely on Russia for supply of isotopes (most of which have medicinal applications), 16 get nuclear fuel and components, and 14 are supplied enriched uranium (Rosatom, 2018d). Rosatom’s activities, however, are expanding.

In a meeting between Putin and Likhachev in February 2018, Likhachev promised Rosatom would be able to build “entire commercial energy complexes” around the world and that Rosatom is moving beyond the confines of the nuclear industry while simultaneously researching and developing better reactors and working on the goal of closing the fuel cycle. New energy storage devices and peaceful uses for powerful lasers are technological achievements on Rosatom’s horizon. Rosatom will also be involved with making technologies for the digitization of the Russian economy. Likhachev listed “quantum technologies, virtual augmented reality technologies, Big Data technologies and new industrial production reserves” as areas of expansion (WNN, 2018). Considering Kiriyenko’s aforementioned interest in creating a Russian

Cambridge Analytica, such technologies would certainly help analyze and control the Russian online space.

Rosatom also controls a fleet of four nuclear icebreakers, an icebreaking container ship, and five service ships. These are operated by the Rosatom offshoot Rosatomflot, and is occupied with facilitating the navigation of ships across the Northern Sea Route, which has opened due to climate change. The fleet helps ships reach frozen northern ports, assists in research missions, emergency rescues, environmental rehabilitation, and even has cruises for tourists to see the Arctic (Rosatom, 2018c). The geopolitical and economic benefits of the Northern Sea Route as it becomes more accessible will be significant, and Russia is already ahead of other Arctic competitors in developing ships that can cross the frozen sea. Rosatom will certainly be a beneficiary of increased trade across the Northern Sea Route. Rosatom has been granted the authority to develop infrastructure in the Arctic, which solidifies its position above other Russian entities to oversee and profit from increased activity in the Arctic (Digges, 2018).

NovaWind is Rosatom’s new wind energy division. Wind power plant (WPP) construction and electricity production plans are currently being carried out only in Russia, but Rosatom has confirmed that NovaWind will produce wind turbines for export in the international market. Entering the wind energy market requires Rosatom to acquire new competencies in technological, managerial, and operational areas. To gain knowledge in these areas, Novawind has entered a joint venture called Red Wind with the Dutch company Lagerwey, which will provide the technology for the production of turbines, train Russian personnel, and share know-how related to running wind farms. Russia’s first two WPPs will be in the Republic of Adygea and Krasnodar Territory, with the first set to be commissioned this year (Rosatom, 2018).

Rosatom is clearly looking for ways to expand its portfolio in the future, and not just by getting countries to sign for a nuclear reactor with a lifetime of service fees. As trade across the Arctic increases, Rosatom will be in a prime position to take a share of the profits. Entering the

65 renewables market and investing in other innovative sectors diversifies Rosatom’s business and lays the foundation for exporting new products in the medium-term.

3.6 Outreach

The International Relations Unit is lead by Nikolay Spassky, who was First Secretary in the Soviet Foreign Ministry at the US and Canada Department, then in various high positions in the Russian Foreign Ministry. He served as Deputy Secretary of the Russian Security Council from 2004 until joining the FAEA and later Rosatom, where he also serves as Deputy Director General (Rosatom, 2018a). The International Relations Unit is to provide “continuous political support” as Rosatom embarks on overseas projects. As of 2014, there were 14 countries with Rosatom representatives embedded at embassies and trade missions. As part of the goal to gain the public’s approval of the use of nuclear energy, Rosatom has opened information centers for educational purposes as part of NPP deals in Turkey, Bangladesh, and Belarus (Rosatom, 2018).

The number of foreign students studying nuclear sciences has grown significantly in recent years. In 2010, there were just 46 international students, by 2016, there were 1400 (IAEA, 2015). In 2016, the IAEA signed a cooperation agreement with the Regional Network for Education in Nuclear Technology, an initiative among post-Soviet states to increase cooperation between nuclear-related educational institutions. Rosatom hailed it as bringing closer cooperation over nuclear education in post-Soviet countries (WNN, 2016).

Given public misgivings about nuclear energy, especially after Fukushima, Rosatom is sensitive to the risk posed by backlash from environmentalist groups. Working for the organization EcoDefence, Slivyak (2016) wrote about how at the time when Russia’s nuclear agencies were being consolidated into what would become Rosatom, Kiriyenko sent messages asking for the help and support of the organization with the promise to arrange a “thank you” later on. EcoDefence did not lend their help, but others who supposedly did were given donations from the fund of the Public Council, some were even given medals. EcoDefence, meanwhile, was the first environmental NGO to fall afoul of the recent laws that put Russian NGOs on a list of

66 foreign agents, because activists were organizing against the NPP site in Kaliningrad (Slivyak, 2016). Rosatom’s expansion includes shaping public opinion and minding its opponents.

3.7 Conclusion

To conclude this chapter introducing Rosatom, the company has become a prominent force in the nuclear energy sector worldwide. The question this chapter addressed was : How has the role of Rosatom developed over time, and what is the outlook and strategy for the future? It was shown how State support has played a crucial role in Rosatom’s development, which it may be weaned off by 2020 if all goes according to plan. It will be difficult to manage losing the subsidies that made deals with Rosatom attractive to new customers while having to contend with the expensive endeavor of decommissioning domestic reactors. Making more deals abroad is key to Rosatom’s future revenue stream, which helps explain the speed with which it pursues signing new MoUs, but it is not realistic to assume that each MoU will result in a actual project. Or as the case of Vietnam or Bulgaria demonstrates, contracts can fall apart when the project is much further along. Rosatom tries to foster goodwill and collaboration among the public and for students of nuclear sciences to secure future acceptance of nuclear energy and a talent pool that has trained in Russia. With only 100 years of uranium left and the nuclear industry continuously fighting for survival, Rosatom has branched out into other sectors, from wind power, to Big Data, to building infrastructure along the Northern Sea Route.

Chapter 4: A Case Study of the Astravets NPP in Belarus

Introduction

This chapter is centered around a case study to show in practice the potential consequences of hosting a Russian nuclear plant. The NPP under construction in Astravets, Belarus, built by Rosatom and financed by Russian banks, and has inflamed relations between Belarus, Russia, and their neighbors. Political, security, and safety concerns from Lithuania, Poland, and others threaten the financial viability of the project. This case shows how having a Rosatom NPP can affect not just the energy security of the host country, but the security of and relations with neighboring states. The body of the chapter is divided into three sections: a background on nuclear energy in Belarus, on the financing and ownership of the plant, on Russia-Belarus energy relations and their justifications for building the plant, and about the safety, security, and political concerns surrounding the plant. This chapter addresses the final hypothesis: Rosatom has successfully increased dependence internationally on the Russian nuclear sector, resulting in increased foreign influence for the government. It also answers the final subquestion: What are the potential consequences of reliance on Rosatom for energy security?, and re-addresses the main question regarding the role Rosatom plays in advancing the Russian foreign policy agenda.

This case was chosen, for one, because it is a fairly recent example of Rosatom’s expansion. The cases of India or Iran are a result of decades-old agreements and not representative of the new wave of expansion. The plants in Hungary or Finland were not chosen because the influence of the EU is so integral to the cases that they are less generalizable to other international examples (See Aalto, Nyyssönen, Kojo, et. al., 2017). The now-canceled South Africa plant would have made an interesting study however it is too recent to have a presence in the academic literature. The Belarus case balances these different concerns, though mentions of the Astravets NPP in

68 peer-reviewed articles are still minimal and the articles tend to cite each other or use the same sources. In this case study, the goal is to unite the existing literature, and supplement it with new information and analysis.

4.1 A Timeline of Nuclear Energy Developments in Belarus

The first foray into nuclear energy in Belarus began in the 1980s when plans were drafted to construct two NPPs. The projects were cancelled in 1986 following the disaster in Chernobyl, which has affected Belarus far beyond the cancellation of the NPPs. Wind and rain in the aftermath of the disaster blew 70% of the radioactive fallout into Belarusian territory, affecting 25% of the total land area (20% of farmland and 22% of forested areas) and more than two million residents (Juozaitis, 2016:45). After the Soviet breakup, 1/5th of government expenditures went towards dealing with the aftermath of the Chernobyl disaster (Juozaitis, 2016:45). Not that the government was entirely dissuaded from developing NPPs, a nuclear development plan was devised in 1993 but was shelved over financial considerations until 2006 when nuclear energy was once again considered (Juozaitis, 2016:46). In 2007, the Energy Security Concept included the development of nuclear power, and work began choosing an appropriate location (Juozaitis, 2016:46). The Astravets site was chosen over the two other possibilities because of better geological features and access to a water supply, according to the National Report of the Republic of Belarus Under the Convention on Nuclear Safety (Gosatomnadzor, 2013).

The government then chose between four companies interested in constructing the plant: Areva, the China Guangdong Nuclear Power Corporation, Westinghouse-Toshiba, and Russia’s Atomstroyexport, the eventual winner of the contract (Juozaitis, 2016). Areva’s model was too large and the Westinghouse offer would necessarily entail an agreement with the US government that would be time-consuming to finalize (Vlcek & Jirusek, et. al., 2015) Atomstroyexport exports nuclear equipment and services, and falls under the umbrella of Atomenergoprom (the Atomic Energy Power Corporation, a Rosatom holding company) though nearly half (49.8%) of shares are owned by Gazprombank (BBJ, 2007). The first contract was signed in 2011,

69 expanded in 2012 to include the cost of new infrastructure necessary for the construction and operation of the NPP, and the first work on the site began in November 2013 (Juozaitis, 2016).

4.2 Financing & Ownership

The deal stipulated that Rosatom would construct two VVER- 1200 reactors scheduled to come online in 2019 and 2020, provide a $10 billion loan covering 90% of the cost of the project, and that Belarus would rely on Rosatom subsidiaries to build and maintain the plant (Česnakas & Juozaitis, 2017:2). The loan is from Vnesheconombank in Russia to Belvnesheconombank in Belarus, with a 9.5% interest rate to be repaid over 25 years (Morgan, 2017) (Vlcek & Jirusek, 2015:79). The cost of the project has grown in the time since the original agreement was signed, due especially to the devaluation of the Russian ruble. The cost in 2012 was estimated to reach $13 billion to include the extra infrastructure projects, but by 2014 the figure hit $24 billion, nearly half of Belarus’ GDP ($54 billion in 2015) (Česnakas & Juozaitis, 2017:5).

Typical of the turnkey deals, Russia will supply not just financing but also fuel for the reactors, they will train employees, and send experts to run the plant from Rosatom (Baumgartner, 2017). Without the expertise to run the plant with Belarusian employees and a contractual obligation to source components from Russian enterprises, reliance on Russia for energy supply transferred a degree of reliance on Russian gas to complete reliance on Russia for nuclear-powered electricity supply (Česnakas & Juozaitis, 2017).

4.3 Russia-Belarus Relations & Justifications for the NPP

Russia and Belarus have maintained close relations in the post-Soviet era. Integration in the energy sector and economic, security, and intelligence realms exemplifies this relationship (Česnakas & Juozaitis, 2017). Belarus is a member of Moscow-led post-Soviet organizations such as the Eurasian Economic Union, the Commonwealth of Independent States, and the Collective Security Treaty Organization. Economically, Belarus has benefitted from subsidized

70 oil and gas from Russia and trade that amounts to more than half of Belarus’ total (Česnakas &

Juozaitis, 2017:7). With such close ties, the nuclear deal may seem like overkill if not for the influence Moscow could gain in states beyond Belarus (Česnakas & Juozaitis, 2017).

Lukashenko’s relations with the EU have been relatively distant, except at times following instances of Russia acting aggressively (Shraibman, 2018). In 2006, Russia and Belarus had a dispute over the price of gas deliveries. Gazprom demanded Belarus pay a higher price for gas, which Minsk rejected because they argued that Belarus should not be charged more than neighboring Russian cities. The dispute resulted in Gazprom gaining 50% of shares in Beltransgaz, the Belarusian pipeline company and a contract for gas supply for five years (Marples, 2008:216). Moscow imposed excise taxes on oil exported to Belarus in 2008, the same year Belarus became part of the EU’s Eastern Partnership program (Shraibman, 2018:18). It was found by Dusciac, Popescu, & Parlicov (2016) that joining the Partnership program led to a diversification of energy supply in Georgia, Moldova, and Ukraine, but no such diversification has occurred in Belarus aside from transfering a degree of dependence on Russian gas to a dependence on the Russian nuclear industry.

Russia’s war with Georgia was alarming for the Belarusian government, and initiated the minor pivot toward the EU which included freeing political prisoners and relaxing its position towards the press and opposition in exchange for the EU lifting sanctions and the resumption of high level meetings that had stopped a decade earlier. But when Medvedev replaced Putin as president, the excise tax was lifted for oil going to Belarus in exchange for Belarus’ participation in the Customs Union with Russia and Kazakhstan (Shraibman, 2018). Having improved relations with Russia, appeasing EU officials became less of a matter of concern, seen when 40,000 protests on the streets on election day were dispersed and the leaders were prosecuted (Shraibman, 2018:18). This thaw in relations with the EU ended, amounting to little more than a a Belarusian effort to improve its negotiating position with Russia. In 2014, with the war with Ukraine underway, Belarus again made overtures to the EU (Shraibman, 2018). Steps have been taken to simplify the visa regime, let EU banks into the country, and for the EU to provide

71 technical assistance on top of discussing human right concerns. Though progress has been made, human rights abuses continue in Belarus and political and economic reforms would expose Lukashenko to any consequences of liberalization (Shraibman, 2018). The EU External Action Service’s EU-Belarus relations page states that, “Tangible steps taken by Belarus to respect universal freedoms, the rule of law, and human rights, including fundamental labour rights, will remain fundamental criteria for the shaping of the EU's future policy towards Belarus” (EEAS, 2017). With that clarity from the EU of their expectations, it appears that Russia is still seen in Belarus as the better guarantor of stability despite the gas disputes and military actions. The construction of the Astravets NPP represents a swing back toward Russia, a role that Lukashenko has embraced (Baumgartner, 2017).

Since the gas crises with Ukraine in the 2000s and Russia’s intervention in Ukraine in 2014, European countries have become more concerned with dependence on Russian energy supplies (Maltby, 2015). The Astravets NPP could increase Russia’s influence in EU energy matters through the export of produced electricity to Belarus’ neighbors. Another possible intention could have been to disrupt the non-Russian cross-border infrastructure projects such as the EU Baltic Energy Market Interconnection Plan (BEMIP, 2012). Juozaitis (2016) puts forth the idea that the Astravets NPP is a direct response to the Lithuanian Visaginas NPP based on the timeline of events. Just four months after energy companies in Baltic states discussed conducting a feasibility study for a new NPP in March 2006, the Belarusian government reconsidered nuclear energy after dropping the issue during the 1990s. The Lithuanian plan progressed until October 2012 when an Advisory Referendum took place deciding against the construction of the new plant (Juozaitis, 2016:54), whereas the Belarusian plan moved ahead despite the concerns laid out by the Lithuanian government, addressed in the following section. Since the two plants would have been in direct competition with each other, the Belarusian plan can be interpreted as an effort to thwart the Lithuanian effort.

The Astravets NPP also serves the attempt keep the Moscow-controlled electricity grid in the Baltic states instead of them joining the Continental European Network. If the Baltic countries

72 leave the Soviet grid, the opportunity to sell Astravets electricity evaporates and the NPP in Kaliningrad would have to either join the European network or be an island cut off from the rest of the Russian grid (Česnakas & Juozaitis, 2017). Avoiding these costs while keeping the Baltic region in Russia’s energy orbit are important factors that explain Russian interest in the project beyond the simple construction and maintenance of a nuclear plant.

Placed just miles from the border of the NATO alliance, the NPP will be secured by a Russian or Russian-trained military presence, which could be used to act against Lithuania if the need arises. Česnakas & Juozaitis give an example of how the NPP could be used: given the penchant for capitalizing on fake news, manufacturing an incident at the plant that would cause panic or the evacuation of Vilnius would give Russia an advantage in the event of conflict.

The refrain from Belarus is that nuclear energy will make it less reliant on Gazprom, nevermind the dependence on Rosatom that takes its place (Baumgartner, 2017). The Energy Security Concept of 2015 specifies diversifying energy supply by increasing domestic production and shifting away from reliance on gas and electricity imports from Russia (Česnakas & Juozaitis, 2017:5). To an extent, the Astravets NPP helps accomplish this goal. Producing its own electricity and replacing 25% of demand for gas sourced from Russia accomplished the diversification of types of energy available, but the financing and ownership model does nothing to reduce Belarus’ reliance on Russia for energy security (Česnakas & Juozaitis, 2017:5). The Energy Minister also emphasized that the NPP will help fulfill Belarus’ commitment under the Paris Climate Accord (Morgan, 2017). The contradictory nature of the official justification for the plant is even more clear upon assessment of the safety issues overlooked as the NPP is built as fast as possible.

4.4 Safety Concerns

The Lithuanian government asserts that Belarus is in violation of three articles of the Nuclear Safety Convention regarding the Astravets NPP (Lithuania MFA, 2018). First, the impact on the society and environment near the NPP was not properly assessed. Second, the site of the plant

73 was chosen without consulting neighboring Lithuania, and third, that safety had not been properly stressed by the government to the organizations involved in implementing the project. The Lithuanian government has also filed a complaint under the Convention on the Environmental Impact Assessment (the Espoo Convention) and the Committee concluded that Belarus was in violation of 4 articles of the convention and in 2017 the Meeting of Parties of the Aarhus Convention supported the declaration that Belarus was not abiding by the convention, which noted the arrest of four activists and the lack of a mechanism for public input and information regarding environmental matters (Lithuania MFA, 2018).

Additionally, after the Fukushima disaster in 2011, the IAEA made a series of recommendations including that NPPs shouldn’t be built within 100 kilometers of a population center. The plant sits just 50 kilometers from Vilnius with nearly half the Lithuanian population residing within a 100km radius (Baumgartner, 2017). The plant is near the Vilnius airport, which by proximity increases the risk of an accident and will affect plane traffic (Česnakas & Juozaitis, 2017). The Lithuanian Foreign Ministry has expressed concern over the lack of precautions in the event of a plane crash. Citing post-Fukushima recommendations from the Western Europe Nuclear Regulators Association to safeguard NPPs from plane crashes, they have asked and been declined by Belarusian authorities to assess how the plant would fare in the event of a direct hit. An assessment of Rosatom’s NPP in Finland found that the plant would not be able to handle a plane crash so the Finnish government negotiated with Rosatom to enhance the protective shield. The Lithuanian government is pushing for a similar assessment and reinforcement of safety features (Lithuania MFA, 2018).

Furthermore, the Neris river that provides water to cool the NPP is a tributary of the water basin that supplies Lithuania, which calls into question the aforementioned assessment by the Belarusian authorities that the access to water and geological features were key reasons for selecting the site at Astravets (Česnakas & Juozaitis, 2017). Astravets is also in an area with seismic activity, recognized by the Academy of Sciences in Belarus in 1993 when they determined that the earthquake-prone region would not be suitable for a NPP (Česnakas &

Juozaitis, 2017:9) (Baumgartner, 2017). There have been 40 reported earthquakes in the region since the year 1616, the strongest of which reached a five on the Richter scale, and two 2.5 magnitude earthquakes were reported in 1987 less than 10 kilometers from the NPP site (Lithuania MFA, 2018). Belarusian authorities have not released a detailed report on the geology of the site, its risk of sinkholes, and tectonic features (Lithuania MFA, 2018). The choice of the Astravets location is additionally confounding because other regions of Belarus such as the Mogilev region have more infrastructure and industry while being more distant from population centers were not chosen (Česnakas & Juozaitis, 2017).

Since construction began in 2013, there have been 10 acknowledged accidents and three deaths, and Belarus has been accused of not being forthcoming or transparent about issues concerning the plant (Baumgartner, 2017). In April 2016, a building under construction between the two reactors collapsed because too much concrete was poured into the foundation. A worker reported the incident to Belsat, saying there had been prior unreported incidents (Belsat, 2016b). The report was denied by authorities until the ambassador from Belarus to Lithuania was officially asked to provide an explanation (Belsat 2016a).

In August 2016, reports of an incident surfaced that a 330 ton shell of a reactor was not properly lifted by a crane and fell from a height of four meters (de Jong, 2017). For several weeks, Belarusian authorities and Rosatom were quiet about the incident. Rosatom then denied that the fall caused any damage, though the reactor shell was eventually replaced (de Jong, 2017). The reactor shell was the first built by the Rosatom company Atomenergomash in 30 years, having gone bankrupt and only regaining its license to produce nuclear equipment in 2009 (Ivashkevich, 2017). In February 2017, the other reactor collided with its surroundings while being moved but was not replaced and was installed just two months after the incident (de Jong, 2017). The deputy energy minister of Belarus says all questions have been answered and Lithuania is “politicizing” the issue, that the accidents and deaths were “reasonable figures” (Baumgartner, 2017). An activist investigating the plant said that 10 people minimum have died in the

75 construction of the plant, but the authorities have acknowledged only three, justifying the deaths by saying that the workers were at fault (Belsat, 2016a).

The Belarusian authorities have also failed to ensure that the construction firms involved with the project are capable of safely building the plant. By law, construction companies are divided into categories based on capability, from being able to build homes (category 4) to high-rise buildings and industrial plants such as an NPP (category 1). As such, only category 1 companies should be working on the site, however one Belarusian company, JSC Stroitel, is not a category 1 company yet has built the automated fire extinguisher system, a backup generator for the plant’s safety system, and a cooling system of the same design that sparked a fire at the Rostov NPP in 2015 (Ivashkevich, 2017). The construction supervisory agency, Gosstroinadzor, in response to questions about Stroitel, only confirmed that the company had a certificate but not if it was in category 1. The Department for Nuclear and Radiation Safety, Gosatomnadzor, responded that a category 1 certificate was not necessary for subcontractors, nevermind that Stroitel hired subcontractors of their own, which by law precludes Stroitel from being considered a subcontractor (Ivashkevich, 2017).

Problems have continued. In April 2018, Belarusian authorities revealed that there had been an incident in February, only commenting after the activist Mikalai Ulasevich reported that there had been a fire where the reactor’s protection system is located, destroying the building. The authorities denied that there had been a fire or any serious damage, saying there was only an issue involving a short circuit, but sources at the site confirmed seeing fire trucks and say the burnt building was rebuilt (Belsat, 2018b). A worker at the site described the working conditions, noting the low pay of workers, the enrichment of friends of people in high places, the theft of construction materials to make up for low wages, and impossible quotas set for the workers. He remarked that the number of workers at the site has declined, that he wanted to leave his job but his boss wouldn’t accept it since replacements have become difficult to find (Vysotsky, 2015).

The purpose of highlighting these safety concerns is to illuminate Rosatom’s tolerance of them and the lack of transparency when questions arise. As Rosatom continues its expansion, client states and states in the vicinity of a Rosatom NPP must be aware that Rosatom is not forthcoming when asked to address concerns regarding the plant.

4.5 Political Fallout

Lithuania and Poland have preemptively banned electricity generated at the Astravets NPP from being used or traded in their countries, effectively ending the prospect of selling electricity to other parts of Europe (Ivashkevich, 2017). The Lithuanian diplomatic envoy pushing against the plant suggested that the ban would significantly affect the business plan Belarusian officials had in mind, making repayment on the loan a concern in the future (Baumgartner, 2017). Lithuania has also begun the process of leaving the Soviet power grid that it still shares with Russia and

Belarus to join the Western grid system (Baumgartner, 2017). Leaving the now Russian grid and blocking Astravets-generated electricity blocks avenues for Russia to influence Lithuania and the Scandinavian countries they hoped would become their customers (Standish, 2017).

President Lukashenko said that the NPP at Astravyets “is a fishbone in the throat of the EU” and Lithuania has declared the plant to be a threat to national security, noting the new military installation nearby to protect the plant with troops trained in Russia (Baumgartner, 2017). The foreign minister of Lithuania said about the plant that “it’s another Russian geopolitical project on our borders,” (Standish, 2017). In response to opposition of plant from Lithuania, the First Deputy CEO for Corporate Development and International Business at Rosatom, Kiril Komarov, said that, “the way Lithuanians voice their concerns and deal with the answers suggests that the real issues for them are connected to politics and commercial interests and not to genuine worries about safety or security” (Morgan, 2017). The Lithuanian government nevertheless refers to the plant as “a geopolitical project without economic grounds,” noting that the second reactor is built solely for exporting electricity since domestic demand is low enough not to require the second reactor (Lithuania MFA, 2018). The political dimension of the construction of this plant is

77 significant, and has strained already poor relations between Lithuania and EU neighbors on one side, and Belarus and Russia on the other.

The aforementioned military installation ostensibly to protect the NPP and the transport of nuclear fuel was built in 2016, a mere 12 miles from the Lithuanian border. The soldiers at the base are trained by the Russian National Guard in St. Petersburg (Česnakas & Juozaitis, 2017:7). Originally housing 300 soldiers, the number increased in September 2017 at the same time the Zapad military exercise with Russia and Belarus took place (Česnakas & Juozaitis, 2017:10). As another protective measure, Belarus has hardened its anti-air capabilities with mobile radar and surface-to-air units. This protects the plant from terrorists, but also provides an area on NATO’s border that Russia could utilize in the event of conflict (Česnakas & Juozaitis, 2017:8).

Despite opposition to the plant, no insurmountable barriers have yet stopped construction. In June 2017, the Parliamentary Assembly of the Council of Europe recommended halting construction at the NPP, citing, “numerous violations, the lack of respect for international standards for nuclear safety and serious safety violations and major incidents during the construction of this plant” (PACE, 2017). The EU has tried to convince Belarus when doing stress-tests to use the EU methodology (Česnakas & Juozaitis, 2017). The authorities in Minsk cite an IAEA report confirming that steps to address safety issues had been taken, but critics point out that not all the modules were examined as per the wishes of Belarusian authorities (Baumgartner, 2017). The IAEA is permitted to inspect what the host government allows, and the Belarusian authorities have not agreed to an inspection of each module (Česnakas & Juozaitis, 2017). The IAEA has only been permitted to assess the safety of the plant’s design, foregoing other important safety aspects that are part of a full IAEA review, such as the review of site selection and environmental impact. This means that the threat of earthquakes and the proximity to a population center was not fully assessed by the IAEA. The Belarusian government decided to carry out these assessments themselves, a worrying prospect for Lithuanian authorities when, for example, only the population of Belarus was included in their survey of population density, ignoring the people on the other side of the border (de Jong, 2017).

That the Belarusian authorities use the IAEA’s positive assessment of such a narrow aspect of safety to prove the success of the plant is considered by the Lithuanian MFA to be a way of “manipulating public opinion” believing that if a full review had been conducted, the results would be negative (Lithuania MFA, 2018). The construction of the Astravets NPP has definitely damaged relations between Russia, Belarus, and their neighbors, and at present Belarus is as determined to finish the plant as Lithuania, Poland, and other countries are trying to stop it. The long life expected for the plant means it will be a thorn in relations for decades to come, but naturally Belarus would have grievances if the plant was somehow stopped, a zero sum game. Belarus has become reliant on yet another Russian energy giant and alienated countries on its border and beyond.

4.6 Conclusion

Depending on Russia to finance, build, and service the Astravets NPP over its 60 year lifetime gives the Russian government a pivotal role in Belarus’ energy security, which affirms the hypothesis posed at the beginning of this chapter that a Rosatom NPP comes with increased potential for foreign influence in the host country. Russia takes on risks as well, however, since Belarus may come under strain paying loans on the plant and tensions with EU neighbors have increased. Opposition to the plant has spurred the disconnection from the former-Soviet grid in the Baltic states and created ever more wariness of Russian actions. The Astravets NPP project continues despite safety concerns and other setbacks, from increasing project expenses, the loss of the export market, violations of international conventions, a lack of proper safety reviews, and the entrenchment of Russia in Belarusian energy affairs, the opposite of one of the main stated ideas behind the project. This all occurs in the shadow of the Chernobyl disaster.

The concerns about the plant raise questions about its true purpose. It is not economically viable and risks the safety of people in Belarus. President Lukashenko’s concerns for his people are arguably limited; he has encouraged people to return to the areas of the country contaminated by radiation and dismisses concerns about the plant by claiming “radiophobia” (Myers, 2005)

(Novikau, 2017). Attempting to rush a NPP to thwart Lithuanian plans sounds less improbable when viewed with prospect theory in mind. As the Baltic states joined the EU and began considering leaving the Soviet electric grid and constructing a new NPP, the continuing loss of influence pushed the governments in Russia and Belarus to take action to, in the words of Lukashenko, be a “fishbone in the throat of the EU” (Baumgartner, 2017). Some analysts have argued that Putin was surprised by the resolve of countries that have sanctioned Russia since 2014, that there was an expectation (or gamble) that Western countries would be more interested in keeping economic ties than punishing Russia for misdeeds in Ukraine (Carbaugh, 2016). If so, the export of electricity from Astravets may not have been considered under threat, a miscalculation if current efforts in Baltic states to join the European Network go through and imports from Astravets once completed remain banned. Česnakas & Juozaitis (2017) come to the same conclusions as Lithuanian diplomats, that the Astravets NPP is a Russian geopolitical project and should be treated as such. There are few riskier projects than using a NPP as a geopolitical tool built on literally and figuratively infirm ground, a move an actor would likely not take if not already perceiving itself as “losing,” making heavy risk-taking more palatable. The case of the Astravets NPP has shown how Russian foreign policy and Rosatom’s expansion go hand in hand. Under a geopolitical and geoeconomic lens, the Astravets NPP is the result of an attempt to keep the Baltic states and their neighbors in the Russia-centric electric grid, which has political and economic advantages, but also that the political relations between Russia and Belarus arguably helped move the project to the construction stage.

Conclusions: Rosatom & Russian Foreign Policy

This final section reviews the findings and reflects on the research. The objectives of this research were to develop an understanding of Rosatom’s international expansion, in terms of its role as a business in the nuclear industry and the influence of the state in its affairs. The main research question asked: What are the drivers of Rosatom’s international expansion, and how does this expansion coincide with the Russian foreign policy agenda? Noting the historical use of energy giants in the oil and gas sector for political ends and efforts to deepen the reliance on

Russia as an energy supplier and key country for energy security, Rosatom’s expansion would appear as a tool for the Russian government to use to shape relations in client states and beyond. Compared to oil and gas, the fact that nuclear fuel can be transported relatively easily with a variety of modes of transportation means problems with and payments to transit countries are eliminated. The BOO model gives Rosatom control over all aspects of operating the plant, and the 60-year service contracts firmly establish Russian interests in the client country for the foreseeable future. The difficulty and expense of replacing Rosatom’s presence once established is nearly prohibitive because of the specific fuel and knowledge required to run a Russian-designed plant. Looking beyond the age of fossil fuels, Rosatom strives to be a dominant force in the future of energy and technology, not only in the nuclear industry but in wind power, big data, development of the Arctic, and more.

Rosatom is also undoubtedly reliant on the government to help carry out existing orders and procure new projects. The MoUs are often negotiated in meetings with Rosatom, Foreign Ministry, and host government officials with successive agreements working toward the ultimate goal to construct a NPP. The financing options that Rosatom provides through the Bank for Development and Foreign Economic Affairs (Vnesheconombank), make Rosatom a strong competitor in developing countries. However, cost overruns, problems securing investors, and political issues have prevented certain projects from becoming a reality, such as in Vietnam and Bulgaria. Also, for countries without regulation of the nuclear industry, allowing Rosatom to devise the regulatory environment is a concern, especially given the incentive for Rosatom to operate as cheaply as possible, and the lack of transparency regarding safety incidents most recently at the Astravets site and the radioactive cloud that enveloped Europe in 2017. Rosatom is trying to be a corporation of the future, a solver of climate change, an innovator in technology, but it operates alongside the government when engaging in its worst tendencies that are more reminiscent of the Soviet era than the liberal Russia Kiriyenko of the 1990s wrote so yearningly about. The secrecy over safety incidents, the attempts to corrupt environmental groups, and the legal ramifications for those that did not cooperate, as in the Ecodefense case in Chapter 3, can only occur in cooperation with the government. This reflects poorly on Rosatom, and exposes

81 the willingness of the government to cover for Rosatom when deemed necessary. At Rosatom-operated plants abroad, host governments should consider that Rosatom could cover up any incidents and that the Russian government could help in that effort. A state corporation can operate without blatant political interference, it is a choice to politicize energy projects. One reason the Bulgarian government decided to consider finishing the construction of the cancelled Russian plant and start talks with Rosatom’s Chinese equivalent is because the strongest political concerns would be alleviated (Reuters, 2018). If Rosatom becomes viewed as an overtly political actor, it will ultimately fail to compete in the nuclear industry.

The first hypothesis posed in this research was that Rosatom’s activities are vulnerable to political interference, even if they are based on sound economic judgement. To the extent that economic relations abroad are guided by neomercantilism, the expansion of Rosatom can serve as a political asset. The profitability of Rosatom projects can be determined by the price of generated electricity or service costs, but that picture is incomplete. When Vnesheconombank, a state corporation itself, offers financing for NPPs around the world, it adds to the influence the state has over the indebted client country. Neomercantilism implies that economic relationships abroad are established to benefit national security, even at the expense of economic viability. Unbounded by pipeline economics or unfriendly neighbors, dependence on Russia for energy security can become a global phenomenon with the growth of Rosatom’s international presence.

The study of the Astravets NPP case in Chapter 4 revealed the extent to which a nuclear plant has been used to further the foreign policy agenda. Through this case, the other two hypotheses can be re-examined, that expansion efforts have successfully bolstered the power and influence of the Russian state, but also that these efforts in their totality have only been moderately successful. With a NPP in Belarus, Russia retains its stranglehold over Belarusian energy security, as Belarus moved to reduce reliance on Russian gas by building the NPP. Lukashenko was by all appearances supportive of the deal, including the way it would thwart EU energy integregration projects. Considering the timeline that suggests the Astravets NPP was a response to the later-canceled Lithuanian plant, and that the plant’s economic viability depends on

82 exporting electricity, the Astravets NPP project was at best an aggressive business decision, but proved to be too provocative for neighboring countries to tolerate. After expressing doubt over the safety of the project and lack of adherence to international standards, Belarus’ neighbors have banned the import of electricity from the plant, effectively cutting off the export market. The application of prospect theory here provides an explanation for why Lukashenko would allow the project to go through and why Rosatom would not push thorough safety inspections and aid in the coverup of incidents at the construction site. The potential Lithuanian plant and the ambition in Europe to diversify gas supplies represented a coming loss of Russian influence in European energy affairs. The Baltic countries had begun planning to leave the electricity grid shared with Russia since Soviet times. It makes sense that the Belarusian authorities and Rosatom would push this project despite its flaws if the primary goal was of a geopolitical nature rather than strictly for development purposes. If Rosatom was concerned first and foremost with its reputation, the passing of all parts of the IAEA assessments would be important to legitimize the project and protect Rosatom against accidents in the future. This case is generalizable to other Rosatom projects because the deal followed a common pattern: a majority of the financing came from Russia, and the plant will be operated, serviced, and fueled by Rosatom subsidiaries. This case is useful because the project is further along than many of Rosatom’s prospective projects, so what happened in Belarus shows the spectrum of issues client countries could face in the future.

This thesis aimed to provide a comprehensive view of Rosatom’s place in the Russian political, economic, and policy sphere. The Russian political structure was examined to establish how the system gave rise to large state corporations, and how the first Director General formed Rosatom in a changing political environment, after a career demonstrative of the complexity of figures in the political elite. In examining the Russian economy and foreign policy, a slow domestic economy and the neomercantilist tendencies of the government are drivers that push Rosatom’s international expansion in both the political and economic sense. This is not to imply that because the government is neomercantilist that Rosatom necessarily has political motivations, but to acknowledge that the nuclear industry was prioritized by the government in its recreation

83 as Rosatom, that the government has leveraged energy relations for political ends in the past, and that the quest for greater international influence coincides with Rosatom’s expanding role in energy security worldwide. The proponents of the economic argument for Rosatom’s expansion (i.e. Minin and Vlček, 2017) consider Rosatom to be profit-driven, but fail to recognize the extent of the dependence a country has on Russia particularly with a BOO model plant, and that an NPP is a symbol of deepening relations with the host country, such as in the case of the NPP in Turkey. There are at least 16 countries at the first stage of preparing for an NPP through an agreement with Rosatom, and if these countries decide to go forward with an NPP, that would be a significant increase to power Russia has over energy security internationally. However, Rosatom’s projects have found mixed success overall. Rosatom is a giant in the industry, and new MoUs are signed with increasing frequency, but project delays, cost increases, cancellations, and missed targets for expansion leave room for improvement. In the uranium mining industry, low prices have slowed efforts to expand Rosatom’s operations. On the PR side, overt and covert measures have been taken to build public support for nuclear energy domestically and internationally. The successful projects, such as the NPP in Turkey, represent a shift in the country’s orientation toward Russia or in Belarus, the cementing of already close political relations. Constructing a Russian nuclear plant with a life of 60+ years brings with it a dependence on good political relations with Russia, so as Rosatom continues to sign and build upon existing MoUs, it will be important to track the development of these agreements and be aware of the potential consequences of Rosatom’s expansion that this thesis has uncovered.

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Appendix

Rosatom Deals by country Source: Rosatom, confirmed by news sources

✓ = Ongoing Projects ✖ = Prospective Deals

Supply of Supply of Products and NPP Service Backend: Construction Uranium Memo of enriched nuclear fuel services Construction and spent fuel of research exploration Understandin uranium and its based on moderni management reactors and mining g ONLY product components radiation -zation technologies (supply of Country isotopes)

106

China ✓ ✓ ✓ ✓ ✓ ✓

Japan ✓ ✓ ✓

South Korea ✓ ✖ ✓

Vietnam ✓ ✓ Cancelled ✓

Malaysia ✖ Stalled

Philippines ✓

Indonesia ✖ ✓ Stalled ✖

Australia ✓

India ✓ ✓ ✓ ✓

Bangladesh ✖ ✖ ✓ ✖

Kazakhstan ✓ ✓

Iran ✓ ✓ ✓ ✓

Saudi Arabia ✓

UAE ✓ ✖

Iraq ✓

Jordan ✖ ✓ ✖

Israel ✓

Turkey ✖ ✓ ✓ ✖

Azerbaijan ✓ ✖

Armenia ✓ ✓ ✓ ✓

Bulgaria ✓ ✓ Cancelled ✓ ✓

Belarus ✖ ✓ ✓ ✖ ✖

Lithuania ✓ ✓

Finland ✓ ✓ ✖ ✓ ✖

Sweden ✓ ✓ ✓

Poland ✓ ✓

Slovakia ✓ ✓

107

Hungary ✓ ✓ ✓ ✓

Czech Republic ✓ ✓ ✓

Austria ✓

Germany ✓ ✓ ✓ ✓

Netherlands ✓ ✓

Belgium ✓ ✓

France ✓ ✓ ✓

Spain ✓ ✓

UK ✓ ✓ ✓

Egypt ✖ ✖ ✓ ✖

Nigeria ✓ ✖ ✓

Tanzania Put on hold

Zambia ✖ ✓ ✓

Namibia See pg.52

South Africa ✓ ✖ ✖

Canada ✓

USA ✓ ✓ ✓

Mexico ✓

Cuba ✖

Brazil ✓

Bolivia ✓ ✓

Paraguay ✖ ✖ ✖

Argentina ✓ ✖

Russia ✓ ✓ ✓ ✓ ✓ ✓ ✓

Kuwait ✖

Thailand ✓

Cambodia ✓

108

Myanmar ✓

Ghana ✓

Kenya ✓

Republic of Congo ✓

Algeria ✓

Sudan ✓

Uganda ✓

Ethiopia ✓

Morocco ✓

Mongolia ✓

Uzbekistan ✓

Tajikistan ✓

Ukraine cancelled ✓

Laos ✓

Kyrgyzstan

Serbia ✓

Tunisia ✓

109

110

111