Nuclear default: how to screw up a profitable public company in one year

Nuclear default: how to screw up a profitable public company in one year

Part I. Grand Opening of CSFSF for the Independence Day as a PR show for the President

Nuclear default: how to screw up a profitable public company in one year

As recently as a couple of years ago, at the very dawn of the new electricity market, the state-owned company SE NNEGCEnergoatomwas demonstrating a sustainably low, yet profit, given a miserable electricity tariff applicable to 90% of its electricity, which was grabbed through a Public Service Obligations (PSO) mechanism. In a year and a half, the company asserted its right to sell 50% of its electricity, giving away the remaining output almost free of charge. As it later turned out, even in the market, it has been trading almost free of charge, for which reason the profit is now replaced by losses, the company has almost no hard cash, and what is left is streamlined solely to those companies who are eager to “share” with the powers-that-be. Olga Kosharna, a Board Member of the State Nuclear Regulatory Inspectorate of Ukraine, shares her insights on the developments in the Ukrainian NPP operator in her column for Mind. In Part I of her opinion piece, she discusses the Central Spent Nuclear Fuel Storage Facility project (CSFSF), which has emerged as the most scandalous long-delayed construction project in the history of Ukraine’s nuclear power sector. For over 10 years, its commencement was successfully backpedaled by the RF via politicians, government officials, non-governmental organizations and media.  After the start-up, the project fell victim to the anti-corruption campaign, with project activities being halted for a year, this time in 2020. At the current stage, all agreements on the project completion are being thoroughly moved out into the shadow, and what they failed to cover up yesterday will be moved in the shadow tomorrow. The CSFSF Grand Opening is included on the agenda of the 30th Anniversary Celebrations of Ukraine’s Independence. The author is convinced, what the President of Ukraine will see on August 24 will be at best a PR show directed by Energoatom. After all, the shipment of spent nuclear fuel to Russia in 2022 is even embedded in Energoatom’s Strategic Plan.  

Kickbacks under “Top Secret” Label

End of July 2021, NNEGC “Energoatom” initiated amendments to CMU Ordinance 406 dated 7 June 2017 “On adoption of the list of construction activities that do not require permitting documents to authorize their performance, and which, when completed, do not render the object acceptable to operation”. In its time, the document was designed to simplify the procedure for obtaining permitting documents to authorize works under technically non-complex objects. Among the former are restoration of amenities, reconfiguration of bearing walls in apartments, replacement of buildings’ roof covering, installation of technical telecommunication means and antenna-based communication facilities, arrangement of unimpaired access for people with disabilities and the like. At the same time, such list applies to emergency operations under critical emergencies, or construction of facilities required for anti-terrorist operations, which helps to buy time needed for the completion of such works.

Energoatom suggests that it should be included in para.26 of the list of construction works that do not require permitting documents to authorize their implementation, and which, when completed, do not render the object acceptable to operation. Energoatom proposes to revise para. 26 to read as follows: “Works related to reconstruction, technical re-equipment, renewal, capital repairs of facilities, new build projects operated/owned by the Foreign Intelligence Service, and by the State Enterprise “National Nuclear Energy Generating Company “Energoatom”, where the procurement of such works constitutes a state secret according to the Law of Ukraine “On State Secrets”.

There is an explanatory note attached to the draft Ordinance emphasizing that such proposed wording shall primarily apply to “activities directly relatable to ensuring national security insofar as they pertain to Ukraine’s energy independence”. What kind of works “relatable to the national security and pertaining to energy independence” they specifically refer to remains unknown.

Thus, Energoatom can potentially take all activities at nuclear power units outside the procedure of open competitive bids shielding themselves with the “Top Secret” Label. As many contractors reveal in our discussions “off the record”, the objective is to receive a kickback of 15-20% depending on the contract price. Those unwilling to share are automatically excluded from the list of suppliers on far-fetched excuses, even if they have years of work experience at nuclear hazardous facilities, have required capacities, technologies, and all supporting qualification documents. Please be reminded, that new construction projects include or can include nuclear installations, like the Central Spent Nuclear Fuel Storage Facility. Or like the planned finalization of construction of KhNPP units 3 and 4 at a cost of UAH 74 bln. according to the Feasibility Study. Can you only imagine the amount of a kickback under this project? About UAH 11 bln.! And that is only under the FS, while the experience shows that in the course of project implementation with Energoatom, the contract price increases unpredictably, such increase subsequently being formalized by amendment agreements. To the point, the cost of this specific project is already 2,7 times its initial cost!

This bright idea was already “field-tested” in fall 2020 at the CSFSF. It was the year when bids for completion of the facility failed twice. No stroke of work was done at the construction site for the whole year.

And suddenly, on December 9, 2020 an agreement was signed with “BK KBR” LLC to a value of almost UAH 422 mln., bypassing open bidding, under the shield of “Top Secret” Label. And as early as on December 10, the first advance payment of UAH 50 mln. was credited to the contractor’s (BK KBR) account. Later they also signed an amendment agreement for about UAH 700 mln. At the end of the day, the CSFSF project costs approximately UAH 2,7 bln., given the initial cost of construction under the CSFSF project, as established in the adopted FS (https://zakon.rada.gov.ua/laws/show/131-2009-%D1%80#Text), of slightly over UAH 600 mln.

What can fall under classification procedures at CSFSF is only installation of the physical protection system. Yet, they’ve chosen to classify the whole list of outstanding works at this nuclear installation. What for? My judgement is: in order to promptly and efficiently siphon off the project money to “insider” recipients. Otherwise, how and what for could one even admit, in a matter of days and against the advance payment, the “BK KBR” LLC to works at a nuclear installation, given that pursuant to the Law of Ukraine “On authorization activity in the use of nuclear energy”, a contractor shall have a permit of the State Nuclear Regulatory Inspectorate of Ukraine to deliver corresponding works. There is no such permit. Just as no relevant experience under nuclear projects.  

Is it Americans to blame?

Anyway, let’s get back to the draft CMU Ordinance.

Please note, that the draft of this scandalous Ordinance arrived at the Ministry of Energy of Ukraine in a package with a cover letter signed by Energoatom Acting President P.Kotin, elaborating on why the CSFSF as yet does not qualify for a completed facility, and on the need to have the Ordinance adopted.   

The letter reads that Energoatom “is persistently developing a documentation package to support the issuance of an Operational Readiness Certificate for the facility”. And blames the US Holtec International company, the owner of the technology used at the CSFSF, of their failure to meet the deadlines for the supply of ancillary equipment for welding procedure qualification at KhNPP site. And here we go: it is not the state expert reviews that never were; it’s not the negligence and omissions on Energoatom’s side, but the faults of Holtec equipment identified during the testing that jeopardize the shipment of spent nuclear fuel to the CSFSF. Again, the very fact that to date Energoatom has not received a permit of the State Nuclear Regulator of Ukraine authorizing the shipment of the first SNF cask to the CSFSF remains largely overlooked. 

Keeping with the best traditions of the current Energoatom leadership, they are over again pointing fingers to pass the blame. Previously, the delays were attributed to the fault of “Ukrstroymontazh” LLC, “Ukrzaliznytsya” JSC; this time they have shifted the blame to the US company. Who is next? The State Nuclear Regulatory Inspectorate of Ukraine?  

As the letter to the Ministry of Energy suggests, it is solely through the fault of Holtec International that Energoatom is compelled to move all bids into the shadow through the proposed draft Ordinance mentioned above. Although the logic behind this is twisted, just as the facts and information released, Minister of Energy Herman Haluschenko, formerly Energoatom Vice-president, and, let’s put it honestly, P.Kotin’s partner, soon presents the draft Ordinance to the CMU.

However, the problem with the CSFSF completion is essentially about something else. To this day, Energoatom doesn't have an Operational Readiness Certificate for the CSFSF, which shall be signed by the Customer, General Designer, General Contractor or Contractor (when construction works do not involve any sub-contractors), sub-contractors, insurer (in case a facility is insured). In its turn, the Operational Readiness Certificate shall be submitted by the Customer of the construction project (in this specific case, SE NNEGC “Energoatom”) as part of a documentation package supporting an application for a Certificate of Conformity of a completed construction facility (a phase, or a separate start-up complex) with the design documentation, and verification of its operational readiness, to a relevant national body for architectural and construction oversight. Thus, without these documents, the CSFSF cannot be qualified as ready for operation. And the draft CMU Ordinance sponsored by Energoatom is designed to evade this procedure, shielding with a fig leaf of a “Top Secret” Label.

As a reminder, the national nuclear and radiation safety regulator, the State Nuclear Regulatory Inspectorate of Ukraine, reviews safety substantiations for nuclear-hazardous facilities, delivers a state expert review of documents and facility inspections; and building upon the output therefrom, makes a decision on whether to issue a permit for a facility commissioning. There is also a procedure in place for commissioning nuclear facilities.   

Prior to commissioning of an SNF dry storage facility, an operating organization shall develop and submit to the State Nuclear Regulator of Ukraine an Interim Safety Analysis Report (hereinafter referred to as “Interim SAR”) for an SNF dry storage facility. Pursuant to requirements of “Recommendations to the structure and content of a safety analysis report for spent nuclear fuel dry storage facilities” adopted by the SNRIU, Decree 33 of 20 February 2003 ( 306.8.02/2.067-2003), “Interim SAR is an interim SAR finalized after completion of construction works, and incorporating pre-commissioning inspections and test results, and submitted with a view to applying for a commissioning license. It (Interim SAR) shall demonstrate the full preparedness of an SNF dry storage facility for commissioning. Thus, an Interim SAR shall be developed by an operating company after completion of construction of a given SNF dry storage facility, and of all pre-commissioning inspections and tests”. And it will usually take at least six months to review an SAR before the SNRIU, building on the state expert review results, is able to deliver its decision.

So, how is it really going with the testing of Holtec equipment? As a Certificate reads, signed by V.Kholosha, Commission Chair, Deputy Director General of SS “Atomproektengineering” (SS “APE”), and A.Kosinskyi, Commission member, Head of technical design division of SS “APE”, the cask welding technology was qualified on 22 July 2021. This is the very technology Mr.Kotin referred to on July 19, when arguing for its “classification” and exemption from the state expert review and authorization procedure (obtaining permitting documents) for commissioning of nuclear installations.

Document: Certificate

In the context of the welding technology qualification, all the reasoning articulated in the cover letter to the draft Ordinance, of which the purpose is to classify everything, properly speaking, vanished into thin air. What is still there is questions to the operator. Among these, is, for instance, “Why would Energoatom approach the CMU via the Ministry of Energy? After all, the Company, at its own initiative, brought itself under the direct control of the Cabinet of Ministers.” Possibly, because should this document had come in via the Ministry of Economy, it would have been submitted for analysis to the State Nuclear Regulatory Inspectorate of Ukraine. Since it is specifically the Regulator’s authority (yet, not responsibility) that is being curbed.   

PR show for the President. Attempt No.2

In order to understand, what is in for us at the end of August, within the Independence Day celebrations, let’s think back on the PR show thrown by Energoatom at the CSFSF site on the occasion of the Power Engineer’s Day, 22 December 2020, when they broadcasted a beautiful image from the completed construction scene. Let’s recall Mr.Kotin’s passionate reassurances that no later than end of May the CSFSF will welcome the first train carrying SNF. Let’s recall his very words two months later, that end of July, and this time for sure, the train will deliver the SNF. And then over again in May, that by the Independence Day this will happen ironclad.  

Words aside. I happened to come across, by merest accident, the “Strategic development plan of the State Enterprise SE NNEGC “Energoatom” for 2021-2025” approved by the Acting President  P.Kotin on May 31, 2021. “By accident” because it is still the previous revision of the document signed by the previous Acting President of Energoatom P.Pavlyshyn and the previous Minister of Energy O.Orzhel that is posted on Energoatom’s official site.

Paragraph 2.1. “Achievements in 2020” puts in black and white the following: “The first start-up complex of the Central Spent Nuclear Fuel Storage Facility (CSFSF) is opened. The construction of all CSFSF civil structures and the establishment of the infrastructure for acceptance and storage of spent nuclear fuel is completed, as well as the site where the casks with SNF will be installed. Pre-commissioning and testing of equipment supplied by Holtec is underway. The operation of the first start-up complex will start in May 2021 after completion of a 43-km rail track to the storage facility, which will connect the CSFSF to the railway network of Ukraine. Further 14 start-up complexes will be completed by 2040, concurrently with installation of SNF casks at the storage site”.

I don’t know about you, but I’m starting to have rhetoric questions: “How can one mention, in the Strategic Plan signed on 31 May 2021, that the first transport with SNF will head for CSFSF end of May 2021? How can one refer the CSFSF to the “achievements of 2020”, while as of December 2020 NNEGC “Energoatom” had neither Certificate of Readiness, nor Certificate of the State Architectural and Construction Inspection; essential systems were not installed (ventilation, radiation control, physical protection, communication systems etc.); the facility was connected to a temporary power supply scheme; and additional concrete casting was required? How is it even possible, in a civilized country, for a company that as recently as a year ago was a role model of transparency and credibility in communicating the information? How can one claim this to be true, in written and oral assurances, knowing full well, that the updated SAR considering the results of tests, hot and cold, has not been submitted to the State Nuclear Regulator? And after all, it is not Energoatom, but SNRIU who decides on the start of CSFSF commissioning”.   

 My judgement is: the new Energoatom leadership appointed by the Presidential Office, have got so deeply into the habit of lying, both to the Presidential Office and the public, that themselves have started to believe their own lie! And yes, they lie continuously and devotedly!

I am sure, for Ukraine’s Independence Day, Energoatom will again throw a show involving media, and will declare that the CSFSF is being commissioned as they speak. To throw some dust into the amazed eyes, there will be a train arriving along the rail track finalized for twice the real price. However, it is not a cask with SNF the railcar will be carrying, but a dummy, because the SNRIU’s permit for the CSFSF commissioning will not be there. And there will be Mr.Kotin and his comrades talking heatedly of what a good job they’ve done, of how timely they have delivered on their promises to the Presidential Office. And drape themselves over with medals, and pose for TV cameras...

I only fear, that all this time the SNF of Ukrainian NPPs will still be stored in spent fuel pools, or even secretly shipped to the RF. Besides, there is a letter from Russia confirming their capability to accept SNF of Ukrainian NPPs for long-term storage until the end of 2021. By the way, the Strategic Plan I mentioned above makes provisions for discussion, with the Russian Mining and Chemical Combine (FGUP “GKhK”), and agreement on amendments to the existing contracts for the shipment of spent nuclear fuel of VVER-1000 reactors in 2022. The contract signing is planned for QIV 2021. In the meantime, Energoatom, who owes some UAH 6 bln. to domestic producers and has forced their enterprises into bankruptcy, will keep paying fair amounts of money in USD to the RF…

Read more on Energoatom’s financial condition in Part II

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