A sequel to the opinion piece by Olga Kosharna, a Board Member of the State Nuclear Regulatory Inspectorate of Ukraine. In Part I, the expert shared information on money laundering from the company, the operator of Ukrainian NPPs, under the CSFSF (Central Spent Nuclear Fuel Storage Facility) project. Her forecast is that even after the ribbon cutting ceremony the train with the spent nuclear fuel will never make it to the Central Storage Facility, where they will grandly cut the ribbon, the ceremony being wittingly timed to coincide with the Independence Day, rather will again head for Russia. After all, this is exactly what is mentioned even in Energoatom’s Strategic Plan approved for the period until 31 May 2021. In Part II, Olga Kosharna analyzes how exactly the current senior management of Energoatom is smashing up the domestic producer, including the Company itself.
The operating results of one-time profit-making public companies as of year-end 2020 were sensational: not merely losses, but huge sweeping losses, from Naftogaz to Ukrzaliznytsya. Although no farther than a year and half ago, these were the major contributors to the State Budget and champions in taxes paid …
In its report on the audit of NNEGC Energoatom’s financial statements for 2020, “BDO” LLC, an independent auditor of the National Securities and Stock Market Commission of Ukraine, concludes, in the very opening lines: “In violation of the accountancy policy, the Company has envisaged insufficient provision for the expected loan loss... In our opinion, … as of the reporting date, the expected loan loss provision is understated; and, as a result, the trade accounts receivable are overstated, while the loss is understated by UAH 3,359 bln. in the Company’s financial statements as of 31 December 2020”. This means, that the loss officially reported by Energoatom senior management at UAH 4,8 bln. should be recalculated to add further UAH 3,36 bln., thus making up for a total of UAH 8,16 bln in losses.
As compared to 2019, the net profit from the product sales has dropped by UAH 3,219 bln. The gross income has dropped by 59 % (from UAH 11.56 bln. in 2019 down to UAH 6,837 bln.). The accounts payable for goods and services have amounted to UAH 4,183 bln. The prime cost of the products manufactured has increased by UAH 1,534 bln. At the same time – attention! – expenses under “other operational costs” have increased by 45% (from UAH 3,77 bln. to UAH 8,341 bln.): these refer to administrative costs and the pay-roll fund. What is “administrative costs”? – cars and lease, office repairs and procurement of MacBooks with polygraphs, and many other things, which look excessive even for a profit-making company. As regards the pay-roll fund, everything is more than apparent here: while the salary of Sergey Leschenko, a Supervisory Board member, is on everyone’s lips, since Ukrzaliznytsya is transparent and visible in these issues, it’s been two years that the unitary Energoatom is not disclosing even the information it is legally required to release. And despite the two Presidential decrees, Energoatom does not seem to be very enthusiastic, to say the least, about its corporatization. Instead, it eagerly signs off wage bonuses to amounts so embarrassing that even some employees feel uneasy recognizing in what a miserable state Energoatom and the nuclear industry are.
In order to see the picture at large, not merely the state of affairs at Energoatom, but also risks to the nuclear industry, one should read a letter of the Director General of Rivne NPP Pavlo Pavlyshyn to the name of NNEGC Energoatom senior officials responsible for the nuclear safety.
Director General of RNPP reports that starting 2020, funding of the NPP production activity has dropped dramatically. He emphasizes that instead of the former UAH 300 mln., Energoatom Headquarters in Kyiv will now be allocating only UAH 50-70 mln. per month.
The figures provided by him testify to the trend of further cuts in funding of the RNPP’s production program, which, as the Director General says, “is a threat, both to ensuring safe operation of nuclear power units and to safety improvement in pursuance of the regulatory documents and programs adopted at the national level”.
Where will such “volatile” approach to funding of nuclear power plants take us? To build-up of debts to producers and suppliers of equipment and services. In just a year – from QII 2020 to QII 2021 – the overdue accounts payable of Rivne NPP alone amounted to UAH 757,1 mln. As a result, Mr.Pavlyshyn says, due to such sizeable value of overdue payables to equipment suppliers and contractors (design and construction companies), there is a risk of suppliers refusing to deliver their contractual obligations; the risks of disruption of scheduled bids are also visible.
At the very same time, a letter of similar content to the name of Minister of Energy Herman Haluschenko is sent by the Rivne Region Governor. As if implying “only don’t say we never warned you”.
This is an image of Rivne NPP alone. Most certain, the situation is no better at other nuclear power plants. To the point, two of these do not have Directors General as yet – merely acting Directors General; and the Director General of the third one is young and inexperienced, yet very “diligent”.
Judge for yourself: two weeks ago Turboatom OJSC filed a lawsuit against Energoatom to enforce debt repayment, and claiming that as of 8 July 2021, the contracts signed between Turboatom OJSC and Energoatom amounted to almost UAH 3 bln., the products shipped – to more than UAH 2,2 bln., while the outstanding liabilities under the current contracts amounted to UAH 937 mln., including a debt of UAH 685 mln. pending for two years, as reported in Turboatom’s press release. In 2021, Energoatom received products for its nuclear power plants to the value of UAH 368 mln., and paid UAH 95 mln. to the Kharkiv-based enterprise, i.e. only 25% of the required amount.
Turboatom also mentions, that its requests to Energoatom senior management for a gradual debt repayment did not produce any material effect. A proposal to sign an implementable debt repayment schedule for the period until QI 2023 drafted by Turboatom was not supported by Energoatom either. Please mind, if Energoatom can afford this “non-constructive”, to put it mildly, behavior in dealing with such a reputable enterprise, the pride of Ukraine’s power machine engineering, laureate of the state prize in science and technology, and the pearl of the domestic industry, then what should one expect towards small and medium-sized companies?
And last week, 21 suppliers of Energoatom addressed the Prime Minister in their joint letter, reporting of Energoatom’s cumulative debt to them in the amount of UAH 2,38 bln., and noting that such debt prevented them from pursuing their production activity.
After the letter emerged in the public domain, Energoatom leadership started to put pressure on the contractors’ executives coercing them, by threats, towards the withdrawal of their signatures. The cynicism of such behavior of the Acting President of Energoatom is also about the suppliers, essentially half-bankrupt, receiving Energoatom’s invitations to bid almost on a daily basis. Not only does Energoatom not pay for the goods and services supplied, it also files lawsuits to claim damages for the delayed supply. Last year, the supplier companies concluded a series of contracts, without being aware of the tactics practiced by the current Energoatom management, which is essentially about either not paying at all, or paying to the selected. Some of the contracts were completed at the cost of contractors’ internal reserves, but after the payment never came, the contractors, having run out of their current assets, were no longer able to deliver the remaining contracts. фрJust as in the story with Turboatom, instead of extending the contractual period and signing supplementary agreements for the reduced scope of procurement, considering the lack of available funds, Energoatom management is filing lawsuits against its suppliers to enforce huge delay damages on the companies it itself has reduced to begging. Such policy of the operator of Ukrainian NPPs can only kill competition leading to formal bids among “the cronies”, regardless of the quality of their goods and services, and the price, yet securing 15-20% kickbacks of the contract price, as my informants in major Ukrainian production companies claim. Apparently, such “nuclear VAT” and the destruction of the Ukrainian producer and good faith competition are exactly the ultimate goal of such procurement policy.
The contractors themselves will refer to the situation around sweeping non-payments for the goods and services already supplied as legislative plunder in broad daylight. The new Energoatom management demand that the goods be supplied and works be performed free of charge, and refuse to even negotiate debt repayment schedules and to commit themselves to such repayment. As a result, those companies who have exhausted their current assets and have no opportunity to contract a loan, suffer from mass personnel resignation. Those refusing to offer the abovementioned kickbacks, are eliminated from the supplier list, notwithstanding a long positive history of interaction with Energoatom, and despite having, all too often, unique qualification, which cannot be offered by other domestic companies and organizations. What is it, if not deliberate campaign on wiping out a Ukrainian manufacturer and undermining of the import phase-out system being painstakingly established for years to secure independence of the nuclear sector…
Meanwhile, the creditors’ claims brought in 2020-2021 against RNPP alone totaled 625 claims to the amount of over UAH 423 mln. in principal debt and damages. I believe, the situation at other NPPs is largely the same, it is only amounts that differ. Specifically, the claims lodged against Zaporizhzhya NPP and its separated subdivision “Centralized procurement” (successor to “Atomkomplekt”) are certain to be about sizeable amounts.
In view of the huge value of accounts payable to suppliers, unavailability of sufficient financial resources for the procurement of goods and services required to keep the planned outages on schedule, such schedule being revised in March 2021, there is a great risk of repeating the situation of the previous fall-winter period. Then, during severest colds, only 10 out of the 15 NPP power units were in operation because the Nuclear Regulator could not authorize post-outage restart of the units where the outage campaign, specifically, modernization and safety upgrade activities adopted by the SNRIU, had not been completed in the full scope.
The present situation is even worse: they neither implement activities of the Comprehensive (Integrated) Safety Upgrade Program of NPPs, nor do they meet license requirements of the nuclear and radiation safety regulator. As Director General of RNPP P.Pavlyshyn mentions in his letter to Energoatom management, the events of recent 16 months pertaining to funding of the production activity and implementation of state programs “lay the ground for irreversible processes driving the company into the state when safe operation of nuclear power units and nuclear safety thereof can no longer be physically ensured”.
In the meantime, the Acting President of Energoatom P.Kotin is making public statements reassuring that all 15 (!) power units will be in operation in the upcoming fall-winter period. Over again, 15 (!) power units at once, which the unified power system has never accommodated even in the best of times – when without renewables – due to the lack of load-following capacities.
Now, from bad to worse. Given this outrageous value of accounts payable, on July 22, Mr.Kotin heads for KhNPP to host a meeting and communicate to the world that Energoatom is prepared to initiate completion of two 1 GWe reactors at Khmelnytskyi NPP, and that “reporting materials on updated examination of KhNPP-3 civil structures have received a state expert review. The findings of such examination demonstrate that the condition of reinforced steel structures of KhNPP-3 buildings meet the design requirements pretty well”. He also instructed to finalize, by 1 October 2021, all preparations for completion of KhNPP-3, specifically, to establish highly qualified personnel teams to perform specialized welding and to work with safety class 1 equipment; to deploy and equip a construction and installation campus to accommodate contractor personnel; develop a plan for stepwise construction and installation works at the site of power unit 3. “Once the Law on construction of KhNPP units 3 and 4 is adopted, we’ll have everything rolling very fast, – the Acting President of Energoatom reassured. – We have all expert reviews on hand, we only need to obtain a confirmation from the State Nuclear Regulator”.
If put in normal people speak, the Acting President of Energoatom ordered to draft a plan of construction and installation works for the nonexistent power unit design, which precisely because of its nonexistence as such had no chance of receiving any state expert review by definition. Very original approach, isn’t it? Moreover, the state expert review of the reporting materials on the updated examination of civil structures by the SNRIU has not been completed yet, and so far the Regulator has not delivered its judgement. By the way, it is not necessarily, that the findings of the state expert review will be positive. The law on the deployment of KhNPP-3, 4 is still not there, let alone the money for the project implementation. What diagnosis would you suggest for a company executive declaring and promising something that has nothing to do with the reality?
Energoatom’s 2021 Financial Plan has not been adopted yet. According to sources in the company’s financial division, Energoatom’s management is agonizing in its attempts to demonstrate the receipt of the net profit in the amount of UAH 14 bln., in order to live up to President Zelensky’s public statement regarding Energoatom’s USD 500 mln. profit as of the year-end. In the meantime, the value of accounts payable to suppliers of goods and services for July 2021 has grown by further UAH 2 bln., thus overstepping the cumulative UAH 6 bln., considering the overdue debt since early 2020.
Let’s talk about the root causes of such a pitiful financial condition of the national NPP operator. I am absolutely convinced that the responsible are primarily seated not in the Cabinet of Ministers, nor in the Presidential Office, but at Nazarivska Street, in the Company Head Office. No one can force a company to engage in inefficient electricity trading in competitive market segments. No one can impose a neglect of priorities in the disbursement of financial resources (for example, procurement of an electric engine for the reactor coolant pump of the nonexistent KhNPP-3 power unit from a dealer against 80% advance payment for UAH 130 mln.). No one can force a company to reduce the scope of competitive bids for goods and services, which has already triggered many-fold increase in their price versus the average market price. The same is true for the increased legal costs, penalties, and executive fees (10% of the claimed amount), such increase related to a spike in claims and legal actions filed against Energoatom (for example, a claim of “Nasosenergomash” for debt recovery to the amount of UAH 160 mln., where the Company’s additional expenses made up UAH 15 mln.).
Against the backdrop of NPP outages scheduled for 2021 and now jeopardized due to suppliers’ refusal to work on a free of charge basis, and correspondingly, under a high probability of entering the fall-winter period with a minimum number of operational nuclear power units, even fewer than last year, they will talk loud of multibillion projects being implemented via a financial hole, “Atomprektengineering”, headed by the notorious stadium builder for UEFA Euro-2012 in the times of Yanukovich, comrade Bozhko. Indeed, a priceless professional, a Jack-of-all-trades, one day involved in the construction of a rail track to the CSFSF for such a price as if each kilometer of the track was demarcated by a “golden” crutch pounded in; the other day – in the completion of the CSFSF as such for some UAH 1,1 bln. under a secret contract with a construction parlor specializing in library design. This time, nothing less than completion of KhNPP-3 with no approved design or authorizations...
Amazingly enough, the Ukrainian law enforcement authorities have so far been absolutely detached, while watching the situation in Energoatom unfold, without bringing any criminal proceedings. Are they waiting for the nuclear power units to “fail out” per se, or for the moment when under the pressure of our international partners we are compelled to shut down the units due to financial incapability of the NPP operator to ensure their safe operation in due compliance with the nuclear and radiation safety rules and Ukraine’s commitments under the Nuclear Safety Convention?