Škoda JS will be scrapped

The Czech company Škoda JS, which manufactures products for nuclear power plants, has big problems in the Czech Republic. And they are connected exclusively with the Russian owner – Gazprombank. We are no longer talking about the company's participation in new constructions. First of all, even traditional European clients, ČEZ – the Czech nuclear power plants operator- are curtailing cooperation with it. In addition, the train of scandals that have accompanied the company since 2015 is destroying its reputation in international markets. Will Ukrainian Energoatom refuse to cooperate with it?

How the Czechs refused the Russians

A year ago, Škoda JS had good perspectives. As one of the ten companies of the Czech Energy Alliance, it was counting on orders for new construction both in the Czech Republic and abroad, including in Ukraine – she was invited to meetings on the completion of two KhNPP units.

Škoda JS is a well-known company in Europe, especially in countries where Russian-designed VVER reactors operate. Almost 40 years ago, Škoda JS a.s. received, back in the former USSR, a primary license for engineering, manufacturing, and supply of main equipment for nuclear power with VVER units. Since then, the Czech company has manufactured 21 complete VVER-440 reactors and three VVER-1000 reactors.

In 2009, the company signed a contract to complete the third and fourth power units of the Slovak NPP Mochovce. And a year ago, as a member of a consortium with Czech enterprises, it was counting on large contracts in its country, where it plans to complete the construction of the Dukovany and Temelin nuclear power plants.

And this is despite the presence of its owner, OMZ Public Joint-Stock Company, on the USA sanctions list, which also included Škoda JS itself.

According to Deputy Prime Minister and Minister of the Interior Jan Hamáček, Russian companies should definitely not participate in constructing the Dukovany nuclear power plant, even as members of a consortium. The head of SÚJB, the nuclear regulator of the Czech Republic, Dana Drabova, said that she had “made no secret of the fact that she did not consider Rosatom, a good partner for the construction of a nuclear power plant in the Czech Republic. This is because this is a state corporation directly controlled by the Kremlin. If we look at how the current Russian government is promoting Russia's interests not only in the Czech Republic, as Vrbetice showed us, but also in different ways around the world, especially where Russia used to consider this territory its sphere of influence, it is worth considering whether we want such a partner for many decades", – said in the interview Ms. Drabova.

Weaknesses of the Czech nuclear industry

As noted by the Czech media, Russians have had a fundamental influence on the Czech nuclear power industry for a long time. Since the end of 2004, the Škoda JS has been owned by the Russian industrial holding United Heavy Machinery with an annual turnover of about 560 million U.S. dollars. At the purchase, 42.16% of OMZ Public Joint-Stock Company was owned by its founder Kakha Bendukidze and his partners. Still, already in 2005, they sold their block of shares to a group of investors with Gazprombank's participation.

But there is one more company that is well-known in Ukraine. This is ÚJV ež, which is majority-owned by ČEZ. ČEZ is the most significant Czech energy company. Its majority shareholder is the state, which owns about 70 percent of the shares through the Ministry of Finance. ČEZ owns 52.46% of the shares of ÚJV ež, and another 30.15% are owned by Slovenské elektrárne (operator of Slovak nuclear power plants), Škoda JS owns 17%. Thus, 17% of the business share in ÚJV ež is indirectly owned by a Russian company, with owners hiding behind Gazprombank through a Czech company.

ÚJV ež accompanies the operation of nuclear power plants owned by ČEZ. In particular, it prepares reports on the safety of nuclear power plants, does design works, and works directly with the Dukovany and Temelin nuclear power plants. After the scandal with the Czechs Petrov and Boshirov, the Czech Republic was seriously concerned that the project information, which ÚJV ež will be engaged in, through the Russian shareholders of Škoda JS will fall into the hands of Russia. And the tender may be thwarted, even if Rosatom does not take part in it.

But the main weak point of the Czech nuclear industry is precisely Škoda JS, which anonymous Russian owners have controlled for more than 16 years. It is the general maintenance contractor for the primary circuit of all six Czech nuclear power units, carries out their modernization, and deals with issues of spent nuclear fuel management. ČEZ order volume with a Plzen company was about 1 billion Czech crowns (about 45.28 million US dollars) per year. And naturally, the company also has access to classified content.

However, ČEZ began seriously curtail its interaction with Škoda JS. Thus, removable compact spent fuel storage racks, which both the Czech Republic and Ukraine have traditionally purchased from “one supplier” Škoda JS, in 2021 for the Dukovany NPP were purchased directly from the subsidiary of ČEZ – ČEZ Energoservice, which entirely manufactured and installed this equipment. Similarly, the project for the implementation of a system of forced pressure relief from the hermetic enclosure system of the reactor plant, which Škoda JS implemented at 9 VVER units in Ukraine, ČEZ also purchased from its enterprise ČEZ Energoservice, which offered to supply a system based on Westinghouse technology (in Ukraine, such systems are installed at 1 and 2 power units of the South-Ukrainian NPP). Moreover, ČEZ Energoservice won the tender, despite the impressive references from Škoda JS, offering the most favorable price.

Moreover, cooperation with Škoda JS has become toxic for Czechs for a long time. But, surprisingly, the Ukrainian Energoatom does not notice this.

Three conflicts involving Škoda JS

To date, Škoda JS is involved in several significant litigations at once, not only in the Czech Republic. For example, the case of the People's Deputy of the Verkhovna Rada from the People's Front Party Mykola Martynenko is well known in Switzerland and Ukraine. According to Swiss law enforcement officials, Martynenko “laundered” 2.8 million euros through several offshores under some contracts between the Czech Škoda JS and the Ukrainian NPP operator, NNEGC Energoatom. In 2020, a Swiss court found Martynenko guilty and sentenced him to 28 months in prison, of which 16 months were suspended. However, the ex-people's deputy lost the appeal at the end of last year.

And this year, the Czech justice took over the Škoda JS case. Czech law enforcement officers accuse five former top managers of Škoda JS of embezzlement and tax evasion of almost 300 million crowns (about $ 13.5 million) – the amount is more than the amount in the Swiss Martynenko case. According to the investigation, from 2008 to 2014, the company's management signed consulting agreements with companies registered in Panama, the Dominican Republic, Cyprus, and the UK – they were supposed to play the role of an intermediary in concluding contracts for the supply of technologies for Ukrainian nuclear power plants. However, according to the prosecutor, the accused laundered 279 million crowns through these companies, of which 55 million were to go to the Czech state budget as taxes. Interlocutors at the Czech Embassy in Ukraine do not rule out the version that this case may develop further, affecting the Russian owner.

In this connection, it is worth paying attention to the high personnel turnover with Russian surnames and Russian citizenship in the supervisory board of Škoda JS. “Over the past 13 years, it has had over 40 members. Some of these people do not have a level of competence sufficient for members of the supervisory board at all,” the Czech newspaper writes. Peak.Cz. And it lists Yuri Arkhipov, Deputy General Director, Technical Director of OMZ – a member of the Supervisory Board for three months; Alexander Sharapov, Executive Director of joint-stock company Izhorskiye Zavody (part of the OMZ Group) – a member of the Supervisory Board for four months; Vladimir Grushevsky, Director of the OMZ NPP Equipment Directorate – a member of the Supervisory Board for four months; Vadim Makhov, chairman of the board of directors of OMZ – a member of the supervisory board for 29 days; Yuri Utochkin, Director of the Spetsstal Division, Director for Scientific and Technical Development – Head of the Scientific and Technical Development Department of the Directorate for Strategic Development of OMZ – member of the Supervisory Board for 29 days; Dmitry Zauers, Deputy Chairman of the Management Board of Gazprombank – Member of the Supervisory Board for 21 days. Why does the deputy chairman of Gazprombank or the entire chairman of the board of directors of OMZ need the status of a member of the supervisory board of a large European enterprise for only a few weeks?

How can you get acquainted with the activities of a company with an annual turnover of 4.5 billion crowns in a few months or even days? The publication assumes that all these appointments are nothing more than legitimizing these persons for the European Union. Moreover, the members of the supervisory board at Škoda JS receive little: while the company's board of directors earned more than 34 million crowns in 2019, the members of the supervisory board received only about 155 thousand crowns.

Another conflict involving Škoda JS is the investigation of the Slovak police launched in March 2020 over price inflations after the construction of the Mochovce nuclear power plant, where Škoda JS is the supplier of the reactor plant and much other equipment. According to a Czech newspaper Denník N, the police are investigating the supply of substandard pipelines supplied for the construction by the Czech company Škoda JS or its subcontractor. The Pilsen company itself considers itself an injured party, but the Slovak court may decide otherwise.

Mochovce NPP

But the final point in the fate of Škoda JS may be put by another lawsuit. In 2016, the energy company ČEZ filed a claim against Škoda JS for damages due to improper inspection of pipelines at the Dukovany and Temelin NPPs. In 2015, several power units of these NPPs had to be stopped for re-inspection due to the claims of the nuclear regulator about the quality of radiographic inspection of welds on small-diameter pipelines of units №2,3 of the Dukovany NPP: cracks and other defects were found on the pipeline equipment, which was not on photographs. Škoda JS was responsible for installing and controlling the power plant equipment, which, however, hired Tediko, a subcontractor, to inspect the welds.

Dukovany NPP

For this reason, from mid-September to the end of December 2015, only one of the four units of the Dukovany NPP was in operation. As a result, ČEZ demanded compensation from Škoda JS about 3.5 billion crowns (about 144 million dollars). Škoda JS denies his guilt and is not going to pay anything. If Škoda JS loses the case, it will not pay such a large amount to ČEZ. This amount significantly exceeds the value of her equity capital, and the annual profit is less than one-tenth of this value.

Sad Ukrainian scenario for a Czech company

In Ukraine, Škoda JS fulfilled the same line of orders as European NPPs with VVER reactors, while Škoda JS did not supply NPP equipment for NPPs to the Russian Federation, at least in 2019-2021. Despite the annexation of Crimea by the Russian Federation and the start of the import substitution program, Energoatom, like the rest of Europe, turned a blind eye to the Russian owners of the enterprise and its presence in the sanctions lists. According to the base ClarityProject, in total, since 2015, the company has taken part in 56 tenders, of which it was declared the winner in 36 purchases for the amount of 2.89 billion UAH. Moreover, purchases often took place without bidding due to the lack of competition. But the recent experience of ČEZ with the termination of contracts with Škoda JS shows that it has competitors.

Time will tell whether Energoatom will go the way of ČEZ, severing its former ties with the supplier, which has become overly toxic. Sources in the company noted that it has become more challenging to work with the company over the past year: deadlines are missed, and the interaction between technical specialists becomes more complicated. Plus, the train of conflicts around the company, connected with the Russian owner, in the Ukrainian and foreign press makes them make gloomy forecasts about the fate of the enterprise.

PJSC "Ivano-Frankivsk Valve Plant,” which produced special-purpose valves for safety systems of nuclear plants (for the first and second circuits of nuclear power plants), since May 2021 completely stopped working. Since July 29, IFAZ workers have ceased being allowed into the plant’s territory, and their wage arrears have accumulated since October 2020. In recent years, production was curtailed and transferred from 6 workshops to one, and the territory was sold, the machines were taken out or scrapped. After several contracts between the plant and Chinese enterprises, the Chinese themselves began to produce for the Russian Federation as part of the range that Russia had previously bought for its nuclear power plants. IFAZ's problems began in 2015, when the CEO of OMZ-Ukraine LLC, a subsidiary of the Russian OMZ group Sergey Shilyuk, is still listed in YouControl as the head of the plant, became the chairman of the board.

Ivano-Frankivsk Valve Plant (IFAZ PJSC)

The likelihood of a repetition of this scenario in the Czech Republic is relatively high. Russia itself is not so interested in Škoda JS: no one needs Škoda JS products in Russia, Škoda JS is not invited to the construction of VVER power units abroad (Turkey, India, China, and others), and Europe will not undertake to build Russian VVERs soon. It seems that even Ukraine has already abandoned the idea of ​​completing the KhNPP with Russian hands through Škoda JS. In September, Energoatom signed a memorandum on constructing five units with the American Westinghouse using its AP1000 technology. And this week, Energoatom invited specialists Westinghouse for "a detailed survey of the third power unit of the KhNPP to determine the possibilities and measures for its completion." As the profile industry site writes World Nuclear News, work has already begun on completing the KhNPP-3 in Ukraine using the AP1000 technology. The participation of Škoda JS, which belongs to the Russians, is excluded by this technology.