Putin Beats Soviet Sword Into Atomic Weapon for Generator Sales

Saturday, March 15, 2008

March 14 (Bloomberg) -- For decades, Russian civilian nuclear scientist Vladimir Asmolov lived in the shadow of the bomb makers. They were the elite, their names and work secret, building the arsenal behind a superpower.

While the Soviet Union lost the Cold War, the Russians are back as a nuclear force. Asmolov, deputy head of nuclear-plant operator Rosenergoatom in Moscow, is tapping yesterday's military brains to develop a new generation of atomic plants. Russia's reactor industry aims to compete with Westinghouse Electric Co., General Electric Co. and Areva SA.

Since the 1986 meltdown of a reactor at Chernobyl in Ukraine, Russian engineers have adopted safety measures similar to those used in the U.S., including reactors that shut down automatically when there's a fault. Rosatom Corp., the state-run nuclear holding company, expects to build as many as 42 plants in Russia and 60 abroad by 2030, according to Chief Executive Officer Sergei Kiriyenko. The value may total $300 billion, based on Russian estimates.

''Previously, the atomic energy industry was only a bastard child of the military program,'' said Kiriyenko, 45, who was a Russian prime minister under Boris Yeltsin. ''Growth in electricity demand has cardinally changed that.''

Global power needs will double by 2030, according to the Paris-based International Energy Agency, set up in the 1970s to counter the influence of oil exporting nations. Pressure to cut emissions of gases that contribute to global warming has made nuclear power more attractive, despite safety concerns.

Cold War Alliances

Reactor orders may total 237 globally by 2030, according to the World Nuclear Association in London. ZAO AtomStroyExport, Russia's nuclear-reactor builder, says each megawatt of installed capacity costs about $3 million. The typical reactor size is about 1,000 megawatts.

After 20 years in which few nuclear generating stations were built, Kiriyenko faces shortages of contractors with experience building atomic plants, components such as turbines and nuclear engineers.

Factories that in Soviet days churned out enough equipment to build 10 or more reactors a year went bankrupt in the mid- 1990s or switched to making products such as machine tools or gear for the oil industry after the Iron Curtain collapsed. Many of the plants were sold to local businessmen, forcing Rosatom to repurchase the factories or swap assets to rebuild the industry.

In Kovrov, 250 kilometers (155 miles) east of Moscow, Rosatom last year took control of a factory where guns had been produced since czarist Russia. It installed an assembly line making nuclear centrifuges that was taken from a plant next door. In return, Rosatom traded tools and contracts to produce 70 types of arms, including various Kalashnikov assault rifles.

Competing on Cost

''We pretty much had to move a whole plant,'' said Alexander Tmenov, head of the neighboring factory. New concrete walls topped with barbed wire separate the two plants.

Russia will also need to convince international customers that its VVER reactor can compete economically with alternatives made by Areva, Toshiba Corp.'s Westinghouse and GE, which say theirs are more efficient and have extra safety features.

Evgeny Reshetnikov, vice president of AtomStroyExport, said the VVER is the same price or cheaper taking into account all construction, operation and maintenance costs. While the Russian reactor has a shorter lifespan and needs to be refueled more often than those of its western competitors, the plants are cheaper to build and Russia guarantees fuel deliveries, he said.

Reshetnikov said Rosatom will catch up with its rivals with a reactor at Novovoronezh in western Russia that is to start operating in 2014.

'Not on My List'

Outside of China and India, the competition for nuclear- plant sales may broadly play out along Cold War lines, with Russia grabbing contracts among former Soviet satellites such as Bulgaria and the Czech Republic and African allies including Namibia. Russia is likely to be shut out of U.S. and western European markets partly because of historical ties to local manufacturers, said Gene Clark, CEO of Denver-based consulting firm TradeTech LLC.

''The markets that Russia's going for, I'm not too worried about,'' said Dan Lipman, senior vice president for nuclear power plants at Monroeville, Pennsylvania-based Westinghouse. ''Myanmar's not on my list.''

Rosatom officials say they want to position Russia as a safe and affordable alternative in developing countries, which are projected to be the fastest-growing nuclear markets. They plan to build on the company's advantage of already having two of its VVER reactors up and running at the Tianwan power station in eastern China.

Reactors in China

AtomStroyExport's order book will swell to $20 billion within two years, said CEO Sergei Shmatko, Russia's top reactor salesman. In 2006, it sealed a two-reactor deal worth $5.4 billion with Bulgaria.

The company has orders for two more VVER-1000s from China and a preliminary accord for four in India, pending a treaty on technology transfer. Vietnam, Indonesia and Thailand may also buy, said Shmatko, 41, a former nuclear-submarine officer. Russia has pledged support to develop nuclear energy in Namibia, Mongolia and Belarus. The focus on emerging markets is a strength, Shmatko said.

''The contractual rewards are roughly the same in any country where you build now, so why go where there is so much competition?'' Shmatko said.

Arab Countries

After pursuing the Bushehr reactor project in Iran in spite of U.S. protests that the Tehran regime was planning to build an atomic bomb, Russia may tap demand in Middle Eastern states such as Qatar, Libya, Syria, the United Arab Emirates and Egypt, said Alexander Pikayev of the Institute of World Economy and International Relations in Moscow.

The Arab nations may also buy fuel at the international enrichment center Russia set up last year in Angarsk in eastern Siberia, he said. It lets non-nuclear nations enrich uranium under United Nations supervision, alleviating proliferation concerns.

President Vladimir Putin has worked to resurrect the country's atomic industry, code-named the Ministry of Middle Machinery in Soviet times, as a third arm in Russia's energy arsenal. The country is already the world's biggest exporter of natural gas and second in oil behind Saudi Arabia.

The government will spend $27 billion through 2015 to develop atomic power. The industry will raise $32 billion more from sales and investors. Putin said Feb. 14 that Russia is ready to sell stakes in uranium and enrichment companies.

Putin's Challenge

Putin, who's expected to be named prime minister when he's succeeded by Dmitry Medvedev as president in May, set Rosatom the goal of increasing nuclear energy output to as much as 30 percent of power production by 2030 from 16 percent last year. Rosatom started adding two reactors a year in 2007 and aims to accelerate that to three or more annually by about 2012.

''We think it optimal to have 30 percent of Russian energy coming from nuclear plants,'' said Rosenergoatom's Asmolov, 61. ``In terms of economics, in terms of everything.''

Asmolov has been charged with retraining the military's nuclear experts and converting defense contractors so they can help with the civilian power push. For example, OAO Air Defense Concern Almaz-Antei, the maker of S-300 missile systems, in September agreed to produce parts for nuclear reactors.

Russia needs new power sources including nuclear energy to develop parts of eastern Siberia and the Far East that are rich in natural resources but have little access to gas, said Victor Murogov, 69, a nuclear engineering professor and head of the Russian Association of Nuclear Science and Education in Obninsk.

New Atomic Company

In January, Rosatom started operating as a holding company for all of Russia's nuclear interests, rather than as a government agency. Within seven years, Rosatom will no longer need financial support from the state, Kiriyenko said.

Rosatom's energy arm includes reactor-operator Rosenergoatom, where Asmolov works, nuclear-gear maker OAO Atomenergomash and reactor builder AtomStroyExport, as well as uranium miners, fuel makers, traders and research institutes.

Russia rebuilt its nuclear industry with help from the U.S. After the 1979 Three Mile Island reactor leak in the U.S. and Chernobyl, the Cold War rivals stopped all new domestic construction and collaborated to improve nuclear safety, said Asmolov, who in 1991 spent six months with the U.S. Nuclear Regulatory Commission in Rockville, Maryland. As a result, most reactors today use similar safety systems, he said.

From his 25th-floor office in a central Moscow skyscraper, Atomenergomash Chairman Kirill Komarov is counting on alliances with international suppliers to make up for the components Russia lacks. He's starting a turbine venture with France's Alstom SA in nearby Podolsk.

''Today, 60 percent of electro-technical equipment for power plants in Russia is imported,'' said Komarov, a former vice president of Renova Group, the energy, metals and property empire of billionaire Viktor Vekselberg. ''I don't see any tragedy in this. It's a market: The fittest survive.''

Posted in |