Interview Ukrainian macroeconomics

The law should protect business

An interview with Yuri Nedashkovsky, President of the State Enterprise “National Nuclear Energy Generating Company “Energoatom”, about the state of the energy sector in Ukraine, the prospects for its development, as well as the needs for business in order to feel comfortable in our country.

The energy sector of Ukraine was inherited from the Soviet Union. What has been done over the years of independence and what else should be done? What is the state in exchange of experience and what is  Ukraine learning from world colleagues?

Yuri Nedashkovsky is an expert, who does not just know the industry, he is a specialist, representing Ukraine at the world level. He is a member of the WANO Main Governing Board. Yuri Nedashkovsky told what can be realized and what Ukraine study under foreign colleagues.

: Yuri, what is going on in the state of the energy sector in Ukraine today?

Y.Nedashkovsky: Before answering this question, it must be understood what exactly Ukraine inherited from the Soviet Union, it inherited a powerful energy sector, represented by nuclear power plants (today 15 power units are operating with a total capacity of 13.8 GW), thermal power and hydropower. In addition, Ukraine has a well-developed system of transmission lines of the voltage class up to 750 kV – both domestic and international. During the Soviet Union period, the energy development strategy was a part of its external expansionary policy, according to which Soviet Union planned to make conditional Eastern Europe (Warsaw pact countries) first and Western Europe later.   At that time nuclear power plants in Ukraine and interstate transmission lines, that were laid in the western direction, were being built very actively, providing annual exports of nearly 30 billion kWh of electricity to Eastern European countries. And that is the indicator which we still can not reach.

: Do we have such a goal?

Y.Nedashkovsky: Here we have a goal to restore and increase the export potential of Ukraine. But for this, of course, you need to work seriously. First of all, it is crucial to update the fixed assets in generating capacities, restore the throughput capacity of the intergovernmental power transmission lines and ensure synchronous operation of the Ukrainian combined power system with the European system of operators ENTSO-E. This is an extremely large work which Ukraine has already begun. This is the strategic task of our main operator National Power Company Ukrenergo. And, of course, this is a task for all of the generating and power supply companies, regardless form of ownership.

: And what is being implemented now or maybe is already done?

Y.Nedashkovsky: Before talking about what is worth to be realized, we must clearly understand that the potential of about 50 GW of generating capacity that we inherited is to be preserved first. The fact is that most of the generating capacity has already worked out its project resource. If we talk about, for example, heat power, part of power units of thermal power plants is simply not working.

: Is it about technical capacities?

Y.Nedashkovsky: Exactly. Now we are talking about the need to build new thermal power capacities suitable already for more modern technologies and upgrade existing ones. If we speak of hydropower it is currently in fairly good condition, the industry produces about 10% of the energy consumed by the country. We have already realized a great program of increasing and modernization with the involvement of the World Bank and other international financial institutions, but it is actually has used their full potential in terms of increasing capacity.

How does the state support the industry?

Y.Nedashkovsky: Ukrainian Cabinet of Ministers  adopted a program for the development of hydropower up to 2026.

: Was it done  In 2016?

Y.Nedashkovsky: Yes. The program envisages the continuation of hydropower development as a source of renewable energy, plans the construction of new hydroelectric power stations and pumped hydroelectric energy storage. A very serious accent is made on the development of hydro accumulative capacities of the PHES. Thanks to the work of the hydroelectric power stations now it is possible to accumulate energy during its low consumption in the country’s energy system by pumping water from the lower reservoir of the PHES to the upper one, and to use this energy during peak growth of consumption by pouring water from the upper reservoir to the bottom to produce additional electricity on hydraulic turbines of the PHES. For example, in the periods of evening and morning water supply peaks. The presence of hydro accumulating power plants contributes to the work of nuclear power plants in their optimal mode – the so-called basic load (i.e. work at a constant level of power, without unloading).

And finally, in our conversation, we can go directly to Energoatom. This is a state-owned company, which is still in the status of unitary state-owned enterprise.

: What does Unitarian mean?

Y.Nedashkovsky: For simplicity of understanding, it is not a joint-stock company. This is an enterprise whose property belongs to the state. All property of Energoatom is in state ownership. If the company were a joint-stock company, the state would own only shares, and the property would belong to a joint-stock company, and in our case all the property belongs to state. However, since February last year, we have started the corporatization process. In short, the idea consists in that Energoatom will become a joint-stock company, but with the preservation of the state 100% of the shares.

: In what sense is it profitable?

Y.Nedashkovsky: This is a more flexible scheme of activity: a joint-stock company can create various organizational forms, including joint ventures with other companies, attract investments, jointly expand their activities in the domestic and foreign markets. I must say that many of our foreign partners are extremely interested in expanding cooperation with Energoatom in creating joint ventures, joint investment, etc. But the status of a unitary state enterprise today does not allow doing this.

: And what could you say about the state of Ukraine’s atomic energy?

Y.Nedashkovsky:  Ukraine inherits from the Soviet Union sufficiently powerful nuclear industry, but with all its shortcomings, including the problem of overcoming the consequences of the Chernobyl accident and the need in early shot downing of the Chernobyl nuclear power station. And since independence we were not only eliminated the Soviet design reactors inherent lack of security, but also successfully implemented new modernization program to further safety improvement, including additional measures on the experience of the accident in 2011 at the nuclear power station “Fukushima Daiichi” in Japan. It should be noted that the continuous improvement of safety is a continuous process as new knowledge, new technologies and experience emerge.

We also need to keep in mind that our nuclear power plants were mostly built about 30 years ago, and at that time there was still insufficient knowledge about the properties of irradiated materials and the possibilities of the reactor shell operating for more than 30 years. Therefore, based on very conservative approaches, the designed lifetime of the power units was set at 30 years. Today we see the opportunity to continue it for at least 20 years, and actively carry out all necessary measures for this. One of our main tasks today is to preserve the existing park of reactor plants and obtain the necessary time resource to prepare for a new nuclear construction and further development of domestic nuclear power. In addition, it is economically very profitable. Compare it. Expenditures for extending the lifetime of one power unit of 1000 MW are about $ 300 million. And its construction from the very beginning is about at least 7 billion euros.

: What period of time do you have in mind talking about the next years of a technical upgrade operation?

Y.Nedashkovsky: I mean next 20 or 30 years. Currently, the picture is as follows: Energoatom operates 15 nuclear power units. For 7 of them, the service life has already expired, and we received a license for extended service life by completing the necessary set of measures provided for by the current legislation on nuclear and radiation safety. What measures are being discussed? First and foremost those for  increasing security. The problem is that it is impossible to repeat the scenarios that occurred during the accidents at the Triple Mile Island nuclear power station (USA), led to the Chornobyl catastrophe, a severe accident at the Japanese Fukushima-Daiichi NPP, and so on. All measures planned for these purposes must be carried out before deciding on the operations continuation. Reports on their implementation should receive positive conclusions from the state expert assessment on nuclear and radiation safety and be agreed upon by the regulatory body – the State Nuclear Regulatory Inspectorate of Ukraine. It is a question of modernization, replacement of equipment that has worked out its resource, the introduction of new, modern types of equipment, advanced technologies, strengthening of existing security systems, etc.

The second is engineering measures. We must complete a full reassessment of safety in all possible scenarios and factors, perform all necessary research and calculations to confirm that the power unit, on which the decision on extending the lifetime is taken, fully meets all modern safety and reliability requirements.

: It’s an incredible work!

Y.Nedashkovsky: Sure. Colossal work. And Energoatom performs all this on its own, with the involvement of specialized organizations.

: Does the state take care of the energy industry? Is your work being criticized?

Y.Nedashkovsky: Criticism is different. There is a fair one, but there is one that does not have any grounds for it. Although, for the sake of justice, it should be noted that this is the way it should be in an open society. And we are calm about this. We are very transparent. We provide all the information that concerns society. And I want to add that, before extending the life of the power unit, first of all it is necessary to carry out special measures of a public nature – public discussions and hearings. Why? This is not only the requirements of the current legislation. It is fully consistent with our goal – to give an opportunity to any citizen to ask questions that concern him and receive a professional answer, both during direct communication and on the official site.

: It reminds the measures to improve literacy.

Y.Nedashkovsky: Not at all. The population of Ukraine is quite competent. We, for our part, are grateful to all those who are not indifferent, who are interested in the problems of our industry, regardless of how they are concerned with it. For the possibility of constant informing of the population, we have special information centers on the site of each nuclear power plant. Anyone who wants to get acquainted with the work of the NPP can visit them, see excellent demonstration materials and get answers to all their questions. In addition, for students, who wish to undergo a special training at Energoatom, we annually conduct the so-called spring school.

: Do you have many volunteers?

Y.Nedashkovsky: There are a lot of them, but we are recruiting on the terms of the competition, that is, only the best ones. We still have a summer school, and also  student courses.

: Do you have any feedback from such communication?

Y.Nedashkovsky: The main task is to enable citizens to get all the information they are interested in. And it is also very useful for us because we take into account public opinion when plan some projects. For example, the decision about the construction of new nuclear facilities is made solely by the Ukrainian parliament, it is established by a special law. Parliament makes decision only on the basis of the opinion of the territorial communities that has to give their consent to the withdrawal of land for a new nuclear power unit. And I assure you that parliamentarians, voting for one or another decision, are very much oriented towards public perception, because it is their electorate, their voters.

: Does Ukrainian energy sector lag behind in development from the European one?

Y.Nedashkovsky:  I repeat once again: our Soviet-made power units had some security deficiencies in the past. It was once established by the IAEA experts, but today all security deficiencies have been eliminated and all recommendations have been taken into account.

But we never stop there. The Government-approved Unified Safety Improvement Program, which takes into account the new experience of exploitation, including the Post-Fukushima one, is being implemented. This program is approved by European expert organizations and is partially co-funded by international financial organizations. Approximately 30% of the total value (600 million euros) is EBRD and Euratom loans, the rest is its own (tariff) funds to Energoatom. We fully implement this program – we will proceed to implement the following one. The process of improving the level of security on the basement of new knowledge is continuous. This is our message and mission.

It should also be taken into attention that nuclear energy can not develop in isolation in one country, and therefore Energoatom is an integral part of the world nuclear community. In 1989, after the Chernobyl accident, the World Association of Nuclear Operators (WANO, WANO) was formed. Energoatom is an active member of this Association. Personally, I have been a member of the World Wide Management Board of the Nuclear Power Plant for many years, since 2005. The WANO mission is to promote nuclear safety of all its members by periodic partner inspections of each NPP.

How is it realized practically? A powerful team of experts comes every 4 years to each nuclear power plant and inspects it. Using  the results of this review, the mission provides the management of the NPP (and the Company) with a confidential report with its vision of disadvantages, strengths and weaknesses, and recommendations for improvement of operation. After 2 years, there is a repeat mission that checks how its recommendations are taken into account. If the NPP can not cope with any problem on its own, then it has the right to order an international technical support mission. In this case, a group of the world’s best experts in the field, who comes and provides the necessary technical support, is formed.

Within the framework of the WANO NPPs around the world exchange the special unified indicators of their work (about 11). Analyzing this information, I have every reason to assert that Ukrainian NPPs occupy a very respectable place in the world of nuclear power industry.

: Probably such information is very important for company management.

Y.Nedashkovsky: Absolutely, in the first place it is for management board. Identify problem areas and get recommendations for their elimination. Each Director General of the NPP is interested in obtaining an independent, highly qualified conclusion and recommendations. Taking into account the latest international experience and best practices. In general, WANO has two principles – collective responsibility and confidentiality.

: What is the most important and the main in this?

Y.Nedashkovsky: Information is the most important, the information received and the level of experts who inspect power plants. For example, if Energoatom participates in partner inspections of foreign nuclear power plants, it sends its specialists there, as a rule, at a level not lower than the Chief Engineer, Director General of the Nuclear Power Plant, General Inspector General. These are people with deep knowledge and tremendous experience of exploitation that can see with their own eyes what people will not see in a lower qualification or in  an official level. And, according to the same high level, world experts come to us.

: Yuri, as a top-manager of a state-owned company, what can you say about the investment climate in Ukraine?

Y.Nedashkovsky: If there is a desire for serious foreign investment, come to us, our government and parliament have a lot to do. It is not a secret that a serious international business comes only when it realizes that there is a steady law system in the country – first of all fiscal and permissive, that it will not be changed under the political situation that it can be studied once and for all, and it will protect the rights of a businessman and guarantees that his business will not be stolen,  that legal interests can be defended in a fair trial.

The second question is the return on investments. Above all we must be able to make it legal, provide profit repatriation, or even better to give an incentive and opportunity to invest in its development in Ukraine. Summarizing  all this facts,  I would say that describe  investment climate  in Ukraine as favorable , would be, in my opinion, very optimistic. Ukraine still has raider attacks. Energoatom itself perfectly feels it all. For example, before last year, our company had been working almost 6 months on blocked accounts via artificial judgments of this court with a non-existent debt to fictitious companies registered in the apartment in the regional center. Such problems have to go away forever.

: What do you think we should start from?

Y.Nedashkovsky: Problems need to be solved complexly and simultaneously. Laws must protect the business, including banal raiding. It is necessary to bring to publicity that good half of the business operates in the shadow today. It is necessary to solve the question of the land market. How can a long-term investor come in without a land market? This is a serious deterrent. We need an effective and not corrupted judicial system and law enforcement agencies.

This classic well-known series can be continued. What to do – it is known, there is no need to reinvent the wheel. Another thing – how? And especially – who will do it? According to my personal conviction, a team of good patriot professionals in each of the key areas of reform would be able to handle all these tasks. Problems created by people can be solved by the best people.

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