Cablegate: Rosatom Reorganization Bill Sails Through Duma

DE RUEHMO #5408/01 3200724
P 160724Z NOV 07




E.O. 12958: N/A


Sensitive But Unclassified; please protect.

1. (SBU) The Duma passed unanimously November 13 a bill to
restructure Russia's civil nuclear sector. In place of the current
Rosatom Agency, the bill establishes the "Rosatom Corporation." Its
mandate will be to coordinate and manage nuclear policy in all
sectors. A centerpiece of Rosatom Corporation will be
"Atomenergoprom," the vertically integrated state-owned company set
up earlier this year encompassing all aspects of the civil nuclear
industry. The bill grants Atomenergoprom the right to keep profits.
Rosatom Corporation will also assume state functions: it will
manage the nuclear weapons complex, oversee nuclear research and
development, and supervise nuclear and radiation safety. The state
budget would continue to fund non-commercial activities. Duma and
Rosatom contacts expect Putin to sign the bill before the end of
2007. Whether Rosatom Director Kiriyenko will move over to head
Rosatom Corporation is an open question. End Summary.

Rosatom (aka "The Corporation")

2. (SBU) On November 13 the Russian State Duma passed 374-0, in its
third and final reading, the "Federal Law on the State Corporation
for Atomic Energy (Rosatom)." President Putin had introduced the
bill. Following Federation Council (upper house) approval, Duma and
Rosatom contacts expect Putin to sign the bill before the end of the
year. Restructuring Rosatom required the Duma to amend 18 federal
laws, including budget, civil, and criminal codes. Once the bill
becomes law, the current Rosatom will transform into the Rosatom
Corporation over a three-year transitional period. Rosatom contacts
tell us they expect significant changes in the first months of

Rosatom's Functions

3. (U) According to the bill, the main responsibilities of the
Rosatom Corporation will be:

--To pursue state policies;
--to assure uniform governance in the area of commercial atomic
energy uses;
--to provide for the sustainable operation of the nuclear energy
industry entities and the nuclear weapons complex;
--to assure nuclear and radiation safety and legal and normative
regulations in this sphere; and
--to carry out a long-term program of nuclear industry development.

4. (SBU) In a recent interview, Rosatom Director Sergey Kiriyenko
likened the new Corporation's structure to that of the USSR's
"legendary" Ministry of Medium Machine Building (Minsredmash). He
noted that like Minsredmash, Rosatom Corporation would be "a
management body that is both the authorized state body and the
business entity directly responsible for the implementation of
large-scale nuclear power engineering development projects approved
by the state." Vladimir Kuchinov, Director of Rosatom's
International Department, told us November 14 that like Minsredmash,
the Corporation would encompass the whole nuclear sector. However,
a fundamental difference would be that the civil nuclear industry
sector, under the state-owned Atomenergoprom set up earlier this
year, would operate on a for profit basis in market conditions.

Rosatom Corporation as Legal Successor

5. (SBU) The bill establishes that Rosatom Corporation will be the
legal heir of Rosatom. The bill gives the Corporation the right to
represent Russia in initiating, negotiating, and concluding
international agreements. Rosatom Corporation will also be
responsible for meeting GOR commitments in the areas of peaceful
uses of nuclear energy, nonproliferation, and security and
protection of fissile materials.


6. (SBU) The Rosatom Corporation and its subordinate institutions
will have the right to retain profits. This is a break with past
practice. Previously, profits generated by Rosatom enterprises have
been transferred back to the state budget. According to some
estimates, Rosatom earns several billion dollars annually in the
nuclear trade. There is a special provision in the bill prohibiting
the reduction of the level of current budget allocations to Rosatom
until 2010. Thereafter, the budget will continue to support the

MOSCOW 00005408 002 OF 002

state functions assumed by the Corporation.


7. (SBU) The GOR will transfer all property which is now managed by
Rosatom but owned by the state to the Corporation. This includes
property owned by Atomenergoprom (which operates nuclear power
reactors), 15 nuclear weapons facilities, 11 R&D and 7 higher
education institutions, 7 nuclear and radiation safety
organizations, corresponding buildings and land as well as stores of
special materials like natural uranium and plutonium. According to
some estimates, the capitalization of Rosatom Corporation could thus
start at $40-50 billion.

Management: Under Presidential Control

8. (SBU) Under the bill, the President approves the long-term
program of the Corporation's activities. A Director General and a
Supervisory Council) manage the Corporation. The President appoints
the Director General, who serves as chief executive. The
Supervisory Council will consist of nine members, the aforementioned
DG (ex officio) and eight other representatives of the President and
the GOR. The President appoints and can remove the chairman of the
Supervisory Council.

Corporate Salaries

9. (SBU) Salaries in commercial areas of the Corporation will be on
a corporate scale. Salaries at Atomenergoprom are already
significantly higher than those for comparable positions at the
existing Rosatom.

Goal: A Commercial Footing

10. (SBU) A strong proponent of the bill in the Duma's Energy
Committee is Valentin Ivanov, a United Russia member and former Vice
Minister of Rosatom's predecessor, MinAtom. Ivanov emphasized to
us the importance of putting Rosatom on a commercial footing to
promote competitiveness. Ivanov highlighted in particular
separating out the commercial functions -- Atomenergoprom -- from
the state functions. Also key will be financing. Ivanov
underlined the importance of the Rosatom Corporation being able to
retain profits rather than turn them back to the budget. Ivanov
admitted to us that the goals Kiriyenko has said for nuclear
expansion -- including construction of up to two new reactors a year
-- are over-ambitious. However, for Russia to achieve even half of
that, Rosatom needed such a reorganization.

Uncertainty at Rosatom

11. (SBU) Rosatom's Kuchinov reiterated to us that the existing
structure of Rosatom was not compatible with a market economy. It
was necessary to separate civilian and military elements. Kuchinov
was frank, however, in saying he did not know how well it was all
going to work. He noted that the term "corporation" to define an
entity which had state functions was confusing -- in Russian and in
English. He predicted that the first three months of 2008 would be
an unsettled time at Rosatom.


12. (SBU) With Putin's imprimatur, the bill made it though the Duma
without opposition. Putin may have wanted the new structure in
place before his departure so he can name the head of the new
Corporation. As Kuchinov noted, Rosatom staff are braced for the
institutional upheaval to come in 2008 -- some contacts are already
moving to new posts. Commercial pay scales will improve the terms
of service, especially for those at the top. Whether Kiriyenko
moves to be head of Rosatom Corporation is an open question. Having
shepherded the restructuring, his appointment would be logical.


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