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Cablegate: Ukraine: Diversifying the Nuclear Power Sector

VZCZCXRO7216
RR RUEHIK
DE RUEHKV #1837/01 2951422
ZNR UUUUU ZZH
R 221422Z OCT 09
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC 8642
INFO RUCNCIS/CIS COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 02 KYIV 001837

SENSITIVE
SIPDIS

DEPT FOR S/EEE, EUR/UMB, EB/ESC/IEC
DOE PLEASE PASS TO JELKIND, LEKIMOFF, CCALIENDO

E.O. 12958: N/A
TAGS: ENRG ECON EFIN EREL PREL PGOV UP
SUBJECT: UKRAINE: DIVERSIFYING THE NUCLEAR POWER SECTOR

REF: A. KYIV 1761
B. BRUSSELS 1385

KYIV 00001837 001.2 OF 002


1. (SBU) Summary: Ukraine's energy dependence on Russia is
not limited to gas. Russia provides 100% of Ukraine's
nuclear fuel and stores 60% of its spent fuel, while
Ukraine's nuclear sector generates approximately half of the
country's electricity. U.S. Department of Energy (DoE)
assistance totaling $380 million has helped Ukraine boost the
operational capacity of its reactors by ten percent,
significantly improve safety, reduce reportable events, and
develop the ability to diversify its nuclear fuel supply.

2. (SBU) American firms Westinghouse and Holtec have projects
in progress that would diversify Ukraine's nuclear fuel
supply and store spent fuel domestically, although both have
found their work stymied by Ukraine's difficult regulatory
environment and GOU hesitation. Nonetheless, we are seeing
limited progress. Ukraine recently announced that it would
hold a tender for the construction of a nuclear fuel assembly
plant and the Cabinet of Ministers has approved key
legislation needed for Holtec's central spent fuel storage
project. The GOU's actions in the nuclear sector, however,
seem to be limited by an attempt not to provoke Russia, which
is trying to maintain its dominance in the nuclear sector.
End summary.

Nuclear Fuel Qualification Project
----------------------------------

3. (SBU) Since 1998, DoE has worked with Ukraine to develop
capacity in Ukraine to diversify its supply of nuclear fuel.
Through the Ukraine Nuclear Fuel Qualification Project
(UNFQP), DoE has provided Ukraine with technology transfer,
fuel monitoring systems, and training for Ukraine's leading
nuclear experts. DoE support also led to the creation of the
Center for Reactor Core Design at the Kharkiv Institute of
Physics and Technology.

4. (SBU) The UNFQP works with Westinghouse to develop an
alternative supply of nuclear fuel for Ukraine. Six
Westinghouse nuclear fuel assemblies (lead test assemblies)
were installed in the South Ukraine Nuclear Power Plant (NPP)
in 2005 and are now nearing the end of the qualification
process. As a result of this positive testing, Westinghouse
was able to sign a contract with the GOU in March 2008
allowing it to supply nuclear fuel to the three units at
South Ukraine NPP. Westinghouse has already delivered 42
fuel assemblies, which are to be loaded into one of the three
units at the South Ukraine NPP in the first quarter of 2010.
The successful licensing and loading of this "reload batch"
of fuel assemblies would mark a major milestone for the UNFQP.

5. (SBU) Despite positive early developments, personality
conflicts between the State Nuclear Regulatory Commission of
Ukraine (SNRCU), the Center for Reactor Core Design, and
Ukraine's state-owned nuclear company Energoatom, have caused
delays in licensing the reload batch of Westinghouse fuel
assemblies. These delays are threatening the success of the
Nuclear Fuel Qualification Project and the commercial
viability of Westinghouse to provide an alternative nuclear
fuel supply (Ref A).

Nuclear Fuel Assembly Plant
------------------------------

6. (SBU) In response to a GOU request, in October 2008
Westinghouse offered to cooperate in the area of technology
transfer and construction of a nuclear fuel assembly plant in
Ukraine. Westinghouse's offer does not provide Ukraine with
all of the components to establish a complete domestic
nuclear fuel cycle. It does address, however, critical
energy security issues in an economical and feasible manner.
Russia's TVEL has also proposed to build a fuel assembly
plant in Ukraine. Some GOU officials view TVEL's proposal
favorably because it includes more manufacturing of fuel
assembly inputs in Ukraine than Westinghouse's proposal.

7. (SBU) Prime Minister Tymoshenko and other GOU officials
have been reluctant to award Westinghouse with a contract for
the fuel assembly plant. In a July 9 meeting with
Westinghouse and Holtec representatives, PM Tymoshenko
explained that Ukraine could not sign an agreement with
Westinghouse on the construction of the facility at this time
because Russia could leverage Ukraine's dependence on Russian
nuclear fuel supplies or gas to retaliate. In an apparently

KYIV 00001837 002.2 OF 002


leaked memo from Russia's Rosatom that was published in the
Ukrainian weekly "Dzerkala Tyzhnya" (Ref B), the company
outlined proposed action steps to lock up the Ukrainian
nuclear power market, while forcing Westinghouse out of
Ukraine. The document contains both political and commercial
measures that could be taken by Russia to secure Ukrainian
agreement on long-term nuclear fuel contracts with Russia and
prevent the construction of a Westinghouse fuel assembly
plant. The strategy paper states that PM Tymoshenko should
be told that Ukraine is responsible for delays in signing the
contracts and that further delays could result in long-term
nuclear fuel supply stoppages in 2011.

8. (SBU) In what looks like a marginally positive step that
could, in theory, improve the transparency of the decision
making process, Ukraine announced on October 6 that it would
conduct a tender to award the contract for the nuclear fuel
assembly plant. The tender had a very short deadline to
submit bids and was vague in the criteria for a successful
bid. Deputy Minister of Fuel and Energy Sergiy Pavlusha told
us on October 20 that a working group had been formed to
evaluate bids and that the National Security and Defense
Council (NSDC) was currently reviewing the tender. It is
unclear when a final decision on the tender will be made.

Central Spent Nuclear Fuel Storage Facility
--------------------------------------------

9. (SBU) Currently, Ukraine pays approximately $100 million
per year for Russia to temporarily store and reprocess spent
fuel from nine of Ukraine's 15 reactors. In 2012 Russia will
begin returning Ukraine's spent fuel and waste, per the terms
of the storage agreement, to Ukrainian territory. If Russia
stopped taking Ukraine's spent fuel, Ukraine would run out of
the limited storage space it has at its nuclear plants within
three to five years, forcing it to reduce nuclear power
generation. Therefore, it is vital for Ukraine's long-term
energy security for it to develop spent fuel storage
capacity.

10. (SBU) To meet Ukraine's needs for storing spent fuel, New
Jersey-based Holtec International signed a contract with the
GoU in 2005 to build a central spent nuclear fuel storage
facility. The 150 million euro facility would store fuel
from nine reactors. Holtec has offered to provide 90% of its
own financing to commission the facility. Since signing the
contract, Holtec's work has been limited by various Ukrainian
regulations. Following the July 9 meeting with PM
Tymoshenko, however, the Cabinet of Ministers did act to
approve draft legislation that would give final approval to
the design and construction of the facility; the legislation
has been forwarded to Ukraine's parliament for its approval.

11. (SBU) Comment: Although it is in Ukraine's interests to
cooperate with the U.S. in the areas of nuclear fuel supply
and storage of waste, Russia's dominance is making it
difficult for our cooperative efforts to move forward. It is
possible that some of the bureaucratic delays that have
hindered progress on Westinghouse's and Holtec's projects are
the results of Russian influence in the process. Ukraine's
nuclear sector dependence on Russia is only part of the
larger Russian energy dependence equation. Russia will
continue to use its leverage in other energy sectors, namely
gas, in its effort to maintain its grip on this key segment
of Ukraine's economy. End comment.
PETTIT

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