EBRD refutes claim it will fund Ukrainian reactor life extensions

31 May 2012, Platts

The European Bank for Reconstruction and Development has rejected claims by an anti-nuclear group that a loan it is considering together with Euratom for Ukraine’s nuclear sector will be used to extend the operating lives of the country’s Soviet-era reactors.

CEE Bankwatch Network commissioned a report it released in March in which the authors said the EBRD/Euratom financing conditions for the nuclear power plant safety upgrade program, or NPP SUP, allow only for safety upgrade financing so the lifetime extension element “needs to be concealed.”

The London-based EBRD issued in December a project summary document for the NPP SUP in Ukraine that is projected to cost Eur1.45 billion.

The EBRD board of directors is scheduled to make a final decision on the loan – which is to be sourced from the bank’s own balance sheet and not from donor countries – September 18.

CEE Bankwatch Network, a Prague-headquartered nongovernmental organization with member organizations from countries in central and eastern Europe, says the project will directly contribute to an extension of Ukraine’s nuclear reactors of up to 20 years beyond the “engineered lifespan” projected at the time the units started operations.

“The NPP SUP is in effect a loan to support further operation of nuclear reactors without any link to their closure and decommissioning,” Iryna Holovko, national campaigner for Ukraine at CEE Bankwatch Network, said in a interview May 17 ahead of a meeting with the EBRD.

Holovko participated in the EBRD’s Civil Society Program in London May 17-19. The annual program provides an opportunity for civil society stakeholders such as NGOs, bloggers, youth activists, academics and think tanks to exchange views with EBRD staff and senior management.

“Our aim in attending the Civil Society Program was to persuade the EBRD not to lend public money to support the nuclear sector in Ukraine in projects other than those for nuclear safety,” Holovko said in an interview May 24.

But Louis Borgo, a senior banker in the EBRD’s power and energy utilities division, said in an interview May 28 that reactor life extensions are distinguishable from a bank loan for safety upgrades. Energoatom, the state-owned nuclear operator, and the Ukrainian government are “absolutely aware that our investments are into safety,” Borgo said.

“The suggestion there is a gray area between the safety upgrade program and the technical upgrade is an argument for those who don’t recognize that improving safety is the key issue” in cases where nuclear units are expected to continue to run because of power needs, Borgo said.

Ukrainian government policy is for the country’s reactors to continue operations in the absence of a “quick alternative” to nuclear power, which covers almost 50% of its electricity demand, he said.

Technical lifetime

Twelve of Ukraine’s 15 operating nuclear units had a technical lifetime of 30 years – the standard for VVERs of their period – and were due to complete operations before 2020, according to a project briefing paper CEE Bankwatch issued in February.

Two units – Rovno-1 and -2 – were originally expected to be shut in 2010 and 2011, the briefing paper said, but instead received licenses in 2010 to continue operating for an additional 20 years, to 2030. Of the other 10 reactors, South Ukraine-1 was scheduled to shut in 2012, Zaporozhe-1 in 2014, South Ukraine-2 and Zaporozhe-2 in 2015, Rovno-3 and Zaporozhe-3 in 2016, Khmelnitsky-1 and Zaporozhe-4 in 2017, and South Ukraine-3 and Zaporozhe-5 in 2019.

The design life of Zaporozhe-6 expires in 2025, while that of Rovno-4 and Khmelnitsky-2 expire in 2034.

The NPP SUP is therefore designed for nuclear units that face the end of their design lives, the report said.

Borgo confirmed CEE Bankwatch’s observation that Ukraine is the only country to receive a loan from the EBRD to support its nuclear industry, because Energoatom is the only operator that has applied for such financing, but said there is no “exclusivity” involved.

The EBRD earlier provided a loan for safety upgrade work at Khmelnitsky-2 and Rovno-4. Energoatom applied 18 months ago for the safety upgrade loan under consideration, Borgo said.

These loans differ from the grant funds administered by the EBRD’s nuclear safety team, Balthasar Lindauer, the EBRD’s deputy director of nuclear safety, said in the same interview May 28.

“The Nuclear Safety Account funded some emergency upgrade programs in the late 1990s, including at Chernobyl but also in Bulgaria, Lithuania and Russia. These were emergency upgrade programs where donors were ready to fund them in the interest of achieving a minimum safety level at the plants in the short run before longer-term strategies could be developed,” Lindauer said.

He said that under normal circumstances, safety upgrades are funded by plant operators – either by themselves or with bank loans – and not by “other countries” through a grant such as those approved under emergency conditions.

The EBRD’s six nuclear safety and decommissioning donor funds are not expected to be repaid, Borgo said. The loan to Ukraine “will have commercial terms and we will want to be paid back,” he said.

Borgo said he could not comment on the loan conditions because “the commercial terms have not been agreed at all … we don’t have internal approvals and we don’t have final agreement with the Ukrainians yet.”

Borgo added that the EBRD is “one of the few financial institutions that could make this kind of loan based on its policies.”

‘Misleading’ claim

CEE Bankwatch commissioned Austrian consultant Antonia Wenisch and Patricia Lorenz, who handles nuclear issues for Friends of the Earth Europe, to review the SUP and also the environmental impact assessment Energoatom prepared in 2011 as part of its application for the EBRD loan.

According to Wenisch and Lorenz’s report issued in March, Energoatom has made the “misleading” claim that the SUP will address safety measures only and is not a precondition for life extension.

“SUP measures, such as those related to component integrity, are conditions for extending the lifetime of reactors,” the report said. “Measures to address only safety issues and not lifetime extension simply do not exist,” it said.

Euratom cannot grant loans without a statement from the European Investment Bank showing that the loans can be repaid, a statement that is “likely to be based on the future operation of those nuclear power plants,” it said.

Labeling the loan’s purpose as a safety upgrade program avoids the need to conduct a strategic EIA, the report said. The EIA would require assessment of alternatives to reactor life extensions and would require “transboundary involvement,” meaning consultation with Ukraine’s neighboring countries via public hearings, it said.

This approach is “far from best practice” and does not comply with international conventions or “even come close” to fulfilling EU legislation, the report said.

The report is at www.bankwatch.org/sites/default/files/Ukraine-SUP-review.pdf.

Track record

In a project briefing issued May 12, CEE Bankwatch said the EBRD is considering allocating millions of euros of public money to sustain Ukraine’s nuclear industry even though Ukraine did not fulfill all the conditions of a previous EBRD/Euratom safety upgrade loan for Khmelnitsky-2 and Rovno-4.

The so-called K2R4 post-start-up safety and modernization program failed in three main ways, the report said.

First, Ukraine has not ensured the independence and financial sustainability of its state nuclear regulator, the Snrcu, it said.

Lindauer said the situation with the Snrcu was “very precarious” a few years ago, but that “there has been improvement” in independence, funding and staffing. The EBRD is not aware of any “threat” to the regulator’s independence, Lindauer said, but it appreciates the agency has problems with staffing, as do regulators in other countries.

CEE Bankwatch also said the K2R4 project had not been used as a benchmark to improve the safety levels of Ukraine’s other 13 reactors, but Lindauer contested that.

“One of the conditions of K2R4 was for Ukraine to upgrade the other nuclear power plants they operate to internationally acceptable standards. And that is what Ukraine has been doing,” Lindauer said.

As “generic” VVER design issues, he cited the need to replace primary circuit valves and measures involving the emergency core cooling system and modernization of power supply, all of which are included in the safety upgrade program. The loan will finance implementation of 56 to 87 measures, depending on reactor type, he said.

Finally, the CEE Bankwatch report said the K2R4 project was meant to lead to an increase in tariffs for electricity sourced from nuclear power to ensure Energoatom had income sufficient to cover the cost of the loan and the safety upgrades.

Borgo said the EBRD bases loan decisions on a given project and a company’s ability to service the related debt. “Energoatom is 100% constrained in its revenues by its tariffs and the revenues that they imply,” he said. The EBRD will be discussing with Energoatom its “findings based on its financial modeling of the project,” meaning the tariffs it projects Energoatom will need to help it to repay the loan.

Ukraine’s electricity regulator, NERC, “will have to agree to provide tariffs that are adequate to meet the debt service of this loan,” Borgo said. But he added he does not expect “any such thing as a covenant in the loan” specifying tariff increases or a fixed tariff amount.