Power struggle for control over Ukraine’s nuclear energy sector

Nuclear power produces about 60% of all electricity in Ukraine (writes James Wilson). The power generating stations are modern and secure, in line with Ukraine’s international security commitments. They are managed and operated by the state owned enterprise, Energoatom, control over which has come under the spotlight in the battle for spheres of influence in Ukraine.

It represents not only a strategic asset, vital to Ukrainian industry but also a conduit to extremely lucrative contracts for the supply of nuclear fuel, the maintenance of reactors and the disposal and storage of atomic waste.

Ukrainian nuclear power stations have historically imported nuclear fuel from Russia, and this arrangement suited everyone until 2013 when Russia’s behaviour towards Ukraine became more aggressive. Questions were raised by the public about the wisdom of relying on a monopoly supplier owned by a hostile state that was invading the sovereign territory of Ukraine. Reacting to these pressures, Energoatom negotiated and signed contracts with major Western nuclear companies, including Westinghouse, Areva and Holtec International to diversify the supply chain and make it more international in line with best practice. The commercial objective of these business partnerships has been to update the nuclear energy cycle, to diversify and secure the supply base whilst maintaining international standards of nuclear energy safety, product quality and price competitiveness.

These commercial reforms were undertaken against a background of civil society becoming more aware of the policy issues involved, a resurgent national pride in Ukraine’s citizens, and a determined fight against corruption.

But if you are used to a dominant monopoly position in a market, it is hard to give this habit up without a fight, and Russia has proved to be no exception in the case of Ukraine’s nuclear power sector. The Russian objective is to reverse the direction of current commercial reforms in public procurement so that they can revert to the former cosy supply arrangements; to achieve this they need to dismiss the current management, thereby securing strategic control of one of Ukraine’s most important state assets that is vital to the country’s industrial production and its economic revival.

Fifth column supporters of Russia in the Ukrainian administration have been trying to disrupt the progress of Energoatom’s reforms through a combination of black PR campaigns in the media, bureaucratic hooliganism and the manipulation of targeted administrative sabotage.

Energoatom’s pro-business reforms were previously supported by the Energy Committee of the Verkhovna Rada and its head Mykola Martynenko, (who belongs to the political party of Prime Minister Arseniy Yatsenyuk). But he came under attack by the former political journalist and current MP Sergey Leschenko (who belongs to the political party of President Petro Poroshenko). Leschenko accused Martynenko of corruption, citing evidence of an an anti-corruption investigation by Swiss authorities against Martynenko, and launched a torrid black PR campaign against him. The matter is still under investigation in Switzerland, and Martynenko continues to plead his innocence, but he has caved in under pressure from public opinion and has stepped down from his position in the Verkhovna Rada.

On another front, the Minister for Energy, Volodymyr Demchyshyn, (appointed to his post by President Poroshenko) has been outspokenly critical of Energoatom’s policies, and the actions of the President of Energoatom Mr. Nedashkovsky. He has openly accused the Company of inefficiency, bad timing and poor management - not exactly remarks designed to encourage staff motivation - but somewhat unusually the Minister has yet to present any facts to substantiate these accusations.

Like battle crazed Apache warriors descending upon the encircled wagon train of Energoatom, the Prosecutor General’s Office and Security Services, both controlled by Chief Poroshenko have entered the fray with their war whoops. They have conducted repeated inspections, and official investigations in their attempts to trip up Energoatom and find the company in breach of Ukrainian law. Their siege of Energoatom is thorough and sophisticated; it makes cunning use of public opinion and deploys the formidable law enforcement and security agencies of Ukraine’s public administration. Sadly, as in any traditional Western movie, it looks as if it is only a matter of time before the Energoatom wagon train will be overwhelmed by the sheer force of numbers of braves in the war party. In the ensuing carnage, the pro euro-atlantic management is likely to be sacrificed and the strategic direction of the company will be reversed, to the detriment of the country’s best interests.

Looming behind the campaign to besiege Energoatom is the dark figure of Russian oligarch Konstantin Grigorishin who has not concealed his interest in Ukraine’s nuclear power sector. He is lobbying hard to revert to the former monopoly for the import of nuclear fuel from Russia, and given the circumstances, such a scenario is not impossible.

But the dangerous consequence of such an outcome would be the exposure of the country’s power sector to the potential threat of the blackmail of the supply chain. This would put at risk the security of electricity supply by holding the nation’s industry and consumers hostage to the demands of the dominant monopoly supplier during the critical winter months ahead.

A collateral victim would also be the improved business environment and the better investment climate in Ukraine which is due to be introduced by virtue of the establishment of the EU Ukraine Free Trade Area in January 2016.

James Wilson
Director, EU Ukraine Business Council

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