Abstract
The decade-long financial turmoil in Russia, which turned into a crisis in August with the collapse of the banking system, will have a long-term effect on Russia's political orientation, economy, and relationships with the rest of the world.
One index of the crisis: Russia's national budget for fiscal 1999 has shrunk to about $20-25 billion, making it virtually impossible for industries dependent on the national government to keep afloat without drastic downsizing and restructuring.
The Ministry of Atomic Energy, commonly called Minatom, has been hit hard. In a dramatic departure from the past, when it was comfortably isolated from budget crunches, Minatom has faced increasing budgetary shortfalls. In 1997-98, for example, the national government paid only about 20 percent of its operating expenses.
Minatom–which oversees a vast empire of nuclear power plants and fuel-cycle facilities–is also responsible for designing, building, maintaining, and dismantling nuclear weapons.
Moscow's draft budget for fiscal 1999 provides about 45 to 50 percent of the money needed for Minatom's defense component. Minatom has been trying to make up for some of the shortfall by promoting a host of commercial, profit-making activities that have generated controversy as well as hard currency.
The depth of Minatom's crisis in the non-weapons sector can be measured, in part, by the poor performance of the ministry's nuclear power plants. The program for the development of nuclear power generation through the year 2010, approved in July 1998, has already been scrapped. Originally, the plan called for commissioning 16 new reactor units, including two floating ones. Now any available funds will go to complete projects already under construction at the nuclear stations at Rostov, Kalinin, and Kursk. Altogether, Russia has nine nuclear power plants with a total of 29 reactors, all except one operated by an umbrella organization called Rosenergoatom.
Last year, output declined for the first time since 1994. According to Rosenergoatom, output in 1998 was 95.6 percent of that of 1997 (103.5 billion kilowatt-hours), and only 93.9 percent of planned production.
There was also a 33 percent increase in the number of incidents that could be classified as safety violations. Last year, 102 violations of various degrees of seriousness were recorded, 26 more than in 1997.
Throughout 1998, the plants were unable to pay taxes owed to Moscow. Late last year, the Russian tax service even instituted bankruptcy proceedings against the Balakovo plant, which has four VVER-1000 reactors. The plant owed the tax service about $5 million, in addition to an accumulated penalty of $1 million. The case is still pending.
The Adamov factor
Evgeni Adamov, who had been director of the Research Institute of Power Technologies, was appointed minister of atomic energy on March 4 of last year. He replaced the controversial and abrasive Victor Mikhailov.
Although it is not publicly known why Mikhailov resigned, some suggest that it was because of his opposition to the government's policy of drastically downsizing the nuclear weapons complex. Others believe he was involved in shady financial deals. Mikhailov is still powerful; he is Minatom's first deputy, and he oversees scientific research and technology development.
July 1997: Russian nuclear energy workers picket government buildings to protest unpaid wages and funding cuts at nuclear plants.
Shortly after taking over, Adamov forced the retirement or transfer of most of the ministry's top officials. The restructuring was formalized with a government resolution dated August 21, 1998, which established a ceiling of 625 employees at Minatom's Moscow headquarters. (As recently as 1990, the comparable figure was 3,300.)
Under Adamov, there is a growing realization that the nuclear industry needs new blood. Gone is the time when Minatom's nuclear-weapons component enjoyed undisputed preeminence and produced almost all the key leaders in the industry.
Even before Adamov's arrival, Minatom had been working on building a “leadership reserve,” designed to draw in young people to replace the old guard. As part of the nationwide Presidential Management Program, initiated in 1997 to produce better trained industrial leaders, Minatom has selected 50 persons under the age of 35 from the nuclear industry for special training.
These future managers study a variety of subjects, including English, at the Moscow-based Rosenergoatom Institute for Professional Education. Upon completion of their in-country work, they are supposed to be placed as interns in industrialized countries, possibly as early as the coming fall.
To help ensure Minatom's survival, Adamov is taking it further away from familiar territory. Unlike Mikhailov, Adamov was never associated with the weapons component. That is viewed by some industry veterans as a negative, and Adamov's opponents regularly accuse him of neglecting the Minatom-run defense infrastructure.
Hardly any other cabinet minister has attracted as much press scrutiny as Adamov. He is said, for instance, to be close to Boris Berezovsky, one of Russia's most controversial business tycoons and executive secretary of the Commonwealth of Independent States until early March, when he was deposed by President Yeltsin. Press reports suggest that Berezovsky pulled strings to get Adamov promoted. And each time Berezovsky's free-wheeling ways place him in jeopardy, the press invariably predict the end of Adamov's career.
There also has been speculation in the press that Adamov was involved in setting up commercial ventures in the early 1990s that later served as front companies for organized crime. However, Adamov's personal involvement in such schemes has never been substantiated. To be sure, he admits to a role in establishing some commercial entities while director of the Research Institute of Power Technologies. But after his appointment to the cabinet, he resigned from all other positions and stayed away from commercial decision-making.
Adamov has also drawn praise. His supporters claim that his main mission is “to clean the Minatom stables,” which have been soiled with corruption and shady deals. Last fall, for instance, Adamov forwarded a memo to the Office of the Procurator General requesting an investigation into the thefts of millions of dollars from Rosenergoatom. Adamov claimed that some officials were stealing money by using complicated barter deals and promissory notes instead of cash.
Shortly after making his allegations, Adamov appointed a former associate, Leonid Melamed, as executive director of Rosenergoatom. Melamed did not have an extensive nuclear background, and his promotion to such a high position was regarded by many as an affront to the exclusive group of nuclear professionals.
Melamed proved to be an efficient manager, however, and he has scored impressively in reforming Rosenergoatom's administrative structure by establishing direct contacts with Russia's unified energy grid and by phasing out wasteful go-between organizations that formerly linked nuclear-generated electricity to the grid. He has also introduced new market management principles.
Beyond the borders
As Russia's financial crisis continues and the national government remains weak, there is little hope that someone will throw Minatom a lifesaver. As a result, Adamov believes “it is up to those who are drowning to save themselves.”
Drawing on the relatively intact economic and industrial infrastructure of the nuclear industry, which unlike many other Russian industries has not been undercut by hasty and ill-conceived privatization schemes, Adamov is fighting for Minatom's survival in both conventional and unconventional ways.
At the top of the list: he is trying to do business beyond Russia's borders, a strategy that Mikhailov also tried to pursue. (Mikhailov said in 1995, while still Minatom's chief, that the industry had to export no less than $3-3.5 billion worth of products yearly to survive. In 1997, Minatom's exports amounted to $2.2 billion, a figure that accounted for about one-third of its output.)
November 1998: Minatom's Evgeni Adamov (left) cuts a ribbon opening a nuclear-materials safety facility in Obninsk.
Consider Russia's nuclear cooperation with Iran, which began with a formal agreement in 1992. In addition to a contract for completing a partially built reactor at Bushehr, Minatom has also been receptive to a recent Iranian request to conduct a feasibility study for building three more–although smaller–reactors. Adamov estimates that the total cost would range from $3 to $4.5 billion.
Bushehr is expected to be completed in 2003. The plant will be run by a Russian-Iranian team, which Minatom plans to set up this year. Meanwhile, 30 Iranians are receiving operational training at the Novovoronezh nuclear power plant. (As part of the umbrella cooperation agreement, Minatom is also training Iranian physicists and mathematicians at the Institute of Engineering and Physics.)
Russia has also been assisting Iran in developing a uranium mine with a capacity of 100-200 tons of ore. (In comparison, the Soviet Union extracted 30,000 tons of ore annually; Russia currently mines about 3,000 tons.)
Iran hopes to persuade Russia to build a uranium enrichment facility and an isotope enrichment plant. The Iranian government continually refers to a similar project undertaken by Russia in China to justify these projects.
U.S. intelligence reports also suggest that Russian nuclear scientists are secretly advising Iran on how to produce weapons-usable heavy water and nuclear-grade graphite.
Despite protests from the United States, which calls Iran a “rogue” state with an embryonic nuclear weapons program, there is virtually no opposition in Russia to the existing and potential deals with Iran. The public, as well as most non-governmental organizations, seem to assume that cooperation with Iran is focused on non-defense projects and that Iran's civilian nuclear program will not be converted to military objectives.
(The lonely dissenting voice comes from Alexey Yablokov, president of the Russian Center for Environmental Policies and formerly a presidential adviser on environmental issues. He says that Minatom's cooperation with countries like Iran and China is dangerous and runs counter to Russia's national interests.)
Russia also has contracts to build new power plants in China and India. These projects are politically significant, because they strengthen Russia's hand in putting together partnerships with two major countries that can act as counterweights to U.S. power.
As noted, Russia is building an enrichment facility in China, and it also provides fuel for China's nuclear power plants. It also sells natural uranium to China, trains Chinese physicists, and supplies technology for the processing of spent nuclear fuel.
Russia's commercial activity with India covers the transfer of nuclear propulsion technologies and hardware for possible use in India's submarine program, the use of plutonium for power generation, the development of a uranium-thorium fuel cycle, and other projects.
And then there is Cuba, once a Soviet satellite. Although it is highly unlikely that Russia will ever raise the money to complete the long-abandoned nuclear power plant at Juraguá, a Russian-Cuban commission is still reviewing the option. Meanwhile, on-and-off negotiations have been held with Indonesia over a Russian proposal to build a small floating nuclear power plant.
Minatom has been considering ways of expanding Russia's national power grid in order to export electrical power to Europe, China, South Korea, and Turkey. The latter would be offered a deal involving Ukraine as a third partner. Under this deal, Russia would supply Ukraine from its own nuclear power plants, and Ukraine would then export a comparable amount of electricity to neighboring Turkey.
Commercialization initiatives
Minatom is steadily moving away from the Soviet-era state ownership mode of operation. Adamov, for instance, has been promoting the idea of setting up “Atomprom,” an agency that would combine several existing Minatom organizations such as Rosenergoatom and TVEL (fuel assembly production). The weapons facilities would remain separate. This scheme is not new, but Adamov is particularly committed to it.
The objective would be to consolidate most of Minatom's non-defense activities into one agency in an attempt to promote profit-generating projects. Those profits would help finance other Minatom facilities, especially the underfunded weapons component.
The idea is similar to the way Russia's natural gas production giant “Gazprom” emerged from the Ministry of Energy and Fuel in 1993. Although Gazprom eventually evolved into a virtually independent player, “Atomprom” would remain inside Minatom and be tightly controlled by the ministry.
Nevertheless, Adamov is in favor of setting up state-owned joint stock companies within Atomprom, because “This option is likely to attract credits from new sources.” But he is opposed to across-the-board privatization–he is on record as urging the Federal Assembly to ban any privatization of the nuclear sector for the next 30 years. The state would–in theory–continue to own controlling interests in the joint stock companies.
But all of this could well turn out to be smoke and mirrors. Given the arbitrary legal system in Russia and the widespread corruption, other state-owned joint stock companies have been easily manipulated by one individual or group. The same could happen to Atomprom, if it ever gets off the ground.
(Despite sharp divisions inside Minatom regarding how far to go toward privatization, the prevailing view in the nuclear industry is that Russia will eventually follow the path of most other industrialized countries and hand over the operation of its nuclear power plants to private companies.)
In a stunning departure from past practice, the new Minatom leadership is increasingly receptive to the importation of Western technologies and to joint ventures in its nuclear power programs.
Adamov has personally supervised negotiations involving the possible–though unlikely–construction of a Canadian CANDU reactor in Russia's Far East. The plant, if it is ever built, would be near enough to the border to make exporting electricity to China feasible.
One of Adamov's deputies has even said that Minatom would consider replacing four of its oldest VVER-440 reactors, which are scheduled to be shut down soon at Kola and Novovoronezh, with Western reactors. If that happens, the reactors would use Russian fuel, and the export of electricity would pay for the reactors.
Minatom also says it would welcome foreign partners in the construction of the planned BN-800 fast-breeder plant, which probably would be sited at Mayak. Each unit would be able to burn 1.3 metric tons of plutonium a year.
Another option for raising money is Adamov's pet idea of importing spent fuel for reprocessing. Adamov estimates that Russia's share of the market, in competition primarily with France and Great Britain, would be several billion dollars.
To clear the way for such a program, Adamov has been negotiating with the Duma over lifting legislative restrictions in the Federal Law on Environmental Protection, which prohibits storage of foreign nuclear and radioactive waste on Russian territory. In addition, the current law obliges Minatom to return any radioactive waste generated by the reprocessing of spent fuel to the country of origin within 30 years.
In January 1999, Greenpeace made public negotiations between Minatom and the Swiss government to dispose of 2,000 tons of Switzerland's spent nuclear fuel and 500 cubic meters of highly radioactive waste. The report was grudgingly confirmed by Minatom officials. Other countries that might have an interest in sending spent fuel to Russia include Germany, Spain, South Korea, Taiwan, and Japan.
According to another leak, in 1998 Adamov sent a letter to his U.S. counterpart, Energy Secretary Bill Richardson, suggesting a possible transfer–on a strictly commercial basis–of spent fuel from U.S. nuclear power plants to Russia for long-term storage and subsequent reprocessing. The U.S. government has not officially replied.
A formidable ally in this reaching-out strategy is the Krasnoyarsk Mining and Chemical Complex, located in one of Minatom's closed cities. The managers of the complex hope to raise money to complete the RT-2 Reprocessing Plant, whose construction was mothballed in 1992 after $350 million had been invested.
The Krasnoyarsk complex would accept foreign spent fuel for temporary storage–for a fee, of course. The money would be channeled toward building a new dry storage facility. At the next stage, revenues from dry storage would be used to complete the reprocessing plant, whose ultimate capacity would be on the order of 1,500 metric tons a year. (Minatom estimates the current “world price” for reprocessing one metric ton of spent fuel at about $1 million.)
Uncertainty in the nuclear cities
At the historic heart of the Minatom empire are the major nuclear weapon facilities spread out in 10 closed “nuclear cities.” But the nuclear weapons component has shrunk to 10 percent of total Minatom activity–and that percentage is likely to further decrease.
According to First Deputy Minister Lev Ryabiev, there is an urgent need to retrain (and find civilian jobs for) more than 50 percent of the nuclear-weapons labor force. Of the more than 730,000 people who live in the closed cities, 127,000 are directly employed at the nuclear weapons facilities. However, because of lack of money, defense conversion and retraining are not at the top of the agenda. Last year, for example, the Bochvar Research Institute of Nonorganic Materials in Moscow, founded in 1945 and the site of five decades of significant uranium and plutonium research, received no funding at all for its defense conversion projects.
The largest source of support for nuclear weapons facilities is the federal budget, but federal allocations are often delayed or underpaid because of continuous shortfalls in national revenues. As a rule, government funding barely covers half of the facilities' basic needs. Minatom redistributes its own money from revenue-generating projects in an effort to partially fill the shortfalls and keep the defense component afloat.
Meanwhile, salary checks are regularly delayed for months, and they are not adjusted for inflation. Although salaries for 1997 had been paid by mid-1998, the actual amount transferred was 60 percent of what was provided for in the budget. As of January, the average monthly pay at the nuclear weapons facilities was about $60.
Last November, one-third of the staff at Snezhinsk (Chelyabinsk-70) went on strike for several days. The local trade union sent an angry message to Adamov demanding full payment before January 1, and a three-fold increase after January 1. Nothing happened.
In such circumstances, a main survival tool is the promotion of export and the establishment of small businesses operated mostly by those who are employed at the nuclear facilities. The export of isotopes and other products, for example, accounts for more than 30 percent of the total budget of the Arzamas-16 Nuclear Weapons Center.
In some cases, federally employed scientists do their research at government facilities but commercialize some of their work through their own companies–sometimes illegally, and often in a poorly accountable mode.
At Arzamas-16, employees of the Nuclear Weapons Center have set up about 700 commercial entities. According to Director Radii Ilkayev, the center management is in no position to monitor this commercial activity.
One example of a successful small business at Arzamas-16 involves the use of controlled conventional explosions for civilian projects. A group of employees at the center has performed high-precision demolition jobs–removing old pillars at Moscow's main stadium at Luzhniki, and dismantling an old bridge over the Volga River.
In the absence of government funding, a major contribution to defense conversion in nuclear cities is expected to come from the U.S.-sponsored Nuclear Cities Initiative, which received $15-20 million in funding for fiscal 1999.
But in light of the continuing expansion of NATO, a possible U.S. decision next year to deploy a national ballistic missile defense system, and the continued bombing of Iraqi facilities, some Russian politicians advocate more caution in negotiating sensitive Russian-American contacts. Vladimir Gusev, chairman of the Duma's Committee for Industry, Transport, and Power Engineering, said in late December that the Nuclear Cities Initiative was “humiliating.” He emphasized that a real power must maintain its dignity. In early March, a widely read Moscow daily accused Adamov of being a CIA agent for signing the Nuclear Cities Initiative.
Despite the growing anti-Western trend in Russian politics, greatly accelerated by the NATO strikes against Yugoslavia beginning in March, Adamov has demonstrated a degree of realism and perseverance in maintaining bilateral cooperation with the United States. Although the March session of the Gore-Primakov Commission did not materialize because of Russia's protests against the bombing, the Richardson-Adamov meeting in Washington, D.C. was successful in paving the way for the commission session. The two officials agreed on issues relating to the sale of Russian uranium to fuel U.S. power reactors, and they productively discussed more than 20 other items on their agenda, including secure storage of nuclear materials, the Nuclear Cities Initiative, and the millennium-bug problem.
Tough times getting harder
Minatom is increasingly charged with taking on new functions, which in the absence of adequate funding threaten to undercut even more its effectiveness in dealing with previously assigned roles. A May 1998 decision of the Russian government made Minatom the lead agency for dismantling decommissioned nuclear-powered submarines, of which there are more than 150 in the Northern and Pacific fleets.
In the past, Minatom's submarine role was limited to transporting spent fuel to Mayak in the Urals. Now the ministry is supposed to take care of all nuclear-related business–including radioactive waste and the storage of reactors. Minatom must even fund skeleton crews left on submarines after their missile launchers have been removed.
Not much is likely to happen in the foreseeable future though, because the new assignment is not likely to entail any major increase in funding. The cost of dismantling one nuclear-powered submarine in Russia is estimated at more than $5 million–not much by U.S. standards, but a mountain of money by Russian standards.
Another high-cost item looming on the horizon is dealing with Russia's aging reactors. The service lives of four of Russia's nuclear power units–which provide 80 and 40 percent of electricity for central and northwest Russia respectively–will expire between 2001 and 2005. During the same period, four more units are scheduled to be decommissioned.
By the year 2013, the service lives of all currently operating nuclear reactors will have expired. The price tag for complete and environmentally safe dismantlement of one unit in the United States is between $200 and $300 million, covered by specially established set-aside funds.
Similar funds were envisaged in Russia by a government resolution dated April 2, 1997, but the nuclear power plants failed to comply with its provisions. Money is not being set aside on an annual basis to cover dismantlement costs.
The design and construction cycle of one reactor in Russia is about 10 years–if steady funding is in place. The construction of one VVER-640 reactor costs up to $1.5 billion. In other words, there are virtually no alternatives for Minatom but to extend the service lives of the existing nuclear plants regardless of technical and safety issues.
But life extension is also a costly procedure, although much less so than decommissioning. In 1999, Minatom is expected to allocate about 1.2 billion rubles (under $60 million) for extending the service life of first-generation nuclear power units. That amount would cover less than half of current needs.
Other unfunded projects are in the pipeline. For instance, if Russia agrees to contribute to the cost of a Western-backed program whose objective is to upgrade Russia's VVER-1000 reactors in order to use mixed-oxide (MOX) fuel (as a means of disposing of excess weapons plutonium), it will have to pay at least part of the bill, which would range from $120 to $180 million per unit to meet Western safety standards.
Ties that bind
Minatom is living through a most difficult time of transformation and generational change. With the share and influence of the defense component diminishing, the shots are now called by a new brand of leaders representing the civilian component.
The entire nuclear industry, however, is operating on a shoestring. Ironically, it is often through the redistribution of internally generated profits, some of which come from the civilian sector, that nuclear weapons facilities can stay afloat and operate.
Meanwhile, Minatom's growing reliance on exports has led to serious friction with the United States, particularly in regard to Russia's nuclear contracts with Iran. The dependence of this key Russian industry on foreign markets threatens to distort the normal supplier-recipient relationship, leaving Russia no other choice but to make painful and sometimes internationally unpopular decisions in order to win contracts.
There is a dangerous precedent for this in Russia: the emphasis on the export of conventional weapons. In order to survive, the defense industry has to sell state-of-the-art weapons systems, often in disregard of obvious national security considerations.
Given the financial pressures on Russia's nuclear industry to do business anywhere and everywhere, it may be reasonable for the West to give Russia's nuclear industry a major assist. If Russia's nuclear industry stalls–or worse, goes under–the shock waves would inevitably affect Minatom's nuclear weapons facilities. It follows that Minatom's overtures to attract Western nuclear power technologies and investments are worth serious consideration on their own merits–and as a way to win the trust of the new generation of leaders.
There is no demand for new nuclear power plants in the West. But Russia, with its own unique nuclear expertise, could become an important test range for new technologies that, upon reaching a level of maturity, could be successfully used elsewhere.
The Soviet Union sought to maintain a wall of separation between itself and the West. Today's Russia is increasingly tied to the West, financially, economically, technologically, and even culturally. The current generational transition in Russia will make those ties irreversible.
The presence in Russia's nuclear industry of dynamic, meaningful, and well-publicized Western programs and investment projects could be a prerequisite for steering the steadily worsening situation in the nuclear industry away from a disastrous outcome.