Let Us Help Energoatom’s Supervisory Board Find Their Responsibilities

A month and a half ago, Energoatom received a supervisory board.

The news did not arouse interest at that time. There has long been an ironic attitude towards the supervisory boards of state-owned companies in Ukraine as a haven for retired pensioners and officials from the close circle. This is often not far from the truth.

The nomination of Tymofii Mylovanov (for whom this does not mark the first time as a member of a state-owned company’s supervisory board) in the NNEGC as a representative of the authorities has given rise to a new wave of jokes about “polynomial” (a mathematical term translated from Greek and Latin as “many names,” alluding that people like Mr Mylovanov hold many positions at the same time).

The new supervisory board of Energoatom NNEGC was expected only to formally rubber-stamp the promotion of Petro Kotin from acting to full-fledged head of the board. Many people would have considered the main task of the board to be completed.... Which, of course, is unfortunate, but such are the realities.

However, the lack of any news from the supervisory board in six weeks is intriguing. At least there was no automatic rubber-stamping. That is, the reality may turn out to be more riveting than everyone’s expectations. Energoatom is going through an extremely intense period.

Today, the entire energy system of the country rests on it: the commissioning or decommissioning of even one unit determines the availability of blackout schedules for tens of millions of people. In winter, the importance of the NNEGC will be critical. And in general, the company provides more than half of the total electricity generation in the country, which is a burden of responsibility.

But Energoatom is going through a rough patch even without it.

Firstly, the final transition to American nuclear fuel continues. Before the full-scale invasion, only six out of 15 units (four of which remained at the captured Zaporizhzhia Nuclear Power Plant) operated on it. Seven units are now starting to consume it almost simultaneously. The process is by no means simple. American-based Westinghouse has never taken on the first unit of the South Ukrainian Nuclear Power Plant (NPP) before. And until this year, no one in the world, except Russia, had produced fuel for two small VVER-440s at the Rivne NPP for a long while. Westinghouse had to urgently resume production at a new site.

Secondly, the structure of the company and the business is also changing.

The loss of Zaporizhzhia NPP, the largest in Europe, is not only almost 40% of generation and deterioration of all financial indicators, but also thousands of people, whose fates NNEGC has to deal with.

Western observers will also be able to marvel at the general level of overburdening the company with social obligations (aka Public Service Obligations). Nuclear companies are the main donor of tariffs for the population. According to the results of the last year, net income from sales amounted to UAH 177.8 billion. At the same time, UAH 125.5 bln, or 71%, was spent on subsidies to the population.

For Europe, the figures are shocking. Nuclear companies there are also engaged in social payments, but the French-based Électricité de France sells 20–25% of electricity at reduced prices, i.e. three times less.

After the recent increase in electricity prices, the load will decrease. A new figure of UAH 108.3 billion was announced. But it is also 60% of the expected revenue. The population consumes 29 billion kWh, and it is easy to calculate that the NNEGC subsidizes each kilowatt by 4–4.5 UAH.

Attempts to radically reduce this figure during the war are unlikely to succeed. All the more so against the background of the unfolding scam on the so-called fast completion of nuclear units of the Khmelnytskyi NPP.

By the way, thirdly, the “Khmelnytskyi scam” is a tall order. On the one hand, the expected royalties from the scheme are very attractive. On the other hand, if something looks like a duck and quacks like a duck, it is most likely a duck. If the current management of the NNEGC has not presented any business plan for a couple of years, including to the Parliament, but is eager to bury billions of dollars, it suggests certain thoughts.

It would be interesting to get an assessment of this level of business decision-making from the new member of the Board of Directors, Timothy Stone, who has spent his entire career in nuclear investment projects.

It is a direct responsibility of the supervisory board to decide on its attitude towards this project. Funny as it may seem, this applies to both members appointed by the authorities. The Cabinet of Ministers and the Presidential Office saw pictures of new nuclear power units that are about to be built.... but did not emphasize that their implementation would require a sharp rise in prices for the population.

The supervisory board, if it really wants to control the processes, should politely (but insistently) ask about the results of the analysis of options for completing the construction of the Khmelnytskyi NPP Units 3 and 4, ordered from Westinghouse. Ideally, it should be completed by the end of this year. In spring, these terms were confirmed once again. However, the NNEGC management was going to start installation as early as this summer. The start of work on the units before the analysis (we will keep silent about the absence of a feasibility study) is undoubtedly a novelty in nuclear construction in general and in the “world’s best practices” in particular. An assessment of what is going on by the supervisory board would not be unreasonable. Or is Ms Pritzker’s blessing alone enough to start?

In such a case, it is a pity that the US special envoy in Ukraine did not specify the sources of funding for the “nuclearization of the entire country.”

The possible purchase on the secondary market of reactors stuck in Bulgaria is from UAH 26 to 31 billion (triple Energoatom’s losses last year). The fact that they are not in the financial plan for this year is also omitted.

Besides, recently the NNEGC was not eager to build one of the two Khmelnytskyi units (number 4) at all, and the purchase of equipment for it is only a consequence of the fact that Bulgaria sells either both reactors or nothing....

The supervisory board should also ask how the construction period — with almost no construction capabilities (which are now being created almost from scratch) — has fallen from 5–6 years according to the previous feasibility study to promises to build everything in three years. Foreign specialists could learn valuable experience.

By the way, these are not wishes or requests, but direct duties of the supervisory board, which, let us remind you, should take care of the company’s financial well-being and take risks into account. There is a war going on in a very poor country, and assessing the risk of huge sums of money being frozen is a function not only of the management board, but also, as Energoatom is very fond of repeating, of the competent authorities.

The national nuclear energy company has missed deadlines for all of its major facilities this century. Often many times over. So the blamestorming should be done before the next setback, not against the backdrop of frozen construction.

The topic of investment risks is something the new members of the supervisory board is well aware of. For example, Mr Stone has useful experience of working in a company that unsuccessfully tried to start a reactor construction project, and Michael Krista from the US has both a long experience of working in Europe and staying at Westinghouse at the time of its bankruptcy due to the unsuccessful construction of one of the NPPs. The company where they worked for so long sold one of those reactors to the NNEGC (at a big discount).

Energoatom was then very indignant that the deal had words about as a “second-hand” purchase. The efficient managers (a phrase used by President Zelenskyy to denote his closest associates) even sued the Ukrainian Forbes. Their position was: say only good or nothing about us....

Agreed, somewhat pessimistic. The company will live on, no matter how hard the managers try.

Now we are talking about contracts for the purchase of a second reactor, which has been lying in the United States for eight years. Westinghouse has to wait until the end of 2025. The only thing left is to find the money. After that, it will continue to lie in the same place for another eight to ten years, but this time the NNEGC will pay for the protection.

Banks are not eager to lend money for such a luxurious deal, and the company has failed to justify the necessity of the purchase for two years in a row. The attempt to formalize the deal through the American Export-Import Bank as aid to Ukraine during the war has also turned out to be an abortive effort. Bankers quite rightly considered that with the optimistic launch date of 2033, there are plenty other urgent needs that will have a quick effect.

And yes, these are also functions of the supervisory board.

By the way, based on the hypothesis that the Ukrainian participants in the supervisory board are not a decoration, I would like to see a clear position of the authorities on local content requirements for the equipment in the process.

At the moment, the Czech Republic, Poland and Bulgaria are going to build new nuclear power units. Local content requirements for equipment at the construction site must be at least 65%. And what are we planning to do, apart from recycling?

The protracted story with the repair of the turbine of the Khmelnytskyi NPP Unit 2 also deserves attention. There is absolutely nothing funny about the fact that the company refuses to perform a much-needed repair of a turbine where at least 200 MW of power is lost — the equivalent of a large unit at a thermal power plant — because of “lack of funds” and at the same time is going to freeze at least tens of billions of hryvnias for many years.

Still, maybe it’s time to calculate how much the tariffs for the population will increase at different levels of rejection of the Public Service Obligations? This will greatly affect the prospects of any projects.

A rough estimate shows that in a pessimistic scenario, the tariffs may double, to the level of UAH 9. Of course, there may be different variants, and the Cabinet of Ministers (as the main shareholder) would definitely need such information. The Verkhovna Rada could use it too.

I have no doubt that the members of the supervisory board are aware that the Ministry of Economy, not the Ministry of Energy, as it may seem, is in charge of Energoatom’s financial issues. So, the unintelligent media activity of the Minister of Energy and the complete silence of the future Prime Minister Yuliia Svyrydenko about the affairs in the NNEGC reflect what? The degree of their influence? Interest? Involvement?

In general, the supervisory board, if it intends to work and not sit idly, is a place where one will never get bored.

A few years ago, one of its current new members, Yaroslav Neverovych, described Ukraine’s risks and opportunities in the following way: “Ukraine is a rich country, as compared to Lithuania. We do not have such natural resources and opportunities as you have. Obviously, the main problem of Ukraine is the stealing of state money and resources. So the first thing to do is to stop corruption and start reforming the country, while building links with investors. In addition, an essential part of this process is to ensure the speed, openness and reliability of all state institutions.”

There’s nothing to add...

Mr Yaroslav and his colleagues, let’s get right to it!