OREANDA-NEWS. July 20, 2007. Federation Council Committee on Natural Monopolies held a guest meeting at Leningrad NPP.

The Federal Target Program for “The Development of the Nuclear Power Industry of Russia in 2007–2010 and -2015” provides for the construction of LNPP-2: two WWER-1200 reactors (1160 MW each) near Leningrad NPP.

The head of the Capital Construction Department of the Federal Agency for Nuclear Energy (Rosatom) Aleksey Tutiayev was also present at the meeting:

— Mr.Tutiayev, what are the key obstacles to the implementation of the federal target program for nuclear energy development (FTP)?

— I think that the key obstacle is that Rosatom, the way it has been until today, is not ready to solve the tasks set by the program. Just a couple of figures:

In the last 15 years Rosatom has started no single NPP construction. In the last years it has spent an average of 10bln RUR a year. This year we have to spend 26bln RUR, in 2008 – 63bln RUR. This year we should start building two 1000 MW units a year. 

We have already selected the contractors of Novovoronezh NPP-2, the 4th unit of Kalinin NPP and the 2nd unit of Rostov NPP. We are building the 4th unit of Beloyarsk NPP and are planning to shortly start preparing for the construction of LNPP-2.

The amount of tasks is quickly growing but the capacities are the same. This is one of the key problems, today. RAO UES also faced this problem but managed to solve it due to construction management reforms. That’s exactly what we are doing for the moment.

So, we are here to once again analyze the situation and to search for the best ways to improve the management of the construction complex.

The old “fan” system of management — when everything was centralized — has turned out to be ineffective, while the international practice has proved the efficiency of the system based on engineering.  

This system is already applied by RAO UES, Federal Network Company and some other organizations, but it needs necessary regulatory basis. For example, the Civil Code has no concept of “engineering.” As a result, we are facing lots of managerial and economic problems.

The other “global” problem is the mechanism of annual budgeting. When implementing a project we look towards the final goal but plan the budget year by year rather than for the whole period. As a result, we start caring for spending as such rather than for its efficiency: we start thinking how to spend all we are given for the year instead of thinking how much exactly we have to spend to solve a specific task.

Our contractors do not care for economy. There is no use for them to economize as all they will save will be taken from them: they will have to pay so high taxes for their extra profits that they will no longer need them. As a result, they start working like they did in the Soviet times.

But this is contrary to market economy.

— What exactly is contrary to market economy?

— All expenses under the federal program — on construction, purchase, supply, installation – are regulated by the federal law on state purchases, which sets very rigid requirements to tender procedure. 

For example: our Department has the capacity of state owner inside Rosatom. We have the authority to organize tenders – from announcing them up to signing contracts with the winners. The whole tender procedure lasts for no less than 50 days.  

The second example: we are ready for LNPP-2 but without the Government’s resolution on its budgetary financing we have no right to start the project. 

— This is the formal aspect of the matter. My question is how many organizations today have licenses for building NPPs?

— Everything depends on the terms of relevant tenders. Today, we have three companies that can supply all services necessary for an NPP project and have all necessary licenses: Moscow, St.Petersburg and Nizhniy Novgorod Atomenergoprojects. But this situation will not last for ever. The engineering system will develop and in due time we will have more such companies.

Today, this triad has monopoly in NPP design but they have no competence to build NPPs, to supply or install equipment for NPPs. For the time being, we are going to do this through general contracts between an engineering company and construction companies with the whole work to be coordinated by the engineering company rather than Rosatom or Rosenergoatom.

— How many real construction companies do we have, today? Do we have enough companies to build 26 nuclear power units by 2020?

— Those units will not be built in one year. This year we are starting two projects, next year two more and so on. At the peak of the FTP, we will be building 10–12 units: in European and Central Russia, in Ural and, probably, in Siberia and the Far East.
We still have the so-called construction departments of the former Medium Machine Building Ministry. We will have to restore the capacities they have lost in the past 15 years but we do have the basis. We may also invite construction companies from abroad. 

One example: we have selected Nizhniy Novgorod Atomenergoprom as an engineering company for the 2nd unit of Rostov NPP – for the first time we did it through an open tender. Now the owner is selecting general and sub-contractors. There are lots of contenders and I am glad to see that we have a choice.

— What was good and what was bad about the LNPP-2 site?

— I don’t think I should make my personal views public. My general opinion is that we have enough capacities for building that plant.

— Will the preparatory work be financed by Rosenergoatom?

— Yes, of 1,471.4bln RUR earmarked for the whole program, 796.6bln RUR will be provided by extra-budgetary sources, including by Rosenergoatom. Let me explain why.

In Russia we set very tough requirements to tender procedures. Generally, we build one nuclear power unit in 6–9 years. The program says that we should build it in 5 years. The laws say that we should fix costs for the whole construction period.

We could do it if our macro-economic situation was stable, but nobody can say how much the equipment will cost next year. Construction costs can be controlled through ratios but equipment prices are absolutely unpredictable. 

Once we have fixed the prices, we will not be able to revise them any more – the law allows just 10% range of changes. But how to keep pace with the real macro-economy? That’s exactly what Rosenergoatom’s funds are for – to be a buffer against sharp fluctuations.

— What are the costs of FTP?

— It has basic costs, the average unit price, which meets the world prices, and special annual deflator indices, which are set by the Economic Development Ministry. All together they make up current prices.

— During the visit some constructors, probably, potential contractors, wanted to know who will assess the costs. Are there foreign audit companies who can do it?

— There are but, unfortunately, we have different standards in both engineering and pricing. So, foreign audit companies can hardly do it yet.

Presently, we have the following assessment scheme: departmental inspection by Rosatom and federal inspection by Glavgosexpertiza. LNPP-2 has already passed the first stage and now we are preparing the project for the federal inspection. The preparatory stage is scheduled for Sept, the tender for the whole project — for no later than early 2008.   

— In Russia corruption is a big problem. Constructors say that their overheads grow because of kickbacks. Our people firmly believe that there is no construction without stealing. What are you going to do to effectively control the spending of 1.5 trl RUR?

— Concerning corruption, you better interview representatives of the Federal Security Service. Our task is to ensure transparency of business. This is one of the goals I have come to Rosatom for. 

— What is your personal responsibility for the implementation of Rosatom’s plans?

— I have enough experience to imagine the scale of Rosatom’s tasks. The reason I have been invited here is to solve them, to apply mechanisms that are widely applied in the world.

Lots of Russian companies are successful and experienced internal players. RAO UES Russia has long used turbines and generators of foreign manufacture. Its key criteria are safety, quality, price and terms of service maintenance. Unfortunately, this is not the case with Rosatom yet. 

But now we have a new manager, Mr. Kiriyenko, a unique broad-minded person who is not fixed on home production. If we lack our own capacities we can find them abroad. That’s his position. And he is right! Recently, we entered into a joint venture with Alstom, a highly reputed French company. This is the first step.

And this is stimulus for our producers to keep pace with the world. Under monopoly you can forget quality, you will never have it, but once you have a rival, things change. 

Today, the role of our experts is to say what potential we have got inside and what potential we have to get from outside.

My responsibility is that I have come here to suggest a scheme for implementing FTP – of course, provided that this scheme is supported. If everybody starts working for it instead of just looking on, if each one gets responsible and purposeful, we will fulfill our program.

Only a walking man can walk the road: unless you walk, you will get nowhere and, when you clearly know where you are going, you will get there without fail.

- Is it a hard job to make such an effective team?
- There are lots of factors here. I have visited almost all of our construction sites. I have compared how people lived before and how they are living now. Formerly, they had stimuli, today, they have not. It is a very hard job to explain to a person, especially if he is young, that we need him as a specialist when we pay him just 5,000–7,000 RUR a month. This is one of the problems I would like to discuss with our legislators. Because this is not just a situation this is a legislative field we are working in. Once we create conditions for our workers and for our program, it will be carried out!