Russia Offers 49% Stake in Kaliningrad Nuclear Power Project to European Neighbors

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Researched by Industrial Info Resources (Sugar Land, Texas)--In a recent development, Russia has expressed interest in offering up to a 49% stake in the proposed 2,300-megawatt (MW) nuclear power project in Neman, Kaliningrad, to neighboring European countries. The option to buy a stake in the project has been proposed to Poland, Lithuania and Germany, which are expected to receive power from the facility. The nuclear power plant is located about 15 kilometers from the Russia-Lithuania border and is also close to Poland's northeastern region. The power plant will consist of VVER-1000 pressurized water reactors and is expected to provide much needed electricity supply to these areas, which lack power-generating sources and infrastructure. The project is also expected to reduce Europe's dependence on Russian energy supplies. Experts from Poland, Lithuania and Germany will meet soon to discuss the project plan.

The Kaliningrad nuclear power project, estimated to cost about $7 billion, is expected to be commissioned in 2015. Rosatom Nuclear Energy State Corporation (Moscow, Russia), which is building the Kaliningrad nuclear plant, has indicated that about one-third of the total power generated in the facility will be utilized to meet domestic demand, while the rest will be exported. For safety reasons, the power plant will be situated on the coast, about 120 kilometers from Kaliningrad. After studying the topography of the region for about a year, 13,300 square kilometers of land on the eastern part of the region was selected for the project. Iberdrola Ingenieria y Construccion SA (Bilbao, Spain), a subsidiary of Iberdrola SA (MCE:IBE) (Bilbao); Czech utility company CEZ AS (PRG:BAACEZ) (Prague); Enel SpA (BIT:ENEL) (Rome, Italy); and Fortum Oyj (HEL:FUM1V) (Espoo, Finland) have also expressed an interest in participating in the project. A special purpose vehicle has been set up to facilitate project funding. Inter RAO UES (Moscow), Russia's electricity import-export regulating body, will oversee the operations of the company.

Industry experts indicate that Poland will benefit enormously from the power plant. Poland is also considering building a nuclear power plant, but the first reactor is not expected to start operations before 2020. The country is also exploring the option of buying a minority stake in the new nuclear reactor at the Ignalina nuclear power complex in Lithuania. The Kaliningrad plant is seen as direct competition to the proposed reactor at the Ignalina complex. Lithuania plans to phase out the second reactor at the complex in order to facilitate becoming part of the European Union. The first reactor was shut down in 2004. The closure of the second reactor in Ignalina is expected to result in energy shortage in the country. Lithuania is hopeful that it will be able to convince the E.U. to allow the reactor to operate until 2015, when the new reactor at the site is expected to be commissioned.

Russia's choice of the location of the plant in Kaliningrad was made to provide energy security to the region in the event of the Ignalina nuclear plant's closing down. The location is also expected to make exports to European countries viable. The Ignalina nuclear power plant contributes about 30% to Kaliningrad's energy demand. Lithuania is also exploring the possibility of buying a stake in the proposed Kaliningrad thermal power plant, to be developed by OAO Gazprom (OTC:OGZPY) (Moscow) and Inter RAO. Industry sources are skeptical that this move will create excess energy capacities in the country, putting the Ignalina nuclear project in limbo.

The construction of the nuclear power project in Kaliningrad is being viewed as a test to Russia's adherence to the Espoo convention, which makes it mandatory for a country proposing to build trans- or cross-border nuclear power projects to inform and receive approvals from neighboring countries. This includes clearances pertaining to environmental impact, land and water issues, and other approvals. Russia signed the agreement in 1991.

Rosatom has estimated that the Kaliningrad project will not only improve the economy of the area by creating direct and indirect employment, but also will pave the way for allied infrastructural development. Employment of one person in the nuclear power project will create an estimated 10 jobs in allied sectors. Rosatom has also indicated that salaries offered to employees at the power plant will be one and a half to two times the present average salary in the region. A proposed 80% of the workforce will be hired from the local resource pool, while about 20% will be technical experts from different areas.

Russia's demand for power is expected to reach between 1.43 trillion and 1.60 trillion kilowatt-hours (kWh) by 2015, and 2 trillion kWh by 2020. To fulfill this demand, the country will have to make investments of $420 billion to $540 billion in the energy sector. In 2008, Russia's nuclear power production was about 162.3 billion kWh. The nuclear power plant in the country is forecast to grow to 35,000 MW by 2016 and to about 51,000 MW by 2020. Rosatom plans to generate about 23% of its total electricity from nuclear power by 2020. Russia currently operates 31 nuclear power plants with a total installed power generation capacity of about 21,743 MW.

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