Russian President supports Rosatom’s project for five more FNPPs in Chukotka

4 May 2021

Russian President Vladimir Putin on 30 April formally gave his support to Rosatom's proposal to supply power to the Baimsky gold-copper deposit in Chukotka, owned by Kazakhstan's KAZ Minerals, using floating NPPs (FNPPs). The cost of Rosatom’s project is RUB169 billion ($2.25bn). This follows from a letter that the First Deputy of the Presidential Administration and Chairman of Rosatom’s Supervisory Board, Sergei Kiriyenko, sent to Putin on 4 March, explaining the advantages of Rosatom's proposal over an alternative put forward by Novatek based on floating power plants fuelled by liquefied natural gas (LNG). This letter reportedly bears Putin’s comment: "I agree”. RBC says it has a copy of Kiriyenko's letter, the authenticity of which was confirmed by a source close to one of the applicants for the energy supply to the Baimsky project.

In 2018, KAZ Minerals acquired from Roman Abramovich, Alexander Abramov and their partners the Baimsky deposit, which has reserves of 9.5 million tons of copper and 16.5 million ounces of gold valued at $ 900 million. KAZ Minerals is ready to invest RUB570 billion to build a mining and processing plant (GOK) at the deposit provided Russia ensures its power supply. The new plant was originally planned to be launched in 2024, but in November 2020, the Kazakh company moved the launch date to 2027 with the aim of achieving the design capacity of 70 million tons of ore a year in 2028. Power supply of the Baimsky GOK will require up to 350 MW of new generation a year.

Before approving the project with Rosatom in mid-2020, the government had agreed to a different energy supply scheme using a floating LNG power plant supplied by Novatek at a cost of RUB 82 billion, according to Kommersant. KAZ Minerals had also agreed on an electricity tariff of RUB6.34/kWh under a bilateral agreement. However, at the end of 2020, the decision was revised in favour of Rosatom's proposal. In December, Yuri Trutnev, Deputy Prime Minister and Presidential Envoy to the Far Eastern Federal District commented on the Baim project: “It seems as if you will have to build a nuclear power plant in order for it to take place."

The government knows that the president supports Rosatom's project to supply energy to the Baimsky project, the White House press service told RBC. This has been approved and reported to Rosatom. Presidential press secretary Dmitry Peskov said he “traditionally” does not comment on official correspondence. RBC said it had asked for confirmation from the press services of KAZ Minerals and Novatek.

The letter from Kiriyenko to Putin noted that postponing the launch of the GOK from 2024 to 2027 made it possible to consider Rosatom’s alternative approach to a power supply. The proposal provides for the construction of four modernised FNPP units with a total installed capacity of 200 MWe from the beginning of 2027 and 400 MWe from the fourth quarter of 2028. A fifth power unit is also planned as back up and to facilitate refuelling and repair. To meet the deadline, Rosatom will begin designing the power units before signing construction contracts.

RBC said that, according to Kiriyenko, Rosatom will order the construction of five FNPPs with a capacity of 500 MWe at the Baltic Shipyard (Baltzavod), which is part of the United Shipbuilding Corporation (USC). The tariff for KAZ Minerals will be slightly higher than that proposed by Novatek, at RUB6.45/kWh. In November 2020, the chairman of the board of directors of USC, former governor of St Petersburg Georgy Poltavchenko, had suggested building had offered to build the FNPPs at Baltzavod. RBC says it has a copy of Poltavchenko's letter, and that its authenticity was confirmed by “a source close to one of the applicants for the Baimsky GOK power supply”. 

Vyacheslav Ruksha, Deputy General Director of Rosatom and head of the Northern Sea Route Directorate said: “We won the competition because, as a vertically integrated corporation, we fully control the entire energy production cycle and are less dependent on market volatility than Novatek.” He added: "Because of this, we can guarantee the investor a fixed rate of RUB6.44/kWh, including RUB0.44/ as the transmission tariff for the entire service life of the station with indexation in rubles." He explained that compared with power generation from LNG, operating costs for nuclear facilities are much lower and more predictable. The cost of the fuel component in coal and gas stations is around 70-80% while in nuclear power plants it is no more than 3%.

Kiriyenko argued in his letter: "The project has a potentially significant socio-economic effect for the Russian economy and is strategically important for the demonstration of reference floating nuclear power plants of low power and their positioning in international energy markets." He hoped that this would secure a long-term order for Russian enterprises in the nuclear and shipbuilding industries.

This argument was supported by the National Rating Agency (NRA). Rosatom's proposal is preferable because of the greater sophistication of the technology involved in a FNPP, noted NRA Managing Director Sergei Grishunin. Noting that the Akademik Lomonosov FNPP is already operating in Pevek, Chukotka, he said replication of this technology will allow Russia to increase its export opportunities for FNPPs. He added that two implemented projects within Russia would persuade foreign buyers to choose this solution. LNG technology, on the other hand, would need significant improvements for such a large project and there are no such projects of the appropriate size in Russia.

RBC noted that both Kirienko and Poltavchenko favoured Rosatom's proposal even though it was more expensive than Novatek's - RUB 169 billion compared with RUB 35 billion plus another RUB30 billion for an LNG storage facility. In addition, construction of nuclear units at the USC plant would require subsidies of RUB33.7 billion which would be compensated by tax revenues. However, Kiriyenko pointed out that the service life of nuclear units is 40 years with the possibility of extension to 60 years, while that of the LNG plant is only 25 years.

Poltavchenko’s main argument is that construction of the nuclear units at Baltzavod would use Russian equipment. In addition, if state support funds are allocated for their construction, the degree of localisation would reach 95%. Kiriyenko clarified that construction would be carried out "to a greater extent" by domestic enterprises - no less than 85% of the total investment. Alternative options using floating facilities (including Novatek’s proposal) would depend more on foreign component equipment.

Novatek’s project would use German Siemens turbines, Poltavchenko said. Therefore, because of sanctions restrictions, the station itself would most likely be built not in Russia, but at Korean or Chinese shipyards, he notes. In addition, there would be a high risk of failure to meet deadlines for construction, as well as for delivery of the steam turbines. Grishunin added that a high-power gas turbine from Siemens is an extremely expensive and risky investment, given the possible aggravation of international relations. On the other hand, the main equipment for the Rosatom power units (RITM 200 reactor plants) is manufactured in Russia. While the Novatek project could become the target of Western sanctions, Kiriyenko said Rosatom's proposal “has been preliminarily worked out with key prospective contractors and suppliers of major equipment, and has also been discussed with interested federal executive authorities and organisations”. Kiriyenko said the government will make a "final decision" on the option for supplying energy to the Baimsky GOK "in the near future”.

[RBC, Kommersant, Telegram channel Energetic insight (Letters from Sergei Kirienko and Georgy Poltavchenko to Russian President Vladimir Putin on the construction of a series of floating nuclear power plants to supply power to the Baimsky GOK)]

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