Khmelnitsky 2/Rovno 4 completion: a Ukrainian perspective

1 January 1998

Government commitment to complete the Khmelnitsky 2 and Rovno 4 VVER-1000s remains firm.

Whatever happens, Ukraine will complete the two nuclear units at Khmelnitsky and Rovno regardless of what decision the European Bank for Reconstruction and Development comes to on the funding of completion,” so says Yuri Kostenko, Ukrainian Minister for Environmental Protection and Nuclear Safety.

As Yuri Kostenko is a senior minister, we may assume his view is shared by the Ukrainian government and that sooner or later the financing will be found.

According to the latest calculations, the cost of completing and upgrading the two VVER-1000 power units – on which all work was stopped, following a 1991 moratorium on nuclear plant construction – is about $1.27 billion. They are estimated to be 80-85% complete.

Due to the economic crisis in the country, Ukraine is not able to finish construction of the units under its own steam. But the electricity supply situation remains very difficult and there is a strong case for completion.

Despite financial difficulties and the closure of Chernobyl unit 1 in November 1996, nuclear plants have been increasing their share in the total electricity generation mix (although it must be admitted that overall electricity generation and consumption have decreased due to the continuing economic slump in the country). Nuclear power is one of the few branches of the national economy that continue to operate reliably in the Ukraine and it currently accounts for 45% of total electricity consumption.

Fossil-fired plants may be unable to sustain their current output levels because 70-80% of their equipment is considered to be worn out, while funds for procurement of solid fuel are very limited due to non-payment of bills by electricity consumers. Under these circumstances nuclear power plants represent an attractive alternative to fossil stations.

Another issue is the plight of the cities located near the nuclear plants, which are facing very difficult social problems. Neteshin is perhaps in the worst position, as this is where the people working at the single-unit Khmelnitsky station live. The community and all communications depend on electricity produced by the plant, while the reserve generation capacity that is planned to come into operation when the unit shuts down will be unable to supply district heating to the town if the temperature falls to 10-15°C below zero. If power cuts are frequent, Neteshin runs the risk of becoming a ghost town, without light, heat and water.

The welfare of Neteshin is intimately connected with operation of the nuclear plant, to the extent that during prolonged unit outages the plant staff and their families face financial difficulties.


Discussion of financing for the K2/R4 completion project quietened down in the Ukraine after the G-7 promised to provide credit to the Ukrainian government through the EBRD for completion. Under the Memorandum of Understanding signed by G-7 and Ukraine in December 1995, completion of the two VVER-1000s would compensate losses in generation capacity following closure of the two remaining operational 1000 MWe RBMKs at Chernobyl.

A Project Management Unit for the completion project was established by EBRD and is being operated by a consortium of European electric utilities: EDF (France); Tractebel (Belgium); IVO (Finland); and Kievenergoproject (Ukraine). Also, EBRD recently issued a general procurement notice (see Nuclear Engineering International, December 1997, p5) for the completion project calling for bids on civil and erection works, engineering services, equipment (including cables, circuit breakers, cable penetrations, control and protection and neutron flux measuring systems, computer and diagnostic systems, safety parameter display and automatic radiation monitoring systems, and 6 kV switches), start-up services support and training services. According to the general procurement notice, pre-qualification is planned for the first quarter of 1998, with invitations to tender issued in the second quarter of 1998.

Nevertheless, at the time of writing the Bank had not taken any final decision on the loan and is currently carrying out due diligence on the project to determine whether it meets its policy requirements for loan financing.

The forecasts made by some sceptics (perhaps we should call them realists) regarding the hopelessness of the negotiation process between the Bank and Ukraine remain in force. A number of people in the nuclear industry, including some directors of nuclear power plants, do not believe that Ukraine will get the money promised by G-7 to complete construction.

This pessimistic view was openly expressed for the first time about a year ago, at the Kiev international conference of chemical, mining and energy trade unions. “We will not receive a cent from G-7 to complete K2/R4. We will receive only promises from the West,” said one senior official.

One possible solution to the problem, being considered by EBRD, might be a stepwise approach to funding of the project, perhaps in two tranches. This would enable EBRD to decrease its financial risk while preserving for the Ukraine a continuing incentive to further reform its energy sector and to make the most effective use of the credit extended by the bank.

Currently, the best hope for immediate finance comes from the Ukrainian government’s decision on 26 November that, as from 1 January 1998, electricity prices will be raised by 4-4.5% and Energoatom ordered to put the money into a separate account to go towards the cost of completion. Such a measure should have been introduced two years ago, but it is a case of better late than never and reflects the strong commitment of the government to get the completion project moving.

Another financing option that has not been ruled out is loans from private financial institutions, while a further crucial step towards getting the units into operation could be the issuance of shares in the plants to fund completion, amounting to partial privatisation – a non-traditional approach to nuclear financing in the former socialist countries which would find support from the Ukrainian government.

In the event of this partial privatisation option, the 80-85% completion level for the units would correspond to the share of the plants that would remain under state ownership.

While the government would remain the ultimate owner of the units, the electricity generated over their remaining life would belong to the other shareholders.

Potential shareholders might include organisations involved in the completion work (increasing their incentive to complete the task!), financial institutions, some of the major Ukrainian private investors, as well as other nuclear power plants. Khmelnitsky and Chernobyl, for example, have been mentioned as potential investors in the Rovno 4 project. The prospect of getting such a financing scheme in place might accelerate the EBRD decision making process, believes Rovno director Vladimir Korovkin.

The theme of potential nuclear privatisation was also addressed by Nur Nigmatullin during a recent visit to Khmelnitsky, where he emphasised that some of the shares would go to power plant personnel while the bulk would be used to attract capital into nuclear energy.

Nevertheless, despite all these efforts at raising finance Ukraine still hopes to resolve the problem of K2/R4 completion by using the EBRD credit and Kostenko, for example, believes that the future of the projects lies with the EBRD.

To get the money from the bank the Ukrainian government continues to do its best to reform and restructure the energy sector of Ukraine, with efforts focused on increasing revenues.

By mid 1998, and no later, it will be clear whether the West intends to keep its promise on the funding of replacement capacity for Chernobyl. The terms of the MoU specify 2000 as the deadline for Chernobyl final closure, while completion of Rovno and Khmelnitsky will take about 30 months. If the EBRD financing is not forthcoming shortly, permanent closure of Chernobyl 3 (the only remaining operational unit) may not be feasible by 2000 and Ukraine alone will be left to make the final decision on R4/K2 completion.

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