Energy Nuclear 25 September, 2020 9:00 am   

Will Lukashenko give Putin “Belarusian nuclear energy” back? (ANALYSIS)


On the anniversary of the Bolshevik Revolution, the 7th of November, an official opening ceremony of the nuclear power plant in Belarus’s Ostrovets was to take place. The facility may become one of the elements of the transaction that Alexander Lukashenko had to agree on after receiving political and economic support from Russia.

A construction with a long history

The nuclear power plant (NPP) in Ostrovets has a long history despite the fact it has not even been launched yet. The opening ceremony was to take place symbolically at the beginning of November, but the plant will start generating power in the first quarter of 2021 at the earliest. The investment started in 2005. That is when in the face of yet another crisis in the Minsk-Moscow relations (or rather Lukashenko-Putin relations), it was decided, without any research, environmental permits or consultations, that an NPP would be constructed in the republic.

The main reason behind this move was Belarus’s crushing dependence on Russian gas. The country uses over 20 bcm of gas a year to generate over 90 percent of its power. To fully display the scale of reliance on Russia, it is worth to compare it to Poland, which has about 20 million citizens more than Belarus, but uses “only” 17 bcm of gas annually. The reasoning behind building the NPP was that it would contribute to lowering the demand for natural gas by over 4 bcm a year.
While Belarus had its own reasons for making this decision, the media were reporting about the real goals behind setting up an NPP in Ostrovets. The town is located 20 km away from the border with Lithuania and 240 km away from the border with Poland. The business reason behind the NPP was to sell power to the Baltics and Poland. This issue generated intense discussions not only in Poland. They have turned especially tense after it had been revealed who would deliver the technology.

At first Minsk announced that the main constructor (and technology provider) would be selected in an open, international competition to which all major players would be invited.

Russia is the lender and the constructor…

On the 25 of November 2011 it formally became clear who would build the NPP. Belarus signed a government loan contract for USD 10 billion that would be spent on the plant. Russia was the lender and the company that would deliver the technology and build the facility was Rosatom’s daughter company – Atomstroyexport. The borrowed USD 10 bn constitutes 90 percent of the NPPs cost. The remaining 10 percent was supposed to have been paid for by Belarus in advance.

According to the contract, Belarus was allowed to use the credit between 2011 and 2020. The repayment was due to start six months after the launch of the NPP, but not later than by the 1st of April 2021. The transfers were to be wired in 30 equal instalments, paid every six months. In the middle of July this year, the PMs of both states signed an annex to the credit agreement, where they agreed to extend the credit until 2022. The deadline for paying the first instalment was also changed to the 1st of April 2023 and it was decided the interest rate would be at 3.3. percent.

Up until that moment, the cost of the credit was calculated on the basis of a mixed formula. The interest rate for half of the credit was at a fixed 5.23 percent, whereas the other half was to be based on six-month LIBOR in dollars with reference to the London Interbank Market, plus an additional 1.83% of margin per year.

The interest on the loan was to be paid off twice a year – on the first of April and on the first of October. If the interest is not paid on time (even a one-day delay), a 2 percent yearly margin will be added to the credit cost until the credit is paid in full. If the deadline for paying off interest is missed by 180 days the to-date arrears will be consolidated and be subject to immediate repayment (debt, interest, margin). Until the entire credit is paid off, all the money will be spent on covering the existing debt.

… Russia will be the investor as well?

Vladimir Putin’s statement during his latest meeting with Lukashenko in Sochi is noteworthy – he stressed that Russian investments in Belarus were very important. “The value of only one of them – the construction of a nuclear power plant – is USD 10 bn,” he stressed. It should be remembered that the only full and formal investor and the investment’s operator is the Belarus Nuclear Power Plant state unitary enterprise. Russia is the creditor and its Atomstroyexport is the main contractor. Does Putin’s words mean that the owner of the facility may change soon?

Recently it has been revealed that the state enterprise and investor in the Ostrovets NPP has a gigantic debt. According to the Ekonomika account on the Telegram messenger, on 1 June 2020 the company’s debt was at BYN 1.3 bn (USD 500 m).

The Belarusian Ministry of Energy denied the news and stated it was “surprised” about the fact that the company, which has not yet started any commercial activities, was in debt. It is worth taking into consideration the fact that all the news about accidents during the construction of the NPP were also leaked by anonymous accounts on the Telegram. At first they were officially denied as well, but in time external inspectors, intelligence services, and even Belarusians themselves, confirmed them.

Minsk’s unfulfilled expectations with regard to exporting electricity, which makes it impossible to acquire foreign currency from sales, the necessity pay off the debt to Russians, pay off the credit from China to build power infrastructure (loan from 2012 from China’s NCPE worth USD 350 m) all mean that maintaining this investment could kill the country’s budget. On the other hand, putting the NPP under Russian management may be one of the elements of the political deal between Minsk and Moscow. Russia may, for instance, write off part of Minsk’s NPP debt.

Why does Putin need a company that is going bust?

One cannot exclude the fact that Russia could be interested in taking over the Belarusian NPP as an owner. Such a turn of events could be desirable for two reasons. First, the investment will be paid off by Belarus. The credit will have to be paid off sooner or later. The majority of the money was spent in Russia, which means Russian companies and contractors were the main beneficiaries of the investment.

Russians may also be interested in selling the power to clients in Belarus on terms similar to how, e.g. gas is sold. Gazprom Transgaz Belarus, because it was taken over by the Russian monopoly, has state-guaranteed fixed rates related to delivering gas to clients. It is possible that Russians will force Belarusians to agree on a minimal rate for sales of electricity, which would ensure profitability to the owner.

The Belarusian operator is no longer needed to “hide” the real reason behind constructing an NPP in Belarus. So far, the supporters of this investment in the Baltic States and Poland, explained that buying energy from Ostrovets was not a bad idea because it would help the Belarusian state to become less dependant on Russia, and claimed that the project had ‘nothing to do’ with Russia. However, because the political elites in Poland, Lithuania, and to a lesser degree in Latvia and Estonia strongly object to the idea of buying power from the NPP, “Minsk as a front” is no longer useful, because these states will probably not buy “Belarusian” power from a Russian power plant anyway.

In recent years Belarusians have rushed to switch their economy from running on gas to electricity to “balance” the costs of the NPP construction. If the investment is taken over by Russia, it would turn out that those actions were lethal to the essence of energy independence of the Belarusian state. Additionally, Russia could also try to use any surplus energy to produce alternative fuels, e.g. hydrogen. This would indirectly help to reduce the negative effects of the “embargo” on power from Ostrovets, if clients for “yellow” hydrogen from the NPP could be found.

“Electric Nord Stream”, a moniker that could be used to meanly describe the political project that the NPP in Ostrovets is, did not attain the overarching goal, which was to flood CEE with cheap, seemingly “not Russian”, and yet very Russian, energy. Despite that, the investment is still very likely to impact the state of Belarus on many levels. Considering Lukashenko’s current situation, such an opportunity may be worth taking by Russia.