Gleb Efremov: the IUEC became an operating business enterprise
Mr. Gleb Efremov, the General Director of the IUEC in an exclusive interview to Yaderny Kontrol tells Mr. Vladimir Orlov, the founder and adviser of PIR-Center, on the achievements of the IUEC and plans for the future.
- What, in your opinion, can be summed up as the main results of the IUEC activities for the ten years that it exists?
The main result: we, in practice, proved the soundness of the initiative voiced by the President of the Russian Federation in 2006. The Center has become not just a legal entity, but as an operating business enterprise, which today in practice carries out guaranteed deliveries to the shareholders. To achieve such a result for 10 years is the success that proves the viability of the concept laid down in its foundation. In addition, we have a guaranteed physical stock. Any attempts to repeat our success have not yet reached a logical conclusion. We are proud that today in two areas of activities IUEC remains the only company in the world.
- Let's move from general things to the reality: business and politics in the activities of the IUEC. Have I understood correctly, that the results of the company activities for the last year indicated the decrease of revenues and profit because of descending of the world prices for natural uranium and enrichment services, as well as due to over-saturation of the market at this point? What in your opinion are the commercial prospects of the IUEC for the coming years?
I used to be the Commercial Director and at that position I set for myself a priority objective for increasing the scope in commercial production deliveries. Let me be clear. The IUEC was conceived solely as a political, not a commercial project. We came up with the idea to call ourselves an insurance company at the uranium market - this definition works just fine. Today a great number of countries facing the question of how to produce electrical energy, and made a choice in favour of nuclear energy generation, must be absolutely sure that after completion of the nuclear plant construction they are supplied with fuel. Until the IUEC appeared, the only source of such a supply was the commercial market. Many countries, expressing uncertainty in reliability of fuel supplies, began to develop their own technologies, especially in the area of uranium enrichment as a key element to ensure the stability and safety in operation of nuclear power plants. This inevitably led to the fact that such countries turned out to be just a step away from the creation of nuclear weapons. To prevent this step, the initiative of the IUEC appeared. The basic idea is as follows: if there were a disruption in supply from the commercial market, there should be an alternative to obtain goods and services of the nuclear fuel cycle that is guaranteed by the Russian Government.
We are not a commercial supplier and do not replace the commercial market. It is completely wrong to say that we are making up some kind of a flow of production by our participation. The Center acts as an insurance company. If the commercial market does not experience disruptions in supply, it is wrong to talk of its growth along the line of the IUEC. Of course, such a situation could make a very large number of countries to be disinterested. Why join the International Uranium Enrichment Center, if the fuel can be obtained only if there is a disruption in deliveries from the commercial market? In order to eliminate this problem the IUEC made a certain preference for its participants by offering them a quota in supplies. It is 60 thousand of separative work units (SWU) by Uranium 235, which approximately allows to produce enough fuel for refuelling of a half of the reactor of 1GW capacity . At the same time, our supply goes at a price with a preference - at a discount from the current market quotation. I would like to emphasise that this is not an obligation for a member-country, but the right to use these services. The only restriction on our part is that we do not want this product, when it reaches our shareholder, to be used for further resale. The recipient of this material or uranium enrichment services should be the national nuclear energy sector of the member-state.
This right is used today, for example, by the Ukraine, which, as an additional possible source of supply for the needs of its nuclear power plants uses quota of the IUEC, and buys it for the past six years. This year the contract has already been signed. We hope that the cooperation will continue. The Ukraine sees in the IUEC an additional diversified source of supply with a certain price preference. In order not to turn it into a standard commercial flow of products for the needs of the Ukrainian nuclear power industry, this quantity is limited and can be increased only if the general supplier for the Ukraine finds itself in a difficult situation. We hope that the scopes stipulated in the supply contracts for the needs of the Ukrainian NPPs will remain at the same level. Along with it the Ukraine still has the right, in the framework of the intergovernmental agreement in the event of a breach in supplies on commercial contracts by the TVEL, contact the IUEC with the right to fill up all shortfall amounts to commercial shipments.
This is the basis of our so-called business, which may be developed only with the growth of the number of countries-shareholders. The more countries come to us, the more the scopes of commercial supplies will grow for each shareholder within the quota.
- There is also the Russian-Kazakhstan Uranium Enrichment Center (UEC) in Russia. How does it relate to the IUEC?
These organizations have only similar names, everything else is completely different. We were created almost simultaneously, but already then were completely different in terms of organizational and legal forms. We were a JSC, The UEC was established in the form of a CJSC, which did not imply an increase in the number of participants. It was a purely commercial project created on a parity basis between Russia and Kazakhstan, that envisaged creation in Russia of mirror production capacities in relation to the Kazakh mining assets. Russia had joint uranium mining enterprises in Kazakhstan - it was assumed that it would be transferred to enrichment to Russia to CJSC UEC. The scope of reprocessing corresponded to the scope of mining. The purpose of the project is exclusively commercial - fabrication of enriched uranium product for its commercial sale at contractual prices at the market or for internal consumption by shareholders.
The IUEC is a completely different project; its objective was to attract new participants in order to provide guaranteed supplies in case of interruptions at the commercial market. Roughly speaking, we can insure the customers that receive the products from the UEC with the supplies through the IUEC thus complementing each other, but without interference in our activities.
The confusion is caused by the fact that the project was originally also launched here at the site of the Angarsk Electrolysis Chemical Combine (AECC). It was planned that the part of the AECC production capacities would be used for the purposes of the UEC, but later the State Corporation Rosatom made a decision to move the project territorially to the Ural Electrochemical Combine. Today they are located there. Part of the shares of the Ural Electrochemical Combine was transferred to the share capital of CJSC UEC, which became a JSC. When Mr. Vladimir Shkolnik, the Advisor to the President of Kazakhstan, said that the first SWUs were received through the project line in Angarsk, he, surely, meant the project of the Uranium Enrichment Center. We were asked a question: whether Kazakhstan received the SWU through the IUEC. I can give the answer to it: No.
- Nevertheless, Kazakhstan possesses 10% shares of the IUEC. How the relationships with Kazakhstan partners are developing?
I was actively involved in the process of the IUEC establishment, participated in the negotiations with the Kazakh party, when the country signed the basic agreement on the establishment of the Centre, and we surely appreciate the involvement of Kazakhstan as the founder. But then on the agenda of the colleagues was the construction of Aktau nuclear power plant. It was assumed that those SWU, which will be received by the partners, will go to cover the reactor needs of that nuclear power plant. In 2007, the project stipulated that the plant would be put into commercial operation in 2014. Today, to my great regret, there is still no nuclear generation in Kazakhstan. We can envisage other purposes of the SWU supplies, since the agreement with shareholders envisages to cover the needs of nuclear power industry, and not generation only, it may be some other production facilities, which are numerous in Kazakhstan. We are waiting for the offers, the issue is now discussed at the level of the management of the State Corporation Rosatom and the Kazatomprom. At any coincidence of circumstances Kazakhstan has its rights to the guaranteed quota. The question is the use of the services supplied by our Center, or products in the form of enriched uranium. Of course, its resale at the market, which we are unlikely to admit, will be a direct intervention and destabilization of the market even with these modest scopes. Today's market shows that small scopes have a very serious impact on the change in spot prices. Therefore, we are very careful in organizing supplies to Kazakhstan. Let me emphasize: As soon as the NPP is constructed there, we will immediately start the deliveries.
In 2017 the period of the basic agreement signed in 2007 expired. Kazakhstani partners offered us to extend the agreement for the next ten-years period. Therefore, we expect the development of Kazakhstan's nuclear power industry.
- That means, the agreement is not renewed, but is it supposed to be prolonged?
No, it is not. It is prolonged by default, since neither party has notified of withdrawal.
- Now about Armenia, where the nuclear power industry is not yet growing, but promising. Armenia became the last member that joined the IUEC. How the dialogue is developing with it?
At present, the Armenian nuclear power industry is one operating unit. The first unit of Metsamor has never been started after Spitak earthquake. The activities on the lifetime extension are undergoing at the second unit, but it is of small capacity. All commercial interests within the scope of supplies are covered there by the TVEL, so we decided not to disturb the quietness in the existing long-term cooperation between our general supplier and Armenian nuclear power plant. We discussed the prospects with Mr. Movses Vardanyan, the director general of the nuclear power plant. We are waiting for the second operating unit in Armenia, since we already have an agreement with fuel company TVEL. If the unit is to be born, a part of the SWU needs will be covered by the IUEC. This was one of the goals of Armenia's accession to our organization. The perspective is a rainbow one.
- Let's return to the Ukraine. Paradoxically, this country is now the only active player in relation to the commercial component of the IUEC. But the political situation, of course, is extremely difficult. In the Ukraine a lot of heavy accusations are being made with respect to our nuclear cooperation. At the same time, against the backdrop of accusations in betrayal a sound approach remains among the specialists: yes, let's go on diversification, but let’s not do anything quickly. On the one hand, people do not want to break their careers, completely crossing out the trend for cooperation with Americans. On the other hand, there is no desire among specialists to break up with Russia. The presence of a new contract with the IUEC is a confirmation of this trend. It is important that the work of professionals be spared from politics. Do you see it the same way or differently?
First, let me make a small addition: we work with our shareholders in the framework of two documents. The first one is a title document that guarantees to any incoming shareholder a certain quota in our Center. The second one is an agreement that is signed for the period not exceeding the validity period of the basic agreement for the establishment of the IUEC. The year 2017 was not only the time of revision for a new period of our basic agreement, but also the time of revision of all the basic agreements with our shareholders. Therefore, apart from the contract that I mentioned, the Ukraine began with the main one: we prolonged the basic agreement for deliveries, but agreed that insofar we limit its period to three years, since the agreement has a price formula and a clearly fixed quota for the entire period of time. In order not to be in unfavourable position taking into account current market quotations, we gave the possibility to the Ukraine, understanding their difficulties, to extend to 2020 the existing advantageous conditions: in recent years it has become obvious that our partners have serious financial problems. In 2016, we were worried, because shipment of finished products took place on December 30. We, until the very last moment, did not lose hope to close the deal and to come out with a positive balance for the fiscal year, as the deal with the Ukraine makes a profitable line in our budget.
The Ukraine remained an important strategic partner for us, as it is our only active counterpart in terms of supplies. In agreement with the Rosatom and other shareholders, for which we offer the same mirror conditions, the discount is retained for the next three-years period. In the framework of the basic agreement, the contract terms for the current year were approved. The delivery scope is retained the same. The Ukraine has the right to take not a full quota. We load the 400MW unit at Rovno NPP, our quota completely closes the need of the Ukraine.
The Ukraine is so loyal to us for commercial reasons. I am not aware of the price parameters of the deal under the contract with the TVEL, this is a closed information protected by the commercial secret, but I guess the offer of IUEC is more economically attractive to them. I think that in this case the Ukraine uses this factor to meet its needs in the SWU at a lower price. We are reliable. Now in the world it is very important when the supplier fulfils all of its contractual obligations in a timely manner. That's why for the Ukraine we have become a reliable partner, this is also one of our achievements over a ten-years period.
- Were delays in payments systemic? Was it critical?
Yes, it was critical. The contracts with the shareholders must be approved after signature by the board of directors and at the general meeting of shareholders. Upon signature of a contract its suspensive conditions are stipulated, that it enters into legal force upon completion of a number of corporate procedures, which cannot completed in one day. In parallel with this, we must carry out a number of actions stipulated by the law in the field of the use of atomic energy, including receipt of a license for the import of the Ukrainian raw materials. The Ukrainian project is also interesting for us, because we receive raw materials, which comes from the East Mining and Processing Plant in the town of Zheltye Vody. The deal is quite complicated, it includes physical transportation of nuclear materials, customs procedures, transport logistics. The Ukraine is also very interesting For us because we workout all the elements of supply that are inherent in the regular commercial supplier at the market. We are linked to the establishment of the production program already inside the enterprises of the Rosatom. It is necessary at a given time to bring a certain number of products, start the production cycle. Further on, we are tied up with other corporate takeovers, the fabrication of fuel, because the enriched uranium product that is physically produced by us to be transmitted to the TVEL for fabrication of fuel assemblies, which would later to be transported and delivered to the territory of the Ukraine. The specifications of delivery of the fuel assemblies are like the Orient Express, which can not be late even for a minute. They must arrive at a given time in a given place and be in proper conditions. There is a need for a certain isotopic composition of uranium, this is the most complicated process, in which we have learned to incorporate.
The Ukraine, having the opportunity to process its own raw materials, supports its national economy. It's no secret that the price of uranium mined on the territory of the Ukraine is very high. Today it exceeds all limits in comparison with the current market quotes. But the state takes this step deliberately, since tens of thousands of people in the mining and processing industries of the Ukraine are behind of it. Naturally, the last customer pays for everything, the consumers, who pay the bills for electricity.
We faced a number of "attacks" in our direction, they say, Russia is speculating on the plight of the Ukraine, selling to it assemblies with a price for uranium at a fabulous price. In fact, it is said by people who are not familiar with the situation: the uranium in the fuel assemblies (FA) supplied to the Ukraine does not have a single cent over the cost. We are forced to work in resale mode instead of tolling - reprocessing of raw materials from the Ukraine in the customs territory - as there are some difficulties in presenting the products of reprocessing to the customs. Moreover, with tolling, we would have to return the reprocessing products to the supplier. Therefore, in cooperation with the Ukraine, we follow the world practice - the supply of raw materials and the return of finished products occur according to the schemes of purchase and sale.
- As far I remember, from the very beginning there were several countries in discussions of the project of the IUEC, which, it seemed to us, showed the interest in participation. Now I would call Belorussia, South Africa and, perhaps, South Korea among those, who show the interest in the IUEC. What is your opinion of this situation?
You hit the mark, when call the countries, with which we are negotiating. South Africa was one of those countries - it was a breakthrough on the continent. I have participated in many technical tours in this country and held negotiations with Necsa, their national operator, taking into consideration that worked in the TENEX, which is a supplier of the enriched uranium product for the needs of nuclear power industry of the South Africa. Such countries are the very ones, which are of interest for the IUEC.
I would call one more country, the United Arabian Emirates. It is an example that provides an opportunity to show the entire wonderful ideology of the International Uranium Enrichment Center. Today, the UAE made their stake for development of nuclear power industry thanks to the South Koreans, who came and built four units of Baraka nuclear power plant: the fourth one is being completed, the first unit I saw with my own eyes. The Korean company produced its reactor and fuel, but the UAE does not have a stage of enrichment as an element of the nuclear fuel cycle. It is the Emirates that may end up in a situation, when their Korean supplier might suddenly for some reason became unable to buy the enriched uranium at the market in order to produce the fuel and supply it. It is a classic example, when we can help a potential customer, if it addresses IUEC should an interruption with supplies by Koreans occur.
My objective today is to consider such countries. It seems to me that our perspective is not so much Belorussia, where Russian technology, Russian unit, Russian fuel - we simply by our actions can enter into some kind of competition with our general suppliers: the TVEL and the TENEX. Our goal is to penetrate as a guarantor of supplies into those countries, where Russia is not present, because it did not win the tender.
- It is very interesting. Of course, when we look at the IUEC in terms of the risks that might be experienced by the countries, we see the ideal destination of the IUEC, and here are the Middle East that comes the first. In the middle of the zero years, even before the appearance of the IUEC and the guarantee stock, there were ideas of how to bring the Iranians, having solved many problems, including the one associated with the uranium enrichment. The Iranians did not go into this business, because they had their own installation, which they brilliantly defended and bargained for everything they needed. I told them both in Tehran and in Moscow: “Guys, what does international law have to do with this ... See what a site in Angarsk can be ..."
- They had different goals ...
- Of course. I think they still have them, and I do not see a practical way to bring the Iranians. In the Middle East, I would keep the Jordanians in perspective. Turkey is an extremely interesting player, but with Akkuyu everything is completely different. You have just said that you do not need to go where Russia is present, because then we begin to compete internally. Can this be an opportunity for the IUEC?
Of course, an additional opportunity to sale Russian SWU at the market is additional benefits. The competent alignment of policies at traditional markets can force us to come to a situation, when there will be some problems with commercial supplies. This is a fine political struggle.
- It's the truth. The Emirates do not put all the eggs in one Korean basket. They, in my opinion, always come to the Rosatom exhibitions.
Yes, they travelled to Kazakhstan for the Russian week in the summer - there were representatives of the UAE Nuclear Energy Corporation. We had at the ATOMEXPO, there was Mr. Alexander Voronkov, a regional representative of the Rosatom, who deals with Abu Dhabi and the entire region in general. He is in positive mood and, I hope, is provided with the necessary materials. I went to their nuclear forum last year in Abu Dhabi and noticed an interesting behavioural model: all people from the Emirates were guarded by Koreans, and all external contacts were banned. This was clearly expressed behavioural policy of the Koreans. So, the Koreans defend their national interests at the market to this extent.
- This position is quite understandable. They can show it to everyone now - it will be a breakthrough, or they will fail there ...
They now brought fuel to ATOMEXPO, which has never happened before. They have already supplied their first fuel assembly. And here it is the built reference model.
- Well, on the other hand, they have their own internal political problems now. Continuing the conversation about international cooperation, I ask you, how do you see the next ten years for the IUEC?
In all our presentation materials there is a diagram - we call it "the chamomile" - the portions of our shares. While we say "20% - 1" - this is for those who can still come. On this, anyway, the life will not end either, because there are a lot of procedures, for example, an additional emission of shares, and the number of participants in the Center can grow, not limited to five foreign and a majority Russian shareholder. My expectations and my aspirations - so that this "the chamomile" to have as many petals as possible. The Olympic rings are usually painted in different colours - and we want the "the chamomile" to be variegated. Our excellent team is quite capable to make this dream true. The geography of supplies should be multi-directional. Our objective now is to bring one or two shareholders from the number of non-post-Soviet countries. If it happens, this will be a breakthrough, a catalyst for the process of further growth. And Europe will look differently (we are also negotiating with Europe, but there is very strong pressure from the Euratom). Of course, there is pressure from other states too - they are not fully independent in making their decisions.
- Then I'll ask the final question. How do you assess the prospects for the Russian nuclear industry in the world?
We live in quite complicated time. My teachers said: “Don’t cave it”. I think that this should be the main thesis for the Rosatom, which is under tremendous pressure, because the 1990s were terrible. Today we have a highly organized industry. The Rosatom is a powerful locomotive that draws a huge number of related industries, enterprises and companies. I am absolutely convinced that the future is with nuclear power industry. We will not survive as humanity with such rapid growth and such needs in electricity, heat, modern technologies, medicine, production. The atom is a driver. Having made a stake for it, we will be confident in the future - we have absorbed it with the mother's milk.
Not a stagnation or decline but development are expecting us. The Rosatom's portfolio grows, we start to go in a completely different business sectors, become customer-oriented, come to B2B segment, start to work specifically with the customer represented by the enterprises and companies, not just by states. This is the law of life: look who is the most successful today in the TOP-500 world companies. Those who are focused on the end user. I think that a competent policy and innovative development of the corporation, the presence of wise leaders, managers, a clear strategy, setting goals, priorities and overall involvement are necessary. The main Rosatom achievement of the last years is that it managed to build a single team. It is an integrated structure, a sector, where everyone is logically and industrially linked. We are entering such a powerful rear guard and leading the domestic industry.