Serhiy TULUB on Enerhoatom’s money, safety, and prospects

Serhiy Tulub, President of the Enerhoatom National Atomic Energy Company, is a man distinguished by character and his own independent views on a host of issues. Experts in the field and our readers will recall his encounter with former Vice Premier Yuliya Tymoshenko. Then he resigned his post, making public knowledge everything he had to say about his cabinet opponents — something quite rare in Ukraine, considering that bureaucrats are loath to part with such plumb jobs in places like the Fuel and Energy Ministry. After leaving, however, Mr. Tulub seems to have adopted the caution of an apparatchik and now avoids confrontations with his opponents. Still, replying to The Day’s questions, he said many things especially piquant for those familiar with Enerhoatom’s background and current situation.

ONE STEP BACK

The Fuel and Energy Ministry’s supposed intent to reform the coal industry has been the subject of lively debate recently. How do you feel about it, considering your recent past as fuel-and-energy minister and before that as minister of the coal industry?

The Ukrainian coal industry is in a state of stagnation and degradation. True, against the background of the deplorable state of most mines, some are in the black. They are capable not only of replacing obsolete production facilities but also of showing real progress. This means that, before subjecting the coal industry to reform, we must figure out what made some mines survive and continue to operate in a much better way than most others. Here we ought to consider the mining conditions, the objective factor directly affecting the revenues like occurrence depth and seam thickness and the subjective aspect which is nonetheless important: the kind of relationships within a given mining enterprise. Add to this the mines’ external contacts, market relationships with consumers, and those consumers’ economic condition, which is quite important; also, the suppliers of equipment, materials, and electricity. Ukraine’s mines are very depreciated, so reaching set output quotas is not always possible; it requires major capital investment and a long period for it to pay off. In a word, we need reform also because we have to make this industry investment-attractive; we cannot expect any such investment from the state.

Granted, but the managers of successful mining holdings seem especially opposed to the reforms proposed by the ministry.

The ministry held a board meeting very recently to deal with precisely this matter. Among other things it was suggested that we take one step forward, two steps back (reference to a famous pamphlet by Lenin — Ed.) in terms of coal industry reform. True, what is now being proposed is a step back. Considering the kind of relations we have on the coal market between various enterprises as suppliers and consumers of coal and material-technical production, this — I repeat — is a step backward because they are using administrative means to form the largest possible concentration of financial and commodity flows. Meanwhile the key industry unit, the coal mine, would lose its status as legal entity, becoming a structural subdivision, something like a workshop. This affects the interests of both managers and ordinary workers. The director of a coal mine (no matter how poor its performance) has had exclusive control with the attendant powers. He was responsible for the proceeds of coal sales and for central budget appropriations. Also, to the coal miners he was a relatively accessible representative of the owner. He could be pressured and complained about. The “super-director” of an amalgamated state enterprise now becomes practically inaccessible to the coal miner, and this factor also helps bring about a negative reaction to the proposed reform. While previously miners could hope eventually to make their demands known above and have their back wages paid — after the mine had begun to fulfill its plan — now all such hopes are lost. Who would now pay any attention to the miners? Also, one must also not forget the cities and towns that have grown up around the mines and are now in a terrible state (often called depressed territories). This reform affects the interests of their inhabitants and to no lesser extent those of the local executive authorities. Now all the financial and commodity flows will bypass them. All this militates against the reform. Yet if we are sure that there will now be two steps forward, people must be told about the prospect, about what will actually be done and what every miner will receive as the result of the reform. The board meeting showed that no such efforts has been made... I would also like to say that the reform currently underway was prepared by a team of experts and practitioners in 1998 when the coal industry employed 120,000 more people than now. I was a member of the commission set up by the Cabinet of Ministers. We were supposed to introduce a series of coordinated measures to improve the situation in the coal industry. Market relations were envisaged with regard to the sale of coal; we wanted to make the commodity and monetary flows, as well as investments transparent; we wanted the coal industry denationalized, the debts paid, and we wanted new jobs, a better environment, and better social conditions in the mining areas. This would secure adequate selling prices and revenues — in other words, it would help increase output. What is being done now has very little to do with reform. The measures lack a differentiated approach. We have mines and holdings that have done a great deal to implement the 1996 presidential edict on the restructuring of the coal industry. Others could be singled out because they are basically prepared for the market economy mode. Still, the coal industry is lagging behind compared to related sectors, such as metallurgy; it remains conservative, almost completely state- owned, bound hand and foot by a host of bureaucratic restrictions. Bearing this in mind, it was decided to privatize the Pavlohradvuhillia holding (the ministry planned to run it through the mill of “reform”). This was a step forward and it holds great opportunities. I even consider it a major breakthrough.

SAFETY AND IRRESPONSIBILITY

The Ministry of Fuel and Energy is dissatisfied with the performance of Enerhoatom, pointing to the enhancement of nuclear safety. What’s behind this?

It’s passing the buck. If you consider the state of thermal power engineering and how they use their generating capacities, anyone can see that the situation is going from bad to worse. 95% of these capacities are depreciated and a third is practically inoperable. Thermal power requires special attention and an individual approach. Experts believe that by 2010 there will be no thermal generating facilities left in Ukraine, barring several so-called young power units. So, to camouflage the gaps and mistakes in thermal power policy (a whole lot of them, including generally known instances of shadow privatization), as well as the interests involved, they had to find a scapegoat. Meanwhile, nuclear power engineering is an industry of tomorrow. So far we have no alternatives here, as evidenced by international experience. Russia, for example, plans to increase the nuclear power output from 140 to 300 billion MW before 2020, by building new power units, raising the maximum capacity utilization factor (extending service life — Ed.), and by using modernized nuclear fuel. India is building 14 power units. China has 5,000 MW installed capacities and intends to increase output to 32,000 MW; six thousand-MW units are under construction.

Regrettably, the situation is different in Ukraine. Even last year the system of financing the nuclear power industry proved very unbalanced. Economists pointed to a deliberately understated efficiency ratio in Enerhoatom (128%) and note that the nuclear power plants saw little by way of hard cash as proceeds of the sales of their products. Because of this, the minimum expenses involved in the implementation of commitments to the state, as well as supplying basic production needs and programs (budget payments, completing nuclear power units at the Khmelnytsky and Rivne nuclear power stations, and the construction of other projects) were covered, since money was provided by the so-called revenues — in this case an almost virtual notion. The result of the depreciation of such key assets was that thermal generating equipment, computer-aided output, and safety management systems reached the threatening margin of 45-55%. A program of upgrading nuclear power stations’ safety systems was worked out, but it was never [adequately] financed. In five months of 2001, UAH 27 million was provided, only 4.2% of the planned subsidies. Actual revenues were so low that payroll dominated every financial plan. The company’s new management determined the highest priority: upgrading the safety systems. True, we couldn’t adequately finance the project last year (UAH 346 million was supplied, which was 66.3% and could never make up the 34% claimed by our supposed well- wishers). This indicator could have been substantially higher, but it’s also true that no one at the nuclear power stations expected adequate financing (hence the absence of feasibility studies and design estimates, and worst of all, no formal requests for the required equipment). In other words, putting such big money to effective use would have been practically impossible under the circumstances. However, in the second half of last year nuclear safety subsidies rose 6.4 times. In two months of this year, the subsidies and works actually carried out were 11 times higher compared to the same period in 2002. The safety program is being carried out in every possible detail, covering every unit and component. Its performance is being closely followed. In practice UAH 582 million is available in terms of energy supply costs. Another 262 million is needed, meaning that energy prices will have to rise. If we have the money we need, we will be able to carry out the program fully.

Our financial plan is also being implemented effectively. Last year we received UAH 5.2 billion in cash — and the energy market owes us over a billion hryvnias (this is actually one of the reasons for the under-financing mentioned). Payments for electricity supplied (after we lowered the rates by 13% in August 2002) were 97.6%. This month they declined to 88%, so that we lack UAH 47 million in such payments since the start of the year. Meanwhile, we honored all our commitments to the central budget in the first two months of the year. Last year’s budget underpayment (UAH 214 million, not much, all things considered) will be recompensed in the second half of this year. The sum is mostly in terms of fines and penalties levied for late payment. However, last year we managed to increase the amount of payments to the budget by 2.5 times and paid over UAH 1.6 billion.

Not so long ago we had meeting of the auditing commission that analyzed last year’s books and confirmed that there had been an increment in all indices; we are satisfied by its dynamism, as it provides for further growth.

From what we know, the nuclear power stations operated last year and this year, showing a rather high installed capacity ratio. The ministry, however, insists that a lot of coal has been consumed by the thermal power plants above set quotas because of idle nuclear power units.

Last year our company for the first time in its history registered 75% maximum capacity utilization factor (compared to 73.6% in 2001). This year, without waiting for a general energy strategy, we worked out a company development concept to 2008; we plan to achieve 81-83% MCUF. In the [past] two months this factor has approached 83.5%.

However, it seems worth discussing the unstable performance of the nuclear power industry at greater length. This issue has its history. Last year a turbine generator broke down at the South Ukrainian NPS (sustaining UAH 105 million in damage). It was 22 years old, meaning that it was well past its scheduled service life. Apart from everything else, it had to operate in an unstable mode and had a number of design shortcomings. It was meant to generate 800 MW. Five such generators had been hastily modernized under the Soviets to fit thousand-MW power units. And this supposed upgrading now affects their stable performance. Another problem with the nuclear power stations comes from their steam generators. Their design is far from perfect, their water preparation systems are obsolete, causing blocked pipes, bad overall performance, and leaks from the primary cooling circuit. We knew all this from the findings of the state commission inspecting the South Ukrainian NPS (I headed the commission as Deputy Secretary of the National Security and Defense Council). Interestingly, the commission included experts on nuclear power engineering and ministerial officials, namely First Deputy Fuel and Energy Minister Haiduk, Enerhoatom ex-President Shteinberh, and Chief Nuclear Safety State Inspector Demyanenko. The commission studied every aspect of the problems relating to nuclear safety and prepared proposals aimed at modernizing the turbogenerator and replacing the steam generators. Proceeding from our findings, the president instructed the Yushchenko cabinet to take the required measures and have the situation improved forthwith. This was only natural, because it was a matter of national security. Later, commission members specializing in the field filed a progress report with the NSDC, although nothing had actually been done to improve the situation. In February 2001, we had a meeting dealing with nuclear safety, attended by the president. Afterward, he signed the relevant order, but it was never fully implemented. Now they are telling us about unstable performance. What does this mean? That the respected gentlemen from the ministries didn’t know what was happening? They knew. In fact, they told me what would happen in a year or two unless we took urgent measures. No such measures were taken — but they made the new Enerhoatom management the whipping boy. We are aware of our responsibility for the stable performance of the nuclear power plants, and we do not intend to evade it. We have the right kind of programs. This year we are installing two new steam generators and will have all the problem turbogenerators repaired; this will cost at least UAH 135 million. Maintenance and repair work will be completed in 1.5-2 years at both the South Ukrainian NPS and other stations. We will finally have the kind equipment we can rely on.

Still, finding fault with those operating in nuclear power engineering for unstable performance and all seems very unfair. In the second half of last year we increased output, reduced the number of safety breaches on record, and by December 13 had carried out the action plan we had adopted, generating 102.5% of electricity above set quotas (1.8 billion kWh more than the previous year). We are actually ahead of schedule this year as well. So what’s the problem? How can we be accused of unstable performance?

“INTERESTED OBSERVERS”

Those interested in selling the idea of forming the Enerhoatom Supervisory Board could not accomplish their task as soon as they had expected. What happened then? What is this board busy with now?

Anyone lacking first-hand information about what is going on in the nuclear power industry, reading some press reports, would assume that a finger is being kept on its pulse and that responsible people are ringing the alarm. However, those in the know are aware that the situation is more like a public relations campaign staged by certain individuals using the supervisory board for their own purposes. The chairman of the board poses as a nuclear safety champion, although he has never put in a personal appearance at a single nuclear power station. I predicted this situation when they first tried to get Enerhoatom and its money under control by setting up this board. At that time, however, as Minister of Fuel and Energy, I prevented such a body, with such vague objectives, becoming a reality. Their other attempt proved more effective. I don’t know how they managed it, perhaps due to the political and/or market situation... And they proclaimed noble goals: enhancing public control and such. But look at the board membership: people’s deputies who are members of the parliamentary fuel and energy oversight committee. It’s their job to monitor the nuclear power energy sector from their offices in Verkhovna Rada. Also, among the board members are people whose official duty [besides their board membership] is to keep an eye on that industry. Shteinberh and Demyanenko are among them, along with the esteemed Academician Baryakhtar. The latter is actually responsible for nuclear power scientific support. Now look at what’s happening to our science? It’s nonexistent, and its absence is our worst headache. We plan to resuscitate applied nuclear science as soon as we can, so we can have scientists supporting all our projects and engineering processes. Also, the board membership includes Ms. Amosova, a financier, former vice president of our company, and currently an assistant to the first vice premier. Under her “able guidance” Enerhoatom sustained over a billion hryvnias in losses in 1999 alone at the peak of barter-and-bill deals.

There were a lot of press reports to the effect that Enerhoatom debts were made artificially, and that no one was brought to account.

It’s true that we have had to cope with such attempts. Certain authorities were instructed to study the situation and explain the company’s unbalanced performance. At first they went through the motions, but then this champion emerged, saying the trouble was not what had happened earlier, but what was happening now. If one were to compare the main indices and figure out the dynamics, the inference would never favor past experience. Take one fact. Last year’s budget appropriations for the completion of the power units at the Khmelnytsky and Rivne nuclear power stations was a hundred million hryvnias more than the previous year.

Our homegrown political economic experience shows that supervisory boards are actually lobbying structures monitoring monetary flows from state enterprises, holding and other companies, etc. Has Enerhoatom had to face any such problems?

It has, and I am constantly aware of their presence. In fact, I know everything there is to know about the problem. That’s why we have disagreements in principle. I’m also for business, as long as it’s transparent and civilized.

How do you see the situation? What is likely to happen, now that the supervisory board has quite extensive authority?

Yes, it has. That supervisory board has a right to exist, except that it should be meant to exercise public control without meddling in business affairs. There are other oversight authorities to do that. Here the priorities must include the taxpayer’s interests, safety, ecology, and so on. That’s what we must concentrate on. That’s how they operate in Germany and other countries. Yet the members we’ve mentioned could not have acted in any other way.

Here’s an example. It’ll show you what certain people are actually interested in. Our critics on the supervisory board are now homing in on Atomkomplekt, which we formed last year. The thing is that Atomkomplekt spells commodity flows worth of millions of hryvnias needed for normal operation. We analyzed them and saw that the company is sustaining staggering losses just because every [nuclear] station can make purchases independently. Take the cost of gasoline purchases in various regions of Ukraine, varying by 1.5-2 times. Atomkomplekt was instructed to bridge this gap, organizing procurements based on tenders. Unfortunately, the scope of such procurements for the nuclear power stations (57,000 names) proved so large that Atomkomplekt couldn’t manage, nor should it. The first nine bid evaluation committees we organized showed that the prices could be lowered by 15-20%, but it met with such a negative response! We were even accused of encroaching on NPS safety arrangements, although little had actually changed. At the time we carried a mere 4.6% of the company purchase through Atomkomplekt. But the supervisory board raised a hue and cry... We aren’t going to back down. We are organizing a real bid evaluation committee that will operate in accordance with the law and set regulations. It is based on regulatory documents governing the usage of budget funds.

Are you sure that this bid evaluation committee will be able to operate independently of the ministry, your supervisory board, all those parliamentary lobbies, and such?

I can’t be one hundred percent sure, of course. After all these people have their interests, contacts, and so on. Yet when there are many such people, a whole committee, making deals becomes harder. So we are confident that our tenders will be effective and help lower costs.

I further expect a positive effect from the recent edict, forbidding [nuclear power] station managers to sign contracts with suppliers and contractors in amounts over UAH 270,000. The decree orders these stations to adhere to a quite rigid budget. Of course, this called forth a tidal wave of criticism. Some opponents referred to the National Electricity Regulatory Commission’s resolution envisaging different operating procedures. The question, however, is whether that resolution is legitimate, for it actually empowers an oversight authority to meddle in a certain business. Also, that decision actually reflects the desire of some high NERC officials to control such purchases and to be in a position to lobby for their own interests with regard to Enerhoatom and other large companies.

NEW POWER UNITS: WHEN AND FOR HOW MUCH?

Your biggest project now is completing the installation of power units at the Khmelnytsky and Rivne nuclear power stations. Who’s going to pay? When do you expect them to come on line? The cabinet recently adopted design estimates envisioning UAH 6.7 billion in budget appropriations for these installations. Does it mean that Ukraine has finally accepted its foreign creditors’ terms?

I believe that this amount will undergo changes dictated by life itself. However, we need this document to go through the required legal procedures to have the power units installed and made operational. To have them linked up with the power grid at minimum expense and secure a higher level of nuclear safety than we have now requires UAH 340-360 million per power unit. The lion’s share of this money (UAH 210-220 million) is to be paid for the equipment. Manufacturing that equipment takes 8-9 months. Therefore, we must make prepayments to the Ukrainian enterprises working on our commissions, so they can purchase the required components and deliver the equipment by January 1, 2004.

It’s hard to overestimate the importance of completing these power units. It’s more than additional generating capacities. We held a conference recently to sum up our performance. We decided to sign a new collective agreement for 2003-04. Our people place high hopes in the timeframe for completing these power units. Some no longer believe that Ukraine needs nuclear energy. So when these power units start generating, it will be a message saying that Ukraine and its technology and science wish to be furthered. Moreover, we want to start working on other construction sites at the South Ukrainian and Khmelnytsky stations. Prolonging the service life of Power Units One and Two at the Rivne NPS is just as important a problem; 2010 marks the deadline, yet we want them in operation for another 5, 10, perhaps 15 years. We’re working on this.

Are any of the Ukrainian banks promising loans to complete the power units?

Yes, I discussed it with Serhiy Tihipko yesterday. We meet often. We have a team of company experts working with bankers to get loans of UAH 270 million per power unit. Then we will receive a EBRD loan. Vice Premier Haiduk and EBRD President Lemier met recently and EBRD no longer insists on raising the rates to 2.5 cents per kW. If all goes well, the funds will come early next year, even at the end of this one. This, however, no longer satisfies us, so we are taking loans from Ukrainian banks, and we’ll soon readjust our borrowing policy.

PERSONNEL PROBLEMS

Would you comment on the company cadres policy? Are you faced with an outflow problem?

I must say that the Soviet nuclear engineering school, sired by the Ministry for Medium Engineering, proved very effective. We have excellent specialists on payroll — primarily our licensed personnel. I would even describe them as our professional elite. Each has undergone seven to ten years of training. And each has a professional duty implying a lot of mental strain. The slightest mistake could have disastrous consequences (remember Chornobyl). Such specialists would have no problem finding jobs in other countries. At first, we suffered a loss of top personnel. People be quit and head for Russia, Iran, China, and India. Now the situation is different. Working conditions are improving, our people are paid on time, housing construction is in progress, and the social sphere is improving. Recently, however, someone tried to attract a group of Khmelnytsky NPS specialists. Several specialists agreed, expecting a better living. We will work with these people, and I think that they will stay with the company. Anyway, after the two power units are completed, the overall attitude toward the Ukrainian nuclear power industry will change fundamentally, especially after we begin new projects. Wait and see, people will stop leaving the company and those at other companies will be willing to join us.

You’ve mentioned working conditions. But isn’t it also true that even your company management didn’t have adequate work conditions and not so long ago you had to rent office space for yourself?

True. In fact, our work conditions were horrible. We used to rent a couple of floors at a research institute. The place looked terrible. One couldn’t even enter normally, let alone work there. It was especially difficult in summer, our people would sit in their rooms that could best be described as sweatboxes. That summer was incredibly hot and some of the staff had heatstrokes. Management was scattered at four different places in the capital, all leased premises. There was a downpour of frightening directives from fire and public health authorities.

Now we have an adequate head office. It took us four months to wade through the paperwork, but then we had all the required authorizations. We searched the market and studied every proposal before we made our choice. Now our specialists have adequate working conditions, the more so that our company is supplying 50% of the nation’s electricity needs and is internationally recognized. The same goes for our office equipment. Also, we have a crisis center in our office, operating progressive information technologies, linked up with satellite communications allowing online monitoring of all nuclear power engineering processes.

Do you have suppliers imposed from above?

Many such attempts have been made. At times we feel like chalking a magic circle around ourselves to ward off the evil forces. We have been able to steer clear of some of those interests and [monetary] flows heavily tapping into our company revenues. In the first five months (for fear of losing that parasitic business and the attendant revenues), tens of millions of dollars were transferred to offshore bank accounts. And no one sounded the alarm, none of those experts in the nuclear power field currently on the supervisory board. It was only thanks to the Ukrainian president’s support that we could stop the process. And all was quiet when my predecessors, acting with the knowledge and consent of high officials, took loans from the Savings Bank and then refinanced at a problem bank at 30% interest. Today we can borrow at 15% from solid banks because they trust our company.

Some in the media protested after your appointment as head of Enerhoatom.

I would say they became hysterical. Even the trade unions did not accept me at first. Yet the results of the collective agreement conference make it clear that attitudes have changed. We adopted a certain social program. Clearly this program was not just on paper. No housing construction was done in the first half of 2002, then over 500 families of people employed by the nuclear power industry received new homes in the next six months. Our company has launched a housing project totaling 26,400 square meters — seven, even eight times the previous year’s index. This year we expect to make another 34,000 square meters of floor space available. Actually, we could have tried to expand this, but for want of construction sites, because no one has dared any such projects before.

Now that we are making some headway, some are irresistibly drawn to our monetary flows with itchy palms. Our company is financially stable; we can forecast our indices and upgrade our equipment. These monetary flows could be diverted from the national interests and made to supply individual interests — as was the case with company earlier — the more so that there are people with quite enough experience in this.