Kazatomprom aims for top nuclear spot

Wednesday, August 20, 2008

As the nuclear industry enjoys a global revival, Kazatomprom is positioning itself to overtake Cameco as the world's largest producer of uranium. It said in July that it expects to achieve this as early as next year, rather than in 2010 as originally planned.

The progress of Kazakhstan's national atomic company is to a large degree due to the vision of its charismatic president Mukhtar Dzhakishev, helped by the country's substantial uranium reserves and the Soviet technical legacy.

Back in 2001, when uranium prices were at an all-time low of just $6.20 per pound, Dzhakishev forecast a future deficit in uranium supplies. At the time, his was a lone voice. After the break-up of the Soviet Union, production had almost ground to a halt as cheap uranium flooded the market. However, by 2001 supplies were severely depleted and the world was on the brink of a supply shortage. Nuclear power was also about to come back into vogue because of growing fears about energy security and climate change. Just seven years later, Dzhakishev's forecast of a nuclear renaissance has been realised.

"At that time nobody believed us," Dzhakishev, who was appointed as the head of Kazatomprom by the Kazakh government in 1998, tells bne. "Against all the odds, at that time, Kazatomprom started to develop a programme for an intensive increase of uranium output. Thus today, when the market has come to an understanding that a deficit is imminent, Kazatomprom is the best prepared company."

Today, he says, uranium "has turned into a strategic product of the global economy." The 483 nuclear reactors currently operating in the world account for some 16% of global power production. According to the World Nuclear Association, this is set to increase further. As of mid 2007, 32 more reactors were under construction and an additional 288 were at the planning stage.

In vogue
Once hailed as the fuel of the future, nuclear power had been out of fashion for many years, and has only recently come back into favour. Driven in particular by growing consumption in newly-rich developing countries, energy demand will almost double within the next 25 years, the International Energy Agency forecasts. Governments and energy companies are frantically seeking new sources of power.

"Conventional power resources such as oil, coal and gas will not be able to cover growing energy demand. To meet it we would have to open three new Saudi Arabias and to double coal output, which will certainly lead to an increase of carbon dioxide emissions," Dzhakishev says. "Hydropower stations have been built already where possible. Alternative power sources are not sufficiently developed, and in any case could not become the basic sources of a country's power system. So mankind can cover the power deficit only through development of nuclear power."

With its huge hydrocarbon reserves, Kazakhstan hardly suffers from an energy deficit. However, Dzhakishev believes the country will benefit from supplying domestic consumption with nuclear reactors while selling its oil and gas abroad. "From an economic point of view the nuclear power industry is more beneficial than hydrocarbon-based ones," he explains. "Given current prices for hydrocarbons on the world markets it is more profitable to export them than burn them inside the country, preventing Kazakhstan from receiving export earnings." Nuclear energy, he says, has the benefit of being cheaper even than hydropower, and does not create emissions, which will become an issue when the Kazakh government carries out its plan of signing up to the Kyoto Protocol.

Kazakhstan is currently the world's third largest producer of uranium, with 1.6 m tonnes of explored reserves. It is one of relatively few countries so well endowed; around 80% of the world's uranium is concentrated in just nine countries. Kazatomprom exports to Europe, China, Japan, the US and other countries.

Its ambitions are to do become even bigger. "Having unique natural resources, effective low impact technologies and modern managerial solutions, Kazatomprom has initiated a programme of large-scale uranium production increase – from 3,000 tonnes in 2003 to 15,000 tonnes by 2010," says Dzhakishev. This would make it the world's largest exporter of uranium; Kazakhstan is currently the world's third largest after Canada and Australia.

It's barely a decade since Kazatomprom was created. The company's origins are in the Soviet-era Ministry of Middle Machine-building Industry, which managed the Soviet nuclear military-industrial complex. After the USSR broke up, the Kazakh government created Katep (Kazakh atomic energy corporation) out of the Kazakh part of this complex organization. In 1997, most of Katep's functions and responsibilities were rolled into Kazatomprom. "After the USSR's collapse, Kazakhstan received a disrupted nuclear-fuel cycle," notes Dzhakishev.

The newly formed Kazatomprom also faced the challenge of finding markets for its products. European countries had imposed quotas on imports from the former-Soviet countries, but these were taken up by Russia. The US also introduced anti-dumping legislation in order to protect domestic producers. At the time when Dzhakishev took over, the company also had numerous debts including over $12m in unpaid wages.

Against these odds, Kazatomprom won through. As a result of Dzhakishev's anti-crisis strategy, by 2000 the company had paid off all its debts and initiated an anti-dumping inquiry that paved its way onto the US market. In addition, while the organization of the company was a mess, Kazatomprom benefited from Soviet-era technology. Dzhakishev claims that all other producers are lagging behind Kazakhstan and that western technologies are in comparison obsolete.

Uranium prospecting started here in 1944, and one geological unit – Volkovgeology – has been in operation since the first discoveries were made in 1951. Aktau, for example, was the site of the world's first-ever industrial prototype of the fast breeder reactor BN-350. This reactor was successfully operated for 25 years before being shut down in 1999. Today, Kazatomprom is planning to build a new VBER-300 3+ generation reactor in the city. "No producer in the world has a nuclear power station with 300-MW average capacity," says Dzhakishev.

Safety questions
Nuclear safety and pollution has to be a question in this country, given that the radiation levels around the 'Polygon', where some 460 atomic bombs were tested in the Soviet era, are still causing health problems in the Semey region and will do so for many years to come. Due to the damage inflicted on its land, when the USSR broke up the new Kazakh government immediately chose to decommission some 1,300 nuclear warheads that it inherited.

Dzhakishev says that the in-situ leaching method that Kazatomprom uses in its extraction is much less environmentally dangerous than traditional methods. "70% of Kazakhstan's are suitable for uranium production by the in-situ leaching method. The International Atomic Energy Agency considers this technology to be the most ecologically sound and safe method of mine development," he says.

With conventional mines, large quantities of waste radioactive ore and earth are extracted together with the uranium. Dzhakishev explains with the in-situ leaching method acid solutions are used to dissolve uranium rock and extract the uranium underground. "In terms of technological operations in-situ leaching is the most efficient method of uranium production," says Dzhakishev. "When our enterprises complete land development, no problems traditionally inherent in the uranium industry arise . The environmental security of uranium production by in-situ leaching method is proved by long-term investigations - about 15 years. We transfer land back to the government having no restrictions in its use. And it means that after our operations, you will find not a trace of our activity at these lands." The method is also, he adds, much cheaper than others in terms of energy consumption and capital expenditures.

What are the prospects for investors hoping to get a slice of the Kazatomprom pie? Rather slim as it happens. In response to a question at the Central Asian Mining Congress recently, Dzhakishev dismissed the idea following other major Kazakh companies and holding an IPO. "We don't need to sell shares because our assets will continue to grow 12-fold," he said simply.

This self sufficiency is also bad news for companies hoping to start a joint venture with Kazatomprom. UraniumOne Direct's Phillip Shirvington recalls when his company first attempted to do this. "16 of us were lined up at the table and each of us gave our little speech. At the end, Dzhakishev said, 'I don't see why I need any of you. We have the best technology in the world, we have joint venture agreements already, we have lines of credit with western banks. Why do we need you?' The silence," Shirvington says, "was deathly."

Having said that, although Kazatomprom can afford to be picky, it has signed numerous joint venture agreements (including with UraniumOne). This started with the need fill the gaps left by the Soviet break-up and to gain access to new markets. The company continues to make alliances with other parts of the uranium cycle so as to increase the value-add of its exports. "In order to maintain and develop our unique long-established plants - some of our enterprises have more than 60 years operational experience in nuclear industry - we are creating the missing links of the nuclear-fuel cycle," says Dzhakishev.

For example, the company recently agreed to set up a conversion facility at the Ulba Metallurgical Plant in Ust-Kamenogorsk together with Cameco. An enrichment facility is being established in Russia's Irkutsk region together with Kazatomprom's Russian partners in Angarsk. It's also working with France's Areva to create the final chain of nuclear-fuel cycle – a facility for production of fuel assemblies. The company has even expanded into the US through the acquisition of 10% of Westinghouse.

In short, Kazatomprom plans to become the Kazakh equivalent of Areva, with a presence at every stage of the nuclear production cycle. The company is currently focusing on building up the business, plugging any remaining gaps and expanding further. "Our strategic target for the nearest future is to create vertically-integrated atomic company with all parts of the nuclear-fuel cycle. It is exactly these plans which Kazatomprom fulfills at present," says Dzhakishev. "For Kazakhstan a "renaissance" of nuclear power is favourable period for development for the purpose of entry to the markets of higher value added products and earning maximum profit from the products exported."

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