Power prices in Ukraine expected to double to pay for nuclear safety

Friday, January 24, 2014

EXCLUSIVE / Electricity prices in Ukraine are expected to double to help pay for a series of safety upgrades to old Soviet nuclear power stations, according to a leaked report by the European Bank for Reconstruction and Development (EBRD).

EBRD, a public sector bank investing in Eastern Europe and elsewhere on behalf of 64 countries and the European Union, last year announced a €300 million loan to the Ukrainian state nuclear power company, Energoatom. It is the largest nuclear safety loan the bank has made.

The loan is to help implement up to 87 improvements to each of the country’s 15 electricity-generating reactors, which were built in the 1970s and 1980s. The improvements, aimed at complying with today’s international safety standards, include new equipment, new controls and organisational overhauls.

Details, however, have been kept secret by the EBRD but a leaked copy reveals that major price increases are part of the package.

The 105-page report forecasts that the price of electricity in Ukraine will increase from 27.1 kopeks per kilowatt/hour in 2012 to 54.4 kopeks per kilowatt/hour in 2020. “Significant tariff increases will be required for Energoatom,” it says.

The bank expects the Ukrainian government’s electricity regulator, NERC, to insist on price increases to help pay for the loan. One of the loan’s conditions is that tariffs should be increased “to ensure cost recovery”.

The leaked report also reveals that the EBRD is expecting to make a profit of €30 million from the loan over the next six years. The loan was a “good and efficient use of the bank’s capital in Ukraine,” said the EBRD's president, Sir Suma Chakrabarti.

Critics say that the price increases would hit hard-pressed consumers in Ukraine. “The tariff hike stipulated in the document is completely unacceptable for Ukrainian consumers, many of whom are struggling to pay bills at current prices,” said Iryna Holovko, Ukrainian energy campaigner with Bankwatch, a group that monitors financial institutions in Eastern Europe.

“Pushing such a hike is a huge if not impossible political bet for our authorities, particularly in times of turmoil as in Ukraine today. It's really hard to imagine how the deal as depicted in this document can go through.”

Holovko also argued that the price increases exposed the myth that nuclear power was cheap. “They would make nuclear energy more expensive than renewables,” she said. “Why on earth would we bear the incalculable risks of nuclear energy then?”

The world’s worst nuclear accident took place in Ukraine on 26 April 1986, when a reactor at Chernobyl north of Kiev exploded and showed Europe with radioactivity. All reactors of a similar design have since been shut down in Ukraine, but the country is still heavily reliant on other nuclear stations.

Environmental groups criticise the EBRD for failing to invest in alternatives like renewables and energy efficiency. More wind and solar power “would make more sense and give better value for money than a continuing dependency on outdated nuclear technology,” said Jan Haverkamp of Greenpeace.

But Dmytro Naumenko from the Institute for Economic Research and Policy Consulting in Kiev disagreed. The projected price increases would not push the cost of nuclear power above renewables, he argued, and would make the EBRD loan profitable.

EBRD confirmed that the report was the basis for the decision to go ahead with the €300 million loan last February, but stressed that it was confidential. The bank denied, however, that the loan would force up electricity tariffs.

“The loan you are referring to has no requirement on tariffs,” said EBRD spokesman Axel Reiserer. “The figures you are quoting are taken from a hypothetical calculation model and in no way constitute a condition for the loan.”

Ukraine’s National Electricity Regulatory Commission (NERC) did not respond to a request to comment.

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