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Interview

with Vasily Leonardovich Konstantinov, Senior Vice President, Commercial and International Cooperation, TVEL

12.03.2013 / Energyboardroom

Recently, there has been a general perception that the Fukushima incident has negatively affected the nuclear sector worldwide. At the other end of the spectrum, we hear the term ‘nuclear renaissance’ and see Rosatom doubling its overseas orders in 2011. How optimistic are you today?
As an active participant in the sector, I am optimistic and –at present– I do not see many events that would decrease this optimism either. Despite Fukushima, we are still speaking about a nuclear renaissance which will happen and continue to develop. For those countries that were planning to develop nuclear energy the plans have not changed. In Germany, there is an attempt to eliminate nuclear energy entirely, but alternative sources of energy to counterbalance this are yet to be found. At a worldwide level, 21 blocks are currently being constructed by Russian companies.
The current situation in Japan –where only 2 blocks are working at the moment– is of course understandable. This will change however due to the country’s energy deficit. Both oil and gas have a severe impact on the environment and the Japanese geographical territory is already limited. I therefore expect future developments to be more positive for nuclear power there.
Looking at China or India, the interest in nuclear power has not diminished. Of course, we need to be prepared and build sustainable reactors that can withstand natural disasters. According to data of the International Atomic Energy Agency (IAEA), there are currently 437 reactors with 68 further blocks under construction. According to these estimates, the perspectives for the future are optimistic for nuclear energy.

Was 2012 also a satisfying business year for TVEL then?
From its very start, TVEL has always been developing very dynamically. Our client base, our objective and our results have always been growing. The previous years 2011 and 2012 were no exception to this.
One of our most important assets is our client-oriented approach. For us, it is very important for the client to value our products, and consider them as safe and competitive. Our products need to ensure that our clients can become more competitive companies. Despite the fact that we also produce other non nuclear science- and technology-intensive products, our main product is nuclear fuel.
Of the ten –mostly European– international tenders we have taken part in for the supply of nuclear fuels in previous years, we have won all of them. While we support the brand of our products, it also worth noting that the generation company in the Czech Republic has recently decided to move away from its American supplier. The company turned to Russian fuels – the initial fuels specific to the reactors they have.

You have about 17 percent of the world market today. Is there still room for growth?
Of course! It would be strange if we would not plan on increasing this share. We are working on a new type of fuel that will be attractive to both existing and new clients. It is no secret that we have signed an agreement with a European company that is planning to test our new fuel at their facilities. This is a fuel that is specifically designed for reactors abroad. We plan to test this fuel first, before moving into supplies to European customers as well as any other customers willing to participate in our projects.
Apart from nuclear fuels, we also have a company producing centrifuges for enrichment. We have a wide range of products as well as scientific institutes such as the All Russian Research Institute.
We have companies such as Techsnabexport (TENEX) that trades in uranium conversion services on foreign markets. We want to expand our market, find new clients and expand production volumes. Diversification is part of the strategy of Rosatom and does not only provide stability but also the flexibility to move into different direction when market conditions change.

And you are also working on a uranium enrichment center together with Kazakhstan?
With regards to the uranium enrichment centers, two entities are often being confused: The International Uranium Enrichment Center in Angarsk comprises Russia, Kazakhstan, Armenia and Ukraine under the auspices of the IAEA. The uranium enrichment center, however, is located at the Ural electrochemical combine. Both centers have clearly distinct purposes: at the uranium enrichment center, uranium is being enriched and then sold, while the International Uranium Enrichment Center exists to ensure the reliability of fuel supply and guarantee fuel supply to all the customers of this international project.

For a few years already, TVEL has been speaking about investing in a plant outside the Russian borders. More recently, it was announced that Smolin, Ukraine, is being studied as the project’s location. Why was it interesting to move outside the Russian territory ?
The importance of this project in Ukraine is to support our diversification strategy. We do not limit the relations with our customers to seller-buyer relations, but look for opportunities to cooperate beyond sales. Ukraine operates 15 units of Russian design, 13 of which are VVER-1000 and 2 which are VVER-440. For decades, Ukraine has been using Russian fuels and there has never been any doubt about the reliability of supply. Nonetheless, it is desirable for a country with such a large number of reactors to develop its own manufacturing capacity.
This project has been one of the ten international tenders that have been won where we faced quite some competition from companies such as Westinghouse. We recently approved the feasibility study of this project and now the project has recently entered the implementation phase. We have selected the site after which the first-stone laying ceremony on October 1, 2012 took place, in the presence of Rosatom’s General Director Sergey Kirienko. Today, we are finalizing the design and funding stages and are ready to start construction onsite. The budget for this year has been clearly defined and all the cost estimates have been made. We also enjoy the full support of the Ukrainian government and the Governor. Clearly, both the management of Rosatom and the Russian government pay close attention to the development of this project.
It is quite clear why this project has received so much attention at senior level. It is a step forward from customer-supplier relations and it provides Ukraine with more certainty over their fuels supply. For us, it is a change to further promote our fuel manufacturing technologies too. Naturally, this plant will make use of state-of the art development technologies. Again, having these fuel manufacturing capabilities with Russian technologies will provide Ukraine with an additional stimulus to build nuclear reactors of Russian design. As a joint-venture, this plant also provides the opportunity to expand the market further and supply fuel to third countries. It is a win-win situation for Russia and Ukraine.
There have been some speculations that some people have been opposing this project, but these are no more than rumors. There has been an avalanche of publications on this project in Ukrainian mass media. The attitudes differ and people sometimes see the infringement of Ukrainian independence in this project. Because it is such a high-level joint-venture however, there is no ground for such concerns.

It is a very politically intertwined project…
Like any big business, we cannot completely ignore political implications. Very high profile politicians also come to the Czech Republic to support the construction of American design units in that country. This is just one example of a phenomenon that you see happening all around the world. For us, fuel supply is outside of politics. There have been never any political implications on our choice of customers or our commitment to supplying fuels to them.

At the same time you represent Russian technology and the Russian nuclear sector, which has a legacy of many decades. Many other entities are strongly linked to specific countries too, such as the German-French Areva and the US-Japanese GNF. Can TVEL be considered as the face of Russia abroad?
This is to some degree true in relation to our company, but we also need to keep in mind that TVEL is part of the larger corporation Rosatom. This corporation provides all kinds of services for the industry, starting with the enrichment of uranium, followed by enrichment services, sales of enriched uranium, all the way towards the back-end services of the nuclear cycle. As far as fuel manufacturing, scientific support of fuel use in the reactors and all its associations are concerned, TVEL does represent the face of Russia on the international market.
An additional competence TVEL has is the construction of infrastructure for fuel manufacturing of enriched uranium. In China we built a gas-centrifuge plant for example. The uranium enrichment services and the enriched uranium are being sold through Tekhsnabexport (TENEX) and are also part of our activity abroad. So far, I do believe we have an unblemished reputation on the world market. This has taken a lot of effort and is something we keep working on every day, especially as it can be spoilt in a split second.
The relationship with our customers goes both ways. We do not only approach them with our products. Now, our clients or partners also approach us asking for our products, joint-ventures or other forms of partnerships. We have done a lot to minimize cost as well. Through an extensive program –approved by Rosatom– we have been able to maintain costs at the same level, despite a substantial inflation rate in Russia for the last four years.
At present, we are thinking about concentrating some technology processes in the same locations to further optimize costs. This also provides new types of opportunities in terms of potential partnerships. Obviously, concentrating the manufacturing operations and a large number of operations at the same location optimizes our cost base. It directly affects the price our customers pay for the products. For our partners to maximize the benefits from this approach, it would be very beneficial to become shareholders of such ventures, either by becoming involved in the management or to have share of ownership of such companies. All this has been done with the absolute priority on safety and reliability.
Clearly, all the benefits from such optimization stay with the shareholders of TVEL. It is a very closed international market. Once a certain level of safety and reliability is reached, a company would not decrease its price in the absence of any internal reasons. If our partner becomes a shareholder of the company or a member of the managerial board, despite making managerial decisions they can also affect the price their company pays for our products.
For example, at the level of Rosatom we have two large joint-venture projects with Ukraine; one related to the initial cycle and the other related to machine building. Some of the assets of the Ukrainian companies will be consolidated while the Russian side too will contribute with some of its assets. This will enable Ukraine to directly benefit from TVEL’s efforts to optimize costs by concentrating the manufacturing cycles in the same sites. We have also been discussing similar approaches to some European companies, but some practical steps are still needed for this setup to work. Due to their EU membership, there are some limitations on the possibilities of the generation companies to take part in Russian ventures. However, within the European Union, it is a common practice. Areva, for instance, has the George Besse enrichment plant based on centrifuge technology. They are already involved in some external companies as shareholders.

On a day-to-day basis, will we see you spending more time with the customers?
The approach broadens the range of opportunities for our clients in the first place. The current situation on the nuclear energy market is quite trivial due to the Fukushima incident and there is also strong competition from gas companies due to shale gas. Alternative energy sources, in turn, also create additional pressure on the competitive landscape. Therefore these new opportunities to minimize cost are currently even more important than before. It provides benefits in the present, as well as in the future.

Thank you! Do you have a last message you would like to send out to the international readers on behalf of TVEL?
We can represent Russia in our field and are prepared to popularize the benefits of cooperating with Russia. We can show the advantages of using Russian technologies. For instance, we are now introducing new marketing strategies by not only supplying fresh fuels, but also taking back spent fuels.
We firmly believe that the nuclear community is moving in the right direction. The community now needs to expand its army of supporters worldwide, because there have been public fears after the Fukushima incident. To increase such support, we need to popularize and educate the public. We need to demonstrate that the technology is safe and environment-friendly. Every negative event like Fukushima –which of course stimulates public fears–, is also a great window of opportunity for the development of new technologies. After every such negative event, breakthroughs in nuclear technologies have been taking place. This also leads to breakthroughs in related fields like materials science, development of new materials for non-nuclear applications and new methods of environmental assessment.
It is a joint task of both the journalists who believe in the industry and the representatives of the industry itself to use objective information to lead people, teach them and convince those who have doubts. For the time being, it should be clearly understood that there is no alternative to nuclear energy within the global energy balance. This highlights the need for enhanced collaboration at an international level. Such diverse and immensely complex technologies, sciences and manufacturing capabilities, work for the benefit of mankind.

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