Dear Sirs,

On behalf on INFORSE-Europe, a network of  66 NGOs from all over Europe working for sustainable energy solutions, I am writing to you to express our opposition to the Khmelnitsky 2/ Rivne 4 proposed nuclear completion project in Ukraine, also known as K2/R4.  The projects have been shown by many respected experts in the field of nuclear safety to be unsafe  and moreover, they are unnecessary.  They also pose serious financial risks, for Energoatom as well as for EBRD.

Regarding safety of the proposed reactors,  Jacques de Larosiere, former EBRD president, is on record as having stated that, in addition to the requirements that the project be least-cost, financially sound, and run by a competent entity, “...the safety of any nuclear plant we would be working on would have to be at the highest existing standard.” .   Currently, serious safety deficiencies exist for even the highest priority safety issues at K2/R4 and many of these are not addressed in the proposed modernisation programme, or else project sponsors plan to deal with them only after the planned start-up for the reactors.  Compared with EBRD policy on funding of nuclear power plants, we find that the project does not comply with this policy.

Even to achieve a safety levels which reaches minimum IAEA standards will result in huge cost over-runs.  The Temelin NPP in the Czech Republic, which is currently still under construction, is an example of the extreme cost over-runs incurred when attempting to modernise VVER-1000/32O model reactors to minimum acceptable safety standards. K2/R4 have even greater safety problems to overcome, due to unknown conditions of equipment storage during the moratorium on building NPPs in Ukraine and due to a host of serious logistical problems facing the Ukrainian nuclear industry, so that it is difficult to even estimate completion costs.  It is clear, however, that addressing the serious safety deficiencies at K2/R4 will mean that project completion costs will be significantly higher than originally predicted.
It has been argued that the current programme for completing K2/R4 is preferable from a safety point of view than if Ukraine were for finish the plants without Western partners and support..  The EIAs for K2/R4 claim that the projects meet Western standards, but they do not refer to IAEA or any other safety standards, so this claim is completely unsubstantiated.
Since no specific safety standards of any description are referred to in the EIAs for K2/R4, and since it is well known that the plants have many serious safety problems which are not addressed in the K2R4-project, it is clear that the current plan for completion of K2/R4 would allow the plants to be completed to a level which is well below safety norms accepted in Western countries.

Completion of K2/R4 is supposed to partially compensate for closure of Chernobyl, under the 1995 Memorandum of Understanding between the G-7 and Ukraine, but if completed, K2/R4 would not help to close the Chernobyl nuclear power plant in any case, because the new reactors are planned to begin operation well after the year 2000.  Further,  there are problems with cooling water supplies at the K2/R4 which would likely make it necessary to shut the reactors down at certain times of the year.  For example, the water supply at Khmelnitsky 2 is already low, and this will be further affected by freezing in winter.  This would lead to the necessity for periodic shut-downs at times of insufficient cooling water supply.  Clearly, this also undermines the plant's ability to replace power currently produced at Chernobyl.

There are many more safety and financial problems associated with completion of K2/R4.  Yet it is not necessary to incur the many safety and financial risks posed by K2/R4, because Ukraine has a huge overcapacity from other energy sources.  Due to recent economic and infrastructure changes in Ukraine, electricity demand in the country is only expected to reach 1990 levels at the earliest by the year 2010.  Even with the closure of Chernobyl, K2/R4 would add redundant supply capacity.  There is clearly no need for additional investments in new electricity supply capacity at this time.  In fact, this was the conclusion of the Surrey Panel, which was commissioned by the EBRD to analyse the financial efficacy of the project.  The Panel recognised that Ukraine has low energy efficiency in final uses and conversion processes, and high energy losses in transmission, gas pipelines and district heating schemes. They noted that cost-effective opportunities exist in Ukraine to improve overall productivity, reduce energy demand, and increase effective electricity and gas supply capacity. In addition, the Panel had little confidence in the estimated costs of completing and operating K2/R4   and concluded that the project is a high risk investment, and they found no reason to think that the cost of generation from most of the existing fossil fuel plants would be higher that the generation cost of K2/R4.

Medium-term forecasts of electricity demand in Ukraine by the International Energy Agency (IEA) predict that electricity demand will not reach 1992 levels before 2010 at the earliest. Even official government estimates, which predicted demand decreases substantially smaller than actual decreases, do not foresee an earlier rebounding of demand.

Ukraine had an overall installed electricity generating capacity of 55.1 GW in 1995.   Even without the Chernobyl nuclear power plant, this is about twice the capacity needed to cover current peak electricity demand, which has been estimated at below 30 GW.   While power shortages did occur during peak demand periods in the winter of 97/98 and later, these were not due to lack of generating capacity, but rather to fuel shortages and improper operation and maintenance of existing equipment.  The Financial Times Energy Economist has recently stated: "With Ukraine's power system facing structural overcapacity of around 30 percent, the government is alone in believing that commissioning new nuclear capacity is a priority..."
Given the current economic situation in Ukraine, it is extremely unlikely that current payment rates will rise, and completion of K2/R4 will do nothing to ameliorate this situation.  In fact, completion of K2/R4 will exacerbate the problem, as it will create yet more major costs for electricity generation which Ukrainian producers will not be able to meet through customer payments.  Non-payment reduces the income for electricity generators, reducing their ability to invest in the system and to pay back any loans incurred.  It also reduces incentives for consumers to utilise energy efficiently.  In addition, large-scale non-payment will undermine any initiatives by the government to introduce tariff reform in the sector, because those who pay will be further punished by increased tariffs.

According to MC Securities, levels of non-payment in Ukraine are increasing. Their calculations suggest that in 1995 non-payment of the distributors was 19.8% of total payment; in 1996 it was 28.3%. In 1997, it was 20-25%, with the remaining 75-80% being mainly paid for in barter.  In 1998, barter covers 93 %. Figures provided by the Ukrainian Cabinet of Ministers estimate that as of October 31, 1997, total unpaid energy bills amounted to the equivalent of 5.5 billion USD, including almost 3.7 billion USD for gas and 1.8 billion USD for electricity and heat.

There are many less risky and viable alternatives to K2/R4 which would compensate for the closure of Chernobyl through a mixture of energy generation and conservation projects.  Ukraine wastes large amounts of energy through inefficiencies in its energy sector, and energy efficiency represents a major untapped energy resource.  Ukraine also has a strong potential to develop alternative and renewable sources of energy such as solar, wind, geothermal, small hydro and sea power, biogas and mine methane.  These alternatives are preferable to K2/R4 in terms of both safety and fiscal concerns.

Recently, a list of 66 alternative energy projects was by the Ukrainian State Committee for Energy Conservation.  The projects focus on energy efficiency and alternative energy projects, and they would more than compensate for the 2000 MW which could be produced at the Chernobyl reactors.  Pay-back rates on investments for these projects range from one to five years, making them financially attractive, and operating costs are also lower than for nuclear power plants.  The Comprehensive State Energy Conservation Programme of Ukraine, prepared by the State Committee for Energy Conservation, the Ministry of Economy, and the National Academy of Sciences of Ukraine estimates that 42-48% of primary energy consumption could be cost-effectively saved, based on 1990 levels, with the most significant potentials in the manufacturing and energy producing sectors.  The corresponding figure for potential savings in electricity consumption are approximately 120 and 140 TWh, which represent between 50 and 57 % of electricity consumption in 1990.

A TACIS Study, “Global Energy Saving Strategy for Ukraine”, states that the energy saving potential in Ukraine is in the range of 9 to 10 billion USD and questions whether it would be possible to find any other financing resources of such magnitude.

In addition, the Comprehensive Program for Energy Saving, approved by the Council of Ministers in February 1997, commits the Government to implementing and co-ordinating a wide range of energy conservation measures.  Studies conducted by the U.S. Department of Energy, the Natural Resources Defence Council and IIEC-Europe all agree that adjustments in energy prices to world levels, combined with a series of no-cost and low-cost measures and improved management can bring about substantial reduction of energy use in less than five years. EBRD's recent approval of the Ukresco (the state owned energy service company) loan establishing an Energy Service Company in Ukraine, as well as a range of other energy conservation activities are further evidence of the opportunities that exist for commercially viable energy efficiency investments in the Ukraine.

Further a number of organisations affiliated with INFORSE-Europe has proposed a number of local projects for renewable energy that with substantially lower investment-levels than K2R4 could produce cheaper energy and substantially reduce the import requirements for the electricity production. The most cost-effective of these projects were rehabilitation of smaller hydro-power stations. Our current evaluation is that the potential for rehabilitation of these stations is an additional power capacity of not less than 2000 MW for Ukraine. Also biomass and wind energy offers large potentials for heat and electricity at low costs.

Ukraine can capitalise on its significant energy efficiency  and renewable energy potentials with support to in-country institutions such as the Ukraine State Committee on Energy Conservation.  But support and leadership from Western assistance programs, including the EBRD and World Bank, is needed to ensure adequate financing for energy efficiency projects, rather than for expensive and dangerous nuclear projects like K2/R4.  The EBRD should give priority to aggressively promoting such investments in energy conservation and continuing upgrades of selected thermal power plants and hydro-power plants as well as combined cycle gas turbines (CCGTs), which are a promising and relatively low-risk investment.  In addition, it should be possible to for local entities to take part in the development of local renewable energy resources including access to the grid on reasonable terms. It is also necessary to follow through on commitments to fully reform tariff structures and ensure major improvements in payment collection rates.  This should be done in conjunction with a move away from barter payments in the energy sector.  These measures are of fundamental importance in order to generate the necessary working capital for fuel purchases and proper maintenance and upkeep of existing thermal power stations.  Completion of K2/R4, on the other hand, would undermine these measures, as it would divert scarce into loan repayment for the project.

In addition to the obvious economic problems, the poor financial situation in the Ukrainian energy sector also has serious negative safety consequences which make completion of K2/R4 particularly risky.  The poor overall economic situation in the country has led to a “brain drain” of Ukrainian nuclear experts, leading to a serious lack of qualified personnel working in the country’s nuclear industry.  Since the break-up of the former Soviet Union, Ukraine has experienced the loss of Soviet designer organisations, architect and engineer organisations and scientific institutions.  In addition, qualified personnel have been leaving Ukraine because of the extremely low salaries offered there. In 1995, Nucleonics Week reported that about 8500 specialists had left for Russia over the previous two years, due to the fact that salaries in the industry were much lower than those in Russia.  . The poor morale in the industry, and the lack of qualified individuals with the needed expertise to operate nuclear power plants obviously have grave safety implications for the Ukrainian nuclear power sector.

It is clear that K2/R4 is an unsafe and financially risky project.  Completion of the reactors makes no sense economically.  Energy studies in Ukraine have shown that K2/R4 are unnecessary, and repayment of the loan will further burden Ukraine’s already extremely fragile economy.  There are so many serious unresolved safety issues at K2/R4 that completion of the reactors would undoubtedly entail major cost over-runs to reach minimum acceptable safety standards.   A loan for K2/R4 would also divert scarce funds from other energy projects that are preferable for both financial and safety reasons.  We therefore strongly urge you, to make the right decision for Ukraine and for EBRD: to replace funding for K2/R4 with funding for a non-nuclear rehabilitation of the Ukrainian power sector, using the above mentioned potentials to reduce Ukraine's dependence on nuclear power and on expensive import of fuels.

As concerned citizens, potentially affected by a large nuclear accident, we find that such a power sector rehabilitation is the most safe path for all of us as well as the least cost path for Ukraine. The INFORSE network and many of its member organisations will be happy to assist in this.

Yours sincerely

Gunnar Boye Olesen
INFORSE-Europe
 

This Statement was sent on December 15, 1998 to:

Energoatom Public Consultation Office, 18 Borisoglebska, 4th floor,
25470 Kiev, Ukraine; and to EBRD, London.