Finland has terminated the contract with Rosatom for the construction of a nuclear power plant. However, for Russia, the outcome of this project is, one might say, a great success, because Rosatom signed up here for financially unfavorable conditions. It is better to exit the project now, while the main investments have not yet been made. Why did the state corporation fit into this project? And what economic benefits is Finland depriving itself of?
The Finnish company Fennovoima announced that it is terminating the contract with Rosatom for the construction of the Hanhikivi-1 nuclear power plant and ceases all design and licensing work. Such a decision was "not easy for the company," but Fennovoima "is forced to abandon cooperation with Rosatom due to the risks associated with the situation on the territory of Ukraine," explained Fennovoima CEO Esa Kharmyal.
As part of the Hanhikivi-1 project, it was planned to build a single-unit nuclear power plant on a modern Russian-designed VVER-1200 reactor of generation 3+ with a capacity of 1200 MW.
The project is being closed exactly at the time of the expected receipt of a construction license – in May-June of this year, and construction was supposed to begin in 2023. The NPP was supposed to be put into operation in 2029.
Rosatom expressed disappointment that Fennovoima breaks the contract, and does it without discussion with the shareholders of the project. The largest shareholder (34%) is Voima Oy, which is owned by Rosatom. "The reasons for such a decision are absolutely incomprehensible," the corporation said.
This decision looks political. Especially in the context of the news that Finland intends to build fences on the border with Russia. "Finland consistently and methodically destroys all economic, energy, political, transport and other ties with Russia. The policy that has ensured the security of the country and contributed to the prosperity of Finland for more than 70 years is being radically revised. And few people think there how far–sighted it is," said Federation Council member Alexei Pushkov in his Telegram channel.
However, the Finns' refusal to cooperate with Rosatom may even be in his favor.
"It was a difficult project for Rosatom. Therefore, in this case, I can only be glad that Rosatom managed to get out of it in this way.",
– Sergey Kondratiev, Deputy Head of the Economic Department of the Institute of Energy and Finance Foundation, believes. Why is this luck for Russia?
Firstly, Rosatom assumed all financial risks. "The project was estimated at 6.5 billion euros. Finland was supposed to provide only 1.5 billion euros. Rosatom also undertook to attract more than 70%, including by raising funds from the National Welfare Fund. This is a unique case, because usually an interstate loan is issued for such projects. But an investor came to Finland in the person of Rosatom, who was ready to build a nuclear power plant at his own risk," explains Kondratiev.
The second important point is that Finland did not provide the investor with any guarantees of buying electricity at a high price, no guarantees of subsidies and tax deductions for this project, the expert adds. Investors usually seek guarantees of cost recovery from the authorities, especially in such long-term infrastructure projects. Otherwise, the investor risks extending the payback period of the project, which is usually large, or never recoup it at all.
Thirdly, the investor risks facing serious regulatory risks and changes in the rules of the game in the market. These risks have already worked. Firstly, Finland delayed obtaining a construction permit. Initially, construction was supposed to begin in 2015, and in 2020-2022 the NPP was already supposed to be put into operation. But the deadlines were shifted by the Finnish side.
In addition, the Finnish Defense Ministry proposed to revise the previously concluded contract for the supply of nuclear fuel with the Russian TVEL. The department, which has nothing to do with nuclear energy, suddenly decided that nuclear fuel should be supplied from different countries. That is, everyone interferes with the project, who is not lazy. And the new restrictions create even more risks for the financial situation of investors.
In this regard, it is fortunate that the Finns terminate the contract at least before the start of full-fledged construction work, when significant investments were already required from Rosatom. At the moment, Rosatom's expenses are hardly more than several hundred million euros, Kondratiev believes. If the parties do not agree on the reimbursement of investments, Rosatom will try to recover this money through the court, he believes.
As for the fate of the Finnish nuclear power plant, it is unenviable. Kondratiev is sure that at least the Hanhikivi-1 NPP project will be frozen for several years, but then, most likely, new investors will not be found and the project will be abandoned.
"A Finnish company may try to attract other investors to this project, but it will no longer receive such favorable conditions for it. We will be talking about a loan – intergovernmental or market, which will make the project more expensive. And new investors will demand guarantees of return on investment – whether it is an American Wingstengause or a Chinese investor. For example, one of the requirements of the Chinese investor in the construction of the Hinkley Point nuclear power plant in the UK was the condition of maintaining tax benefits and market regulation conditions for the entire life of the project, which is decades," says the IEF expert.
Another important point is that the new EC rules require that the owner of a nuclear power plant provide a plan for the construction of a storage facility for spent nuclear fuel. Only then will this NPP be recognized as "green" and will be able to receive preferential financing. "In the case of Rosatom, this problem was solved automatically, because it takes spent nuclear fuel. And any other supplier will need to build a storage facility in Finland. This is an additional significant investment," the source notes.
The loss of the Finnish project will not significantly affect Rosatom. He has more than 30 nuclear power plant construction projects around the world. On the contrary, it would be more logical to direct the resources that were not spent on the construction of the controversial Finnish power plant to obtain new contracts in India and South Asia, the interlocutor believes.
"The future of the Russian nuclear industry is in Asia, Africa and Latin America. This is a more predictable market. This is a more friendly attitude, and in nuclear projects this is very important, since the preparation cycle lasts two to three years plus six years of construction. These are financially more profitable projects than in Europe",
– says Kondratyev.
Why did Rosatom initially agree to such a risky project in Finland? The expert explains that the main goal was image. Rosatom wanted to implement a nuclear power plant project in Finland on time and without increasing costs in order to set an example of clear work for the rest of Western Europe. However, in the current conditions, even a perfectly executed project in Finland would hardly contribute to the emergence of new Rosatom customers in Western Europe.
The Hanhikivi-1 NPP project was much more beneficial to Finland. At the same time, the rejection of it is not critical. The fact is that this nuclear power plant is not needed to supply electricity to the current Finnish economy. It was planned to create an energy base for the development of a new industrial cluster in the north-west of the country. It was planned to build new timber processing and forestry plants here, and develop the extractive industry. Therefore, the regional authorities were extremely interested in the appearance of a nuclear power plant, but at the national level they treated the project quite calmly. If this nuclear power plant does not appear, then an industrial cluster will not appear. The country's future economy will clearly lose, but the current economy will not suffer, the interlocutor believes.
Rosatom has another project in Europe – in Hungary – the Paks nuclear power plant. And it is also under threat of freezing, and for a long time. "The fact is that the EC has been diligently pushing Russian companies out of the European market over the past few years, often even to the detriment of the European economy, and Rosatom is no exception here. And in the current conditions, the pressure on Hungary may increase," says Sergei Kondratiev. He does not rule out that the project may be frozen due to a special operation in Ukraine. "But I would not discount it, based on the fact that Hungary is well aware that it needs to build new replacement capacities. Otherwise, it will actually lose half of its generation. In the mid-2030s, the old operating power units that feed the current economy will be withdrawn. It seems that there is still a lot of time. But in fact, it is necessary to enter the site no later than 2025 in order to have time to build new nuclear facilities," says Kondratiev.
Hungary can find an alternative to Rosatom in theory, but the conditions will again be more expensive for it. "If Hungary is forced to abandon the Russian project, it will not be a serious shock for Rosatom, because it has a large portfolio of orders. But for Hungary, this will mean the end of nuclear energy in the country, as well as in Bulgaria. Because the old operating nuclear units will be decommissioned, and no new ones will be built," the interlocutor concludes. This means that you will have to buy electricity in neighboring countries. Considering current prices, it is extremely expensive. Moreover, the neighbor will not always be ready to sell scarce electricity even at such high prices. Portugal, for example, does not sell electricity to France today (via Spain). The way out for Hungary without new nuclear power units is to develop renewable energy and consume more coal (because gas is too expensive to generate electricity).
Olga Samofalova
