Russian nuclear exports: will they withstand the war in Ukraine?

Russia’s invasion of Ukraine brought massive sanctions and severe blows to its economy. It has also led to unprecedented condemnation of Russian leadership, as well as growing international isolation.

Regardless of the military outcome of the invasion, its aftermath will severely undermine Russian diplomatic, trade and business initiatives with potential global partners. This includes the nuclear energy export sector, which is the preserve of the state energy company Rosatom.

Of the 57 constructions of nuclear reactors initiated between 2011 and 2022, 13 concerned Rosatom. Unlike China, the country most active in building nuclear power plants, ten of them were outside Russia’s borders, making it the world’s largest exporter in terms of nuclear power plant development.

Interest in building nuclear power plants plummeted following the Fukushima incident in 2011. The years that followed also saw rapid growth in the solar and wind sectors.

But there is still a pool of nations that have shown a keen interest in nuclear energy, such as Saudi Arabia or, in Africa, Rwanda.

Rosatom has been extremely active in trying to conquer this declining market. It was only last year that Zimbabwe signed an agreement with the company in which they engage in a vague form of cooperation in the field of nuclear energy.

Countries seeking to install a nuclear power plant invariably face major hurdles. These include very high and sometimes unpredictable construction costs and long construction times. New power plants generally do not start producing electricity until 10 years or more after the start of a project.

For most countries, this means seeking long-term loans in the order of US$10 billion or more which then have to be repaid with interest.

The complexity of the technology and the supply of the nuclear fuel processed also binds the customer country in a relationship of dependency with the country which develops and maintains the nuclear power plant. This can mean that the agreements usually span 40 years. Such a partnership can only work if both countries enjoy long-term stability.

With the invasion of Ukraine economically destabilizing Russia and driving it ever closer to international pariah status, any potential nuclear energy partnership is now severely strained at best, and at worst doomed to collapse.

Russia’s nuclear energy sales strategy

In the agreements concluded by Rosatom over the past ten years, Rosatom has adopted a very aggressive commercial expansion strategy.

It starts with Russia signing, usually through its agency Rosatom, memoranda of cooperation in the field of nuclear energy with a country that has expressed an interest in nuclear energy. They then press for the agreements to be extended to declarations of intent to jointly build new nuclear power plants.

Rosatom has a lot to do. It had already started building – or is expected to start building soon – factories in China, India, Bangladesh, Turkey, Hungary, Belarus, Finland and Egypt. In Africa, Russia has cooperation agreements which aspire to eventually lead to nuclear construction commitments with some twenty countries.

Russia has set up attractive low-interest loans for customers who are unable to afford the cost of building a new nuclear power plant. These loans typically require annual repayments that only begin once a plant is operational and continue for about 20 years. And they are heavily subsidized by the Russian state.

The Egyptian El Dabaa project is a good example of how loans are structured. The loan amounts to 25 billion dollars, which should theoretically cover 85% of the construction costs. Annual interest is 3%, with repayment beginning in 2029 and continuing for 22 years thereafter.

And if things go wrong

Since the attack on Ukraine began, Russia has faced unprecedented international condemnation, sanctions and targeted blows to its economy.

An immediate consequence was the suspension and possible termination of Rosatom’s Hanhikivi project in Finland. In Hungary, another member of the European Union, Rosatom’s Paks II nuclear power plant is clearly under threat.

Other international projects will also come under increasing scrutiny.

The biggest threat to Russia’s international nuclear energy initiative will be project financing. An already weakened Russian economy, hit by foreign sanctions and the costs of war, will not be able to afford the massive loans on which all of its foreign nuclear projects depend.

In addition, much of the funding often comes from private companies. But they will now be deterred from investing in financially risky projects linked to Russia, as they would then expose themselves to potential sanctions and reputational damage.

Russian-led nuclear developments are now also at a much higher risk of construction delays and cost escalation due to complications in material sourcing and difficulties in financial transactions. The already significant long-term economic dangers associated with large-scale nuclear developments will now multiply and drive away potential customers.

There is also a political dimension to the zeal with which Russia has tirelessly pursued its global nuclear energy initiative. A country receiving a loan and depending on Russia to maintain its electricity supply now becomes very dependent and must maintain the goodwill of the Russian government. This can compromise the independence of a country.

Nigeria has just announced that it is looking to build nuclear facilities. Under previous circumstances, Russia would have been a favorite in the awarding of this contract. Given the geopolitical situation and the associated funding issues, however, it is now almost impossible to envisage a situation where Rosatom could carry out this project.

Similar situations will likely occur even in some cases where construction is already underway. For example, the Egyptian construction of El Dabaa also relies on other partners who favor the isolation of Russia.

The era of Russian foreign nuclear construction is therefore likely to be over soon.

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