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Viewing cable 09BRUSSELS1385, RUSSIA FLEXES MUSCLES ON UKRAINE NUCLEAR FUEL

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Reference ID Created Released Classification Origin
09BRUSSELS1385 2009-10-15 12:45 2011-08-24 01:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY USEU Brussels
VZCZCXRO4748
RR RUEHPOD
DE RUEHBS #1385/01 2881245
ZNR UUUUU ZZH
R 151245Z OCT 09 ZDK
FM USEU BRUSSELS
TO RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHC/SECSTATE WASHDC
INFO RUCNMEU/EU INTEREST COLLECTIVE
RUEHKV/AMEMBASSY KYIV
RUEHSK/AMEMBASSY MINSK
RUEHMO/AMEMBASSY MOSCOW
RUEHOT/AMEMBASSY OTTAWA
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEKJCS/SECDEF WASHDC
RUEHUNV/USMISSION UNVIE VIENNA
UNCLAS SECTION 01 OF 02 BRUSSELS 001385 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENRG RS UP AA KTDB
SUBJECT: RUSSIA FLEXES MUSCLES ON UKRAINE NUCLEAR FUEL 
SUPPLY 
 
BRUSSELS 00001385  001.8 OF 002 
 
 
This cable is unclassified, but sensitive.  Please protect 
accordingly. 
 
1. (SBU) An internal Rosatom strategy document, designed to 
secure the long-term supply of nuclear fuel to Ukraine, was 
leaked to the Ukrainian press on Monday, October 12.  The 
document, which was provided to econoffs/energy attaches in 
European posts by industry sources, outlines a broad strategy 
to coerce the GoU and its nuclear utility (SE NNEGC 
Energoatom) to enter into a long range supply contracts with 
TVEL ) the Russian state nuclear fuel company in order to 
maintain Russia's dominance of the market.  According to the 
source, the strategy was drafted by the President of TVEL and 
the Deputy Director of Atomenergopom, the parent Russian 
nuclear company, and approved by Alexander M. Lokshin, the 
Deputy Director General of Rosatom on July 9, 2009. 
 
2. (SBU) The strategy intends to shut Westinghouse out of the 
supply market in Ukraine.  Westinghouse has a contract to 
supply nuclear fuel to three units at the South Ukraine 
Nuclear Power Plant from 2011 to 2015; Ukraine's remaining 
twelve units are supplied by TVEL.  (Note:  Westinghouse's 
supply contract was the result of a DoE-managed, $80 million 
FREEDOM Support Act project to enable Ukraine to diversify 
its sources of nuclear fuel supply.  End note.)  Since 
October 2008, Westinghouse has been also negotiating with the 
GoU to build a nuclear fuel assembly plant in Ukraine, which 
would increase its ability to supply fuel by 2015.  Thus, 
according to the paper, "2015 is a critical (year) for 
Rosatom." 
 
3. (U) The objective of the strategy is to strengthen 
Rosatom,s share of the Ukrainian and European markets by: 
--forcing Westinghouse out of Ukraine; 
--preventing Ukraine from securing fuel reserves by limiting 
deliveries in 2010; 
--securing an agreement for a Russian fuel assembly facility; 
and 
--securing a long-term fuel supply contract through 2020. 
To do so, the paper recommends TVEL withdraw from the supply 
negotiations while pressure is levied on political, economic, 
and public diplomacy fronts. 
 
4. (U) The paper contends that President Yushchenko's calls 
for diversification of fuel supplies, which are currently 
monopolized by Russian fuel suppliers, contradict the spirit 
of the Russia-Ukraine economic cooperation protocol executed 
earlier this year by the two prime ministers.  They also 
argue that GoU efforts to secure short-term contract 
extensions through 2015, rather than agreeing to a long-term 
supply contract through 2020, (and linked to the construction 
of a fuel assembly facility), constitute a breach of the 
protocol.  The strategy calls for Putin to notify Tymoshenko 
that this breach "may result in the cancellation of fuel 
supply in 2011," as well as a delay in the construction of 
the fuel assembly facility.  As Westinghouse does not have 
the capacity to increase fuel supply before 2015, this would 
cripple Ukraine's nuclear power capacity. (Note:  Ukraine 
faced similar threats in March 2008 before signing the 
contract with Westinghouse.  End Note.) 
 
5. (U) The paper recommends other options for "creating zones 
of pressure."   One is to choose the Czech Republic as the 
final site for the fuel assembly facility.  This would leave 
Ukraine dependant on external sources for fuel assembly and 
boost Russia's chances of winning the Czech contract for 
construction of five nuclear power plants.  (Note: 
Westinghouse is also a bidder on the Czech contract.  End 
note.)  Another proposal is a joint venture with Westinghouse 
on fuel fabrication if Westinghouse "quits the Ukraine 
nuclear fuel market."  In the alternative, the Russian 
strategy proposes creating alliances with GE and/or Siemens 
to threaten Westinghouse's U.S. market share.  It also 
suggests exploitation of Atomenergopom's relationship with 
the U.S. Enrichment Corporation (USEC) to pressure 
Westinghouse.  (Note: USEC purchases reprocessed 
weapons-grade uranium from Russia for civilian nuclear power 
generation.  End note.) 
 
6. (U) If Ukraine continues to seek short-term supply 
contracts through 2015, the paper recommends a TVEL issue a 
"draft contract on the toughest conditions for 2010."  One 
condition would require Ukraine to pay for supplies in full 
150 days before shipment which would inhibit Ukraine's 
ability to maintain a strategic reserve.  Another would be 
the refusal to purchase uranium from Ukraine for conversion 
 
BRUSSELS 00001385  002.6 OF 002 
 
 
and enrichment.  This would significantly increase the cost 
of fuel.  The paper also proposes a public relations campaign 
to discredit the GoU in Ukrainian, Russian and foreign media. 
 
7. (SBU) The paper warns that if Westinghouse gains a 
foothold in Ukraine, it will have a "springboard" into the 
European market.  This could result in "considerable losses" 
for the Russian nuclear industry.  According to the source, 
the President of Ukraine's Energoatom said the paper is 
consistent with Russia's actions over the past few months. 
 
8. (SBU) Comment:  The strategy paper reflects concerns 
raised by industry reps and Ukrainian diplomats the past few 
months and is consistent with Russia's efforts to dominate 
the gas supply market in Europe.  In this regard, Ukrainian 
diplomats fear that Russia might threaten future gas supplies 
as additional leverage on the nuclear fuel contracts.  End 
comment. 
 
9.  (U)The Ukraine news article can be accessed at 
http://www.zn.ua/2000/2229/67446/.  For an unofficial 
transcription of the report, contact Louis Bono at 
BonoLL@state.gov. 
 
10. (U) This cable was cleared with Embassies Kyiv and Sofia. 
 
Murray 
.