CC BY
33THE PROSPECTS OF NUCLEAR ENERGY IN ARMENIA
Sevak Sarukhanyan
The general condition of energy sector
The energy security has always played a key role in the system of national security of Armenia. This was conditioned by the fact that the Armenian energy sector suffered the most from the collapse of USSR. The energy supplies through the territory of Azerbaijan were halted ensuing the conflict in Nagorno-Karabakh, and since early 1990s the only supply route remaining was the one through Georgia, which had been suffering a political crisis1.
The energy sector of Armenia underwent some global changes at the end of the 1980s when the country was still under the Soviet rule; in 1989, the authorities of Soviet Armenia decided to shut down the two power-generating units of the Medzamor Nuclear Power Plant, primarily giving in to the public pressure* 1 2. The plant built in the second half of the 1970s, with the two WWER-440 reactors then producing about 80% of electricity consumed by the economy and population of Armenia. The shutdown of such an important plant caused structural changes in the energy sector, and the major burden of power generation fell on the thermal power plants. The stable supply of the natural gas and black oil fuel from different parts of the USSR enabled the two large Armenian thermal power plants – Hrazdan
* Ph.D. in Political Sciences, expert of energy and regional security in the South Caucasus, deputy director of “Noravank” Foundation, the editor-in-chief of “Globus: Energy and Regional Security” bulletin (in Armenian).
1 In the Soviet period 5 gas pipelines entered Armenia – two from Georgia and three from Azerbaijan. The latter provided for about 60% of the natural gas demand in the Armenian SSR. Since 1993 the Georgian route of gas imports had been the only one for Armenia till 2008.
2 After the 1988 Spitak earthquake many intellectuals and leaders of the newly emerging independence movement started to actively persuade the public opinion that Medzamor NPP is an environmental hazard to the country and that its continued operation will bring Armenia to the brink of extinction. Interestingly, no expert or specialist assessment took place prior to shutting the NPP down, and the decision to terminate the operation of the two powergenerating units was, above all, a political one.
11
S. Sarukhanyan
<21st CENTURY», № 1 (7), 2010
and Yerevan – to assure the stability of the energy system in Armenia. However, later on the Armenian energy system appeared in a state collapse following the termination of the natural gas supply through the territory of Azerbaijan, destabilization of the gas pipeline operation passing through Georgia, and disruption of the railway connection of Georgia and Armenia with Russia through the territory of Abkhazia. This resulted in the energy crisis of 1992-1994 when the energy capacities produced only 10-15% of the electric power necessary for the Armenian economy and population.
Amid the energy crisis, rationalism and pragmatism that have ceased to play any significant role in the political processes in Armenia since the escalation of the struggle for independence (and as a result of which the nuclear power plant and a number of the chemical plants claimed to be hazardous for the environment were shut down), reemerged again as factors in the process of political decision making in independent Armenia. The fundamental changes in the structure of the Armenian economy began from the energy sector mostly due to the crisis occurred during the first two years of independence.
Some of the important components of these changes were:
1. The April 7, 1993 Republic of Armenia Government Resolution on Initiating Refurbishment Works of the Armenian Nuclear Power Plant and Recommissioning of the Second Power Generating Unit”1.
2. The Republic of Armenia Government Resolution of September 9, 1997 on Establishment of the Russian-Armenian ArmRusgasprom CJSC. The company was established to increase the gas supply volumes, construct local gas pipelines, produce power and transit the Russian gas. Nevertheless, the most important objectives of the company turned out to be the rehabilitation of the energy infrastructure in Armenia and NKR, and the import of natural gas using the only operational gas pipeline through the territory of Georgia.
The Armenian government’s decision to create the joint Armenian-Russian “Armrusgasprom” CJSC, where the share of the Russian Gazprom increased from 45 to 80 percent in the course of time, was an important event for the Armenian energy sector. In the past years, the company has managed to secure the Gazprom-subsidized low pricing, which allowed the Armenian economy to revive quickly in an off-market mode. The company has invested about $1 billion in the restoration of the Armenian gas delivery network, construction of new local gas pipelines, as well
1 The first power-generating unit was beyond repair mostly because over the 4 years after the Nuclear Power Plant shutdown most of the equipment of this unit had been dismantled for various purposes.
12
<21st CENTURY», № 1 (7), 2010
S.Sarukhanyan
as the Armenian section of Iran-Armenia gas pipeline, which became an alternative to the Georgian route of gas import to Armenia.
Since the crisis of early 1990s, the issue of the energy system stability is at the forefront of the national security protection policy of the country, as manifested by the special position it takes in the National Security Strategy of the Republic of Armenia1. This document mentions Armenian-Russian relations as one of the factors ensuring the energy independence of Armenia, which in essence, reflects the strategic and long-term character of the Armenian-Russian cooperation in the sphere of energy.
Presently Armenia is the only electricity exporting country in the region, and a strategic significance is attached to the construction of new power generating capacities, as they will insure the stability of the system after shutting down the Armenian Nuclear Power Plant in 2016, and increase the electricity export volumes. Among these projects are [1]:
1. building a new power-generating unit at the Armenian Nuclear Power Plant with capacity of 1000 MW;
2. construction of the 5th power-generating unit at Hrazdan Thermal Power Plant with capacity of 440 MW1 2;
3. installation of a new gas turbine unit with capacity over 200 MW at Yerevan Thermal Power Plant3;
4. construction of new hydroelectric power plants;
5. building wind farms with an overall capacity of over 200 MW.
The construction of Iran-Armenia gas pipeline capable of providing Armenia with 2.3 billion cubic meters of natural gas annually, which covers roughly the entire yearly gas consumption in the country, has been a very important development for Armenia. Although with the currently stable operation of the gas pipeline going through the territory of Georgia Armenia needs no Iranian gas and the gas received by that pipeline will be used to produce electricity to be exported to Iran, in case of force majeure with the Russian gas supply this pipeline could provide for the stable functioning of the Armenian economy. Thus, the Iran-Armenia gas pipeline is not an alternative to the Russian gas as long as the latter is regularly supplied to Armenia.
1 The Strategy of National Security of the Republic of Armenia has been adopted by the Security Council under the President of the Republic of Armenia on January 26, 2007 and signed by the President of the RA.
2 To be completed in the middle of 2010.
3 To be completed at the end of 2010.
13
S. Sarukhanyan
<21st CENTURY», № 1 (7), 2010
Even though the energy sector of Armenia has become stronger for recent years and mechanisms have been created to assure its stability, in the years to come it will have to reach a crucial strategic goal, that is, building a new power-generating unit at the Armenian Nuclear Power Plant.
The importance of the nuclear energy and the project of the new power-generating unit
The recommissioning of the Armenian Nuclear Power Plant’s second powergenerating unit in 1995 solved the problem of electricity supply to the population and economy. Later on, Armrusgasprom CJSC managed to ensure the stable gas supply to Armenia, which enhanced the energy security level of the country. However, despite the stabile functioning of the Armenian thermal power plants and the largest Vorotan Hydropower Plant1, the nuclear energy still remains the backbone of the Armenian energy sector, producing about 40% of the electric power in Armenia.
Since the very first day of the Armenian Nuclear Power Plant recommissioning, many European countries, and subsequently also the EU have expressed concerns about its safety, as the nuclear reactor of the Medzamor power plant is evidently the only one which was re-commissioned after a full closedown. Since late 1990s, the issue of shutting down the Armenian Nuclear Power Plant for the second time has been a significant factor in Armenia-Europe relations. In 2003, the Government of Armenia contracted Inter RAO UES for trust management of the plant in an effort to ensure the steady supply of nuclear fuel and continuous expert attention to the equipment and plant safety. It has been already seven years since this sizable Russian company is in charge for the safety of the NPP, but EU never stopped insisting to shut it down out of safety considerations.
In 2007 Euratom initiated official talks with the Ministry of Energy of Armenia seeking prospects for closure of the plant, but the technical format of the talks could not address the main issue: what will Armenia get in return for the shutting down the plant. This is a matter of alternative thermal, hydro- and nuclear power capacities. Neither Euratom nor the EU made any tangible proposal to Armenia on financing the construction of alternative capacities. During the 6th meeting of the Armenia-EU Cooperation Council, Hugues Mingarelli, Director-General for the European Commission’s external relations with Eastern Europe, South Caucasus and Central Asia formulated the maximum assistance that Armenia could expect from Europe: “If the government of Armenia takes steps to shut down
1 It provides about 8% of the electric power production in the country.
14
<21st CENTURY», № 1 (7), 2010
S.Sarukhanyan
the Armenian Nuclear Power Plant as soon as possible, the European Union would hold an international conference of the donor countries to raise the necessary funds for that” [2]. As a matter of fact, this has to do solely with financing the safe shutdown of the plant.
Meanwhile, back in 2005 the Armenian president and prime minister declared that the only alternative to the shutdown of the functioning reactor would be the construction of a new one. The EU has criticized this position of Armenia, but since European structures were not ready to offer and finance other projects, the European stance on the issue of the new reactor had to change. At the end of 2006 the envoy of the European Commission in Georgia and Armenia Torben Holtze accepted that it is reasonable to strive for building a new reactor instead of the old one [3].
Perhaps, the European policy on the new power-generating unit was prompted by the fact that Armenia is able to create thermal power capacities equivalent to the nuclear ones. In 2010 the fifth power-generating unit of Hrazdan Thermal Power Plant will be put into operation, with a power generation capacity close to that of WWER-440 nuclear reactor to be shut down. In addition, a number of other projects that can compensate the shutdown of the Nuclear Power Plant are implemented in Armenia, including the construction of hydropower plants of various sizes, the largest of which with the design capacity of 400MW will be constructed by Armenia and Iran on the Araks River.
However, the presence of a nuclear reactor in Armenia is not an exclusively technical issue. It correlates with two main factors:
1. Regional situation. The energy crisis in Armenia after the collapse of the USSR came to prove that failure of the energy system might be caused not necessarily by the absence of the power generating capacities, but by the impossibility of the fuel imports. Natural gas, the second by significance input for energy after the nuclear fuel for Armenia, is imported to the country through the territory on unstable Georgia where the risks of new destabilization are very high, and from Iran, which may eventually become a new focal point of regional conflicts. The closed borders with Azerbaijan and Turkey effectively put Armenia in a full dependence on the situation in Georgia and Iran. Even if the relations with Azerbaijan and Turkey are normalized, one should not expect that after such a long conflict these two countries would become reliable energy partners for Armenia in short-term or even mid-term perspectives. If some day in future getting natural gas from the south or north turns impossible, then in absence of a nuclear power plant Armenia, may suffer the same
15
S. Sarukhanyan
<21st CENTURY», № 1 (7), 2010
kind of energy crisis as it did in 1993-1995. Consequently, the construction of a new reactor, the fuel supply for which is not dependent on Georgia’s or Iran’s transit policies, is of vital importance for Armenia.
2. Energy business. Today the electric power generated in Armenia exceeds the internal demand. However small were Armenia’s revenues from exporting electricity to Georgia over these 10 years, it still was an income, and to some extent this brings a stimulus to Georgia for maintaining good relations with Armenia. After opening the Armenian-Turkish border, Yerevan will have an opportunity to reach the energy market of Turkey, eastern provinces of which suffer from the deficit of electric power, with electrification of some regions there just now commencing. It is obvious that when a new reactor twice as powerful as the old one, is built in Armenia to replace the WWER-440, the export capacities will increase. In this view, the new reactor may become a good business project for the country and its partners who will invest in the construction of the new plant. Hence, from a strictly economic viewpoint, the new reactor would be oriented towards opening of the Armenian-Turkish border1.
On the legal side, the issue of building a new Nuclear Power Plant was submitted for consideration to the Armenian parliament, which passed the bill “On Construction of a New Nuclear Power-generating Unit in Armenia” on October 27, 2009, in the third final reading, thereby allowing the construction of a new powergenerating unit with a capacity of up to 1200MW.
Finding investors for building the new power-generating unit might have been the biggest problem for the Armenian party until recently. From the very beginning of the discussion on possible sources of financing, different countries and organizations were mentioned, including the USA, Russia, France, Asian Bank of Reconstruction and Development, etc. In this regard, the prime minister of Armenia has noted; “There is a serious interest in this project. Generally, the construction of nuclear power plants around the world has some constraints; the reactors are reserved 10 years ahead, including those in Russia. Everybody knows who builds what and where, and there are too many of those who would like to invest, especially today, as many investors have the money and do not know what projects to invest in.”1 2
1 Most likely, this was the underlying rationale for the Armenian Prime Minister Tigran Sargsyan’s invitation made in spring 2009 to the Turkish party to participate in the new power plant construction.
2 “Arka” Information Agency, October 19, 2009.
16
<21st CENTURY», № 1 (7), 2010
S.Sarukhanyan
Nonetheless, in reality no country but Russia showed any significant interest in the nuclear project of Armenia. Apparently, this is due to lack of any visible business interest in relation with the new power-generating unit, owing to the following circumstances. The issue of opening the Armenian-Turkish border has not been resolved yet; the Armenian party’s actual share in the project financing, as well as its sources have not been clarified; and some other risks have to be yet specified. In addition to that, the Armenian party seeks both investors for construction and a company that will build the plant, actually providing only the project site, and so all of these play an important part in the scanty interest to the project. In this backdrop, there are only two ways to attract investors:
• to show that their investments will break even in a rather short period and will generate profits in a relatively near future;
• to exploit not so much the economic benefits, but the political significance of the project, leaving behind such categories as sure breakeven and large revenues.
It would be safe to say that the Armenian party succeeded in the latter, since there seem to be no convincing arguments for the former. The Russian-Armenian relations and Russia’s strategic interest in strengthening its positions in the regional energy market definitely contributed to resolving the problem of financing for the construction of a new power-generating unit. The matter concerns not only Armenia, but also Turkey and Iran where the electricity produced at the new powergenerating unit of the Armenian NPP can be exported in the future. Today Armenia is the only country in the region with a potential for such exports. The construction of a new power-generating unit may only increase this potential.
The issue of building a new power-generating unit for the Armenian Nuclear Power Plant was discussed at almost all the high-level Armenian-Russian negotiations. Finally, on December 3, 2009 the Government of Armenia approved the draft resolution to establish a closed joint-stock company (CJSC) to build a new power-generating unit for the Armenian (Medzamor) Nuclear Power Plant. The Russian company Atomstroyexport and the Armenian party represented by the Republic of Armenia Ministry of Energy and Natural Resources incorporated this CJSC with equal shares for each. As announced at the Government Cabinet session, the new power-generating unit with the capacity of 1,060 MW and operational lifetime of 60 years will be equipped with a Russian-made reactor. According to the Armenian Prime Minister Tigran Sargsyan: “The political decision is made. We
17
S. Sarukhanyan
<21st CENTURY», № 1 (7), 2010
endorse the establishment of a joint venture with our Russian partners in equal shares.”1
The Armenian-Russian accord on construction of a new power-generating unit can be regarded one of the major achievements of the Armenian government in recent years, which became possible thanks to wisely drawing on the Russian interests in the region.
The construction project of the new power-generating unit, planned to start next year, will cost $5 billion according to the preliminary estimates. It is supposed that Atomstroyexport company will provide half of the project financing, while Armenian party will most likely get a loan from the Russian Federation to cover the financing of the other half. Probably a WWER-1000 class reactor will be installed at the site.
Another important direction in the nuclear sphere is the Armenian-Russian project of the uranium ore exploration in Armenia. A joint venture was established in 2008 for geological prospecting, mining and processing of uranium on the territory of Armenia; the Armenian-Russian Mining Company, CJSC. The company commenced field works in Syunik province where supposedly uranium deposits exist. By different estimates, the uranium reserves in Armenia vary from 10 to 60 thousand tons. In 2008 Armenia officially joined the international centre for uranium enrichment in Angarsk, where the uranium to be mined in Armenia is planned to process. The Russian party has allocated $3 million to Armenian-Russian Mining Company, CJSC for the uranium geological prospecting. The statutory capital of the joint venture consists of 300 common nominal shares with 150 shares for each party, totaling to an authorized nominal capital of about $300 thousand [4].
One of the most sensitive problems related to this issue is the transportation of uranium from Armenia to Angarsk for further processing. The absence of railway communication between Armenia and the external world (other than Georgia) hampers any large-scale uranium exports. Theoretically, the Georgian seaports could used, but the Russian-Georgian relations may negatively affect this option. In future, building a railway from Armenia to Iran may create another option for the export of uranium, but there have been no specific agreements signed for that so far. On the other hand, the export of radioactive materials suitable for military purposes through the territory of Iran is something that is hard to know when it will be acceptable for the international community.
1 http://www.regnum.ru/news/1231523.html
18
<21st CENTURY», № 1 (7), 2010
S.Sarukhanyan
Though the Armenian-Russian Mining Company operates rather intensively, it is too early to talk about the uranium mining in Armenia.
Conclusions
1. The matter of protecting Armenia’s energy security is of central importance within the system of the national security. Owing to this, the country has made progress in stabilizing and securing the energy sector development of the country by creating new capacities and diversifying the routes for the supply of energy inputs.
2. However, despite the results achieved, Armenia remains politically and economically dependent on the nuclear energy, which presently is the “backbone” of the national energy system. Therefore, shutting down the functioning power-generation unit of the Armenian Nuclear Power Plant in absence of an alternative capacity constitutes a menace to the energy security of Armenia.
3. Therefore, the decision to build a new nuclear power-generating unit meets the interests of Armenia and subsequently, it will ensure the energy security of the country and create opportunities for electricity exports. It is important to mention that covering the costs of the power plant construction is directly correlated to the Armenian-Turkish dialogue that may enable exporting the electricity produced by the new power-generating unit to the Republic of Turkey.
Apiil, 2010
Reference Sources and Literature
1. Karen Karapetyan, The Role of Armenia in the Energy Security Ensuring of the South Caucasus Region // “21st Century” #1, 2009.
2. Деловой Экспресс — Экономический еженедельник Армении // 30 июня - 6 июля 2005, №24 (632).
3. Мовсесян Г, Будущее Армении — в развитии ядерной энергетики // Республика Армения, № 093 (479), 22 декабря 2006.
4. Аванесов А, Кто будет строить новую АЭС в Армении // Мировая энергетика. - № 1 (60), январь 2009.
19
