OREANDA-NEWS. December 10, 2009. Prime Minister Vladimir Putin and Sergei Kiriyenko discussed Rosatom’s cooperation with Russian and foreign partners and the corporation’s development plans for 2010.

Transcript of the meeting: Vladimir Putin: Mr Kiriyenko, I would like us to discuss several issues today.

The first question, naturally, will be about the sector's performance results this year; the second one about the nuclear power generation development, that is, the progress of our plans to build more reactors. What were the main achievements in 2009, and what are the immediate plans for 2010?

Rosatom is also one of the major customers of Russia's power engineering companies. Therefore, I would like to hear about your contacts with domestic partners. And finally, what about contacts with foreign partners?

Sergei Kiriyenko: First of all, I would like to report on the 2009 performance. The key performance indicator in the sector is the amount of energy produced. We were very concerned that the economic downturn would lead to a sharp fall in consumption. However, we eventually exceeded this year's targets. My report is subject to minor alterations because the year is not over yet. So far we have generated 148.9 billion KWh, or 700 million KWh above the plan.

Vladimir Putin: Do you mean to say that consumption is growing?

Sergei Kiriyenko: It depends on the region. The general downward trend has certainly been reversed - it feels like there has been a turnaround. Unfortunately, certain regions have posted a decrease in production compared with 2008; in others, the situation has changed. It is important that we have maintained nuclear power generation at basic capacity. We have significantly reduced time for maintenance and repair and increased the capacity coefficient - that is, tried to compensate for the effects of the crisis and eventually exceeded the assignment.

If no major drops in temperature occur before yearend, 2009 will be another record year - we'll produce more energy than in 2007 and 2008, also record years for Russia's nuclear industry.

Secondly, Mr Putin, as you have always set high safety requirements for the industry, it is important to mention that we did not exceed our production plan by lowering safety standards. In fact, we have raised them.

We generally keep to our schedule, and importantly, no violation of safety rules has been registered. There is an internationally accepted scale for measuring safety violations in case they endanger the power plant's personnel or local residents. We have not had anything of the kind for years. There have been incidents - minor breaches of the rules, which get registered anyway; we registered 30 such incidents in 2008 and 26 in 2009.

Vladimir Putin: It is a downward trend, isn't it?

Sergei Kiriyenko: Yes, it is. The number of breaches has been moving down steadily for a few years.

We expect good financial results this year. In 2008, we earned 365 billion roubles. The Supervisory Board and the Government issued an instruction to boost our earnings by 20% to 440 billion, which is not an easy task during recession. However, even with the necessary adjustment for the two weeks until the end of this year, I have a feeling that we will exceed this target, too. Preliminary estimates suggest Rosatom will earn 518 billion roubles this year, up 37% from 2008. We did it.

Another important indicator is labour productivity. The Government's instruction for the economy is to double productivity; as the driving force of the economy, we understand that the nuclear industry should double that effort and raise productivity four-fold, which is at a rate of 12% a year.

Vladimir Putin: Are you succeeding?

Sergei Kiriyenko: Yes we are. We expect an 18.5% growth this year. It certainly differs across the sector, because, for example, we are careful not to overdo it at defence companies, where it is more important to ensure stable fulfilment of orders. However, we have drawn up plans (and reported to you) which will eventually ensure a 12.5% growth there as well.

At any rate, this situation is compensated for by companies implementing civil nuclear programmes, such as uranium mining, which is showing a very dynamic growth, or fuel production. So yes, we are succeeding.

In fact, Mr Putin, the sector's aggregate income has grown 360% since you announced its reform. The growth is also due to consolidation of assets and government support, including financial assistance.

Vladimir Putin: So you are saying the reorganisation was successful.

Sergei Kiriyenko: Yes. The reorganisation, net assets, the government support, the consolidation of all civil assets of Russia's nuclear industry and the [federal target] programme for the sector's development have certainly helped.

The Government instructed us to consolidate the assets and ensure the industry's effective development, which would be evaluated by the size of net assets. The growth amounted to 350% since the onset of the changes. Labour productivity increased by 170% over the time. This means we are exceeding all our targets.

With regard to consolidation, I would like to relate to you the words of gratitude from the crews of Russia's nuclear icebreaker fleet. They celebrated the 50th anniversary of the fleet last week.

The nuclear icebreaker fleet was assigned to Rosatom last year.

The personnel enjoyed the celebrations; they are also happy that we have fulfilled our task and kept everyone on board while transferring the fleet to the state corporation. Earlier, it was managed by the Murmansk Shipping Company, a private stock company.

Thank you for providing government support and allocating 1.8 billion roubles. The fleet has fully repaid its tax debt, which had brought it to the verge of bankruptcy. Salaries were raised 61%. The situation has changed dramatically. The accumulated nuclear waste has been disposed of.

A new icebreaker model is in the works - the design will be completed this year. The Transport Ministry has ordered a new icebreaker in accordance with next year's federal programme. The service life of existing icebreakers is being extended. This means we will ensure stable operation of Russia's nuclear icebreaker fleet and fulfilment of the national strategic goals in the Arctic.

As for the construction plans, I would like to ask for a favour, Mr Putin, if at all possible. We are planning a signal event, the resumption of mass construction of nuclear power plants, and these are not just plans but practice. We are completing the construction and will commission the second unit of the Rostov nuclear power plant soon. We have completed the basic stages of work, and the technical safety authority, Rostekhnadzor, has started an inspection of the plant today.

We believe that we will be ready to commission it by December 20 or shortly afterwards, possibly in time for the Power Engineers' Day. We are not trying to complete the project for a definite holiday, but it would be nice. Commissioning marks transition, when the plant has been completed and is being turned over from builders to the management, and when nuclear fuel is fed into the reactor. From then on it is a nuclear power plant. The plant will come on stream next spring, when it will start supplying electricity to the grid.

The construction of this power plant began long ago [the groundbreaking ceremony was held in 1977; the project was suspended in 1990 and resumed only in 1998]. From now on we will undertake only new projects, commissioning a nuclear power plant every year. Next year we will commission the Bushehr plant in Iran; we are at the final stage there, and are assembling equipment. Next on the agenda is Kudankulam in India. In 2011 we will commission the Kalinin block, which you visited last spring, and the second power unit at Kudankulam. And so on every year.

Mass construction of nuclear power plants stopped in 1986. Since then, we completed only three projects - in 1995, 2001 and 2004. These projects were at an advanced stage of completion. We are now resuming mass construction, when one or several nuclear power units will be commissioned in Russia and abroad.
As for ordering equipment...

Vladimir Putin: Just a minute. What are you planning for next year?

Sergei Kiriyenko: Next year we plan to commission the first mass produced units which we started building in 2007-2008. Their construction is stipulated in a five-year plan. In 2009 we were to complete the second unit of the Rostov power plant. In 2010 we plan to commission two power plants abroad. One of them is Bushehr and the other is the first unit of India's Kudankulam, which we plan to commission jointly with our Indian colleagues. In 2011, we are to commission the fourth unit of the Kalinin nuclear power plant and the second unit of Kudankulam. And so on, year by year... In other words, we are working on schedule.

A few words about the effectiveness of the management system. We have always known that one of our targets is that the corporation must ensure effective management of the sector. Mr Putin, I can assure you that although we have posted such good results in terms of revenue and profit we have cut our managerial staff in the state corporation and in the key holding companies managing the nuclear power industry. The total number of managerial personnel was 3,600 people in 2007. It is now 2,500. That is, we have cut managers by over 30% and management expenses by nearly 45%. This is a key indicator for all companies around the world. We have posted good results.

Now I would like to tell you about orders and cooperation in terms of key companies.

First, we are buying everything from Russian producers. Your directive was to maintain the sector despite competition and despite the crisis, because the sector is the driving force of the economy. I can tell you that we have done so - we place all our orders with Russian enterprises. I will cite two enterprises as an example. I know that during your live question and answer session you had a question about the Izhora Plants.

Vladimir Putin: This is what reminded me...

Sergei Kiriyenko: In 2006, the plants had no orders, but this chart shows their contracts by year (shows a chart). Currently, the Izhora Plants have contracts worth 16 billion roubles (USD 530 million), with 5.7 billion roubles (USD 189 million) of advance payment. And the amount keeps growing.

Another question: Mr Putin, we are creating competitive and fair conditions, just as we agreed, but only among Russian producers. We are not placing orders with foreign companies if they can be fulfilled by Russian enterprises.

Vladimir Putin: You should get together with them to think of ways to create conditions for their modernisation. They will be able to do so with government assistance and by using their own and borrowed funds. But they will work confidently only when they learn about the parameters of the market demand, which you can tell them about.

Sergei Kiriyenko: We know about this goal, and we are working jointly with the enterprises to attain it. Open and fair tenders are a good way. Mr Putin, we have prepared a package of materials on this issue for you. Falling prices are a problem. They are good guys, who know a lot about doing business, but when any one of them comes across competition, they start playing around with prices. Look at what we have done. We asked them what price they would set for their products. Only one enterprise has given us an answer. We said we would not build nuclear power plants at such prices and proposed an open tender only for Russian enterprises. And the price plummeted 80% and more.

This is what we do now when we plan to place an order with an enterprise. We have established a company at Rosatom which is in charge with technical documentation and which helps the enterprises that have never produced equipment for the nuclear power industry. We will help you, we say. We will tell you what equipment you should buy to be able to take part in open tenders. Prices fall when we hold open tenders by an average of 25%-30% and even more.

Sometimes the price falls by as much as one and a half times. This means that the starting price was set inappropriately high in the hope that no other company would be able to manufacture the required equipment.

Another example is Power Machines, a company that has taken up orders worth 45 billion roubles (USD 1.5 billion), or as much as the nuclear power industry has placed. This is a good company; it wins tenders without cheating. We have placed orders for seven turbines with it, which is actually more than we need to implement our programme. We are moving slightly ahead of the programme, that is, we order more than we need so that the producer will have the ability for mass production.

A few words about foreign contracts. Our key partner is India. We have signed an intergovernmental agreement and are completing the drafting of a contract. Four units for Kudankulam, where we are completing two units now - another four for that power plant. And one more important thing, which we have been negotiating with Indian authorities for a long time: They have fulfilled their promise and allocated one more site, in West Bengal, where we will supply between four and six units.

Vladimir Putin: That's great.

Sergei Kiriyenko: All in all, we will supply 12-14 units made according to Russian technology to India. We have offered our Indian colleagues to use unique Russian experience to build not individual units but series of such power units. This experience dates back to the Soviet era. We are reviving it now to be able to produce one nuclear power unit every year. We are completing two power units for Kudankulam and will have to stop. We have told our colleagues we should continue so as not lose valuable personnel, who have gathered momentum.

Vladimir Putin: Yes, this would be cheaper.

Sergei Kiriyenko: In our estimates, they can save 25%-30% when ordering several units.

Vladimir Putin: Instead we will have to disperse professionals, only to gather them again later, and dissemble equipment we will need to assemble again later.

Sergei Kiriyenko: More on this key issue. Take Bulgaria. Acting in accordance with your instructions, we have drafted a new proposal for the Bulgarian Government. Their main problem concerns financing. We have fully coordinated the project. If you approve it, we may come to an agreement very quickly, probably during a meeting of the intergovernmental commission on December 10-11.