Westinghouse to supply Ukraine reactors

If it hasn't yet, Westinghouse Electric Co. might want to send a thank you note to Russian President Vladimir Putin, said Joel Gingold, a nuclear fuel consultant based in New York.

After technical problems threatened Westinghouse's attempts to break into the fuel supply business for Russian-built reactors, the Cranberry-based company got a major win on Friday when Ukrainian utility Energoatom extended its fuel contract for two nuclear reactors in south Ukraine through 2020.

The deal is estimated to generate between $100 million and $200 million over five years if the option to supply more plants is exercised.

Westinghouse's fits and starts at making fuel for Russian reactors began in the Czech Republic when the nuclear utility there discovered defects in Westinghouse fuel assemblies and switched back to Russian fuel.

When Westinghouse got a contract to try its fuel in Ukraine through a government program aimed at diversifying Ukraine's nuclear supply, similar problems surfaced.

Westinghouse blamed the troubles on the Russian fuel assemblies, which were loaded alongside the company's product in the reactor core, but Energoatom said the deficiencies originated with Westinghouse's design.

"This was two strikes for Westinghouse," Mr. Gingold said. "We were speculating that if they couldn't get this resolved, this might just be the end of their foray into Russian reactors. And there are Russian reactors all over the world now."

The opportunity for Westinghouse reaches beyond Ukraine. A handful of other European countries, including Bulgaria and the Czech Republic, rely exclusively on Russian fuel. In light of recent political events and Russia's stronghold over gas supplies in the region, some are already talking about diversifying, according to Hans Korteweg, a company spokesman.

Mr. Korteweg said Westinghouse has made changes to its fuel -- "not safety related but design changes to make our fuel more robust" -- and is ready to service other European countries.

"It's just a matter of common sense to continue to diversify their fuel supply," Mr. Korteweg said. "I would imagine with security of the gas situation in the Ukraine, it only makes it more logical to go forward with this."

But Mr. Korteweg played down the timing of the deal, suspecting the political crisis in the Ukraine has hurt, not helped, negotiations.

Westinghouse was hoping to have a contract agreement in December, he said, but that was delayed as the government's attention turned elsewhere.

"We have been in discussions with Energoatom since June 2013 with the previous administration," he noted.

Nevertheless, the deal is rich with geopolitical significance.

Pravda.ru, the website of Russia's news service, announced the agreement with the headline: "Nuclear disaster and collapse of energy industry in store for Ukraine."

"Certainly there's some connections to the Ukrainians wanting to prove that they have other options than the Russians," said Jonathan Hinze, senior vice president at Ux Consulting Co. "I think the geopolitical situation certainly has played into Westinghouse's hand."

Meanwhile, Russia is trying to break into Westinghouse's fuel business with a pilot program at a Western pressurized water reactor in Sweden. Incidentally, Westinghouse's fabrication plant that supplies fuel for Ukraine's reactors is in Sweden.

Half of Ukraine's electricity comes from nuclear energy generated at 15 reactors across the country.

Because of this large proportion -- the U.S. gets about 20 percent from nuclear power -- Ukraine decided to build a fuel factory and put the project out for bid to Westinghouse and Rosatom.

The Russian company won and the project began "pre-construction" in 2012. But, according to Mr. Hinze, it has been put on hold during the ongoing conflict.

Most likely, the plant eventually will get built by the Russian-Ukrainian joint venture, Mr. Gingold said. But "if relations continue to get worse, then there will be the question: Can Westinghouse take over this thing?"

Ukraine is also a thoroughfare for Russian nuclear fuel traveling to countries in Europe, a route that was briefly endangered during the protests and the heat of the conflict in Crimea, at which point Russia flew the fuel to utilities by plane.

"The nuclear industry in Russia is very much reliant on exports," Mr. Hinze said. "They would certainly be happy if this had not happened. They've been working very hard to expand their reach globally -- and this certainly [raises] the question about whether you should rely on Russia for fuel."

With Westinghouse the only other company vying to supply Russian-made reactors, the uncertainty could play in its favor.

Rosatom and Westinghouse also were competing to build new nuclear plants in the Czech Republic. However, that country's government just announced it has suspended the project after it failed to get a major subsidy, citing poor market conditions.

Anya Litvak: alitvak@post-gazette.com or 412-263-1455.

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