Zee Beam News

Sep. 24, 2007 - Kommersant by Yakov Pappe, Ekaterina Drankina
The nuclear industry is the most multifarious of the topics covered in this series. The state never intended to privatize this industry, but nonetheless so it went in the 90s, albeit secretly and to insiders. Officially the state accumulated these assets. But private investors have appropriated a role on the level of subsidiaries and internal companies.
The Atom for Insiders
Of all the high-tech sectors of the former Soviet economy, the nuclear industry caused the most alarm in the 90s. They tried not to talk about it too much, but they was no guarantee that the motherland’s sword and shield wouldn’t come crashing down on its own citizens once they left communist hands.
Luckily things turned out well. The market transformations in the nuclear industry took place slowly, calmly and constructively; a large part of its potential was able to be preserved and put to use. We feel that this is largely due to the nuclear Establishment, known for its conservatism and businesslike grip. It is also the result of the nature of the Medium Machine Building Ministry (a pseudonym for the nuclear industry), which was a de facto state within a state. It operated its own construction, transportation, agricultural and electrical industries, just to name a few. There were enough assets to satisfy the appetites of those in the industry that wanted to start their own business. To this day the largest construction company in Yekaterinburg bears the name “Atomstroikomplex” (a Russian abbreviation for “atomic construction complex”), bearing witness to its genealogy. Today it is owned by a former member of the Medium Machine Building Ministry and builds mainly roads and housing.
The private structures that belonged to the atomic establishment were also tightly woven into the system of exporting contracts for nuclear power plant contracts and related equipment. One of the first projects of the atomic elite was to created Conversbank, which in the first half of the 90s held a high place in various ratings and rankings. But by the end of the decade it came under attack by MDM an Alpha. As a result there was a long conflict, during which the main accounts of the industry were transferred to other banks and the winner, MDM Bank, received only the building and an “empty shell.”
However the core of both the military and civilian nuclear systems were preserved as state property. The latter were represented mainly by three holding companies. These were Rosenergoatom, which united all nuclear power plants; the wholly-owned TVEL united nuclear fuel production (TVEL is a Russian acronym for “heat-generating elements”); and Tekhsnabexport, which unites the output and export of specialized materials and technologies that are used in the nuclear industry. It also includes enterprises for uranium mining and enrichment.
Outsiders Coming In
Enterprises that put out equipment for the nuclear industry but were not part of the Medium Machine Building Ministry had a completely different fate. The majority of them went through a crisis related to a lack of orders. Some practically died, like the famous Atommash (“Atomic Machines”) in Volgodonsk. All were privatized in some from or another. It wasn’t the nuclear components of their work that attracted investors, but those that made up other, larger orders and income. In addition to nuclear reactors and equipment for nuclear power stations Izhorsk Factories, for example, was capable of producing special steels and goods produced from it, as well as a wide gamut of machine building products. These products were used on the domestic market as well as exported to other markets. A factory by the name of Degtyzreva (in Kovrov) was famous for two main production forms: uranium isotope separation centrifuges and weapons. ZiO-Podolsk supplies power equipment for nuclear and heating stations in addition to equipment for the oil, gas and chemical industries. The corporate history for each of these enterprises is different. The management of Degtyarev acquired control of the company immediately after its privatization in 1992 and over time increased their share to 52%, leaving the so-called golden share for the state. The remaining shares continually changed hands. Since the mid-90s ONEKSIM-Bank and New Program and Conception Holding (MDM Group) directly owned the large shares. Each tried to gain control over ZiD but were unsuccessful. Izhorsk Factories were also privatized in the mid-90s. Its stock was spread out among a large number of portfolio investors, mainly foreign. In 1998 the enterprise entered the sphere of interest of Kakhi Bendukidze. Within a year his company, Uralmash Factories, acquired roughly 80% of Izhorsk Factories’ stock. Of that, 17% was purchased and the remaining share was traded for its own additional offering. The new structure, called Uralmash-Izhora Group, and later United Machine Building Factories (OMZ), claimed the lead in domestic machine building.
ZiO-Podolsk was the last receive foreign investment. Yevgeny Tugolukov, a former manager of MDM Group bought the company and from it formed a mid-sized machine building holding, EMAlliance, which included the Taganrog factory Red Copper-smith and the engineering company Ziomar.
Dispelling the Privatizers
In 2003 Russian large business made its first decisive step into the nuclear industry. Kakha Bendukidze bought a controlling stake in Atomstroiexport (Atomic Construction Export), the main contractor building nuclear power plants abroad. Earlier the controlling stake belonged to atomic-insiders. In our opinion this event was a fatal move for Bendukidze as a Russian entrepreneur and a sign to the state that it was time to regain control over both the core and the periphery of the nuclear industry. Moreover the general ideological mood had shifted in that direction and the money would soon follow. Russia’s Atomic Ministry decisively opposed Atomstroiexport’s privatization and began searching for a market solution to the problem. As in many other situations, Gazprom came to the rescue. Gazprombank bought Bendukidze’s stake and immediately sold the government the shares it needed for control. Some time later Bendukidze, who had become Georgia’s economic minister, was forced to sell his shares in OMZ. Officially, the dominating stake in the company belongs to a group of investors represented by Gazprombank. There is active discussion of dividing the company, in which case Izhorsk Factories would move to the soon-to-be government structure Atomenergomash, and Uralmash would become the foundation of another machine building holding.
They were easier on Yevgeny Tugolukov. In 2006 they made him an offer he couldn’t refuse. EMAlliance formed a subholding EMAlliance-atom encompassing ZiO-Podolsk and Ziomar. Tugolukov’s structure received a 50% minus one stake in the subholding and the newly created state company Atomenergomash bought a controlling stake. About a year later EMAlliance got a new stockholder. Renova bought a 25% minus one share stake from Tugolukov. We feel that Renova was chosen by the state as a desirable partner in the nuclear industry. Renova, in consultation with Rosatom, is presently trying to acquire the uranium assets of YuAR.
The most refined scheme of nationalization goes to the Degtyarev nuclear power plant. In 2005 the plant completely changed its stockholder base. Rosoboronexport (Russia’s intermediary agency for exports/imports of defense–related goods and services) bought 43% in ZiD, belonging to MDM-Bank and immediately resold it to Tekhsnabexport. The management sold its shares to Igor Kesaev, a private entrepreneur considered to be a close partner of Rosoboronexport. It seemed that nationalization could be considered finished. But, as the Russian saying goes, one den won’t hold two bears, especially when they are both state bears. In 2006 an unexpected solution is found: an asset exchange between ZiD (and a set of other defense enterprises) and Kovrov Mechanical Factory (KMZ). The Degtyarev nuclear power plant went to KMZ and the weapons production of the latter went to ZiD. Likewise Tekhsnabexport received at least 75% in KMZ while Kesaev, it would seem, got close to 100% in ZiD. Experts say this radical corporate restructuring had no negative effect on the nuclear or the weapons industry.
The outcome of the ZiD and KMZ deal seems not only rational, but successful as well. Producers and exporters are concerned about brand, which ZiD has been for many decades. The atomic elite on the other hand aren’t so concerned about brand. They will just as successful under the KMZ brand as they were under their maiden name.
Radiating optimism
It seems that the nationalization of nuclear machine building is just a prelude to a real global change. In the summer of 2006 Vladimir Putin approved a development program for the nuclear industry through 2030. The program was proposal by Sergei Kirienko, head of Rosatom since 2005, and calls for the percentage of nuclear energy in the country’s total electric output to increase from the current 15% to 23-25%. The scale of the proposal, if it is to be reached in full, is comparable to the dawn of the Soviet nuclear energy. The media usually cite 40 new reactors (officially in 2005 there were 31 nuclear plants in operation). However, in the summer of 2006 Sergei Kirienko stated in an interview in the journal “Business People” that accounting for the current stations that will go offline, 40 new stations will be needed just to maintain the current level of nuclear energy produced in Russia. In spring 2007, speaking at an innovation fair, confirmed that “we have received considerable funds and have set a concrete task – to bring no less than two plants online each year and then raise that to three or four.
A Job for a Superholding
Atomenergomash will hold all civil nuclear systems while Rosatomenergo, TVEL, Tekhsnabexport, Atomenergomash and others will become subholdings. Atomenergomash will be formed in two stages. The first will be to gather all structures that are already owned by stockholders. The second will incorporate those that are not. Atomenergomash will be wholly-owned by the state and will in turn wholly own its subholdings. Private capital will be necessary and welcome as non-controlling shareholders in its subsidiaries. The authors of the Atomenergomash project stress that the holding will compete for the title of world leader in the industry (the other rival being France’s Areva, also a state company). In the first two months of its formal existence Atomenergomash fully acquired TVEL and Atomenergozoloto (which holds all of Russia’s uranium assets), a testimony to the seriousness with which the authorities are treating the project.
How can one interpret the state’s intentions? It is important to note that nuclear energy and industry is the most natural point and for massive state interference. In addition the development of the nuclear industry is really the development of advanced technology. Finally, there are also doubts that the gas and coal energy will be able to completely provide for the needs of the country given the current conditions (not to mention replace gas as an export good in the foreseeable future).
But there are serious arguments against massive nuclear construction. We won’t get into the technicalities of the risks. That is a job for the professionals. Although the scale, timeline and political order is somehow associated with a rush job and cause an alarm.
But there are also risks of a purely economic nature. Sergei Kirienko announced that “we are already beginning to see a backlash on foreign contracts. They are slowly putting the breaks on negotiations for foreign tenders because Russia has made developing nuclear energy a priority.” Some experts think that the turn from the foreign market is connected to fears in industry leadership over the increasing competition on foreign markets. Whatever the case it sounds frighteningly similar to like state plans. The domestic tasks are not yet formed and they’ve suggested closing one of the few high-tech exports that regularly brings in billions.