Ukraine to buy electricity from Russia, more nuclear fuel from the West

Ukraine’s Ukrinterenergo and Russian Inter RAO signed a deal to import electricity to Ukraine, the Interfax news agency reported on Dec. 30, citing Russian Energy Minister Alexander Novak. The one-year deal stipulates supply of up to 1.5 GW of power capacity, he said. Another deal was signed between Ukrinterenergo and a subsidiary of Inter RAO to supply power to the occupied Crimean peninsula from Ukraine’s mainland.

In other news, Westinghouse Electric Company reported that it agreed to significantly increase fuel deliveries to Ukrainian nuclear power plants through 2020. The company did not disclose the scope of cooperation. Currently, one of four nuclear power plants (NPP) in Ukraine, Pivdennoukrayinska NPP, is using nuclear fuel elements produced by Westinghouse, while the rest are using Russian-made elements, as tradition. Westinghouse fuel elements were first loaded at Pivdennoukrayinska NPP in 2005, and after their testing they were modernized to better fit the conditions of the Soviet-made power units.

Alexander Paraschiy: The import of Russian power to Ukraine, as well as reportedly renewed supplies of steam coal from Russia, may enable the nation to avoid an electricity deficit in January and February, as compared to December when it was hit with an unusual power deficit. The deficit made power system operators implement rolling power cuts, which affected negatively some industrial enterprises (e.g., Ferrexpo, which was expecting its pellets output to fall by about 15% m/min December). The concluded contracts offer some chance that Ferrexpo, as well as other industrial companies, won’t suffer power cuts in 2015.

Cutting such energy deals with a violent enemy makes logical short-term sense if Ukrainian government leaders will revamp the Ukrainian economy to be more independent from Russia in the long term. Indeed, such deals make all-the-more apparent the senselessness of the Russian government’s violent aggression against a country that had been so closely linked economically. The government will be targeted for criticism by populists and nationalists, but the other option is shock therapy and economic devastation.

Cooperation with Westinghouse, which Ukraine started in 2003, was one of the main factors that kept Russian nuclear fuel flowing to Ukrainian power reactors in 2014, we believe. Unlike with natural gas and coal, nuclear fuel supplies from Russia were not interrupted because Ukraine has had an alternative supplier in Westinghouse and there was a high risk that the Russian corporation TVEL would fully lose the Ukrainian market. We expect the latter will remain key supplier of nuclear fuel to Ukraine in the mid-term.