Development Strategy of State Corporation Rosatom to 2030

Russian Studies Series 3/19

DOCUMENT REVIEW

by Nazrin Mehdiyeva*

Review of the Document Development Strategy of State Corporation Rosatom to 2030 [Strategiya razvitiya “GK” Rosatom do 2030 goda], June 2012

http://2012.atomexpo.ru/mediafiles/u/files/Present2012/Karavaev.pdf

Atomic energy is at the heart of Russian strategic planning, and central to both economic and national security. Russia’s atomic energy sector is in the hands of a diversified corporation – Rosatom – which possesses competencies at all stages of the nuclear production chain. It is also the country’s largest electricity producer, providing nearly 19 percent of Russia’s power needs, and plays a central role in the development of the Arctic, where among a number of tasks, it will regulate shipping. The strategic aspect of this was illustrated by Alexei Likhachov, Rosatom’s CEO, who has stated that the corporation must ensure the eastward transport of no less than 70 million tonnes per year of cargo to growing South East Asian markets from 2030.1

The military significance of atomic power (and Rosatom) to Russia is amply demonstrated by the fact that the corporation oversees Russia’s nuclear weapons complex, which develops, tests and produces all of the country’s nuclear munitions. In this regard, Rosatom is responsible for, among other things, the overhaul, modernisation and substantial planned expansion of Russia’s nuclear powered maritime and naval assets, including vessels such as the Akademik Lomonosov, the floating nuclear power plant, and new nuclear powered icebreakers. Yet the corporation’s contribution to Russia’s security is multi-vectored, stretching far beyond the military domain.

This paper reviews Rosatom’s Development Strategy to 2030 (RDS2030), gauging its success against its targets as the corporation prepares to extend its planning horizon to 2050. The review places it in the context of other strategic planning documents, such as the National Security Strategy and the Energy Strategy, and the Performance of State Atomic Energy Corporation Rosatom in 2016 (Public Annual Report focusing on Rosatom’s business strategy to 2030).2 In so doing, it illuminates how Rosatom’s domestic and international activities enhance Russian state security and advance Moscow’s long-term strategic objectives, and concludes that, since its formation in 2007, Rosatom has emerged as a powerful geopolitical player.

Reviving the atomic energy sector

In the early 1990s the Russian nuclear industry plunged into a state of dilapidation in which it wallowed well into the mid-2000s, eventually becoming an environmental and economic security threat. The widening gap between electricity supply and demand threatened to produce power shortages by the 2020s. In this context, failure to revitalise the country’s atomic industry risked constraining Russia’s economic growth, reversing its much-prized energy self-sufficiency and limiting the influence that Moscow still retained as an energy exporter. This became a powerful stimulus to reform. Reform was also prompted by Russia’s exclusion from the lucrative international market for nuclear power plant (NPP) construction. More than 100 nuclear power units had been built between the early 1990s and mid-2000s – but none with Russia’s participation.
The severity of the problem led to President Putin’s personal involvement and support for the reform plan proposed by the then head of the Federal Atomic Energy Agency and former Prime Minister, Sergei Kiriyenko (who, since 2016, has been First Deputy Head of the Presidential Administration). Signed into law in 2006, the reform programme envisaged the creation of Rosatom: a strategic, vertically integrated and fully state-owned company, managing the assets of the Russian nuclear industry at all stages of the nuclear fuel cycle. The programme instigated a series of expensive and far-reaching changes that have redefined the industry and today contribute to solving some of the state’s hardest geopolitical challenges. RDS2030, developed on the basis of the goals set by the state for the civil part of the Russian nuclear industry and approved by the corporation’s supervisory board in October 2014, has a strongly defined external dimension, which envisages Rosatom as an active and growing actor on the global scene.

Key goals to 2030

Rosatom’s interests largely coincide with those of the state and have been incorporated into RDS2030. The most striking overarching objective of RDS2030 is Rosatom’s aspiration to be among the top three players in every segment of the global nuclear market by 2030. To this end, the company seeks to achieve three inter-related strategic goals: market expansion, product innovation and enhanced global competitiveness.

The goal of winning a larger market share is central to the other two: developing new products and strengthening Rosatom’s competitive edge.3 In its original version, RDS2030 stipulated that the share of foreign orders in Rosatom’s revenue would rise from 33 percent in 2011 to 50 percent by the end of the period.4 This target had nearly been met by 2016 when foreign business came to account for over 47 percent of Rosatom’s revenue. The new goal has been set at “over two-thirds” by 2030.5

To this end, the corporation has been developing new products and technologies in sectors beyond its core business, including nuclear medicine, lasers, robotics, supercomputers and wind power. These are expected to enable Rosatom to generate income internationally while helping the Russian state meet its goals of economic modernisation and diversification of exports towards higher value-added commodities.

In the sphere of atomic energy, innovation has been focused on Rosatom’s Proryv (Breakthrough) project. RDS2030 elaborates that Russia’s technological leadership is to be achieved through the introduction of fourth generation – fast neutrons – nuclear reactors. Proryv seeks to develop fast neutron reactors using a closed nuclear fuel cycle. Carried out under the Advanced Nuclear Technologies Federal Programme 2010-2020, the project encompasses most of Russia’s advanced nuclear research and development. Proryv’s scientific leader Evgeny Adamov believes that the project is approximately 10 years ahead of other global undertakings in civil nuclear power.6 Commercialising this technology by 2030, as is intended in RDS2030, would considerably advance Russia’s positions in exporting civil nuclear technology. In RDS2030, revenue from new products is to increase to 40 percent of the total by the end of the period. Considerable progress towards this goal was made in 2014-16 when Rosatom’s 10-year portfolio of orders for new products grew by 74.6 percent while revenue from new products, both within and outside of Rosatom’s core areas of expertise, increased by 52.6 percent. Equally, efforts to boost Rosatom’s global competitiveness focus on cost reduction of products and lead times for NPP construction. The corporation is already very competitive in uranium production and enrichment where it is estimated to have the lowest costs in the world and where it expects to grow its share of the market to 42 percent by 2030.

Rosatom has successfully capitalised on its expertise by taking an improved version of the tried and tested VVER reactors to the global market, and economies of scale remain integral to its expansion strategy: the more projects the corporation has, the cheaper they will become. Yet another key aspect of Rosatom’s ambitious growth is access to large long-term loans from the Russian state, which have enabled the corporation to attract newcomers to the civil nuclear market, including those who under regular circumstances would not have been able to afford nuclear power plants (NPPs). Rosatom appears to be aware of risks and so its expansion remains selective, with the customer’s ability to repay loans with interest featuring as an important factor in determining whether projects go ahead. Rosatom regards the Asian market as its primary target for expansion, attractive not only because of the rapid growth in electricity demand but also due to the customers’ ability to pay for projects. Indeed, in the environment of heightened conflict with the West, Rosatom’s expansion to Asia has been fully in line with the Kremlin’s political reorientation towards the East.

Opposing the West

Rosatom’s contribution to national security has grown since the imposition of Western sanctions in 2014. Though the sanctions do not apply to the nuclear industry, Russian strategic documents characterise them as “restrictive economic measures” imposed by “the USA and its allies seeking to maintain their dominance in world affairs” and aimed at “containing” Russia.7 Breaking free from containment is a priority security objective of the Russian state, and Rosatom is one of its main instruments.

Russia’s Energy Strategy to 2020 asserts that the country’s role on the world energy markets in many ways “determines its geopolitical influence”, and atomic energy is increasingly regarded as a powerful tool in its own right.8 In the context of sanctions, Rosatom’s externally orientated strategy advances the government’s objective of strengthening relations with non-Western states. With 36 nuclear power units currently under construction, Rosatom is the global leader in this segment of the market and its efforts are focused on Asia from which the bulk of demand for NPP construction emanates. At USD97.6 billion, the construction of NPPs abroad represents the lion’s share of Rosatom’s 10-year portfolio of overseas orders worth over USD133.5 billion. This is more than the order books of all of Rosatom’s Western competitors combined but, according to RDS2030, the value of its foreign orders is to increase further – up to USD200 billion – by the end of the period.

Rosatom offers an integrated package approach to countries with no or little experience in the civil nuclear market. This differentiates Rosatom from its competitors, expands its market presence and advances state interests. Politically, success in expanding the operations of Russian companies abroad has been regarded as both an act of political defiance of the West and a means to strengthen Russia’s economic and national security.

Rosatom’s domestic activities in civil nuclear energy also contribute to national security. First, as discussed above, a revived nuclear industry ensures Russia’s continued energy self-sufficiency in the long term. RDS2030 states that the share of atomic energy in electricity production would grow from 17 percent to 23 percent by 2030. The draft Energy Strategy to 2035 (ES2035) lowers this figure to 19-21 percent, reflecting the impact of the economic crises on domestic demand. Crucially, however, the ES2035 stipulates that the role of nuclear power in Russia’s energy balance must increase to enhance the country’s resilience and energy security.9 As of late 2017, Rosatom had eight power units under construction in Russia, highlighting the fact that the lower-than-expected demand should not detract from the long-term government objective of ensuring that when growth resumes, nuclear power will pull its weight in the economy.

Second, increasing the share of nuclear power in electricity production also allows the government to meet its key strategic objective of growing its global share of the hydrocarbons market. Rosatom’s installation of new capacities in Russia is therefore linked to another energy and national security objective: sending a growing proportion of hydrocarbons, including LNG, to the global market rather than diverting them for domestic consumption.

The importance of the nuclear fleet

The corporation’s value to the state received another boost in late 2018 when the power struggle between the Transport Ministry and Rosatom was decisively settled in favour of the latter, resulting in its further empowerment. The new law, signed by Putin on 28 December, bestows top authority on Rosatom to shape and implement state policy in the Northern Sea Route (NSR).10 The changes in legislation and the corporation’s numerous newly acquired responsibilities will likely be incorporated into RDS2030, as the government will now look to Rosatom to meet its key development objectives in the NSR over the next decade. The extended strategy to 2050, which is currently under consideration, will also set new objectives for the corporation. These will reflect Rosatom’s heightened strategic status in the Arctic, which now extends considerably beyond its ownership of the nuclear fleet.

Some of the new major responsibilities acquired by Rosatom include approving navigation rules in the NSR, overseeing and regulating shipping through the northern waterway, providing hydrographic and topographic support, and organising rescue operations. It is now also responsible for designating circumstances under which icebreakers must be used for convoys and developing an infrastructure plan for the NSR. Rosatom will plan, build and manage infrastructure, most notably ports, along the way. This represents a major administrative shift and underscores the increased long-term strategic value that the government assigns to Rosatom in introducing year-round shipments along the NSR within the next decade. Ensuring year-round navigation along the NSR, which nearly halves sailing times between Europe and China, is seen as a way of making the route profitable and ensuring Russia’s international competitiveness.

A large-scale upgrade of the icebreaker fleet, which is required for year-round navigation, is currently underway. When completed, Rosatom will be able to increase its activities along the NSR, solidifying Moscow’s claims to the passage as its internal waterway. Russia’s current nuclear fleet consists of four ice-breakers and one container ship, which are based in the Kola Bay. All eight new icebreakers that are being constructed by Rosatom as part of the upgrade are expected to be operational by the early 2030s. These include three powerful LK-60 icebreakers, of which the first, Arktika, was put on the water in June 2016 and the other two, Ural and Sibir, are under construction.

Arktika is the world’s most powerful nuclear icebreaker and its main purpose is to assist vessels that carry hydrocarbons from the Arctic deposits. The construction of the icebreakers is a major step forward in Russia’s ability to overcome Western sanctions, which have sought to impede the development of Arctic resources. Russia’s ability to evacuate the Arctic resources and deliver them to the Asian markets enables the Kremlin to break free from Western containment by diversifying its customer base and generating new income streams, which in turn strengthens the country’s economic and national security. As the owner and operator of the nuclear-powered fleet and now the main actor responsible for the development of the NSR, Rosatom plays a key role in helping the state achieve its strategic objectives in the north, which will define many of Russia’s international positions in the decades to come.

Conclusion

Rosatom’s activities have received considerably less attention in the West than those of Gazprom or Rosneft. However, Rosatom’s achievements in helping the Russian state meet its strategic objectives are significant. These include helping the Russian state overcome Western sanctions, establishing new income streams and promoting Russia’s international standing. Taken together, Rosatom’s achievements have strengthened Russia’s national security and enhanced Moscow’s ability to challenge the US-led world order. RDS2030 illuminates both the outlook, plans and priorities of the organisation (and how these relate to other strategic plans) and the hub-like position that Rosatom holds at the heart of Russian strategy.