Why did Armenia refuse the Russian loan for the modernization of the Nuclear Power Plant?

Metsamor NPP provides about 1/3 of the electricity supplied to the networks. The reactor of the nuclear power plant was designed in 1960-1970, and did not have a specific license expiration date. It is one of the popular Soviet water-water energetic reactors (WWER-440). In Metsamor, the oldest seismic modification of the WWER-440/230 model was installed, which was named WWER-440/270.

However, the safe and uninterrupted operation of the nuclear power plant requires upgrading works. To this end, a loan agreement was signed between Armenia and Russia in 2015, according to which the Russian Federation was supposed to provide $ 300 million to the Republic of Armenia for upgrading the second power unit of Metsamor NPP, of which $ 270 million as a loan and $ 30 million as a grant. The contract was signed for 4 years, i.e. until 2019. The loan repayment period is 10 years, which was to start on January 15, 2020, with 3% annual interest rate starting from the date of using the loan amount.

However, since the end of 2018 and during 2019, negotiations were held to extend the loan period. Hakob Vardanyan, Deputy Minister of Territorial Administration and Infrastructure, Coordinator of the Energy Sector, told Civilnet that since the end of 2018, the execution period of certain works has been longer than required by the loan term. According to him, a situation was created when there was a large balance of money, that is, the work, which should have been 90% completed, 90% of the payments should have been made by December 31, 2019, simply had not started. According to the deputy minister, the draft loan extension document envisaged extension of the term until December 31, 2021, but it was already April, and there was no extended loan agreement yet.

Moreover, the substantiation of the proposed draft included the circumstance that in February 2020, the Russian Ministry of Finance submitted a protocol to the Armenian side on extending the term for two years with stricter conditions. In particular, the protocol suggested that 80% of the loan should be directed to procurements from Russian companies.

All this led to the Prime Minister of the Republic of Armenia Nikol Pashinyan announcing at a government session on June 11, 2020 that the Armenian government had refused a Russian loan to upgrade the second power unit of the Metsamor NPP and the unfinished work in the program will be continued using the means of the RA Government.

The Union of Informed Citizens NGO sent an inquiry to the RA Ministry of Territorial Administration and Infrastructure to find out how much of the loan has been used. We were told that as of December 31, 2019, USD 173.6 million had been used from the loan, $ 19.3 million from the grant, while $ 96.4 million from the loan and $ 10.7 million from the grant had not been used.

In response to the other question on whether “Rosatom” will continue the upgrading works if Armenia provides the money for the upgrading of the nuclear power plant, the ministry answered that according to the RA Government Decree N 945-A (11.06.2020), to implement the program, a relevant framework agreement shall be signed between “Armenian Nuclear Power Plant” CJSC and “Rosatom Service” JSC, the price of which cannot exceed the amount of USD 40.255 million. This is due to the fact that the implementation of the program requires the involvement of organizations within the structure and within the influence range of “Rosatom” state corporation.

During the June 11 session of the government, a decree was adopted to allocate AMD 63 billion 200 million (about 131 million USD) from the state budget of Armenia during 2020-2022 to finance the works for extension of the operation of the Armenian Nuclear Power Plant CJSC, of which AMD 18 billion 700 million in 2020,  AMD 31 billion 500 million in 2021, and AMD 13 billion in 2022.

You can get acquainted with the list of works to be carried out within the framework of the budget loan here.

In addition, in 2021, a major suspension of works is planned at the nuclear power plant (135-140 days), during which two major safety-related tasks will be performed: heat treatment of the reactor body and modernization of the emergency core cooling system of the reactor. Contracts for these works have already been signed.

Thus, the main reason for refusing the loan provided by Russia was that from the end of 2018, the execution period of certain works was longer than required by the term of the loan, due to which the works had not started and the money was not used. However, the loan period gradually expired. Then, in February 2020, Russia submitted a protocol with a proposal to extend the term of the loan, presenting strict requirements, which led to the decision of the Armenian government to refuse the loan. One of the strict demands of Russia was that 80% of the loan should be directed to procurements from Russian companies. However, it became clear from our inquiry that also in case of the budget loan provided by the Republic of Armenia to the nuclear power plant, procurements will again be made from the Russian “Rosatom Service” JSC.

 

Sona Mkrtchyan,

Union of Informed Citizens