Russian president Vladimir Putin approved Rosatom's project to supply power to a copper deposit in Chukotka. The cost of this project is 169 billion rubles.
Russian president Vladimir Putin expressed preference for Rosatom's proposal to supply power to the Baimskaya copper project in Chukotka, owned by KAZ Minerals, using floating power units. The cost of this project is 169 billion rubles.
This follows from the letter that the First Deputy Chief of Staff of the Presidential Executive Office, chairman of the supervisory board of Rosatom, Sergei Kiriyenko, sent to the president on March 4. In it, he explains the advantages of Rosatom's proposal over the alternative - NOVATEK's floating power plant running on liquefied natural gas (LNG). This letter has the President's resolution: "I agree." RBC has a copy of Kiriyenko's letter (the Energetic Insight Telegram channel was the first to write about this letter), its authenticity was confirmed by a source close to one of the applicants for the energy supply of the Baimskaya copper project.
The government knows that the president has supported Rosatom's project to supply energy to the Baimskaya mine and mill, the White House press service told RBC. This option was finally approved and reported to the investor.
Presidential spokesman Dmitry Peskov said he “traditionally” does not comment on official correspondence. RBC sent inquiries to the press services of KAZ Minerals and NOVATEK.
Why was the proposal of Rosatom chosen?
In 2018, KAZ Minerals acquired from Roman Abramovich, Alexander Abramov and their partners the Baimskaya deposit with reserves of 9.5 million tons of copper and 16.5 million ounces of gold for $ 900 million. It is ready to invest 570 billion rubles in the construction of a mine and mill on the basis of this deposit, but Russia shall provide it with power supply. The new mine and mill was originally planned to be launched in 2024, but in November 2020, the Kazakh company rescheduled the launch for 2027. In 2028, it is planned to reach its design capacity of 70 million tons of ore per year. To provide power to the Baimskaya mine and mill it will require up to 350 MW of new generation per year, taking into account the power reserve.
Before the approval of the project with Rosatom in the summer of 2020, the government agreed on another energy supply scheme – using the floating LNG power plant of NOVATEK worth 82 billion rubles, Kommersant wrote. We even agreed with KAZ Minerals on the electricity tariff under a bilateral agreement at the level of 6.34 rubles for 1 kW • h. But at the very end of the year, the authorities reconsidered the decision, and Rosatom's proposal became the main one. In December, Yuri Trutnev, deputy prime minister in charge of the Far East, said, "I think we have to build a nuclear power plant in order for the Baimskaya project to be implemented."
The postponement of the launch of the mine and mill from 2024 to 2027 makes it possible to consider an alternative approach to power supply of the Baimskaya mine and mill – Rosatom’s proposal, according to a letter from Kiriyenko to Putin. It provides for the construction of four modernized floating power units with a total installed capacity of 200 MW from the beginning of 2027 and 400 MW from the fourth quarter of 2028. By this time, it is also planned to build the fifth power unit to replace them "in order to reload fuel and repair". In order to meet the deadline, the company will start designing the power units before signing construction contracts.
According to Kiriyenko's letter, Rosatom will order the construction of five floating power units with a capacity of 500 MW at the Baltic Shipyard, which is part of the United Shipbuilding Corporation (USC). The tariff for KAZ Minerals will be slightly higher than that proposed by NOVATEK - 6.45 rubles for 1 kW • h. Back in November 2020, Georgy Poltavchenko, the chairman of the board of directors of USC, ex-governor of St. Petersburg, proposed to build nuclear power units at the Baltic Shipyard. Then Putin wrote Kiriyenko the order "Report your opinion" (RBC has a copy of Poltavchenko's letter, its authenticity was confirmed by a source close to one of the applicants for power supply of the Baimskaya mine and mill). RBC sent a request to USC.
“We won the competition because, as a vertically integrated corporation, we fully control the entire energy production cycle and are less dependent on market volatility than NOVATEK,” said Vyacheslav Ruksha, deputy general director of Rosatom and Head of the Northern Sea Route Directorate. “So we can guarantee the investor a fixed rate of 6.44 rubles per 1 kWh, including transmission tariff of 0.44 rubles per 1 kWh for the entire service life of the station with indexation in rubles, ” he added. In nuclear energy, in contrast to the generation of electricity from natural resources, at higher capital costs, operating costs are much lower, and most importantly, much more predictable, explains Ruksha. According to him, the cost of the fuel component in coal and gas stations reaches 70-80% of the prime cost. As for nuclear power plants the cost of raw materials (natural uranium) does not exceed 3%.
Kiriyenko says, "The project has a potentially significant socio-economic effect for the Russian economy and is strategically important for the demonstration of reference floating nuclear power plants of low power and their positioning in international energy markets". He hopes that this will secure a long-term order for Russian enterprises in the nuclear and shipbuilding industries.
Rosatom's proposal is preferable due to the greater maturity of the technology using a floating nuclear power plant (the Lomonosov FNHPP is already operating in Pevek, Chukotka), says Sergei Grishunin, the managing director of the National Rating Agency. He agrees that the replication of this technology will allow Russia to increase its export opportunities for floating nuclear power plants, since the two implemented projects in Russia will convince foreign buyers to choose this solution. LNG technology, in turn, requires significant improvements for such a large project, the expert warns: now in Russia there are no such solutions and gas carriers of the appropriate size.
What arguments did Kiriyenko and Poltavchenko offer?
Rosatom's proposal for power supply to Baimskaya mine and mill is more expensive than NOVATEK's. The estimated cost of the power units is 169 billion rubles, and the gas company's power plant is 35 billion rubles, and the cost of the LNG storage facility is 30 billion rubles. Moreover, grant of 33.7 billion rubles will be required for construction of nuclear power units at the USC plant, but it is planned to be compensated by tax revenues (from the production of these units), which are expected at the level of 46 billion rubles.
According to Kiriyenko's letter, the service life of nuclear units reaches 40 years with the possibility of extension to 60 years, while the power plant has only 25 years.
The main argument in favor of the Rosatom project, offered by Poltavchenko in his November letter, is that the construction of nuclear power units is planned to be carried out at Baltic Shipyard using Russian equipment. Besides, if government support funds are allocated for their construction, the degree of localization will reach 95%. Kiriyenko made it clear that construction will be carried out mostly by domestic enterprises - no less than 85% of the total investment. Alternative energy supply options using floating facilities (including NOVATEK's proposal) do not allow achieving similar parameters in terms of the degree of localization and increase dependence on foreign component equipment, said the head of the USC board of directors.
Poltavchenko writes in his letter that turbines of the German Siemens should be installed at the floating LNG power plant of NOVATEK. Therefore, due to the sanction restrictions, the station will most likely be built not in Russia, but at Korean or Chinese shipyards. Besides, there is a high risk of failure to meet the deadlines for the construction of the units, as well as the delivery of steam turbine units. Grishunin confirms, “A high-power gas turbine from Siemens is an extremely expensive and risky investment, since in the event of aggravation of international relations, the normal functioning of this equipment will not be guaranteed”. RBC sent a request to the press service of Siemens. At the same time, the main equipment for Rosatom power units (RITM 200 reactors) is made in Russia.
Sanction risks
Russia has not yet begun production of its own high-capacity gas turbines; they are assembled only in cooperation with world players - American GE and German Siemens. In 2017, four SGT5-2000E turbines manufactured by order of Technopromexport (owned by Rostec) for delivery to power plants in Taman were modified and delivered to Crimea. This led to an international scandal: the supply participants, including Technopromexport, found themselves under Western sanctions, and Siemens demanded the return of its equipment, but this demand was not met.
“[Rosatom's] proposal has been preliminarily developed with key prospective contractors and suppliers of major equipment, and also discussed with interested federal executive authorities and organizations, including KAZ Minerals and GDK Baimskaya (a subsidiary of KAZ Minerals. - RBK) ", - concludes Kiriyenko. According to him, the government will make a "final decision" on the option of supplying energy to the Baimskaya mine and mill "in the near future."