Hybrid Threats to Ukraine’s Energy Security

This is now the second year that a systematic propaganda war has been waged against Ukraine’s nuclear energy industry, writes James Wilson.

The purpose of the black PR campaign is to destabilise Ukraine’s energy security and wrest control of the main power generation capacity for the nation’s electricity. If successful, the principal beneficiary would be Russia, who would not only control a strategic Ukrainian national asset but also restore their old monopoly position for the supply of raw materials and services to the Ukrainian nuclear industry.

As the autumn leaves start to fall, we are reminded of the need to prepare for the cold weather, which is a critical activity for all suppliers of energy. This winter will mark the fourth cold season that Ukraine’s nuclear energy sector has successfully managed operations since Russia launched its invasion of Ukraine in 2014.

During the past 3 years Ukraine’s state-owned nuclear power generating company Energoatom has improved the transparency of its public procurement, in line with best commercial business practice, by diversifying its suppliers of nuclear fuel, high technology equipment and services to decrease its dependence on Russian companies. The consequent loss of market share for Rosatom and other Russian suppliers has been painful for them on many levels, and this has also threatened the Kremlin’s international nuclear diplomacy. So it comes as no surprise that the puppeteer in orchestrating the black propaganda campaign against the Ukrainian nuclear sector is the Russian State. But they are also assisted by the negligence and failures of the Ukrainian Government Ministries, in particular the Ukrainian National Commission for the Regulation of Energy and Utilities, and the State Service of Geology and Mineral Resources in the Ministry of the Environment.

An early effort to paralyse Energoatom’s operations was the strategic use of the Ukrainian court system, (sometimes euphemistically called the best judiciary that money can buy), to block the company’s bank accounts. But the fictitious lawsuit on which these actions were spuriously based, failed when it was exposed as fraudulent.

Then last yearAndiy Derkach, a member of the Verkhovna Rada and a religious zealot with a KGB background, together with another Member of the Rada, Andriy Artemenko, started to lobby the media and public authorities with unfounded allegations that the operation of Ukrainian nuclear power plants was unsafe, and that the management of Energoatom and the State Nuclear Regulatory Inspectorate should be replaced. Veterans of the energy sector were hired for their campaign as “experts”, to regurgitate sycophantic opinions in staged conferences to boost the credibility of the lawmakers. It was both funny and sad to watch. Fortunately for Ukraine, their lobby to replace the management of the country’s nuclear sector failed, and so did the efforts of Derkach and Artemenko to return the industry to Russian control, thereby aggravating Ukraine’s dependence on Russia during wartime.

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In the first half of this year the nuclear power sector came to the rescue of Ukraine. A blockade of coal supplies from the occupied territories of Donetsk and Luhansk caused the complete stoppage of anthracite-powered units of all thermal power plants. The production of nuclear power rose to 60% of consumption. But the electricity tariff for nuclear power plants was actually reduced from 0.512 hryvnias per 1 kWh to 0.466 hryvnias. Whereas the tariff for thermally generated power was increased to 2 hryvnias per 1 kWh.

The Ukrainian Regulator (NCREU, the National Commission for Regulation of Energy and Utilities)has indicated that it will further reduce the tariff for nuclear power from 0.48 hryvnias to 0.40 hryvnias  for 1 kWh. In calculating this tariff, which is Energoatom’s only source of income, the NCREU has made some controversial exclusions, such as refusing to take into account Energoatom’s membership fees for the World Association of Nuclear Operators, and capital investments, which NCREU alleges "were not agreed by the Ministry of Energy according to the correct administrative procedure”.  To make the tariff situation even less predictable, the NCREU could possibly change its composition by next November. The Ukrainian Government has not yet start the process to select candidates for the appointment of positions within the NCREU.

The upshot of these actions is to unfairly manipulate the average market price for electricity and artificially inflate the price paid to private thermal power plants. The state company “Energy Market” already owes Energoatom 3.81 billion hryvnias for electricity traded to the end of July in 2017, and as of today it owes the staggering sum of 13 billion hryvnias to Energoatom. How can any business survive if it is starved of revenues? The future reform of the “Energy Market” might ultimately involve budget write-offs, and Energoatom could potentially be met with a default on payment.

During the same period there has been a drastic depreciation of the hryvnia against the US dollar, and the price of nuclear fuel and other operating costs for nuclear plants have increased by 60%. This is reducing the ability of Energoatom to make capital investments in the repair of  electrotechnical equipment. It is also increasing the risk that management may have to shut down power units for safety reasons, and if this happens during the winter season, then the whole country will have problems, as power outages will inevitably occur as a result.

Another astonishing example of “fifth column” activities in the Ukrainian Administration can be found in the actions of the Service of Geology and Mineral Resources, which reports to the Ministry of Environment and Natural Resources. In violation of a resolution of the Cabinet of Ministers “On the procedure of issuing permits to use natural resources”, this Service has postponed for more than 9 months the issue of a permit to mine uranium ore for the Eastern Mining Company which has a history of 65 years of operations. As a result of this obstructive procrastination by the Service, the Uranium mines Smolinskaya and Ingulskaya have been forced to stop their operations for 3 months now. 2200 miners have not received their wages, and the Mining Company has sustained losses of 300 million hryvnias. Neither the Prime Minister, the Vice Prime Minister nor the Minister for Energy have been able to influence the Service’s filibuster. The miners have already visited Kyiv with protest pickets once, and they will keep on protesting, with another picket in front of the building of the Cabinet of Ministers planned in the nearest future.

No government officials appear ready to shoulder any moral, political or financial responsibility for this appalling behaviour. The paralysis of Ukraine’s public management is not only disturbing, it poses a real threat to to the nation’s energy security in war-time conditions when Ukraine’s soldiers are being killed or wounded on a daily basis by the invading Russian army. It also raises serious questions about public confidence in the Ukrainian Government.

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James Wilson

James Wilson

James Wilson is a Founding Director of the EU Ukraine Business Council. He is a long term resident of Brussels, has more than 30 years international business experience in public affairs and corporate communications, and is a regular contributor to EU Today.

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