Russia's nuclear agency launches Kaliningrad gambit

By bne IntelliNews April 18, 2008

Mike Collier in Riga -

If anyone doubts the importance of chess to the Russian intellect, they need only look as far as Sergey Kiriyenko, head of Russia's national nuclear power agency Rosatom. With the assurance and strategic precision worthy of a grandmaster, Kiriyenko coolly announced on April 17 his intention to build a new nuclear plant in Russia's Baltic enclave of Kaliningrad at a cost of €5bn, which threatens to checkmate pan-Baltic plans to build a replacement for Lithuania's soon-to-be-decommissioned Soviet-era reactor at Ignalina.

"We are ready to offer foreign partners, primarily European ones, up to 49% in the Kaliningrad Nuclear Power Plant," Kiriyenko told reporters during a visit to Kaliningrad, adding that the power station would be a modernized version of the Belene plant being built by Russian contracting firm Atomstroyexport in Bulgaria, capable of producing 2300 megawatts - far more power than Kaliningrad needs.

Dmitry Terekhov, a senior analyst at the Metropol investment and financial corporation, told the Russian newspaper Vedomosti: "The announced capacity of the nuclear power plant is excessive for the Kaliningrad region, and so the project is apparently designed for export to electricity-hungry Poland and Lithuania."

The move is a win-win situation for Russia. Even if Rosatom does nothing else about the Kaliningrad plant, it will have successfully refocused attention on Lithuania's chaotic attempts to establish a basis for the new nuclear power "Ignalina II." In theory, the plant will involve Estonia, Latvia and Poland in addition to Lithuania, and would be switch on around 2015. In reality, though, bickering between the partners means nothing has been finalised and analysts believe any plant won't be ready until after 2020. A national champion company called LEO LT established to do much of the work is still mired in internal wrangles with its legal status uncertain. At the same time, Lithuania is engaged in an increasingly desperate lobbying campaign to ask the EU for an extension of the current Ignalina plant's lifespan to prevent what could be a 10-year-long energy famine.

If Rosatom is serious about building a new plant in Kaliningrad (and there is no reason to think it's not, despite the surprisingly dismissive reaction of Lithuanian Prime Minister Gediminas Kirkilas, who described it as a publicity stunt), its effect would be huge. For a start, it would likely come on line much sooner than Ignalina II, "by 2015" according to Kiriyenko, and would itself be able to offer energy exports to neighbouring countries. Its presence would undermine Lithuania's attempts to win an extension for Ignalina, as Russia's EU friends could point to the Kaliningrad plant as a ready source of energy.

One of the Baltic region's other current energy concerns is the incompatibility of its grid with the rest of the European network, which is why Lithuania also has plans to build an "energy bridge" to Poland. Because Baltic energy transmission infrastructure remains essentially Russian, plugging into Kaliningrad would likely present fewer technical challenges. While the Baltic states would wish to avoid dependence on Russia if possible, it would be very hard to resist pressure to plug in once the lights start going out.

The decision to put Rosatom into play looks highly significant strategically, too. While Gazprom and Rosneft are the energy companies that tend to dominate international headlines, Rosatom will now become the third piece being moved around the board in the Kremlin's complex energy gambit. By offering a 49% share of the project to European contractors, Rosatom is tempting Europe to break ranks again, and forcing bidders to choose whether they want to work on the one-off Ignalina project or team up on Kaliningrad with one eye on lucrative future Russian projects. "Whoever offers the best price will be chosen to supply equipment," Kiriyenko said.

The net result is Russia tightening its grip on Baltic energy supplies even more while driving further wedges between EU member states. Checkmate.

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