James de Candole of Candole Partners -
The UK signed a pact with Russian state nuclear group Rosatom in 2013 aimed at helping the company enter the British nuclear power market. This nuclear co-operation agreement is now being reconsidered by the British government because of Russian aggression in Ukraine. But you would hardly know it in Prague. British economic diplomacy in the Czech Republic remains firmly focused on helping Rolls-Royce’s civil nuclear division deepen its ties with the country’s nuclear power industry. In the Czech context, this means helping Rosatom as well.
At the end of last year, the British government agency UK Trade & Investment (UKTI) staged the British-Czech Nuclear Forum, aimed at helping British companies take advantage of what it called, in a triumph of wishful thinking, "the resurgence in civil nuclear power across central Europe".
UKTI is now busy preparing another love-in for the nuclear lobby. On October 22, the agency is staging what it calls "The Great Energy Summit at Prague Castle." The event will include a presentation by the consulting company A.T.Kearney on the stupendous macroeconomic impacts of building two new Russian reactors at Temelin nuclear power plant. The research was commissioned by Rosatom, and is served up with tedious predictability at nuclear energy events by Anton Poriadine, head of utilities in the Moscow office of A.T. Kearney.
Such events are dressed up in "low carbon future" rhetoric but, when all is said and done, British diplomatic efforts in Prague boil down to persuading the Czech government to build two nuclear reactors in southern Bohemia using subsidies extracted from the pockets of the Czech taxpayer, with Rolls-Royce providing the safety instrumentation and control systems, and its strategic business partner, Rosatom, providing the reactors.
Naturally, the US' Westinghouse is always invited to the diplomatic ball, but we are left in no doubt over who Rolls-Royce prefers to dance with in the region. Rolls-Royce has been closely cooperating with Rosatom since 2011. In the UK, it is working with Rosatom to ensure that Russian reactors meet British regulatory standards. And in Prague, Rolls-Royce is working with Rosatom in the MIR.1200 consortium to ensure that two Russian reactors are installed at CEZ’s Temelin nuclear power plant.
Rolls-Royce has been working with CEZ since 2000. In 2011, it was awarded a contract to provide long-term, safety-critical services to CEZ’s Dukovany nuclear power plant. Rolls-Royce's potential market in the region is enormous: there are some 58 Soviet-era reactors that would benefit from its services.
To help it capture this market, in mid-2013 Rolls-Royce appointed the Czech political veteran Vladimir Dlouhy (who was Minister of Industry from 1992-97) to its international advisory board, presumably to lobby regional governments on its behalf. Like the great majority of Czech political and business leaders, Rolls-Royce's new advisor, who was recently elected president of the Czech economic chamber, is an outspoken critic of EU sanctions against Russia.
But as Russia prepares for war (see this chilling analysis by the editor of Business New Europe, Ben Aris, who has lived in Moscow for the last 20 years), perhaps it is time to ask to what extent Rolls-Royce’s commercial goals in Central Europe have started to conflict with the interest of the UK and her Nato allies in containing Russian expansionism.
To put it bluntly: Has Rolls-Royce become a proxy for Russian efforts to regain influence over the region’s nuclear sector?
The new reticence in British government policy towards Rosatom, at least in Whitehall, begs another tiresome question: If Rosatom is no longer considered an appropriate partner for the UK’s nuclear power sector, is it appropriate for British diplomats, albeit indirectly, to continue to support Rosatom’s bid to build new reactors for their Nato ally in Prague?
Shouldn’t Rolls-Royce withdraw from the MIR.1200 consortium, and in this way remove any possibility of a conflict between its interest in the success of Rosatom in Central Europe and the national interest of the UK, whose fleet of nuclear submarines is propelled by Rolls-Royce's mini nuclear reactors?
Brits in bed with Swedes in Prague
At this point, it is worth recalling an earlier example of how the short-term goals of a British blue-chip company came into conflict with the UK’s longer term interests in Prague (if you wish to carry straight on with Rolls-Royce, please skip to the next section subtitled "Rolls-Right").
In 2004, British economic diplomacy in Prague helped close a contract worth $1bn for Saab, the Swedish manufacturer of the Gripen fighter jet. Some 35% of Saab at the time was held by Britain’s BAE Systems.
The lease contract for 14 Gripens signed between Saab and the Czech government in 2004 was the culmination of a seven-year lobbying campaign led by BAE. Saab assigned BAE to lead the Gripen push in the Czech Republic because of the British group’s credentials as a major supplier to Nato member states. Sweden, of course, is not a Nato member and at that time, no Nato member flew Gripens.
In 2002, the Czech parliament refused to authorise the government’s request for funding to buy 24 of the Swedish jets – by just one vote. Two years later, the government opted instead to lease 14 jets for a period of ten years at a total cost of $1bn.
In 2004, BAE’s worldwide sales reached some $13bn. Assuming BAE’s share of the Gripen sales deal would have been 35%, or $350m spread over ten years, the result of British economic diplomacy was to boost BAE’s annual revenue by less than 0.3% in 2004, and even less thereafter – negligible in other words.
But the goodwill, I hear you say! Even that was soon wiped out by five long years of widely publicised scandal, culminating in a settlement in 2010 with the US Justice Department in which BAE agreed to cough up some £250m in fines, allowing it to avoid a court case and settle claims that it had paid bribes to win arms deals in the Czech Republic and elsewhere.
The costs to BAE’s reputation and to British diplomatic clout in Prague are incalculable.
Back to Rolls-Royce. Two years ago, Rolls-Royce was considering investing in VUJE, Slovakia’s former state nuclear research institute privatised (to its management) in 2004. Rolls-Royce’s interest in VUJE has never been publicly acknowledged by either company.
It is a remarkable fact, and one which Rolls-Royce is neither willing to confirm nor to deny (in response to my request for confirmation of its past interest in VUJE, the company’s nuclear division press officer said: “Rolls-Royce does not comment on market speculation – previous or present”) that a multinational enterprise with a 2013 order book worth $100bn, subject to the UK Bribery Act, was quietly contemplating investing in a company whose own order book is filled, almost without exception, with taxpayers’ money disbursed by nominally independent institutions under the control of Slovak politicians and their business associates. These institutions include the Slovak National Nuclear Fund, for example, the body that accumulates and disburses the country’s nuclear decommissioning budget, much of which ends up in VUJE.
bne readers will have heard of Slovakia’s “Gorilla” files, the codename of a Slovak secret service wiretap file from 2005 leaked to the press in 2011, which appears to show Slovak politicians, officials and businessmen discussing kickbacks in return for state contracts. The authenticity of the file has never been acknowledged by the authorities.
VUJE’s majority owner, Zoltan Harsanyi, makes a fleeting appearance in the Gorilla files. In a taped conversation between Jaroslav Hascak of the financial group Penta and Anna Bubenikova, the head of the Slovak National Property Fund, Hascak is heard offering the post of head of the National Nuclear Fund to Bubenikova, who responds: “But VUJE will object.” Hascak replies: “We don’t anticipate any pressure from Harsanyi, he’s a normal guy.”
Of course, owning Slovakia’s key nuclear research establishment would have put Rolls-Royce in a privileged position with the country’s government, at least for as long as it was willing to leave undisturbed these “normal” relations between VUJE and its most important customer. But as a British company subject to the UK Bribery Act, Rolls-Royce could not have left these relations undisturbed. And once disturbed, how quickly do you think VUJE’s order book would have emptied?
Rolls-Royce wisely backed away from the deal, thereby avoiding the risk of future scandal, an indication that the appetite for foreign risk of British corporate executives has diminished under the new regime imposed upon them by the British bribery laws. If such laws had been in place 15 years ago, British diplomats in Prague might have been spared the humiliation of the Gripen scandal.
But we are still left with the nagging question of why these same diplomats continue to support Rolls-Royce’s partnership with the Russian nuclear lobby across Central Europe, when Her Majesty's government says it no longer knows if state-owned Rosatom is the kind of company it would like to do business with.
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