Energoatoms argues UAH 1.5 billion indirect losses caused by NKREKP’s tariff methodology for nuclear fuels
The pricing algorithms currently in force for cost determination for nuclear fuels and uranium oxide concentrate as further calculation inputs for tariff-setting on electricity generated by nuclear power plants, as having been elaborated and introduced by the former panel of National Commission for State Regulation of Energy and Public Utilities, have caused UAH 1.5 billion indirect losses incurred by the Energoatom Nuclear Energy Company since the beginning of 2018.
According to Energoatom’s President Yuriy Nedashkovsky, this happened because the current price setting regulation disabled Energoatom to conclude direct supply contracts with VostGOK, the only uranium oxide concentrate producer in Ukraine.
“The Energoatom is in tough situation. This is because of the Commision’s last year decision to introduce a new tariff setting methodology for nuclear fuels, which contradicts to all worldwide approaches and practices used for determination of nuclear fuel prices. The Commision’s methodology disregards the so-called escalator provisions. Disregarding escalator component, or timely price adjustment due to market fluctuations, exposes the company to possible risks. The escalator component normally secures both the seller and the buyer of nuclear fuels, since it provisions that the price structure should be determined based on international market indicies (quotes for long-term and spot contracts) and GDP deflators, the way it is done in U.S.A or EU. Should GDP rises by 0.5%-1.5 %, the sale price for the uranium is also adjusted by adding up this increase”, as further explained by Mr. Nedashkovsky.
Mr. Nedashkovsky also added that Commision’s methodology considers only current world market quotes for uranium concentrate, and thus setting the tariffs for Energoatom at low and risky level. The Commision’s calculation formula disregards escalator component even for the uranium from Russia, which the later is supplying with considerable discounts. But the hidden risks are as folows: this year’s sale price for uranium from VostGOK, [the only uranium dressing plant in Ukraine-Ed] was set at $ 112 per one kilogram, while the Commision’s calculation formula yields only $71 per one kilogram. This discrepancy ($112 minus $71 and multiplied by 1,300 ton) is what Energoatom badly misses. Last year we had contracted uranium supplies before the calculation formula was in force. Since we could not adjust the contracts, we incurred losses of UAH 1.4 bil – UAH 1.5 bil caused by wrong enactments of the former panel of the Commision”, summed up the Energoatom’s President.
The decision of the Ministry of Energy and Coal Industry of Ukraine, as setting price of $112 per kg for uranium concentrate produced by VostGOK, disagreed the Commision’s tariff determination methodology calculation result of to $71 per kg, and barred Energoatom from direct purchases of uranium oxide concentrate of Ukrainian make. “All that [the contraversive methodology on price determination for nuclear fuels and uranium oxide concentrate-Ed.] legislatively disable direct purchases from the VostGOK”, as explained by Mr. Nedashkovsky, while further adding that his company had been alerting Commision about the above discrepancies, however all those alerts were disregarded.
According to Mr. Nedashkovsky, the VostGOK sells its uranium oxide concentrate (a raw material for nuclear fuel production) at prices set by the Minictry to the Russia-based TVEL nuclear fuel producer. The TVEL supplies ready-made nuclear fuels to Energoatom, and the later indirectly overpays the discrepancy difference hidden in the TVEL’s supplies. All this impelled Energoatom to announce a tender for supply of 1,200 ton of uranium concentrate, which is planned for further processing into nuclear fuel at the TVEL’s facilities in Russia.
“The indices of the current Commision’s methodology derive the price for uranium at $75 per kg. The Energoatom has announced a tender for procurement of 1,200 ton of uranium concentrate for onward processing into nuclear fuels at Russian production facilities. We also sent our invitation notification about the tender to the VostGOK, who has submitted their bid proposal as matching the expected tender price… I believe, that this tender will gather up to 15 international stakeholders, thus establishing high competition and fierce downpricing. I am not sure, that VostGOK will be able to outcompete based on restraints imposed on them by the domestic regulators”, said Mr. Nedashkovsky, and added that by December of 2018, the tender should determine the uranium concentrate supplier for the upcoming FY2019.