ARMENIA TO START CONSTRUCTION OF A NEW NUCLEAR REACTOR

Armenia declared in August 2010 that it would start preparations for a new nuclear power unit next year and will start construction of the unit in 2012. This statement followed the state visit of Russian President Dmitri Medvedev to Armenia on August 19-21, during which a document on the construction of new nuclear power units in Armenia was signed between Armenia’s Ministry of Energy and Natural Resources and Russia’s state-owned nuclear power enterprise Rosatom. The new nuclear power unit is to replace Block Two of the Metsamor nuclear power plant, 40 kilometers west to Yerevan, which is planned to be closed in 2016. The capacity of the old block built in 1980 is 407 megawatts, corresponding to 12 percent of the total power generating capacity in Armenia. However, this block provides up to 40 percent of Armenia’s electricity production, as its power is cheaper than that produced by the existing thermal stations (these provide about 45 percent of the power in the country, while the remaining 15 percent is produced by hydropower stations). The new block will have a designed capacity of 1060 megawatts. It will be placed on the territory of the Metsamor plant, in order to use the existing infrastructure, which will make the construction cheaper and faster. Construction is planned to take five years, with an approximated cost of US$ 4.5-5 billion. The newly created venture Metsamorenergoatom will operate the construction and subsequent exploitation of the completed block. This company has two shareholders, Armenia and Russia, and is also open for other investors. Each of the two current shareholders has pledged investments worth 20 percent of the block’s cost, i.e. around US$ one billion. Russia’s contribution amounts to supplying the nuclear reactor and the required equipment. This means that the Russian party will not provide funding for the construction. The current shareholders hope that other investors will join to provide the remaining 60 percent of the necessary funding as the construction starts. The cost return is expected to take 20 years. Armenia has power-producing capacities which well exceed its own needs and hence it can export electricity to its neighbors. It currently provides electricity to Iran and, in smaller quantities, to Georgia. For political reasons, Turkey and Azerbaijan reject importing electricity from Armenia, although their regions bordering Armenia face power shortages. Nevertheless, Armenia seeks to enhance its power-generating capacity further by constructing new units for energy production. Among these are the modern thermal power unit at the Yerevan thermal power plant launched last May (built with Japanese assistance); the fifth block of the Hrazdan thermal plant which will be launched later this year; and a modern hydro power station will be built on the Araxes river bordering Armenia and Iran, the construction of which is planned to start later this year. In addition, the Armenian leadership has frequently declared its intention to build another nuclear power unit before the current one will be shut down. This has been considered as an important element of Armenia’s energy security, as it lacks its own fuel resources. The construction of the new nuclear unit will enable Armenia to cover almost all of its own electricity needs for through nuclear energy. This will, however, not result in any strong decrease of the gas imports as Armenia currently uses only 15 percent of the imported gas for power production, while the share of the gas consumed by the population is much higher, at 40 percent. In fact, the actual strategy for electricity production will depend on the prices for gas and nuclear fuel. The actual calculation is even more difficult since the new thermal blocks in Yerevan and Hrazdan are more resource-saving and use less gas per kilowatt of electricity produced than do the current units. A new nuclear unit will thus provide more flexibility to Armenia’s energy system and enhance its exporting capabilities. The fact that the construction of this new unit will be a heavy burden for Armenia as it will cost around one tenth of its state budget during a five-year period, has been ignored by the authorities. The government will obviously seek an external source of financing, in other words, a loan.Finally, the construction of the new nuclear unit in Armenia will enhance the economic positions of Russia in the region. Most of Armenia’s power-generating capacities are under different forms of Russian control and Russia’s considerable stakes in the new nuclear unit will add to Russian economic and exporting potential. Moreover, the deal on a new unit in Metsamor contributes to the dominance of Russian nuclear technology in the region, adding to the construction of Bushehr in Iran and likely a nuclear power station in Turkey.