Doc. 9017

6 April 2001

Fifteen years after Chernobyl: financing a lasting solution


Committee on Economic Affairs and Development

Rapporteur: Lord Ponsonby, United Kingdom, Socialist Group


Fifteen years after the Chernobyl catastrophe in 1996, the Assembly follows up earlier reports on this subject, this time concentrating on the remaining financial challenges and policy choices facing Ukraine and the international community. The report, from the Assembly’s Committee on Economic Affairs and Development, commends Ukraine on its closure of the Chernobyl Plant in December 2000 and recognises the new energy situation resulting from this shut-down, not least in view of the country’s economic difficulties.

The report doubts, however, whether the best remedy lies in the construction, with considerable financial assistance from the international community, of new nuclear reactors at Khmelnitsky and Rovno – known as the ‘K2/R4’ project. It asks that alternative ways be considered, especially the reduction of energy waste throughout the economy, the upgrading of safety and efficiency in the country’s other thermal and nuclear plants and the diversification of energy supplies.

The report goes on to ask Council of Europe member states to secure the near-complete financing of a new Chernobyl Shelter, to be ready by the end of the decade. It also highlights the need to assist the Chernobyl region and Ukraine – but also hard-hit neighbouring countries – in overcoming the health, social and environmental consequences of the disaster.

Finally, the report recommends close monitoring of progress reached by the international community and Ukraine on these Chernobyl-related issues and, more widely, in improving safety at similar reactors in other parts of Europe. The Assembly’s own role as the parliamentary forum of the European Bank for Reconstruction and Development (EBRD), and the latter’s Nuclear Safety Account, should by fully used for these purposes.

I.       Draft resolution

1. The Assembly - recalling in particular its Resolution 1087 (1996) on the consequences of the Chernobyl disaster, its Resolution 1127 (1997) on the health effects of the Chernobyl nuclear accident and its Recommendation 1311 (1997) on the safety of nuclear installations in the countries of central and eastern Europe - welcomes the closure of the Chernobyl nuclear plant in December 2000, fifteen years after the explosion of that plant’s Reactor 4 sent death and disease across Ukraine and neighbouring countries in Europe and beyond.

2. The Assembly commends Ukraine on its agreement to the closure of Chernobyl, and the international community - acting through the European Bank for Reconstruction and Development (EBRD) and Euratom - on its major financial assistance in this process, in accordance with the Memorandum of Understanding concluded in 1995 between the government of Ukraine, those of the ‘G-7’ countries and the European Commission.

3. The Assembly recognises Ukraine’s current economic difficulties. It also notes the preliminary agreement between Ukraine and the EBRD to help finance completion of two new nuclear reactors at Khmelnitsky and Rovno, the so-called ‘K2/R4’ project.

4. The Assembly recognises that the ‘K2/R4’ project is a decision for Ukraine alone. It nevertheless harbours serious doubts as to its financing by the international community. The reasons are that the ‘K2/R4’ project would increase Ukraine’s already excessive reliance on nuclear energy, that funds would be better used in diversifying the country’s sources of energy by reducing energy waste throughout the economy and that the project would significantly increase the country’s external debt.

5. The Assembly therefore believes that alternatives to ‘K2/R4’ should be considered to assist Ukraine to meet her energy needs. This could be achieved by reducing energy waste, by diversifying energy supply sources and by upgrading safety and efficiency at the country’s remaining nuclear and thermal plants.

6. The EBRD is to periodically inform the Assembly on the progress of Ukraine in meeting the four main conditions set for the loans to be approved for the K2/R4 project.

7. The Assembly draws attention to the continued need to assist Ukraine and Russia – but also particularly hard hit Belarus as soon as political circumstance permits - in overcoming the health, social and environmental consequences of the Chernobyl catastrophe. This holds in particular for the near surroundings of Chernobyl. In its financial assistance, the international community must, however, ensure that funds are used efficiently and responsibly throughout. The Assembly in this context encourages Ukraine to examine the possibility of joining the Council of Europe Development Bank.

8. The Assembly welcomes the fact that practical work should now begin on the Chernobyl Shelter Implementation Plan and the financial support from the international community currently amounting to 713 million dollars out of the total 768 million dollars needed. It calls on Council of Europe member states to ensure, together with others, that the completion of the project can be fully ensured as the Plan progresses, and that as many Ukrainian workers as possible be employed under strict observance of international safety standards.

9. Finally, everything possible must be done to guarantee optimal safety at other RBMK-type nuclear plants and to raise the financial resources necessary for decommissioning. The Assembly therefore needs to monitor closely the safety aspects of the remaining 13 reactors of this type still in operation in central and eastern Europe (11 in Russia and two in Lithuania), so that they may be closed down as soon as possible.

II. Explanatory memorandum by the Rapporteur






Appendix I:       Nuclear Power Reactors in Ukraine

Appendix II:        Chernobyl Nuclear Power Plant

Appendix III:        WHO Report

Appendix IV:        Memorandum of Understanding

Appendix V:        Conclusions of the report of an International Panel of Experts chaired by Professor Surrey

Appendix VI:        Conclusions of a report by Stone & Webster


* *


1.        On 15 April 2000 - fourteen years after the world’s worst nuclear disaster at the Chernobyl nuclear power station in northern Ukraine - Mr Rakhansky and others presented a Motion for a resolution (Doc. 8722) entitled an “Appeal to the G7 countries to step up their efforts to finance the work aimed at eliminating the consequences of the Chernobyl disaster”. The Bureau of the Assembly referred the Motion to the Committee on Economic Affairs and Development for a report.

2.        The motion states that “the problems engendered by the Chernobyl disaster remain unresolved … and continue to pose a threat not just to Ukraine but to mankind as a whole”. It goes on to say that, following the ‘Memorandum of Understanding’ between the governments of the G-7 countries1, the European Commission and Ukraine on the closure of the Chernobyl nuclear plant, the Ukraine government has “taken a political decision” to shut down Chernobyl by December 2000.

3.        The motion expresses concern over the extraordinarily high cost of such a move, which would call for a number of urgent measures on the part of the international community. They would include donor contributions for the Chernobyl “Sarcophagus” fund, assistance to address social problems, financing to complete the decommissioning of the Chernobyl plant2 and the construction of the ‘Khmelnitsky-2’ and ‘Rovno-4’ nuclear plant units, as well as provision of ‘organic fuel grants’ (by which is presumably meant fossil fuel) to make up for lost energy production due to the closures.

4.        By the way of follow-up to its documents 8089 of 22 April 1998 and 8386 of 26 April 19993, the Assembly is asked by the authors of the motion to renew its appeal to the G7 governments to “step up their efforts to finance the work aimed at eliminating the consequences of the Chernobyl disaster”. The Rapporteur shares this concern and will devote his report to an examination of the prospects of solving the Chernobyl problem from a financial viewpoint and to propose whatever action may be necessary to further this goal. He wishes in this context to thank the Ukrainian parliament and government for inviting him to the closure of Chernobyl plant on 15 December 2000, and for the many exchanges of views he was able to have on the subject with various officials. He is also grateful to his Ukrainian and other colleagues on the Committee on Economic affairs and Development for their valuable inputs to his report.


5.       The Chernobyl catastrophe of April 1986, occurring seven years after the accident at the Three Mile Island nuclear plant in the United States in 1979, would fundamentally alter public perceptions of the safety of nuclear energy. The meltdown in a reactor core at the Harrisburg Plant had threatened widespread contamination but disaster was averted thanks to safety systems built into the reactor. Following the explosion at Chernobyl Reactor 4, tonnes of highly radioactive uranium and graphite were thrown into the atmosphere and then spread over Europe and beyond - with death, suffering and ecological damage in their wake. There had been serious shortcomings in the reactor’s safety mechanisms. Deficient design – including the absence of any containment function for the Soviet-built RBMK reactors - turned out to be a mistake with consequences of untold tragedy.

6.       The Soviet authorities proved largely unable to handle the emergency, especially in not informing the local population or other countries immediately. The secrecy was lifted only when radioactivity from the explosion drifted across northern Europe and alerted staff at a nuclear power station in Sweden. A general sense of public insecurity and distrust followed. The first commitments to ‘perestroika’ were made almost at about the same time as the Chernobyl catastrophe, which itself would contribute considerably to the collapse a few years later of the Soviet Union and its political system.

7.       First and foremost, the Chernobyl disaster was a human disaster. The lives and health of many people, and even future generations, were affected due to their exposure to radiation, including by consuming contaminated food and water. The populations of Belarus, Ukraine and Russia were the worst hit, but such far-away countries as Sweden and France also suffered contamination. Thirty-one people died shortly after the accident. Some 135,000 people were evacuated from the 30 km radius around Chernobyl in the first few weeks. They received very high doses of radiation. Another 270,000 persons had to leave their homes temporarily. Many of them have since returned to the contaminated areas and require protection measures against the radioactive caesium present in the soil. Around 800,000 rescue workers drafted from all over the Soviet Union participated in the emergency actions on the site and in subsequent clean-up operations carried out over years. More than 4,000 of them have since died and about 70,000 are disabled by radiation. The World Health Organisation reported a 100-fold increase in thyroid cancers in the contaminated regions in the decade following the accident, especially among young adults who were children at the time (see appendix III). The incidence of the disease is expected to peak in 2005. Increased instances of congenital deformations and miscarriages are also reported. It will be decades before all the long-term health consequences are known.

8.       The damage to the environment and agriculture has been severe. Even though some soil has been decontaminated, vast tracts of agricultural land will have to lie fallow for decades. Around 52 000 km˛ of agricultural land were polluted, mostly in Belarus (which hardly receives any international financial assistance) but also in Ukraine and Russia. In a wide area beyond, food is subject to strict controls and restrictions of sale. Even in far-away countries such as the United Kingdom and Sweden, severe restrictions, since lifted, were introduced on the consumption of sheep, reindeer and fish. Many forests - being a source of timber, game, berries and mushrooms but also an area for work and recreation - continue to give rise to concern due to persistently high radiation. Water systems have to be continuously monitored to ensure that leaks from radiation deposits do not poison the drinking water.

9.       The rescue and clean-up activities have produced large quantities of radioactive waste and contaminated equipment. These are now stored in some 800 sites, mainly in the 30 km zone around Chernobyl. The debris has partly been buried in trenches, partly placed in containers. However, some contaminated equipment has been left in the open and presents a continuing source of pollution. Close monitoring is required until adequate storage facilities have been established.

10.       After the accident the Chernobyl reactor affected was encased in a concrete structure, known as the ‘sarcophagus’. New concerns have arisen as regards the structure’s long-term resistance to leaking into the air or the ground water, or against an explosion due to an uncontrolled nuclear reaction inside. Numerous cracks, affecting some 10% of the surface, have appeared, creating conditions for humidity to corrode the supporting metallic structure. Certain concrete structures are already showing signs of fatigue and could cause collapse if degradation continues, in which case thousands of tons of radioactive dust would be sent into the environment. Even though the main roof support beams have recently been stabilised, a measure of risk persists and adds to the urgency of finding appropriate technical solutions to eliminating the residual risk. It should be noted, however, that recent studies conducted under the Shelter Implementation Plan consider this nuclear criticality event to be highly unlikely.

11.       Today, fifteen years later, 13 RBMK reactors of the Chernobyl type are still in operation around central and eastern Europe (11 in Russia and 2 in Lithuania), after the unit 3 of Chernobyl was definitely shut on 15 December 2000. The break-up of the Soviet Union and the effects of ‘perestroika’ and ‘glasnost’ within Russia revealed to the world for the first time the sad state of security in the nuclear power industry in the former Soviet Union area and in countries in its vicinity - of which the Chernobyl plant was a terrifying example. Few if any nuclear plants in Russia and the eastern European states would pass the nuclear safety standards demanded in most other parts of the world, especially as they were made stricter after the Three Mile Island meltdown. Beyond the concern over the Chernobyl issue, firstly, there should be a series of safety measures to enhance the remaining RBMK-type reactors in operation and secondly, they should be eventually closed down and given post-closure conservation to ensure safety.

12.       The Ukrainian parliament voted in l991 to close down Chernobyl for good, but found that it could not afford to do so without external assistance, as the electricity coming from the remaining reactors was said to be vital to the country’s economy. A second reactor was closed only after it caught fire. To help affected Ukrainians, the country in 1991 enacted a law providing for compensation. Some three million Ukrainians are estimated to have benefited from various compensatory payments amounting yearly to a sixth of the national budget. This constitutes a heavy burden on a country where an estimated 80 per cent of the population lives below the poverty line. Given Ukraine’s generally difficult economic situation, it is clear that the country depends critically on international assistance even though, as we shall see, it is not always clear what form and direction such assistance should take.

13.       Chernobyl does not have the same negative connotation in Ukraine as abroad. Just as workers in energy industries around the world have fought to keep open plants considered dangerous or uneconomical, so do many Ukrainians who claim that they need the energy produced by Chernobyl for their industry and to keep warm during the cold Ukrainian winters have been desperate for it to continue functioning for another decade or more until some alternative can be found. Furthermore, for 50 million Ukrainians who in their first years of independence suffered hyperinflation Chernobyl was a comparatively marginal problem – except for those immediately affected by it, such as the evacuees from the nearby town of Pripyat.


14.        The international community did its best to assist the Soviet Union financially and otherwise in the aftermath of the catastrophe. The immediate reaction in the West to the disaster was to seek the earliest possible closure of Chernobyl. Its wider concern was over the safety of similar nuclear plants all over central and eastern Europe. In the first few years after the accident international efforts were not helped by the process of disintegration of the Soviet Union. After the fall of the Berlin Wall in l989 the Union’s constituent republics, including Ukraine, began to call for independence. The latter gave rise to a new Ukraine that was heavily dependent on Russia for its fuel supplies. The country had to assume responsibility for Chernobyl, its rickety and leaking shelter on top of Reactor 4 and the pollution that was poisoning life for miles around.

15.        After several years of discussion, at a summit in Munich in July 1992, the G-7 countries presented a programme of action designed to improve the safety of plants of the Chernobyl type. This international effort to eliminate the dangers connected with Soviet nuclear power plants became part of a broader programme to provide funding for the transition of the centrally planned economies into market-oriented economies.

16.        In 1993 the G-7 countries asked the European Bank for Reconstruction and Development (EBRD) to establish a Nuclear Safety Account for contributions towards various safety projects. By the end of 1999, this account totalled €260 million, of which €118 went to Chernobyl in support of Ukraine’s decision to close the plant, including contracts signed in 1999 to ensure safe storage of spent fuel and to process radioactive waste, again as part of the Chernobyl closure plan.

17.        In December 1995 the government of Ukraine signed a Memorandum of Understanding with the G-7 countries and the European Commission (see Appendix IV), by which it committed itself to shutting down Chernobyl by 2000. The Memorandum commits the G-7 countries to assisting Ukraine in remedying the remaining risks at Chernobyl; to supporting investments into greater energy efficiency in the country, including a restructuring of the energy sector; and to alleviating the socio-economic cost resulting from the closure of Chernobyl. A total aid package of about $2.3 billion in grants ($500 million) and loans was promised.

18.        However, different opinions emerged as to the implementation of the Memorandum. In spite of the undoubted good will of the contracting sides and their eagerness to proceed swiftly, the whole process was bogged down in long negotiations. On the one hand, there has been a reluctance to finalise deals with Ukraine until the country had implemented economic and social reforms meeting the demands of the G-7 countries and the EBRD. On the other hand, Ukraine argued that, in the midst of economic reform, it lacked the economic or technological resources both to prepare the Chernobyl plant for timely decommissioning and to restructure its energy industry. Not surprisingly, Ukraine did not close the plant by the initially foreseen deadline of December 1999. The Memorandum of Understanding, somewhat ambiguously, called for closure by the year 2000.

19.        On the tenth anniversary of the Chernobyl accident, on 26 April 1996, Ukrainian President Leonid Kuchma established the Chernobyl Centre for Nuclear Safety, Radioactive Waste and Radioecology in the town of Slavutych, forty kilometres north-east of Chernobyl. The Centre was intended to serve as a meeting place for international co-operation in addressing the environmental, health, safety and socio-economic consequences of the catastrophe. Its aims were thus complementary to those laid down in the Memorandum of Understanding.

20.        One of the most serious problems that Ukraine inherited from its Soviet days – and has done little to remedy since – is its inefficient use of energy. This puts unnecessary strain on power stations, nuclear and other. Unadjustable heating systems in many apartment blocks - an illustration perhaps of the thinking in the days of collectivism - means that the only way homes can be cooled to accommodate changes in the weather is by opening windows. The archaic conditions in much of Ukraine, in energy production as in energy consumption, still tend to produce a stalemate, where the international community says it will fund improvements once reforms are made, and the Ukrainian government replies it cannot carry out reform without funds.

21.        In order to better grasp the scope of the Chernobyl-related financing needs, we need to distinguish between two separate issues: the proposed developments to Ukraine’s energy sector and the decommissioning of the Chernobyl complex itself.

Proposed developments to Ukraine’s energy sector: Khmelnitsky-2 and

Rovno-4 (K2/R4) project

22.        In the late 1990s, with one reactor (Number 3) still in operation at Chernobyl, the Ukrainian government argued that it could not close down the plant unless alternative energy supplies were made available. Prominent among the projects foreseen by the Ukrainians to compensate for the shortfall was the completion of two unfinished nuclear reactors at Khmelnitsky and Rovno, known as the ‘K2/R4’ project. In fact, the international community through the Memorandum of Understanding committed itself to financing more nuclear power in Ukraine as a condition for the closure of Chernobyl. This has presented them with some tricky questions, as conflicting appreciations about the usefulness of ‘K2/R4’ began to emerge.

23.        In 1997, an international group of experts4 (see Appendix V) concluded that the K2/R4 project did not represent the most efficient way of using the approximately $1 billion of EBRD/EU funds earmarked to provide Ukraine with the energy it needed. Another EBRD-commissioned report5 (see Appendix VI) published a year later argued that completing both reactors (K2/R4) by 2002 would meet the Bank’s least-cost policy requirements. In other words, depending on the scenario it would be optimal to accelerate, or to delay, completion. The EBRD considers that earlier studies were based on insufficient data whereas the latest Stone and Webster Report was produced on the basis of more reliable baseline data and sensitivity studies. At the same time a considerable body of opinion, including the Rapporteur, maintains that the EBRD has no business promoting nuclear power in Ukraine under any circumstances and that alternative sources of energy and energy savings should be the priority. Others again believed that Ukraine had more generally failed to restructure its energy sector along market requirements and also had not honoured certain bills, a circumstance which, they said, was discouraging the flow of funds to the K2/R4 project. The EBRD itself states that it does not promote nuclear energy and that it seeks to promote a least-cost option based on sound banking principles.

24.        It is still not clear when the two new reactors may be completed even though the sources of finance for this $1.5 billion project have been identified. The EBRD and the Euratom, the European Union’s nuclear agency, have earmarked, respectively, $215 million and $585 million, subject to a number of conditions attached to the disbursement of these loans. Provision has also been made for $340 million in Export Credit financing plus $214 million in fuel financing by Russia. The balance of financing ($209 million) should come from Energoatom ($159 million) and the Government of Ukraine ($50 million).

25.        The EBRD loan will enable Energoatom to complete the upgrade of K2/R4 to safety standards comparable to western nuclear plants of the same generation. The loan also contains conditions and covenants that require the Energoatom to introduce a program to improve the safety and operations of its other plants. In addition, conditions under the guarantee agreement require the Government of Ukraine to strengthen nuclear regulation in the country and advance the reform of the electricity sector. The latter include the privatising of energy distribution companies, increases of electricity tariffs and improvement in the rate of cash collection from user charges.

26.        The situation produces paradoxes. Whereas ten years ago the International Atomic Energy Authority was calling for all Chernobyl-type nuclear reactors to be decommissioned, the international community today finds itself shoring up the future of nuclear power not only in Ukraine but elsewhere in central and eastern Europe (it should be noted that K2/R4 are not Chernobyl type reactors). Very few nuclear power stations in the region (excepting some in the former German Democratic Republic) have been shut down. Some have been upgraded as regards safety, while new nuclear power units would come on-line if the K2/R4 project comes through. It is also a paradox that the Chernobyl disaster has meant new work for the western nuclear power industry, which is in line for contracts to upgrade and rebuild substandard plants in central and eastern Europe. Ukraine itself has increased its reliance on nuclear power from 35 percent of its energy needs before independence to nearly 50 per cent today. This is the very opposite of what might reasonably have been expected.

27.        As a result of his visit to Ukraine at the time of the final closure of Chernobyl’s last operational unit on 15 December 2000, the Rapporteur has reached the conclusion that completion of the K2/R4 units would be a short-sighted approach to dealing with Ukraine’s energy problems. For one, the go-ahead for K2/R4 would be based on the erroneous assumption that Ukraine is facing a major energy shortage, an assumption made by many Ukrainian politicians. Even though it is true that the country has trouble in providing regular electricity supply to all homes and to certain industrial installations, the real problem is a lack of capital rather than a lack of generating capacity. Since the irregular electricity supply results essentially from old and unreliable thermal generating plants, the best least cost alternative to K2/R4 completion would be the upgrade of existing plant boilers. The EBRD has one such project underway at the Starobeshevo power plant.

28.        As the completion of K2/R4 is first and foremost a political decision of the Government of Ukraine, the international community harbours hopes that the hard decisions will be taken to put the reform of the Ukrainian power sector firmly on track. The Rapporteur, however, believes that any foreign investment of this scale in the power sector could be used to provide similar incentives to reform.

29. Instead of making funding for K2/R4 conditional on a number of stringent requirements, the international community could invest directly in energy-saving programmes, upgrades of the country’s rickety thermal and existing nuclear plants, and in a much-needed diversification of energy supplies. Until, however, sector reforms are introduced and tariffs are increased there is a limited incentive for industry to invest the capital required to implement energy saving. With modern western technology upgrades, the Ukrainian power plants could increase their efficiency and hence their capacity so as to cover its growing energy needs. Such a solution would also allow the country to save millions of dollars on fuel purchases in years to come, whereas the completion of K2/R4 – now allegedly 80-85 per cent ready - would cost it around $1.5 billion and increase its external debt by about 20 per cent. This would be a very heavy burden on an already ailing economy. A western official said to the Rapporteur that he feared a new Africa was being created with levels of debt which would be unserviceable by an already weak economy.

30.        According to the EBRD, the servicing of Ukraine’s external public debt requires that the Ukrainian government raise the necessary revenue (the internal or fiscal transfer) and effectively transfer it abroad (the external transfer). A lasting strengthening of the fiscal position is therefore primary in ensuring that Ukraine would be able to service its debt. Provided that (i) Ukraine borrows at rates in line with those charged by the international financial institutions; (ii) real GDP growth does not fall below 2.5 percent; and (iii) the fiscal policy generates primary budget surpluses (government budget surpluses minus net interest payments), the external public debt should be sustainable.

31.        The Rapporteur, however, is not fully convinced that the Ukrainian economy will consistently be able to show such strength over the long repayment period in question. On the one hand, the IMF estimates that the country reached 4% real GDP growth in 2000, following a reduction in GDP in each year since the country gained independence. The growth was due to such factors as a depreciation of the national currency leading to higher exports, and to a reviving Russian economy. In addition, some structural reform was undertaken, the fiscal position improved and some repayment of (rescheduled) external debt was achieved.

32.        On the other hand, the fiscal improvement was in large part reached by using revenue from privatisations; the role of the state in the economy is still excessive; exports are likely to slow in 2001 due to a stronger hryvnia; energy import costs are rising due to higher prices for oil and gas; inflation accelerated (from 19% in 1999 to over 25% in 2000); arrears on energy and other non-social payments remain a serious problem; corruption is far from rooted out; and political stability and investor confidence have more recently been negatively affected by public furor over the unsolved murder of a well-known journalist critical of presidential policies. Finally, ability to repay foreign debt is not the same as political preparedness to do so. Against the repayment of some debt to, mainly, private creditors in 2000 stand the country’s repeated demands for rescheduling, in 2000 as in earlier years. On balance therefore, Ukraine’s economic situation is fortunately looking up, but longer-term prospects are still uncertain.

33.        There is, however, the risk that, unless the international community helps finance K2/R4, Ukraine might turn to Russia for help in completing the project. The project would in this case ‘only’ cost some 600 million dollars but its design would also be less safe. It is the Rapporteur’s view that if a funded package of alternative projects were presented to the Ukrainian authorities this would considerably reduce the possibility of the Russians completing the K2/R4 project.

34.        As this report is written the EBRD and the Euratom have agreed in principle to go ahead with loans for K2/R4 (The Rapporteur is surprised that a multi-million loan by the Euratom could be approved by the signature of the European Commission and without the separate agreement of the Council of Ministers). In the Rapporteur’s view, however, it is not yet too late to withdraw from this expensive and ill-conceived project. It is difficult to imagine a similar approach being taken in any Western country where there is an established trend to adopting a diverse energy supply rather than a narrowly defined least cost option as required by the EBRD. The international community - as represented in this instance at parliamentary level by the Economic Affairs Committee and by the Parliamentary Assembly of the 41-member state Council of Europe as a whole - must therefore reflect carefully on its recommendations to the EBRD on the K2/R4 issue, all the more so since we are the EBRD’s parliamentary forum.

Decommissioning Chernobyl: Shelter Implementation Plan

35.        To date, the bulk of committed aid from the international community has been going into the rebuilding of the sarcophagus over the damaged Chernobyl Reactor-4. In repeated G-7 summits after 1995, the commitment to the Memorandum of Understanding has been reiterated. At their June 1997 Summit in Denver, the G-7 countries recognised that “securing the environmental safety of the sarcophagus covering the remains of the destroyed Chernobyl reactor … is inevitably beyond the resources of Ukraine alone [and] … is a major challenge for the international community”. They therefore supported the “setting up of a multilateral funding mechanism”, to which the G-7 would contribute $300 million. As a result, the so-called “Shelter Implementation Plan” was initiated under the joint sponsorship of the European Union’s TACIS programme and the US Department of Energy.

36.        The Shelter Implementation Plan is expected to take eight to nine years to implement, at a cost of about $760 million. The EBRD acts as the administrator of the funds required for the project, to which the European Union and 21 non-EU countries had contributed a total of $393 million by the end of 1999, including $50 million from Ukraine itself. In 2000 another $3.5 million were contributed. These contributions have permitted most of the engineering studies and major shelter construction contracts to be concluded.

37.        The G-7 countries have repeatedly – including at their Birmingham Summit in May 1998 – insisted that funding from them and other international donors in line with the Memorandum of Understanding would be conditional on the closure of Chernobyl. The Birmingham Summit also welcomed a so-called Financial Recovery Plan for Ukraine’s energy sector presented by the country’s government. Finally, the Summit urged the EBRD to “complete its review of the Khmelnitsky-2 and Rovno-4 (K2/R4) project swiftly and to contribute substantially to a successful loan package, while respecting the Bank’s due diligence requirements”.

38.        At their June 1999 Cologne Summit, the G-7 noted that “significant progress [had] been made in carrying out the Shelter Implementation Plan to secure the environmental safety of the sarcophagus covering the remains of the destroyed Chernobyl reactor”. They undertook to “hold a pledging conference before the next summit” and reaffirmed their “commitment to assist Ukraine, within the context of the Memorandum of Understanding, in mobilising funds for energy projects to help meet its power needs” after Chernobyl’s closure. At that time projects agreed totalled $746 million. In addition, the G-7 statement said, “in the field of nuclear safety $485 million have been granted, not including the Shelter implementation plan”.

39.        In keeping with their earlier commitments, the G-7 group of countries convened another pledging conference in Berlin in July 2000, a few weeks before they would meet in Okinawa, Japan. This led to additional pledges of $320 million. Together with the $393 million pledged in New York three years before, the resulting $713 million almost reached to the total of $768 million considered necessary for the building of a reinforced shell to encase the ruined Chernobyl Reactor 4 and other measures foreseen in the SIP. Preparations for the new sarcophagus are now in their final design stage and work is expected to begin shortly, with completion foreseen for 2005. Around $50 million will still have to be forthcoming for funding to be complete. This, the Rapporteur concluded during his visit to Ukraine in December 2000, will not, however, jeopardise the start of the project. If the work progresses satisfactorily the remaining funds will be made available, when needed.

Other projects

40.       Although the shelter project is the most widely publicised, many additional international undertakings are underway at Chernobyl as part of the plant’s decommissioning. These projects include: (a) construction of a heating plant, already almost completed, to provide heating for the entire site throughout the decommissioning process; (b) deactivation, decontamination and decommissioning of Unit-1 ($3.5 million); (c) the building of a liquid radioactive waste treatment plant (for which €19.7 million have been set aside in the Nuclear Safety Account); (d) the building of a second storage facility for spent nuclear fuel (for which €66.1 million have been earmarked in the Nuclear Safety Account); (e) the construction of a treatment plant for solid radioactive waste, including a near-surface storage facility for short-lived radioactive waste (€38.5 million).


41.        The compromise agreement finally concluded between Ukraine and the international community for the solution of the Chernobyl problem has been long in the coming. The G7 countries, the European Union and Ukraine have shown themselves capable of co-operating in a comprehensive programme to enhance nuclear safety in Ukraine. Significant donor resources, as well as scarce Ukrainian funds, have been mobilised in spite of tight budgets. Co-operation between eastern and western scientists and experts in many fields has given rise to numerous innovative solutions for neutralising short and medium term nuclear risks around Chernobyl. The EBRD has proved to be a useful institution for the handling of the Nuclear Safety Account although some have argued that it has failed to acknowledge the intensely political nature of the decisions it is implementing and hides behind narrowly defined banking criteria when considering projects such as K2/R4. The Chernobyl Shelter Implementation Plan and the Chernobyl Centre for Nuclear Safety, Radioactive Waste and Radioecology have assisted in the implementation of the most urgent safety measures. When funds proved insufficient, an additional pledging conference in Berlin in July 2000 made up the difference.

42.        Viewed against the enormity of dealing with the aftermath of the Chernobyl accident, the social impact of the plant’s closure may seem small enough. Nevertheless, its effects on the specially constructed town of Slavutych should not be underestimated. For the town’s 27,000 residents, many of whom lost their homes and possessions as the town of Pripyat was evacuated, the prospect of losing many jobs at the closed-down Chernobyl plant is looming large.

43.        Even though the Chernobyl workforce of about 5,791 will be laid off when the plant closes in December 2000, as many as 3,900 may be rehired in a short-term for shut-down operations, expected to last all in all for almost a decade. Some workers will be needed to operate waste processing facilities, while others are likely to find work at one or the other of Ukraine’s remaining nuclear plants. Long term, continuing expenditure will be needed for the cleaning-up of contaminated areas, for assistance to displaced populations, for public health tasks or to assist in social rehabilitation. This is all the more necessary as many of the Ukrainians concerned fear that once Chernobyl has been closed and is considered safe the world will forget about those still needing help. Fortunately, Slavutych has a forward-looking city council and a dynamic mayor, who together are working hard to exploit new opportunities for the town and its inhabitants. The urgent need for economic diversification of the Slavutych region will likely be helped by recent local tax incentives and the setting up of a local branch of the EBRD’s ‘micro lending’ facility.

44.        Ukraine remains heavily dependent on – and financially indebted to - Russia for fuel supplies, whether nuclear, oil or gas. Due to frequent non-payment of past deliveries, provisions have at times been drastically curtailed. This helps explain why the nuclear energy development option appears attractive to Ukrainians today. Although Ukraine today produces about 500 tonnes of uranium per year, it still depends primarily on Russia to process it for use in nuclear plants. Major price increases6 for nuclear fuel sold by Russia to Ukraine have exacerbated the payments problem. Deliveries have also, according to the Ukrainians, frequently been disrupted or lacking in quality. Overcoming nuclear fuel dependency by establishing a ‘domestic fuel cycle’ is, according to the EBRD, not a suitable approach for Ukraine. Because there is an excess of production capacity for nuclear fuel worldwide, as well as confidentiality surrounding the quality developments of nuclear fuel, it is much more economical for Ukraine to obtain enriched uranium from the different suppliers in the marketplace. Furthermore, modernisation of Ukraine’s antiquated thermal power plants which rely on imported coal and mazut should be a priority. Investing heavily in K2/R4 will do little to address this problem.

45.       On 7 December 2000 the EBRD approved a $100 million loan to Ukraine for the purchase of fuel during the winter season. This assistance, although welcome and needed, will not, unfortunately, bring the country anywhere near to lowering its debt of at least $1.4 billion to Russia for earlier gas deliveries. A memorandum to restructure these gas debts was signed by the two countries in December 2000. However, its implementation would crucially depend on sustained economic growth in Ukraine and the successful privatisation of its major state enterprises, as foreseen in its 2001 budget (of about $7.7 billion), as well as on the resumption of long-frozen lending by the International Monetary Fund. Against this background, adding more debt through the K2/R4 project onto the weak Ukrainian economy becomes even more dubious a path.

46.        In December 2000 Ukraine established the State Nuclear Regulatory Committee to replace the Department of Nuclear Regulation (DNR) and incorporate the State Inspection Committee. (The Head of DNR formerly had the rank of Deputy Minister). The Rapporteur welcomes this development but remains concerned that the Regulatory Committee is not yet in possession of sufficient resources and also that this institution does not yet enjoy the necessary independence from the government.

47.        After the shutdown of the last reactor at the Chernobyl plant, Ukraine will still be home to 13 nuclear reactors generating close to half of the country’s electricity. Safety at these reactors remains questionable as they were all designed in Soviet times. Continuous work to improve safety at Ukraine’s nuclear power plants must therefore remain a priority.

48.        If most of the money needed to resolve the Chernobyl problem seems to be in place, money alone cannot do the job. The Assembly now has to ensure:

a.       that the funds pledged are forthcoming and used efficiently and responsibly;

b.       that the world can feel increasingly assured that the risks connected with the use of nuclear energy have been overcome at Chernobyl, in Ukraine as a whole and in all countries using RBMK reactors;

c.       that the international financial institutions, and the EBRD in particular, reconsider their position with regard to the K2/R4 project, while encouraging Ukraine to intensify efforts to restructure its energy sector towards higher efficiency and enhanced diversification.

Appendix I

Nuclear Power Reactors in Ukraine


Type/Model of reactor

Net Capacity (MWe)


Present Status





Shut in 1996





Shut in 1991(a)





Shut in 2000





Shut in 1986










Construction halted




















Construction halted

South Ukraine-1





South Ukraine-2





South Ukraine-3



































    (a) A fire occurred in the turbine hall - the electricity generation (i.e., non-nuclear) area of Chernobyl-2 in 1991.

    * VVER are pressurised water reactors

    Source: The Uranium Institute and Ukrainian authorities.


In 2000, Ukraine's nuclear power plants supplied 45.3% (77.36 TWh) of the country's total electricity. This was generated by the 15 nuclear reactors, with a net generating capacity of 11 549 MWe.

In 1997 and 1998, Ukrainian nuclear power plants produced about 47 percent of the country's electricity (about 37 percent in 1995). Prior to the accident, the Chernobyl Nuclear Power Plant supplied up to 10% of electricity in Ukraine.

A large share of primary energy resources in Ukraine comes from the country's uranium and coal. The remainder is oil and gas, mostly imported from Russia. On average Ukraine produces 500 tonnes of uranium per year but the country depends on Russia to transform this raw material into nuclear fuel. Spent fuel is sent to Russia for reprocessing.

Appendix II

Chernobyl Nuclear Power Plant

Reactor Model

Net Output

Initial Criticality

Commercial Start

Current Status

Unit 1

RBMK -1000

925 MWe



Permanently shut down in 1996

Unit 2

RBMK -1000

950 MWe



Permanently shut down, 8/1991

Unit 3

RBMK -1000

925 MWe



Permanently shut down, 12/2000

Unit 4

RBMK -1000

950 MWe



Permanently shut down, 4/1986


Chernobyl Units 1 through 4 :Light-Water-Cooled, Graphite-Moderated Reactor LGR
Source: The Uranium Institute and Ukrainian Authorities


Appendix III

WHO Report - Health Consequences of the Chernobyl Accident

(extracts of Summary Report, 1995)

up to 5mSv        270000        voluntary relocation

       compulsory monitoring

up to 2 mSv        580000        special health monitoring

Immediate Effects - Limited to reactor plant personnel and fire-fighters.

Appendix IV


THE RESPECTIVE GOVERNMENTS OF THE G-7 COUNTRIES AND THE COMMISSION OF THE EUROPEAN COMMUNITIES, hereinafter referred to as "the G-7" and THE GOVERNMENT OF UKRAINE, hereinafter referred to as "Ukraine," have developed a cooperative approach on the elaboration and implementation of a Comprehensive Program to support the decision of Ukraine to close the Chernobyl Nuclear Power Plant by the year 2000, as formulated by President Kuchma in his statement of April 13, 1995, and in his letter of August 8, 1995, to G-7 Leaders. The Program will thus implement the commitments of the leaders of the G-7, made in Naples, Italy, in 1994 and Halifax, Canada, in 1995.

The program is guided by the following principles:

- The friendly relationships among Ukraine and members of the G-7;

- The critical linkages between energy sector reform and the achievement of Ukraine's economic and social reform objectives;

- The complementarity between measures summarized herein to support the closure of the Chernobyl Nuclear Power Plant and the development of a long term energy sector strategy in Ukraine, taking into account sound economic, financial and environmental criteria, and leading to an efficient sustainable, market-oriented energy sector well-suited to Ukraine's needs;

- The necessity of the continuous promotion of a high level of nuclear safety around the world taking into account the principles specified in the International Convention on Nuclear Safety and the recognition of the essential rule played in this regard by a strong and independent national nuclear safety regulator;

- The need to mobilize financial resources from the international community and domestic sources to support the decision of Ukraine to close the Chernobyl Nuclear Power Plant.

- The need to ensure full co-operation from the Ukrainian entities associated with all elements of the comprehensive program.

- The recognition that the early closure of the Chernobyl Nuclear Power Plant will have adverse economic and social implications for Ukraine while also facilitating the flow of international financial resources and improving the national standards of nuclear safety.

- The recognition of the fact that the responsibility for nuclear safety lies exclusively with the operating state, including an effective regime for liability for nuclear damage corresponding to accepted international norms.

- The desirability of increasing energy efficiency.

- The importance of our joint commitment to take all necessary measures for the decommissioning of the Chernobyl Nuclear Power Plant in the shortest, practically achievable time.

Ukraine and the G-7 have decided upon the following Comprehensive Program of cooperation in order to support the closure of the Chernobyl Nuclear Power Plant by the year 2000:

I. Power Sector Restructuring

1. Ukraine and the G-7 will continue to cooperate in the development of a financially-sound electric power market with market-based pricing that will encourage energy efficiency and conservation and will work cooperatively in generating and attracting the domestic and international resources needed both for safety measures and for new capital investment in power generation, transmission and distribution.

II. Energy Investment Program

2. Ukraine and the G-7 will work with the international financial institutions as well as foreign and domestic investors to prepare loan-financed projects based upon least-cost planning principles for completion of Khmelnitsky II and Rovno IV nuclear reactors, for thermal and hydro plant rehabilitation and pumped storage projects, and for energy efficiency projects in accordance with Ukraine's energy sector strategy. In order to support the closure of the Chernobyl Nuclear Power Plant; the investment program will identify least-cost power supply investments to meet Ukraine's future national power requirements in the context of competitive market-based power sector.

III. Nuclear Safety

3. Ukraine and the G-7 will work with the relevant international organizations as well as multilateral and bilateral donors on an expedited basis to prepare and implement projects for short term safety upgrades as Chernobyl III and for decommissioning of the Chernobyl Nuclear Power Plant.

4. Ukraine and the G-7 will continue to cooperate in the development of a cost effective and environmentally sound approach to the shelter for Chernobyl IV, including the definition, as soon as possible, of technical and cost options as the basis for reviewing financial requirements.

IV. Social Impact Plan

5. Ukraine and the G-7 recognize the implications of the closure of the Chernobyl plant for the workers and their families. The European Commission and the Government of the United States will assist the Government of Ukraine to develop an Action Plan for addressing the social impacts of the closure of Chernobyl.

V. Financial Resources

6. To provide for the implementation of the program outlined in paragraphs 1-5, Ukraine and the G-7 will cooperated in the identification of international and domestic Ukrainian funding sources and the mobilization of international finance in support of appropriate program activities.

7. Attachment 1 presents a summary of the current financial resources either available or under consideration from the G-7 and international financial institutions. Some elements are subject to the completion of project specific feasibility studies. Attachment 2 provides the list of priority projects of the Comprehensive Program.

8. As a guiding principle, revenue generating projects would be considered for international loan financing and Ukrainian domestic resources. Non-revenue generating projects, directly related to the closure of the Chernobyl Nuclear Power Plant, would be considered for international grant financing and, taking into account the financial and economic situation in Ukraine, Ukrainian domestic resources.

VI. Implementation Review

9. Representatives of Ukraine, the G-7, and the international financial institutions will meet at least annually to monitor implementation of the comprehensive program for the closure of the Chernobyl Nuclear Power Plant and consider any technical or financial issues that represent potential obstacles to realizing its objectives.

Done in Ottawa, this 20th day of December 1995, in duplicate, in the English and Ukrainian languages, each text being equally valid.




Current financial resources from the international community (US $ millions)

Power sector restructuring       43              43

Energy Investment Programme              102        1,809        1,911

Nuclear safety and decommissioning       349                      349

Social impact planning       4               4

TOTALS       498               1,809        2,307

(1) Committed.

(2) Some loans are pending subject to approval based on necessary feasibility studies

(3) Ukrainian in-kind and financial contributions will be defined as projects are developed.


Priority projects

I. Non-revenue generating projects

1.* Decommissioning of the CNPP       

2. Plan to deal with social impact related to closure of CNPP       

3. Short term nuclear safety improvements for CNPP unit #3       

4.** Transformation of "shelter" into an environmentally safe system       

5. Power sector restructuring       

II. Revenue generating projects

6. Completion of Rovno #4 and Khmelnitsky #2       

6.1 Safety improvements and completion of Khmelnitsky #2 and Rovno #4

6.2 Construction of hv transmission lines to Khmelnitsky and Rovno units

7. Rehabilitation of thermal power plants       

8. Introduction of peak capacities       

9. Energy efficiency and demand side management       

Projects requiring clarification before being included:

* estimated costs will be defined, taking into account the area technology study.

** estimated costs will be defined according to studies of alliance consortium and the protocol between the European Commission and Ukraine, signed in Brussels, 11 September 1995.

*** to be clarified by Ukrainian and G-7 experts.

Appendix V

Economic Assessment of the Khmelnitsky 2 and Rovno 4 Nuclear Reactors in Ukraine

Report to the European Bank for Reconstruction and Development, the European Commission & the US Agency for International Development by an International Panel of Experts chaired by Professor John Surrey

Science Policy Research Unit - University of Sussex

4th February 1997


We conclude that K2/R4 are not economic. Completing these reactors would not represent the most productive use of $US1bn or more of EBRD/EU funds at this time. Central to this conclusion are the following points:

When Chernobyl is completely shut down, it is highly unlikely that more base load capacity will be needed before 2010. Even if there were need for additional plant in this period, it would be for new or refurbished load following plant, not base load plant. Meanwhile, provided that all consumers resume paying their bills and electricity prices cover full costs on a continuing basis, electric utilities will have the money to buy sufficient fuel and spare parts. When industrial complexes are renovated, the existing 'heat only' district heating plants and high-efficiency cogeneration (CHP) plants will provide power and steam/hot water economically, further reducing the need for new central generating capacity.

Recognising there are important wider considerations for both the G-7 and for Ukraine, we have examined, using the substantial documentary evidence available, various types of project which we think would probably form part of a least cost development programme for the energy sector. We have not been able to assess the economics of these projects in detail, nor to determine the precise allocation of funds to them. We recommend that Ukrainians should be centrally involved in selecting the projects to be funded and that the full amount under the Memorandum of Understanding should be earmarked for such projects because of the urgent need to close Chernobyl and fund a long-term programme which is acceptable to Ukraine. For some of the projects, grant assistance may be more appropriate than loans.

The main options which the Panel considered were:

We believe there is no shortage of economically attractive projects in the Ukrainian energy sector. In terms of likely cost-effectiveness, the main options appear to be industrial modernisation projects where energy saving is an important by-product, and the rehabilitation of municipal district heating plants and of the publicly owned stock of buildings, including apartment blocks. With a successful restructuring of the electricity sector and liberalisation of energy markets, the choice of investment projects in this sector will be decided according to what is acceptable to private investors, as opposed to LCP methodology. This transition will be sooner and smoother if major capital resources are not tied up in large-scale, irreversible investment projects which are not needed.

The excess of generating capacity in Ukraine is now so large that there is ample time to give full consideration to the alternatives we have suggested. However, no doubt should be left in Ukrainian minds of the intention to provide the funds specified in the Memorandum of Understanding.

Appendix VI

Least-cost Electric Power System Development Analysis

Completion of Khmelnitsky 2 and Rovno 4 Nuclear Power Generators in Ukraine
Economic Due Diligence

For the European Bank for Reconstruction and Development

Stone & Webster Management Consultants, Inc. Englewood, Colorado, USA

May 1998


The analysis of whether completion of K2 and R4 in 2002 is likely to be least-cost leads to the following conclusions:

• 2002 is the least-cost timing for K2 and R4 in the base case scenario;

• the completion timing of 2002 for K2 and R4 in the base case is robust in the sensitivity tests;

• completion of K2 and R4 jointly in 2002 has a 50% probability of being least cost under scenario analysis;

• completion of K2 in 2002 and R4 in 2005 or later as a sequential project is likely to be higher cost than completion of both units jointly in 2002;

• the decision to complete K2 and R4 jointly in 2002 is the least risky choice in terms of economic cost.

On the basis of these combined conclusions from the sensitivity analysis, the probability analysis and the decision risk analysis, the decision to complete both Khmelnitsky 2 and Rovno 4 in 2002 is likely to be the least-cost and least risky economic choice.

Reporting committee: Committee on Economic Affairs and Development.

Reference to committee: Doc. 8722; Reference No 2509 of 16 May 2000.

Draft resolution adopted by the committee on 28 March 2001.

Members of the committee: Ms Zapfl-Helbing (Chairperson), Stepova, Kirilov, Blaauw (Alternate: Duivesteijn) (Vice-Chairpersons), Adam, Agius, Agramunt (Alternate: Yanez-Barnuevo), Akgönenç, Aleffi (Alternate: Lauricella), Aliyev, Andersen, Anusz, Arnau, Aylward (Alternate: Higgins), Berceanu, Billing, Blattmann, Bojars, Bonet Casas, Braun, Brunhart, Budisa (Alternate: Bulic), Burbiené, Calner, Cerrahoglu, Clinton-Davis, Cunliffe (Alternate: Etherington), Cusimano (Alternate: Turini), Dokle, Elo, Eyskens (Alternate: Annemans), Freyberg, Gryzlov (Alternate: Slutsky), Gülek, Gusenbauer, Haupert, Hoffmann, Hrebenciuc, Jung, Kacin, Kestelijn-Sierens, Kittis, Kosakivsky, Leers, Liapis, Lopes Cardona, Lotz, Makhachev, Mateju, Mitterrand, Naumov (Alternate: Kolesnikov), Patarkalishvili, Pereira Coelho (Alternate: Cesário), Ponsonby, Popa, Popescu (Alternate: Poroshenko), Popovski, Prokes, Puche, Ragnarsdottir, Reimann (Alternate: Marty), Riccardi, Rigo, Schmitz, Schoettel-Delacher, Schreiner, Schütz, Seyidov, Squarcialupi, Stoyanova, Suslov, Tallo, Townend, Tsekouras, Ustiugov, Valleix; Wielowieyski.

N.B. The names of those members present at the meeting are printed in italics.

Secretaries of the committee: MM. Torbiörn, Bertozzi, Ms Ramanauskaite.

1 The G-7 countries are: Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.

2 See a summary note on Ukraine’s nuclear power reactors in Appendices I and II.

3 These documents contain written declarations No. 274 and No. 291, entitled respectively “Request to the G-7 countries to undertake additional efforts towards financing activities to overcome the consequences of the Chernobyl disaster” (Doc. 8089) and “Appeal to the G-7 to increase the financing for the Chernobyl “Shelter” fund” (Doc. 8386).

4 Report to the European Bank for Reconstruction and Development, the European Commission and the US Agency for International Development by an International Panel of Experts chaired by Prof. John Surrey (completed in February 1997)

5 Report to the European Bank for Reconstruction and Development by Stone and Webster management consultants (completed in May 1998)

6 Nuclear fuel prices in Ukraine increased because Ukraine had been receiving subsidised supplies of enriched nuclear material in exchange for decommissioning its nuclear warheads. This programme ended in 1998. Subsequently, Energoatom’s nuclear fuel costs increased.