To be approved by the EBRD the project must show that it reaches a number of key criteria. Two of these are that the project must be clearly least cost and that it is bankable. Euratom has placed similar conditions upon the project. On 23rd November the EBRD released on its web site material on which its Board of Directors will base their decision. These materials show that despite tens of millions of Euro being spent on preparing the project, it remains unbankable and that some of the basic requirements for the loans have not been proven. The main issues are: -

Least Cost:
The US consultancy Stone and Webster have performed the economic analysis for K2R4. They have produced three major reports, May 1998, April 1999 and October 2000 to review the least cost nature of K2R4. The April 1999 and October 2000 versions are revisions of the May 1998 reports, inputting new data in particular to take into consideration changes in exchange rates.

The April 1999 report resulted in a lowering of the construction price of K2R4, due to a lower value of the local currency, the Hryvna, against the dollar – thus making work carried out using local material in Ukraine cheaper. However, the same analysis was not applied to the alternatives (reconstruction of thermal power stations) or to fuel costs. These omissions were widely criticized.

The October 2000 report takes note of these criticisms and admits that changes in the value of the Hryvna affect fuel purchases and the construction of all facilities and not just K2R4. However, the October 2000 version does not rectify the errors of the April 1999 report and only makes allowances for changes in currency between April 1999 and October 2000. The report should have reviewed the currency exchange between May 1998 and October 2000. This would have had a significant impact on the economic viability of the project as the value of the Hryvna halved during the May 1998-April 1999 period. Consequently the final conclusions of the October 2000 report are invalid.

Financial Problems:
Changes in the exchange rate between the US$ and Hryvna will also impact upon the financial viability of the project, as electricity will be sold domestically and the loan has to be paid in US$. The tariff reform required to repay the loan is dramatic, a 60% increase in the next few months. Any further devaluation of the Hryvna will require even more rapid price increases, with accompanying social and economic problems. Further doubts are raised about the validity of levels of cash collection reported in the EBRD’s Board documents, which far exceed other figures.

Clear analysis needs to be undertaken to review the likelihood of the financial requirements for EnergoAtom to pay back the loan being met and to assess what are the social impacts of such rapid tariff reforms.