Existing Financial Sources for Phasing out Nuclear Power in CEE.

July 1998.

Paper Prepared for Global 2000

Executive Summary.	3
Introduction.	4
Energy Policy and the European Union.	5
European Union Funded Energy Programs.	5
Development of Energy Policy	5
Research and Development Programs.	6
Financing of International Co-operation.	9
Trans-European Networks (TENs).	10
Structural Adjustment Policies.	12
European Investment Bank (EIB) Loans	13
Sector Loans	13
European Investment Fund Guarantees.	13
Total EU Energy Grants and Loans.	14
Existing International Nuclear Safety Program.	15
Lending in Energy Sector by International Financial Institutions.	16
The Enlargement of the European Union	17
Barriers for Closure	19
Generation of electricity.	19
Decommissioning.	20
Potential Export of Electricity.	20
Conclusion and Recommendation	21

For further information contact

Antony Froggatt
53A Nevill Road
London
N16 8SW
Tel/Fax.  44 171 923 0412
E-mail :   A.Froggatt@btinternet.com
Executive Summary.

Despite the internationally sought objective of reducing the risk from reactors in Central and Eastern Europe (CEE) and the former Soviet Union  the past decade has not seen significant improvements in nuclear safety.    Furthermore, despite the specific target to close the most dangerous reactors in the region they continue to operate today and are likely to continue operating unless new measures are taken to facilitate their closure.    This will require a united approach from Western Governments, institutions and companies as well as recognition from the owners and operators of these reactors that the present situation is unsustainable.     

Within the European Union there are many programs which offer energy grants and loans.    In one year alone (1996) the EU and its associated institutions awarded ECU 7.5 billion of grants (ECU 1.47 billion) , loans (ECU 5.77 billion) and credit guarantees (ECU 270 million) for energy projects, the majority of which were for projects within the Union.    Despite a stated policy objective to reduce nuclear risk in CEE and the former Soviet Union only ECU 123 million less than 10% of the total grants given in 1996 was allocated for nuclear safety projects.    While for the same period ECU 200 million was spent on fusion research and development.    It is therefore clear that re-prioritisation of the energy grant program could be used to facilitate the closure of reactors.   

The current proposal to enlarge the Union will include countries that have operational Soviet designed reactors.  The accession process will open up new sources of funds to applicant countries.   Significantly, ECU 7 billion will be available through the PHARE program for pre-accession aid.   While following entry up to ECU 38 billion will be available for the first wave countries (Czech Republic, Estonia, Hungary, Poland, Slovenia and Cyprus) through the structural programs.    Given that the European Commission has repeatedly stated that environmental protection and nuclear safety in particular are a fundamental part of enlargement funds should be prioritised to reduce the nuclear risk in the most effective way, by closing reactors.

Despite the clear opportunity that the enlargement of the Union can bring to close reactors there are also a number of problems that unless addressed will reduce the likelihood of closure.
•	The reactors in CEE generate substantial revenue for the countries concerned.  In total during 1997, they generated nearly 75 TWh of electricity, worth about ECU 3 billion.
•	The enlargement of the European Union and the simultaneous liberalisation of the western European electricity market offer increased opportunities for the export of electricity.
•	Electricity generated in Eastern Europe, in part due to the lower environmental standard, is a cheap source of power for western consumers.

It is clear that by prioritising the existing energy grants and loans and accession programs the nuclear power stations in the region could be closed.   However, unless a clear decision is taken they will become a cheap source of electricity for western consumers and operate well into the next century.

Introduction.

The state of the environment in Central and Eastern Europe (CEE) has been the source of concern for many years.   In particular, the accident at the nuclear power station at Chernobyl in 1986 showed the world what the consequences of badly designed, maintained and operated reactors can be.    Following the disaster the construction of many nuclear power projects were permanently abandoned or suspended in the former Soviet Union and in Eastern and Western Europe.   However, Chernobyl not only showed the potentially global consequences of nuclear power but also the inability of the international community to act to force the closure of the most dangerous nuclear facilities.     As a consequence many similar reactors continue to operate and even at the Chernobyl station itself.

In 1989 following the political changes in CEE there was once again increase in public concern over the status the reactors as the media and politicians were given new insights into the dangers that they posed.    This unprecedented access to the facilities resulted in for the first time agreements for the early closure of a number of reactors.   Specifically, in Eastern Germany following unification Soviet designed reactors both in operation and under-construction were abandoned due to safety and subsequently economic concerns.    While other agreements were also made with Bohunice V1 (Slovakia) which was to be closed in 1995, Chernobyl (Ukraine) in 1993 and Kozloduy units 1-4 (Bulgaria) in 1997/8.

Despite these agreements virtually all the reactors continue to operate and will unless new and binding agreements are made they will operate until the end of their design lives and beyond.    The overturning of the previous closure agreements are due to a number of reasons including: the strength of the national nuclear lobby; the lack of a nuclear construction program in EU member states; and the belief that alternatives were not available or are too expensive.

The Enlargement of the European Union offers new opportunities to reduce nuclear risk for two main reasons.    Firstly, there is a strong political motivation for new members to conform to EU standards and secondly, enlargement proposals from the Commission offer accession countries access to new sources of financing for alternatives.     However, while these new conditions should enable the rapid closure of some more dangerous nuclear reactors there are a number of key factors that could enable the long-term operation of the same reactors.   Firstly, there is no EU nuclear safety standard that the reactors will have to conform to as within the Union nuclear safety is decided on a national level.    Secondly, the liberalisation of the Union’s electricity market will enable the electricity from these reactors to be exported and thus increase the economic incentive to continue to operate the reactors.

This paper will look at what sources of funds are available to accelerate the closure of Soviet designed reactors

Energy Policy and the European Union.

The European Commission and its associated agencies are the largest donors for energy grants and loans to CEE and CIS (Commonwealth of Independent States).      Furthermore, the European Union’s Member States are generally the largest bilateral givers of loans and grants and are often tied into the Commission’s programs and objectives.      Therefore, the Commission plays a pivotal role in Western attempts to influence energy policy in the region.    
 
Energy policy and in particular a desire to ensure security of supply has been at the heart of the Union and its predecessor since their conception.    The European Coal and Steel Community (ECSC) was concluded in 1951, which along with the European Atomic Energy Community (Euratom) and the European Economic Community (EEC) from 1957, became the foundations of the present day European Union.    Despite the changes in the electricity industry structure, influence of price, availability of alternatives and public and political perception, the ECSC and Euratom Treaties has not substantially changed since their conception.  However, this will change with the expiry of ECSC in 2002.   Despite the fundamental role that energy has played in the development of the Union it was not until 1995 that the Commission adopted the White Paper “An Energy Policy for the European Union”.    The paper concluded that the main areas of action are: 

1.	Security of Supply and international co-operation.
2.	Integrating energy markets.
3.	Promoting sustainable development in the energy field.
4.	Promoting energy research and technological development.

The entry of countries into the Union will enable the industries and Governments of new members to access new funds for policy, research and development, pilot and demonstration facilities.    The access to these funds will enable the development of alternative energy technologies and increase energy efficiency and thus reduce energy intensity.      This later area is one that is widely recognised as important to both increase the competitiveness of industry and reduce the environmental damage and is of particular importance in CEE.
European Union Funded Energy Programs.
Development of Energy Policy

The EU program for the development of energy policy is not surprisingly focused on existing Members.    However, due to the growing awareness of the interdependence of regions and the accession process an increasingly level of funds are available to CEE countries.     The main policy programs are:- 

The Thermie program funds policy work and also projects aimed at demonstrating new energy-related technology, especially, rational use of energy, renewables, solid fuels, oil and gas.    The program supports projects that have entered the demonstration phase i.e. are being carried out on an industrial scale, with the aim of showing that the new technology is reliable in practise.   During 1997, the Thermie program allocated ECU 141 million as part of a ECU 566 million program between 1995-1998.

The SAVE II program is designed to promote better use energy within the Union and countries which have applied for membership of the Union.    This is the second energy efficiency program and has a budget of ECU 45 million for the years 1996-2000.    During 1997, ECU 9 million was allocated.

The Altener program supports projects that promote the production of energy from renewable energy sources.     The present program runs from 1993-97 with a budget of ECU 40 million (1997 ECU 12 million).   

Finally, Synergy is designed to promote international co-operation with non-member countries through training, production of sectoral analysis and support for cross boarder co-operation.    Within the program the Union undertakes its financial support of the Energy Charter.  Between 1996-2000 the program has earmarked ECU 45 million. 
Research and Development Programs.
The fourth frame-work program, 1994-1998

Initially this had a budget of ECU 12.3 billion but was increased in March 1995 to ECU 13.1 billion to take into account the accession of Austria, Finland and Sweden.     Within this energy related programs receive ECU 2.4 billion, the second largest item.

Table 1: Breakdown of 4th Framework Program.

Activity	Budget MECU	
Information and Communication	3,668	
Industrial technology	2,140	
Environment	1,157	
Life science and technology	1,709	
Energy	2,412	
Transport	263	
Targeted Social research	147	
Co-operation with third countries	575	
Dissemination and exploitation of results	352	
Mobility of researchers	792	
Total	13,215	

   Within this there are 6 separate areas which assist the development of energy. 

JOULE has the research and development component for Non-nuclear energy (NNE).  The program runs for four years, from 1995-1998, and has a total budget of ECU 1030 million, of which around 460 million has been allocated for NNE-JOULE.  It aims to address three central issues and can offer up to 50% of the research and development costs:
-	Improving security of energy supply.
-	Protecting the environment.
-	Encouraging the rational use of energy.  

THERMIE is linked closely with the JOULE program but concentrates on funding demonstration of non-nuclear energy sources.

Safety of Nuclear Fission program’s goal is to pursue an overall approach to nuclear safety through five main areas: -
-	Exploring new concepts within the areas of reactor safety, proliferation and waste management.
-	To improve understanding of mechanisms in severe accidents and thus improve reactor safety
-	Assist with understanding and address issues relating to decommissioning and radioactive waste disposal.
-	Increase understanding of radiological impact on human health and environment.
-	Set up collaborative projects with CEE and the CIS on radioactive waste management and radiation protection.

Thermo-nuclear Fusion program has one long-term objective, the production of safe, environmentally sound prototype fusion reactor.   At present research is concentrated at the Joint European Torus (JET) installation in the UK.    Within the fourth framework program fusion receives ECU 846 million, the largest share (35%) of any energy program.    Proponents hope that the European initiative will become part of the International Thermonuclear Experimental Reactors (ITER).   Funding from other countries, in particular Japan and the United States are also required for the development of ITER, which to date has not been forthcoming.

Joint Research Centre (JRC).    The mission of the JRC is to provide technical and scientific support for the conception, implementation and monitoring of EU policies.  The JRC is comprised of seven institutions employing more than 1000 researchers.    Within the JRC budget ECU 271 million is allocated to nuclear fission research.

International Co-operation (INCO).   Although it is recognised that international co-operation is beneficial in most areas of scientific research, a single program groups together a number of areas.   The total budget for the INCO program is ECU 575 million.   Within this program specific research on sustained management of renewable sources is undertaken.
 
The Fifth Framework Progam

The Fifth Framework program, which will run from 1999-2003, is now in the final stages of negotiation.   Unless, prior to the final agreement substantial changes are made the level of funding for energy will remain largely the same as the fourth framework program.   However, the program divisions within the overall project have changed and are divided as follows.

Three “Thematic” programs:

-	Unlocking the resources of the living world and the ecosystem.
-	Creating a user-friendly information system
-	Promoting competitive and sustainable growth

Three “Horizontal” programs:

-	Confirm the international role of European research.
-	Innovation and participation of SMEs.
-	Improving human potential.

The funding for the energy programs will fall within the thematic program “promoting competitive and sustainable growth”.    In particular it has been noted that funding will cover new and renewable sources of energy, technologies for energy storage and transmission, and technologies for use of fossil energies.  Euratom, has a separate budget item, which will cover areas of nuclear fission and fusion research.

Table 2: Proposed Budget for the Fifth Framework program.

	Amount (ECU million)	Relative budget (%)	
EC Framework Programme			
Resources of the living world and the ecosystem	3 925	24.08	
Information society	3 925	24.08	
Competitive and sustainable  growth	3 925	24.08	
International role	491	3.01	
Innovation and SMEs	350	2.15	
Human potential	1 402	8.60	
Direct actions Joint Research Centre	815	5.00	
Euratom Program			
Fusion and fission	1141	7.00	
Joint Research Centre	326	2.00	
Total	16 300	100	

Financing of International Co-operation.

The Commission has a number of regional aid programs: Central and Eastern Europe; Commonwealth of Independent States and Mongolia; Mediterranean; Asia; and Latin America.   Between 1994-6 grants totalling ECU 594 million were awarded for energy projects.   As can be seen from the chart below, it is the countries in Eastern Europe, which receive the greatest percentage of the energy grants.

This analysis of the energy sector includes funding for the Commissions nuclear programs in the region that receives considerable funding – within the TACIS program nuclear was the largest recipient of funds.    The full breakdown is seen below.
PHARE and TACIS Nuclear Safety Program

The Commission is the largest donor of nuclear grants to CEE and CIS regions.    As can be seen below the TACIS program gives about three times more than for the PHARE region. 

Table 3: PHARE and TACIS Nuclear Safety Program Expenditure 1990-7

Program Year	 PHARE  (MECU)	 TACIS (MECU)	 Total  (MECU)	
1990	3.8		3.8	
1991	16.7	53.0	69.7	
1992	29.3	60.0	89.3	
1993	25.2	88.0	113.2	
1994	25.0	91.6	116.0	
1995	27.0	96.0	123.0	
1996	6.0	117.0	123.0	
1997	12.0	68.0	80.0	
Total	145	574	719	

The purpose of this paper is not to assess the viability and effectiveness of these programs.    However, despite a relatively significant levels of funds the priority to significantly reduce the threat from nuclear reactors has not been achieved in particular, targeted reactors have not been closed.     Such and other shortcomings have been noted in a number of reports by EU bodies, including the Court of Auditors, Scientific and Technical Options Assessment (STOA) Programme of the European Parliament and well as by industrial interests and NGOs.
Trans-European Networks (TENs).

As part of the European Commission’s strategic objective to increase interdependence of European States and deepening their integration it established a division to support and expand the Trans European Networks (TENs).     The Commissions White paper “Growth, Competitiveness, Employment” estimates that ECU 400 billion should be spent on Trans-European Networks by 1999.     The largest requirements are in the telecommunications (ECU 150 billion) and transport (ECU 220 billion) sectors, with ECU 13 billion needed in the energy sector.    These relative investment requirements are reflected in the level of funding within the Commission’s TENs program.     For the years 1995-1999 the TENs has a total budget of ECU 2 345 million with energy receiving ECU 112 million, compared to road and rail ECU 1868 million, telecommunications ECU 422 million.

Eligible projects must have been identified by the Commission as projects of common interest in publications in 1996 and 1997.    In total 28 project have been identified, ten which involve connections with countries outside the EU.     Those that involve electricity connection to countries in CEE are shown in table 4.

Table 4: European Union Funded Trans-European Electricity Network Projects with Connections in Eastern Europe.

Countries	Project	Status	
Germany-Poland	Strengthen connections between countries	Feasibility studies	
Greece-Balkan countries	Strengthening connections between Greece and Albania, Bulgaria and former Yugoslavia.	Feasibility studies	
EU-Belarus-Russia-Ukraine	Development of connections and interface between newly extended UCPTE and CIS network.   The moving of DC conversion stations previously between Austria and Hungary; Austria and Czech Republic; and Germany and Czech Republic.	Interface study and feasibility studies.	
Baltic Ring (Germany, Poland, Russia, Estonia, Latvia, Lithuania, Sweden, Finland, Denmark and Belarus)	Strengthening developments between countries	Feasibility studies	
   
TENS recognise the importance of projects that have an external dimension.    Furthermore projects identified during the accession process as areas of regional interest would qualify for becoming TEN common interest projects, once accession is effective.

TENs financing can be used in the following areas:-
•	Co-funding of feasibility studies (generally no more than 50% of the costs).
•	Contributions towards fees for loan guarantees.
•	Interest rate subsidies.
•	In specific cases, co-funding of projects.

Whatever the funds are used for the TENS budget cannot be used to fund more than 10% of any one project.
Structural Adjustment Policies.

Structural operations are a direct mechanism for the Union to support it’s least developed region.   Between 1989-1999 over ECU 200 billion has been committed for such policies (ECU 63 billion 1989-1993 and ECU 141 billion 1994-1999).    The total allocation for the 2000-6 period is expected to be ECU 275 billion (1997 prices).

The main area for the disbursement of funds is through the Structural funds.   These are intended to reinforce Member States activities and have four main instruments.

•	European Regional Development Fund (ERDF).   This receives 45% of the total budget and targets supporting business, basic infrastructure and local development in disadvantaged regions.

•	European Social Fund (ESF).   This receives 28% of total budget and targets training and recruitment throughout the Union.

•	European Agricultural Guidance and Guarantee Fund (EAGGF).   This receives 14% of funds are targets agricultural investments and rural development.

•	Financial Instruments for Fisheries Guidance (FIFG).    This receives about 1.5% of funds and targets the fishing industry.

In total  structural funds receive about 90% of the total budget.     The funds cannot be use as the sole source of finance for a project.   The ceiling for the percentage of funds varies depending on the objective and country but falls within the range of 50%-80%.

In addition to the Structural Funds, finance is available through the Community Initiative Programs.      Energy projects were funded within the Rechar, Regen and Region programs.    In the decade 1989-1999 specific energy initiatives had funds close to 7 Billion ECU earmarked, which represents only about 3.5% to the total funds available. 

Table 5: Structural Operations Devoted to Energy Projects, 1989-1999 (MECU)

		1989-1993	1994-1999	Total	
Structural Funds	Regional Development for energy 	2 268	2496	4764	
Community Initiative Program	Rechar	370	400	770	
	Regen	330		330	
	Region		534	534	
Total		2938	3430	6234	

European Investment Bank (EIB) Loans

The EIB was established in 1958 to serve as the financing institution for the European Community.    Although established for the European Union it lends to non-member states in Africa, the Mediterranean, Asia and Latin America.    In addition it lends to eleven countries in CEE but not to CIS.    In CEE the Bank’s aim is supporting the development and conversion of these countries economies with a view to progressive rapprochement (to the EU) and integration. 

Between 1986 and 1995 the EIB lent and gave credit guarantees of over ECU 150 billion, making it one of the largest international financial institutions in the world.   About 90% of these funds were allocated for Member States.
Sector Loans
European Coal and Steel Community (ECSC) 

In principle these loans can be used for either direct investment in modernisation of coal and steel facilities or indirect project to boost the consumption of coal and steel.   However, given that the ECSC Treaty expires in 2002 and all loans have to be repaid by this date it is unlikely that any further loans will be awarded.
Euratom.  

A council decision in March 1977 empowered the Commission to issue loans on behalf of Euratom.    The ceiling for loans was set by the Council and stands at ECU 4 billion, of which ECU 2.8 billion has been allocated.    In 1994 the remit of Euratom was changed to allow lending to countries outside the Union, specifically to CEE and CIS.   To date the facility has not been used outside the EU, although loans are being prepared for projects in Bulgaria, Russia and Ukraine.   Euratom loan may fund up to 50% of a single project provided that it is technically and economically viable.    The facility may also be used to fund decommissioning.

European Investment Fund Guarantees.

Launched in June 1994, with a capital of ECU 2 billion, the EIF is 30% owned by private financial institutions, 30% by the Commission and 40% by the EIB.    Initially it has provided loan guarantees for TENs projects.  The purpose of the EIF is to catalyst to reduce the cost of financing selected projects in its areas of interest.

Total EU Energy Grants and Loans.

Table 6 is a snapshot of the funding available from EU and EU related institutions for energy projects and programs.   In this case it shows what funds were available in one years, 1996.    As expected most of the funds, 75% are available through loans from the EIB, of this 86% went to Member States.

In 1996 grants for energy totalled ECU 1.4 billion.    As has been shown there is a diverse range of energy loans and grants available from European Union institutions.  The most notable conclusions are:-

•	In 1996, the nuclear safety programs in CEE and CIS was ECU 123 million (shown in Table 3) this represents less than 10% of the total energy grants. 
•	That fusion research continues to receive the largest proportion of the research and development funding (15%).    This is larger that the nuclear safety programs in both CEE and CIS.
•	That Structural Funds contribute one third of the total energy grants.    Once countries have entered the EU these funds will be available to them.

Table 6: Total European Union Energy Program Funds for 1996 (MECU)

Area	Program	Grants	Loan	Credit Guarantees	
Policy Action	THERMIE	141			
	SAVE 	9			
	ALTENER	8			
	SYNERGY	9			
Research and Development	JOULE	116			
	Nuclear fission	43			
	Nuclear Fusion	212			
	Joint Research Centre	78			
	INCO	7			
International Co-operation	PHARE	53			
	TACIS	138			
	Asia	7			
	Latin America	8			
Trans-European Networks	TENS	22			
Structural Operations	Community Support Frameworks	416			
	Community Initiatives (REGEN/REGIS)	89			
ECSC Support	Research,  Readjustment, social measures	112			
European Investment Bank	European Union		4975		
	Third Countries		702.4		
ECSC			97.3		
European Investment Fund Guarantees	European Union			88	
	Third Countries			182	
Total		1468	5774.7	270	

Existing International Nuclear Safety Program.

For nearly a decade Western Institutions and Governments have attempted, by the giving of grants and loans, to increase the safety of Soviet designed nuclear facilities.    The main international co-ordination of these program is through the Brussels based G24 nuclear safety program.    The figure below shows the breakdown of expenditure between the CEE (PHARE) and CIS (TACIS) regions.  This shows the clear priority that the international community has given to TACIS countries (Armenia,  Kazakhstan,  Russia and Ukraine).  This trend is expected to change slightly during the coming years with an funding of nuclear safety in PHARE countries of ECU 50 million during 1998 and 1999, and increase from ECU 12 million in 1997 and ECU 6 million in 1996.

In addition, the figure shows a decreasing number of projects being prepared as most of this is in the process of being dispersed, with little, only about 3% (ECU 50 million) within projects being developed.

Lending in Energy Sector by International Financial Institutions.

Since 1989, the European Bank for Reconstruction and Development (EBRD), the EIB and World Bank lent a total of ECU 33.8 billion in the region.     The energy sector received the largest shared, 20%, totally ECU 6.78 billion.     Of this ECU 3.4 billion was for electricity sector projects (which includes Thermal Power plants, rehabilitation of existing power plants, renewable energy sources, energy distribution and energy efficiency and conservation measures).  The Figure 4 shows the breakdown of the electricity sector projects by country.

Despite claims by Western Governments and institutions that they are seeking to assist countries close the most dangerous reactors little energy lending seems to have taken place to assist this.    As can be seen with the exception of Ukraine, lending within the electricity sector from the International Financial Institutions (IFIs) has not been targeted to countries where closure of reactors was expected (Armenia, Bulgaria, Lithuania, Russia, Slovakia and Ukraine).   
In April 1998 a Memorandum of Understanding (MoU) was signed by IFIs and the European Commission to increase co-operation for Pre-accession preparation for countries in CEE.   The MoU called for the IFIs to coordinate their financial assistance instruments to provide harmonized action in line with the Accession Partnership agreements.    Along with the MoU a preliminary list of priority projects in the areas of transport, environment and energy was identified.     The estimated cost of the 38 projects was some ECU 3.5 billion.     With the exception of the Maritsa East thermal power plant project in Bulgaria, little or no attempt appears to have been made to invest in replacement power for nuclear reactors,  despite this being a priority of the Accession process.

The Enlargement of the European Union
The proposed enlargement of the European Union creates real opportunities to facilitate the rapid and in some cases immediate closure of Soviet designed nuclear power plants.    Simultaneously, there are real dangers that unless precise nuclear safety standards are required and implemented and concrete closure dates set the reactors in question will be given a green light to operate within the European Union and will become a cheap source of electricity within the European electricity market.
The Commission and existing Members of the EU have proposed two “waves” for countries entering the Union.   Firstly, the Czech Republic, Estonia, Hungary, Poland and Slovenia (and Cyprus) and then in the second wave, Bulgaria, Latvia, Lithuania, Romania and Slovakia.    The Commission has stressed that although countries may be starting at different times, this does not mean that those countries in the second wave may not enter the EU at the same time as the first wave countries.
The entry of the CEE-10 (the first and second wave countries) into the Union will increase the total population by 100 million, from the present day level of about 400 million.   This additional 25% of the population will add only 4% to the Union's existing Gross Domestic Product (GDP).    Furthermore, with the average per capita GDP in the CEE-10 at only one third of the EU average there is some concerns on the budgetary constraints that enlargement will impose.      In particular it has been agreed that the current budget ceiling for the Union of an average of 1.27% of the total GDP will not be increased even to allow for enlargement.
The Commission, assuming an increase in GDP across the Union and in accession countries, has forecast and budget of ECU 745.5 billion for 2000-6.   Of this the CEE-10 will receive, assuming rapid entry into the Union, just over 10% or ECU 74.8 billion.   Table 7 shows the funding allocation for accession countries, based on entry for the first wave countries by 2002.

Table 7:   EU Funding  for Accession Countries

	2000	2001	2002	2003	2004	2005	2006	Total	
First Wave Countries	
Pre-accession aid		
Agriculture	0.3	0.3	-	-	-	-	-	0.6	
PHARE	0.9	0.9	-	-	-	-	-	1.8	
Structural Operations	0.6	0.6	-	-	-	-	-	1.2	
Transfer after accession	
Structural Funds	-	-	3.6	5.6	7.6	9.6	11.6	38.0	
Agriculture	-	-	1.5	1.9	2.4	2.9	3.3	12.0	
Other internal policies	-	-	0.7	0.7	0.8	0.8	0.8	3.8	
Total first wave	1.8	1.8	5.8	8.2	10.8	13.3	15.7	57.4	
Second Wave Countries	
Pre-accession aid		
Agriculture	0.2	0.2	0.5	0.5	0.5	0.5	0.5	2.9	
PHARE	0.6	0.6	1.5	1.5	1.5	1.5	1.5	8.7	
Structural operations	0.4	0.4	1.0	1.0	1.0	1.0	1.0	5.8	
Total second wave	1.2	1.2	3.0	2.0	3.0	3.0	3.0	17.4	
Total CEE-10	3.0	3.0	8.8	11.2	13.8	16.3	18.7	74.8	

During 2000-6  ECU 230 billion has been earmarked for structural funds through the Union.   Of this, the current members will receive ECU 230 billion and the first wave countries just ECU 45 billion (which includes ECU 7 billion for pre-accession aid).   This represents less than half the proposed transfers to Greece and Portugal (the current members with the lowest per capita GDP) and is a move away from the previous principle of equality of treatment between Member States.
Furthermore, in total the first wave countries will receive ECU 57.4 billion prior to 2006 and the second wave ECU 17.4 billion.    Therefore those countries in the second wave will receive three times less than those in the first.     This disparity compounds the problems of the second waver countries that by the nature of their grouping are further away from EU standards in many areas and thus will require more financial assistance.   Despite this disparity the pre-accession and structural adjustment funds offer an important new source of funds.

Barriers for Closure
Generation of electricity.

Nuclear power plays a significant role in the electricity systems of CEE countries.    There are only three countries, which do not have nuclear power, Estonia, Latvia and Poland.     While in others, notably Lithuania, nuclear power is the dominant electricity source.   Nuclear power plants are, relative to other conventional power plants mostly gas and coal, are expensive to build but have much lower fuel costs.   However, nuclear power has additional, often significant, costs associated with waste management and decommissioning.       Therefore, if past and future liabilities are ignored or reduce nuclear power can be relatively cheap source of power.

 As can be seen in table 8 the nuclear power stations in the CEE region can generate substantial revenue for the operator with the nuclear power plants generating over ECU 3 billion every year.    This dramatically shows how little the PHARE nuclear safety program, ECU 12 million for 1997, can achieve compared to national funds.   Furthermore, although this represents the total revenue, as opposed to profit as operational, construction and waste management costs must be subtracted, it demonstrates the strong economic incentive to operate the reactors as long as possible.

Table 8:  Predicted Incomes from Nuclear Power Plants in CEE

	Electricity Generated  in 1997 Twh	% of electricity	Price $/kWh – Industrial	Potential Revenue
For 1997 Million $	
Bulgaria	16.44	45.38	0.02	329	
Czech Republic	12.49	19.34	0.0594	742	
Hungary	13.97	39.88	0.0474	662	
Lithuania	10.58	81.47	0.02	212	
Romania	5.40	9.67	0.02*	108	
Slovenia	 4.79	39.91	0.05*	240	
Slovakia	10.80	43.99	0.0531	573	
Total	74.47			2876	
* - estimated

Decommissioning.

In present day Western European licensing agreements the operator or owner of the nuclear reactor are required to set aside a percentage of the reactor’s revenue for decommissioning.   Although the level of funding and the decree of financial independence of such funds varies it is necessary to pay for future decommissioning. Furthermore, even in systems where a clear decommissioning strategy has been required from the beginning, it is possible that due to lower generating capabilities or shorter life-times the full decommissioning fund will not be met using previously predicted revenues.    

In many cases in CEE no funds were initially set aside for decommissioning and may not be implemented even today.   Therefore, it can be argued that the early closure of the reactors will have a further negative economic impact as it will both reduce the funds for decommissioning and bring forward the need for the funds.     This later point will have a substantial financial impact on decommissioning costs as many funds ensure that discounting for future liabilities substantially reduces the size of the initial amount.

The most detailed analysis on Soviet designed reactors was undertaken in former Eastern Germany.   Following unification and the closure of the reactors economic analysis was undertaken to assess the costs of decommissioning of a number of reactor designs.     Based on this analysis the Oko Institute estimated that the cost of decommissioning reactors in Slovakia would be in the range of 2, 250 – 3 350 DM/kW.   Taking this range and applying it to the reactors throughout the region the cost of decommissioning would be 30-45 billion DM. (ECU 15-23 billion)
Potential Export of Electricity.

There is a significant price difference between the average electricity price in CEE and EU.    Most striking is the difference in energy prices for households, where prices in CEE are about four times lower than the EU average.      Despite the significantly lower household price, the average household energy bill in CEE takes three to four times more of the total income than the EU average. However, in the industrial sector, energy prices in CEE are only 25-30% lower than the EU average.

It is recognised that price reform and transparency is a major part of the package of reforms necessary for accession countries.   However, progress has been slow.   The main reason for this is the social problems that will arise from rapid transformation of the household energy prices.     If reforms are slow and prices do not rise rapidly some operators in CEE may increase the level of electricity exported to the EU.     

In February 1997 the EU’s Directive on rules for the internal market in electricity entered into force.   This Directive gradually opens up the EU’s electricity market to competition and enables large-scale consumers to purchase their electricity from sources other than their existing utility, including foreign utilities.      Although the Directive will only affect very large users, over 20 Gwh/year initially it will decrease by 2003 to 9 Gwh.   While even this will still only effect large users it has set a precedent for freer movement of electricity on a European level and has encouraged more radical market reforms on a national level.     By 2003 it is conservatively estimated that one third of sales in the EU will be made from a utility other than their own.    Although the Directive is seen by many as conservative it is expected that the market will encourage a much greater exchange of electricity than is currently mandated.

Conclusion and Recommendation

The safety of nuclear power plants and in particular those in Eastern Europe continue to cause concern and danger for the European Union.   Despite considerable financial assistance and a stated objective to seek the closure of some reactors and increase the safety of others not enough as been done to reduce the nuclear threat.   The failure to take clear action is due to a number of factors.

•	Although Western institutions have given grants totally ECU 1.5 billion for nuclear safety in CEE and CIS these funds are not significant compared to the revenue generated from the nuclear power stations.   In 1997 CEE nuclear power stations generated ECU 3 billion worth of electricity.   In the same period the PHARE program, the largest donor to nuclear safety in the region, contributed just ECU 12 million.   

•	The development of the Single Electricity Market offers CEE nuclear power plant operators the potential for increase revenue with sale of electricity in the European Union. 

•	No concerted effort has been made by International Financial Institutions to prioritize investments to facilitate the closure of reactors.

Financing Options for Phase-out.

There are a number of existing sources of funds that could be re-prioritized to give loans and grants to enable the closure of nuclear reactors in CEE.   These include:

i)	The EU and its associated institutions have a capacity to award loans and grants for energy projects.    In 1996 nearly ECU 7.5 billion in loans, grants and credit guarantees was awarded.

ii)	The EIB, EBRD and World Bank are major lenders in the CEE region.   Between 1989-1997 nearly ECU 3.5 billion was allocated in loans for electricity supply and demand projects.

iii)	The Enlargement of the European Union offers new sources of funding for CEE countries.   It is envisaged that ECU 74 billion will be made available, the largest share, ECU 38 billion is for structural funds for the first wave countries (Czech Republic, Estonia, Hungary, Poland and Slovenia), with an increase in funds for all accession countries through the PHARE pre-accession strategy.

There are a number of programs that should be dramatically changed or cut to make available funds to facilitate the rapid closure and decommissioning of targeted reactors, including: -

Fusion Program: The EU and international nuclear fusion program consumes a high percentage of the scarce energy grants, about 15% of the EU funding.    Given the short-term urgency for grants to assist with decommissioning of reactors, especially in Eastern Europe, fusion funds should be redirected to assist.

G-24 Nuclear Safety Programs: Technical assistance programs should only be used for short-term operational safety improvements or for decommissioning.   No funds should be made available unless there are concrete and legally binding closure dates.

Overall it is clear that sufficient international funds do existing within the electricity sector to facilitate the closure of reactors.   However, it will only be achieved if an agreement is reached upon a closure date and then all future energy loans and grants prioritize the investments to achieve that goal.