"More than money": What advantage would Russia get from Turkey's first NPP?

Russia and Turkey are confidently advancing towards completion of the Akkuyu nuclear power plant historic project. Despite the support of Russia's top leadership, it is still opposed by many. Vestnik Kavkaza asked a Turkologist and an independent economist why potential risks are outweighed by obvious benefits.

Recently, construction of Akkuyu Nuclear Power Plant's third unit was launched in Turkey. The nuclear power plant near Mersin will be Turkey's first. It is the largest nuclear construction site in the world and the first project in the global nuclear industry implemented according to the Build-Own-Operate model. Until now, after commissioning, NPPs came under the customer country's control, but Akkuyu will be owned by Rosatom. This model is a direct threat to such competitors of a Russian company as the American Westinghouse. U.S. and French corporations will become ever less likely to win tenders to build nuclear power plants.

The number of personnel at the construction site exceeds 8 thousand people. The project cost is about $20 billion. After the completion of the nuclear power plant, its four units with reactors with a total capacity of 4,800 MW will be able to meet 10% of Turkey's current electricity needs. The project was originally scheduled for 2019-2022, but the Russian Su-24 incident in Syria and the cooling of Moscow-Ankara relations delayed the start of construction. Now the completion of the nuclear power plant is timed to coincide with the 100th anniversary of the Turkish Republic Foundation in 2023.

Despite the obvious benefits and the decision of the leadership of the two countries to complete the agreement signed back in 2010, there's been a lot of opposition to this project in our country.

Information war against the Akkuyu NPP

Nezavisimaya Gazeta published another "takedown" on the start of the power unit. In the article loudly titled "Russia develops other countries' energy sector at the expense of its budget" Alexey Komrakov proves the unprofitability, insecurity and riskiness of "Akkuyu" for Russia. He claims that Turkey does not bear any financial risks, the project can be nationalized at any time, and generally it is dangerous to build nuclear reactors in a country facing an increased terrorist threat.

I must say this is not the first attempt to tarnish the project in the eyes of ordinary citizens. There were similar articles, for example, in Rosbalt. All of them were based on the report of the Institute for Natural Monopolies Research (IPEM), written under the leadership of former Russian Deputy Minister of Atomic Energy Bulat Nigmatulin. Here are the main points of Akkuyu's main critic:

- Turkey does not bear any financial obligations, since financing (about $22 billion) is provided from the Russian budget. The allocated loan is interest-free.

- There is a high risk of freezing budget funds for construction due to the delay in the construction of the nuclear power plant.

- Turkey has no obligations for the construction of power transmission lines and power take-off substations, also there are no large consumers of electricity with a fixed volume of purchases

- Fuel supplies are paid not by Turkey, but by Rosatom. Since the latter "does not have its own funds, it will be necessary to use the funds of the Russian budget."

- In the refund scheme, the electricity price is "fixed for 25 years" and does not take into account inflation and currency changes. The return of funds to Russia is questionable due to the "probable limitation electricity prices in Turkey" in the long term and increase in the dollar exchange rate.

- Turkey "does not invest in construction, but gains control over property that does not belong to it, citing the protection of Turkey's national security and economic interests."

- The project "makes Russia dependent on Turkey," and Turkish politics is becoming "more and more unpredictable."

In the end, Nigmatulin comes to a bold conclusion: "The agreement is detrimental to Russia's political and economic interests, diplomatic preparation is needed to terminate the agreement." 

Benefits for Russia

If you do not build your attitude to projects with Turkey through the prism of long forgotten Russian-Turkish wars, you can see that Akkuyu is a more than profitable project for Russia.

- The construction site employs about 11 thousand employees, including Russians - these are new jobs.

- In addition to Rosatom, the supply chain includes hundreds of Russian companies that pay taxes to the Russian treasury.

- For the entire period of its operation, the fuel for the NPP will be sold by the domestic TVEL company.

- The sale of the generated fuel is guaranteed. Article 10, clause 5 of the Akkuyu NPP Agreement states that the Turkish company TETAS is obliged to purchase 70% of electricity from units 1-2 and 30% from units 3-4 at a price of 12.35 US cents per kWh (excluding VAT) for 15 years. The rest of the volumes will be sold at market prices. Fixed rate is above average market price (about 0.809 TL - 11 US cents). Senior expert of the Institute for Energy and Finance (FIEF) Sergey Kondratyev considers 12.35 cents a very high wholesale price, especially for the first two reactors

- Successful implementation of Akkuyu will enhance Russia's image as a leader in the nuclear power industry and provide an opportunity to build similar nuclear power plants in other countries, including in the Middle East.

Expert opinion

An expert on Russian-Turkish relations, the author of the Telegram channel "Turkey is" and the bestseller "Russia - Turkey: 500 Years of Restless Neighborhood" Ivan Starodubtsev believes that the implementation of "Akkuyu" will allow "Rosatom" to build similar projects in other countries.

"Perhaps this is not the last nuclear power plant to be implemented according to the Build-Own-Operate model. The precedent in the energy sector is always very important. Russia expects that it will obtain such orders from a number of third countries, Egypt, for example, or the countries of the Middle East, which want to have nuclear power plants on their territory, but do not have enough money to build them. Akkuyu is a kind of pilot project," he told Vestnik Kavkaza.

Starodubtsev is confident that the Akkuyu NPP strengthens humanitarian ties between Russia and Turkey and can act as an element of Moscow's "soft power": "It is clear that an unprecedented exchange of personnel between Russia and Turkey is taking place. Hundreds of Turkish students apply to study in Russia. A huge number of engineering personnel are at the construction site of the Akkuyu nuclear power plant, and they also have contacts with the Turks there, forming one or another opinion about Russia in Turkey," the expert said.

Rosatom also confirmed the project's indisputable benefit for the Russian economy to Vestnik Kavkaza.

"The development of the project will produce positive effects for both Russian and Turkish economies, including the creation of jobs, infrastructure development and localization. About 11,000 employees are simultaneously working on the Akkuyu NPP construction project. Akkuyu NPP involves hundreds of Russian and Turkish enterprises already at this stage, which has a positive effect on the economies of the two countries. This will bring additional economic benefits to Russia," the Deputy Chairman of the Board of Directors of Akkuyu Nuclear JSC, Deputy CEO of Rusatom Energy International JSC Anton Dedusenko noted.

He considers the nuclear power plant near Mersin "an example of mutually beneficial cooperation between the two countries", which "will be an anchor project uniting Russia and Turkey both economically and at the social, scientific and personnel level for a whole century."

 For Turkey, the benefits are also obvious:

- It receives clean energy and diversifies its electricity sources.

- Akkuyu creates 4,000 new jobs for Turkey. There are already 100 Turkish students studying in Russia who will work at the nuclear power plant.

- Another high-tech nuclear industry is emerging in Turkey, which will give impetus to the development of other areas, for example, nuclear medicine.

- After reaching break-even point, Turkey will receive 20% of the net profit from each reactor during the while lifetime of the NPP (about 80 years).

Risk hedging

Speaking about the project's benefits, of course, one needs to be aware of its risks. Indeed, nothing prevents the Turkish government from revising the terms of the agreement towards reducing the tariff in the future. Indeed, the entire financial responsibility (about $22 billion) falls on Rosatom's shoulders. However, which business project has no risks? "There is risk inherent in all commercial activity. Even  Coca-Cola sales. These risks are included in product cost. Even if Akkuyu turns out to be unprofitable, which is virtually impossible, then Rosatom will not go bankrupt in any case, because it has nuclear power plants all over the world, including in Russia. Rosatom will survive without one plant, just like Turkey. If risks arise, they will cause minor damage to both countries," independent economist Mehdi Mekhdiyev said in an interview with Vestnik Kavkaza.

Burdening itself with financial risk, Russia gets a nuclear power plant at its complete disposal - builds it, owns it and sells the fuel it produces. "Russia does not just build a nuclear power plant and then transfer it to another country, as is usually the case in international practice, but owns the plant and therefore makes more profit. Moreover, this profit goes straight to the budget," the expert noted. He recalled that digitalization is progressing by leaps and bounds, and it cannot be stopped. Thus, electricity consumption will only grow. By providing 10% of Turkey's electricity needs, Russia will be able to sell tens of millions of megawatts a year, Mehdiyev added.

The opinion that Russia is becoming dependent on Turkey is, to put it mildly, untenable, since Ankara is no less dependent on Moscow. Nothing prevents Rosatom from stopping fuel supplies to nuclear power plants or terminating the agreement, as well as nothing prevents the Turkish government from dong it. It is not hard to imagine the devastating consequences for the Turkish economy if it loses 10% of its electricity. Ankara will not risk the project for fear of being left without electricity. So, being in mutual obligations, the parties hedge risks.

As for the fixed prices, which Nigmatulin and those who sympathize with him don't like, this is a big plus for Rosatom. It will not only sell electricity above the market price, but will save himself from its further decline. The pandemic has already demonstrated to the world what an oversupply of energy means. With regard to financial risks, in theory, Rosatom can sell 49% of its shares to foreign companies and thus minimize its losses. But the question is: is it profitable for Russia to donate the proceeds from half of electricity sales to foreigners and feed the budgets of other countries to the detriment of its population? The economic benefits of such large projects as Akkuyu, the Nord Stream 2 and Turkish Stream gas pipelines should be assessed not in the short term, but in the long term.

"Akkuyu is a very important strategic project. It is understandable why it hasn't been implemented earlier. This are large sums of money, huge investments that are returned decades after the project is built," Starodubtsev said.

Political asset

The launch of Turkey's first nuclear power plant in 2023 will strengthen the foundation of the strategic partnership between Moscow and Ankara, along with other important projects such as the Turkish Stream gas pipeline and the sale of the Russian S-400 air defense systems. At the ceremony to launch the construction of the third unit of the Akkuyu NPP, Russian President Vladimir Putin said that it would bring the bilateral cooperation in the energy sector to "a qualitatively new level" and promote friendship between their peoples. Such large-scale projects are not possible without normal Russian-Turkish relations. At the same time, it is also clear that the implementation of the latter can become a deterrent in the event of political crises. In this regard, personal trust between the presidents of the two countries is extremely important. Vladimir Putin and Recep Tayyip Erdogan consider each other "men who keep their word." 

Ivan Starodubtsev is confident that the decision to build Akkuyu from the Russian side was taken personally by the President. "The political component should not be overlooked. It is difficult to assess in money, but it is more than money. It is clear that on the Russian side the decision to implement this project was made personally by Vladimir Putin. Apparently, when he received all these calculations he figured out that the project will pay off. That is, Russia has quite serious chances of making a profit in all areas. If this project is skillfully woven into the fabric of bilateral Russian-Turkish relations, then it will have a positive effect on them as well," the expert on Turkey believes.

According to Starodubtsev, it is no coincidence that the leaders of the two countries often hold ceremonies, in particular, foundation-laying ceremonies for another Akkuyu NPP unit. By making serious statements, they "show the whole world and the peoples of the two countries that relations between Russia and Turkey  are developing in spite of all the differences."

The Moscow-Ankara dialogue is strengthening not only in economic affairs. Putin and Erdogan are successfully advancing the political process in Syria. Together with Iran, they created the Astana format to hold meetings between the government and the opposition, as well as provide a ceasefire in four de-escalation zones. Similar peacekeeping attempts are being made by Turkey and Russia in Libya and Nagorno-Karabakh. Following the 44-day war between Azerbaijan and Armenia, the Turkish-Russian Joint Observation Center was established in Agdam. At the Akkuyu construction ceremony, Erdogan noted that dialogue with Putin is important not only for bilateral contacts, but also for maintaining peace in Syria, Nagorno-Karabakh and Libya.

A number of skeptics, led by the aforementioned ex-minister, believe that "the Akkuyu NPP makes Russia dependent on Turkey, while Turkey's policy is becoming more and more unpredictable." Sound logic nevertheless suggests that this dependence is at least mutual, and it seems that now when Russia is engage in building a nuclear power plant, supplies missiles and gas, Turkey has even less incentives to behave "unpredictably". The funny thing is that these experts, as an excuse for the political inexpediency of Akkuyu, argue that "signing of the agreement on the nuclear power plant caused a sharp negative reaction from the government of Cyprus and Greece." And here it is very difficult to resist the question "Is the Russian economy dependent on the mood of Greek politicians?"

In concluding the topic of the consequences of the Akkuyu NPP construction, I would like to remind you that nuclear power plants are usually designed for a technical life of about 100 years. Considering the entire spectrum of mutual economic benefits, Turkey and Russia have been insuring themselves against future crises, conflicts and wars for at least one century. Having a nuclear power plant in Turkey, selling it gas and military equipment, Russia is increasing its influence in another NATO member country, while Ankara is reducing its economic and political dependence on Western partners. And all this happens on the 100th anniversary of the Moscow  Friendship and Fraternity Treaty. "That's the story of Russia creating new industries in Turkey like 100 years ago. It can also be used to the best effect in political and humanitarian terms," Starodubtsev stressed.