FEDERATION COUNCIL PASSES UKRAINIAN TREATY, ADDS CONDITION. The Federation Council voted to ratify the Treaty for Friendship, Cooperation, and Partnership between Russia and Ukraine on 17 February. The vote was 106 to 25 with 17 abstentions. However, the treaty will not go into effect until Ukraine's parliament ratifies three agreements on the Black Sea fleet. Prime Minister Yevgenii Primakov suggested that condition to ensure the treaty's passage, according to ITAR-TASS. So far, the three agreements have stalled in Ukraine's Supreme Council. JAC

TURKMEN PRESIDENT COMMENTS ON FUTURE GAS EXPORTS. At a ceremony opening a new natural gas compression facility in Kaakhka on 16 February, Saparmurat Niyazov said his country will export 120 billion cubic meters of natural gas by the year 2005, ITAR-TASS and Interfax reported. Niyazov said that by then, the Trans-Caspian and Trans-Iranian pipelines are expected to be functioning, along with the Trans-Russian one. Niyazov said the new compression facility will ensure "stable operation" of the gas turbine at the Bezmenin power plant, installed by the U.S. company General Electric, and ensure "more reliable"supplies of gas to Ashgabat. The Kaakhka facility was built by the Ukrainian company Ukrgazstroi in part payment of that country's debt for Turkmen gas supplies. Niyazov noted that a deal has been struck whereby Ukraine will receive 20 billion cubic meters of gas this year. BP

RUSSIA TO REVIEW CONDITIONS FOR TURKMEN-UKRAINE GAS DEAL. The Russian State Duma has invited Minister for CIS Affairs Boris Pastukhov and chairman of Gazprom Rem Vyakhirev to attend a 5 March government session, ITAR-TASS reported on 17 February. The deputies want to find out what the conditions are for Turkmen gas transiting Russian territory en route to Ukraine. BP
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End Note: EBRD PLANS TO FUND CONTROVERSIAL REACTORS IN UKRAINE
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UKRAINE'S HARD CURRENCY RESERVES SHRINKING. The Ukrainian National Bank said on 16 February that its hard currency reserves decreased to $685.5 million at the beginning of 1999, down from $906 million one month earlier, AP reported. The bank had said earlier that its reserves stood at $1.05 billion, but it has now revised that figure downward using a new international calculation method that excludes all precious metals except gold. Ukraine's reserves stood at $2.34 billion at the beginning of 1998, but the National Bank systematically sold U.S. dollars in the wake of the Russian financial crisis to support the hryvnya. JM

EBRD PLANS TO FUND CONTROVERSIAL REACTORS IN UKRAINE

The European Bank for Reconstruction and Development is moving ahead with controversial plans to fund completion of two nuclear reactors in Ukraine.

The bank has given provisional approval to a loan worth up to $190 million to complete construction of the Khmelnitsky 2 and Rivne 4 nuclear reactors in southern Ukraine. William Franks, the EBRD official overseeing the loan project, told RFE/RL that the bank's Board of Directors will likely reach a decision on the loan by the end of April.

In 1995, Ukraine said it would close Chornobyl only if the two reactors at Khmelnitsky and Rivne, known as K2/R4, were completed to replace the lost capacity at Chornobyl, which in 1986 became the site of the worstever civilian nuclear accident. The two reactors are about 80 percent finished, according to Ukraine's Energoatom. Additional funding from the EU's Nuclear Energy Agency to cover up to 50 percent of the project's cost hinges on approval of the EBRD loan.

A study commissioned and later rejected by the EBRD questioned whether Ukraine needs to add to its already operating 11 nuclear power plants. Environmentalists and others, including the Austrian government, have asked the same question. They note that Ukraine's economic collapse since the 1991 breakup of the Soviet Union has meant a sharp drop in energy demand. Critics of the project contend that demand will not exceed earlier peak levels until 2010.

For loan approval, the EBRD requires that a project meet four conditions: be financially viable, meet environmental requirements and be subject to public debate, satisfy Western nuclear safety principles, and be part of a least-cost option. But some experts question whether the project satisfies these conditions.

Steve Thomas, a professor at Sussex University in England, took part in a 1996 study commissioned by the EBRD to determine whether financing K2/R4 met the bank's "least-cost" criteria. "It became very clear that the case for completing the reactors was much weaker than had been suspected," he told RFE/RL. "One very strong element was that there didn't seem any reason to replace Chornobyl. Electricity demand had fallen so steeply after the fall of the Soviet Union that Ukraine had twice the generating capacity to meet peak demand. A big problem that Ukraine electricity had was that it had no money, basically because most consumers in Ukraine do not pay their bills in cash."

Having rejected the findings of the Sussex University group, the EBRD hired the U.S. firm Stone and Webster to collect what Franks called "better data." He told RFE/RL that "if you used the assumptions in the Sussex report in the model Stone and Webster developed you came to the same conclusions that the Sussex report did. If you used the better data, you came to a different set of conclusions."

But Thomas says that the so-called better data are suspect. He explains that "the problem with the Stone and Webster report was that the assumptions going into the model were all determined either by the EBRD or by the Ukrainian company Energoatom, which wants to build the nuclear power plants. So the report was far from independent."

As regards whether it makes banking sense to loan to a business that receives an estimated 90 percent of its payments through barter, Franks says "the loans to K2/R4 will be conditioned on very concrete programs on the part of the Ukrainians to improve the performance of the power sector, and in fact, there are several initiatives, the most recently initiated by the bank, to address that issue."

Ukraine may face other problems with spiraling costs. In the Czech Republic, for example, Westinghouse has run into huge cost overruns and delays retrofitting the nuclear power reactors at Temelin. Both Temelin and K2/R4 are equipped with the same Soviet-type VVER-1000 reactors. But as International Atomic Energy Agency spokesman David Kyd explains, the Czech Republic, unlike Ukraine, is spending hefty sums to completely refit Temelin in what is a unique graft of Western technology onto the body of an Soviet-type reactor.

"In the case of the Ukrainian reactors, they are not looking to do something that ambitious at all," Kyd comments. "What they are looking to do is to stick with the Russian designers, largely with Ukrainian and Russian companies, to complete the standard VVER-1000 megawatt design, as basically put together from the start. They are not looking to revamp the entire reactor along Western lines and still such an effort will cost more than a billion dollars."

Kyd said such reactors would never be licensed in the West. Germany concluded that the upgrade costs were so exorbitant that it scrapped plans to retrofit two VVER 1000 reactors at Stendal, eastern Germany after the German nuclear safety agency estimated the project would cost between $2.3 billion and $2.9 billion.

So why would Ukraine pursue a project that Germany found too costly, especially given the legacy of Chornobyl? Thomas explains that in 1995 Ukraine proposed building a gas-power plant to replace Chornobyl, but the West reportedly rejected that plan, fearing Kyiv would become dependent on Russian gas. He also notes that Western powers with a strong nuclear industry, especially Germany, France, and the U.S., have all backed the project to complete K2/R4. Ukraine, moreover, also has a strong nuclear lobby--one that retains strong ties with its Russian counterpart.