‘Scam of the century’ adds to Chernobyl dangers

By Renfrey Clarke, Green Left Weekly, 11 March 1998

MOSCOW— Battling the consequences of the world's worst-ever nuclear disaster, at Chernobyl in 1986, the government of Ukraine has received many hundreds of millions of dollars in foreign aid for clean-up work and measures to improve nuclear safety.

Now comes the embarrassing question: how much of the aid money has been spent as intended? Ukrainian environmentalists believe that vast sums have been embezzled by crooked nuclear industry officials.

According to one prominent spokesperson for the environmentalists, the sum creamed off could have been as much as US$740 million —making the theft “the scam of the century”. The same spokesperson has put the sum actually spent on mitigating the dangers posed by the destroyed Chernobyl reactor at “no more than a few million dollars”.

Surfacing early in March, these allegations provided a sensational cap to a week of controversy over the Ukrainian government's plans to shut down Chernobyl for good. Embroiled in the furore have been the European Commission, via the European Bank for Reconstruction and Development (EBRD); the government of Russia, with which Ukraine recently signed a long-term program for economic cooperation; and US Secretary of State Madeleine Albright.

After Ukraine became independent at the end of 1991, large quantities of money began to be funnelled to the country's nuclear energy authorities by Western governments anxious to be seen responding to popular alarm at the Chernobyl disaster.

In 1995 came an agreement with the Group of Seven advanced countries that the Ukrainian government would close the remaining reactors at the Chernobyl plant by the year 2000, in return for further aid. To the consternation of environmentalists, it was envisaged that much of this assistance, which was to be channelled through the EBRD, would be used to fund the construction of new nuclear power capacity to take the place of Chernobyl.

New reactor blocks were to be completed and commissioned at the Khmelnitsky and Rovno plants in western Ukraine. The economics of this decision were immediately queried, and in November 1996 an independent panel, including two US experts, was appointed to review the case for completing the reactors.

The panel came out strongly against the Khmelnitsky and Rovno reactors, which the experts concluded were not economic: “Completing these reactors,” the panel's report stated, “would not represent the most productive use of US$1 billion or more of EBRD/EU funds at this time.”

The panel pointed out that Ukraine could make up for Chernobyl by using non-nuclear options such as reconstructing existing thermal power plants and increasing the efficiency of energy transmission and use.

During 1997 energy use in Ukraine continued to decline; at present, the country has installed energy generation capacity of 55,000 megawatts, with electricity demand of only 33,000 megawatts. The EBRD officials, however, continued to listen to the arguments of the Ukrainian nuclear establishment. A further study was commissioned, this time conducted by the US company Stone and Webster, a nuclear power contractor.

Then, late in February this year, the EBRD unexpectedly backed away from the plan to complete the Khmelnitsky and Rovno reactors. The reactor scheme was among eight of 13 projects, approved in 1995, which the bank announced it would not finance.

Also rejected was funding for new safety provisions at the Chernobyl plant. The EBRD announced that about US$15 million allotted for safety upgrades in the plant's no. 3 reactor block would instead be reassigned to work on decommissioning the plant. This decision was taken after the Ukrainian authorities, citing economic reasons, refused to schedule a maintenance shutdown of the no. 3 block for late in 1998. Without the shutdown, the improvements to safety could not be made.

In refusing the maintenance shutdown, the Ukrainian officials were clearly emboldened by hints that if the EBRD cut back its support, the Russian government would step into the breach. During February, Russian and Ukrainian leaders negotiated a ten- year economic cooperation agreement, signed by Ukrainian President Leonid Kuchma during a state visit to Moscow at the end of the month.

On March 3 Kuchma announced that Russia had agreed to help finish the Khmelnitsky and Rovno reactors. Russian sources indicated that the cost of this work, put at US$150-180 million, would be provided from the Russian budget. Ukraine would pay the sum back in the form of electricity supplies to Russia over a ten-year period.

Environmentalists have warned repeatedly that the reactors under construction at Khmelnitsky and Rovno— VVER-type pressurised water units based on a Soviet design—are of dubious safety. But the EBRD's decision to back away from the scheme was not based on the dangers of nuclear power. By late February, the bankers had become convinced that Ukrainian nuclear officials were ripping them off on a colossal scale.

On February 18 the EBRD's representative in Ukraine, Yaroslav Kinakh, received a report by a group of Ukrainian environmental organisations on the “conservation” work performed at Chernobyl. A wide circle of nuclear experts and plant administrators, the environmentalists charged, had joined together in defrauding aid donors, siphoning off hundreds of millions of dollars via dummy companies and consultancies.

After further investigations, Kinakh reported that “our workers discovered cases of money being spent on inappropriate tasks whose fulfilment would not have a significant effect on the station's safety, and also on measures which had been implemented in previous years.”

A spokesperson for Ukraine's nuclear regulatory administration retorted that misappropriating aid funds was “absolutely impossible”. But in a press interview in the first days of March Vladimir Usatenko, the head consultant to the Ukrainian parliament's Chernobyl Committee, described in detail how the scam had worked.

From 1991 through 1995, Usatenko estimated, the officials had plundered about US$560 million on the basis of work that was grossly overcharged, only partially completed, unnecessary, or simply fictitious. They had then planned to pocket a further US$300 million through charging a second time for investigative work that had already been performed. In all, Usatenko calculated, the officials had made off with about US$740 million. Only a few million dollars, he considered, had really been spent usefully.

How could the bankers have allowed such carryings-on? Usatenko recounted a conversation he had had with a senior European Commission nuclear safety official, a man named Bonaccio. According to Bonaccio, the EBRD's staff had been reluctant to question the insistence of Ukrainian nuclear experts that particular spending was necessary. Non-experts themselves, the bank officials had feared to withhold funds, sensing they would be held responsible if a further disaster occurred.

Even where spending had been ill-documented, the bankers had not protested. Responding to a question from a German deputy to the European Parliament, Bonaccio had admitted that proper accounts existed only for about a third of the total sum paid out.

In gambling that there would not be another catastrophe at Chernobyl, the embezzlers subjected the Ukrainian population and environment to horrifying risks. The steel and concrete containment vessel—the “sarcophagus”—that covers the ruined reactor is deteriorating fast, and Usatenko speaks with alarm of what might happen if large amounts of water were to penetrate to the melted-down fuel.

Neutron levels within the sarcophagus, Usatenko states, are gradually declining. But there is still no consensus on what long-term method to use in order to contain the dangers. And now that most of the aid so far has been shown to have been purloined, donors are unlikely to be generous when the hat is passed around to fund further work.

Meanwhile, the Russian government has agreed to help finish the Khmelnitsky and Rovno reactors, which Ukrainian energy consumers do not need and from which only the country's still-formidable “nuclear mafia” stands to benefit. The deal reflects strong continuing ties between nuclear industry apparatchiks in Russia and Ukraine. Together, these forces have mounted a push to win new markets for the nuclear power technology of the former Soviet Union.

A major coup in this area has been the winning by Russia's nuclear power industry of a contract—bitterly opposed by the US—to build a nuclear plant in Iran. Projections were that the turbines for this plant would be supplied by a firm in the Ukrainian city of Kharkov.

On March 4, shortly before setting out on an official visit to Ukraine, US Secretary of State Madeleine Albright said she would press Ukrainian leaders to halt the sale of the turbines. US officials understood that the Ukrainians would have to be compensated if the sale, described as worth hundreds of millions of dollars, were scuttled. “To counteract these losses,” Radio Free Europe/Radio Liberty reported on March 5, “the US has offered Ukraine an agreement on nuclear cooperation if Kiev scraps the deal, including aid with construction of two key reactors at Ukraine's Khmelnitsky and Rovno plants.”

Following talks with Albright on March 6, Ukrainian officials announced that the turbine deal would indeed be dropped. Whether the building of Ukraine's new nukes will now become a three-way enterprise, including the US as well as Ukraine and Russia, is not clear. But any claims by the Clinton administration to be defending economic rationality in Eastern Europe can now only be looked at askance. Any further comment on the administration's attitude to the Ukrainian environment, meanwhile, becomes superfluous.