LITHUANIA TO PROCEED WITH REACTOR CLOSEOUT

C O N F I D E N T I A L SECTION 01 OF 02 VILNIUS 001505

SIPDIS

STATE FOR EUR/NB (MGERMANO),EUR/ERA AND EB/ESC/IEC

E.O. 12958: DECL: 12/08/2014
TAGS: ENRG PREL LH
SUBJECT: LITHUANIA TO PROCEED WITH REACTOR CLOSEOUT

REF: A. VILNIUS 1315


B. VILNIUS 1439

Classified By: Economic Officer Miguel Kamat for reasons 1.4 (B) and (D
)

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Summary
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1. (C) A GOL resolution on November 24 confirmed that one of
two Chernobyl-type Ignalina Nuclear Power Plant (INPP)
reactors will close as expected on December 31. The
resolution follows GOL-EU consultations in Brussels at which
EU experts advised Lithuania to honor its EU accession
commitments. Next month, the Lithuanian parliament will
debate a French company's feasibility study on a new NPP.
Canadian and U.S. companies have also expressed interest in
constructing a new reactor. End Summary.

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GOL Affirms December 31 Closure Date for Unit I
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2. (C) A GOL resolution on November 24 confirmed that the
older of the two INPP units will close on December 31. (The
second unit is slated for decommissioning in 2009.) The
announcement reflected President Valdas Adamkus's decision to
abide by Lithuania's EU accession treaty obligations and to
not seek a six-month extension on operations. The President
declined the advice of GOL energy experts, who had expressed
concerns (Ref A) that Lithuania would face a power supply
shortfall in the event that the remaining unit proved unable
to meet the winter's increased energy demands. The decision
also ran counter to statements President Adamkus himself made
to the Ambassador that he would seek an extension. Following
consultations in Brussels, Ministry of Economy Undersecretary
Arturas Dainius told us that the EU had indicated it would
likely not support a GOL request for an extension.

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With Closure, Scant Possibility of Blackout
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3. (C) Presidential Energy Advisor Nijole Zambaite told us
that a blackout could "theoretically" occur following the
closure of Unit I, but that Lithuania could always turn to
non-nuclear alternatives (Ref B). Lietuvos Energija General
Director Rymantas Juozaitis told us that following the
closure, Kaliningrad would need to draw its power from Russia
across the highly integrated regional grid passing through
Lithuania, since it could no longer depend on surplus
electricity exports from Lithuania. This grid must pass
through a narrow bottleneck consisting of three lines between
Smolensk (Russia) and Belarus. This could conceivably raise
the possibility of a blackout affecting much of Lithuania.
However, for a blackout to occur in Lithuania, in Juozaitis's
opinion, the following unlikely scenario would have to
unfold:
- Failure of INPP's remaining unit;
- Failure of generators at Lithuania's Elektrenai Thermal
Power Plant (INPP's back-up) to engage;
- Extreme icing on at least one of the electrical lines in
the Russia-Belarus bottleneck; and
- Excessive consumer demand (as might happen, for example,
when temperatures fall below zero degrees Fahrenheit).

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Decommissioning Requires Additional Funding
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4. (U) INPP Director General Viktor Sevaldin told us that
Unit I will remain in operational condition, loaded with
nuclear fuel, for three years following the December 31
closure date. The GOL will only commence the process of
removing fuel from the reactor in 2008, when its new storage
facility for spent fuel rods will be ready. Only after the
fuel is removed from the unit and safely stored in a new
facility for processing radioactive waste, experts tell us,
can the reactor be dismantled. Given the logistics involved,
said Sevaldin, it is unlikely that dismantling will begin
before 2013. Lithuania has received EU commitments of 80-90
million euros (USD 106-120 million) for the spent fuel
facility, and 79 million euros (USD 105.1 million) for the
waste processing facility. For the decommissioning process
to proceed according to plan, however, the GOL, according to
Sevaldin, will need an additional infusion of 80 million
euros (USD 106.4 million) for the spent fuel facility and 51
million euros (USD 67.8 million) for the radioactive waste
processing facility. Sevaldin said the GOL would present its
funding needs to donor countries and the European Commission
at a conference in London on December 10.

5. (U) Sevaldin noted that INPP's need for LTL 50 million
(USD 66.5 million) annually to maintain the remaining
reactor, pay employee salaries, and purchase spare parts
could pose an additional obstacle to decommissioning. The
GOL is able to contribute only LTL 18 million (USD 23.9
million) to this sum, and hopes to obtain EU support for the
balance. Although the EU is scheduled to sign an agreement
with the GOL by December 20 to cover 2005 expenses, Brussels
has made no additional funding commitments.

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New NPP
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6. (U) Sevaldin said the GOL has not decided whether to
construct a new NPP. The Lithuanian parliament will consider
a report in January by the French company Framatom and the
Kaunas Technological University on the feasibility of
constructing a new reactor. Sevaldin noted that Adamkus has
repeatedly told him that he supports a new NPP for economic
and environmental reasons. The French, said Sevaldin, are
organizing an investors' meeting on the issue on January 13.
He also claimed that the Canadian company AECL and U.S.-based
Westinghouse have expressed interest in competing for any
possible NPP tender (Westinghouse has not contacted the
Embassy on this matter). The GOL, which is able to
contribute only 30 percent of the estimated cost of 2 billion
euros (USD 2.7 billion),will need private contributions to
cover the balance.

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Workforce Lay-offs
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7. (U) Sevaldin said INPP management will lay off 200 workers
during both 2005 and 2006. Ignalina Nuclear Power Plant
Regional Development Agency Director Arnoldas Abramavicius
told us his agency is drafting a regional development
strategy to help INPP workers find gainful alternative
employment. His agency has created 100 new jobs in
industries such as construction, sawmills, and tourism.
Abramavicius said each INPP worker would receive LTL 30,000
(USD 11,539) on separation, and if eligible, retirement
benefits as well. Although reductions before 2009 will be
relatively minor, Abramavicius predicted that the GOL will
need to lay off an additional 2,000 workers when it closes
Unit II in 2009. His agency's strategy is to help members of
the INPP workforce transfer their skills to industries such
as metal construction, chemicals, sewing and furniture
building, and to attract investment to the region's tourism
sector.

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Comment
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8. (C) The GOL had limited room to maneuver on the reactor
closure date. Absent flexibility from Brussels, it felt
compelled to honor Lithuania's international commitments. By
taking the high road and closing the reactor, however, both
President Adamkus and Prime Minister Brazauskas may well get
a "black eye" if a blackout occurs this winter, as the public
will likely blame both of them for any significant power
shortfall.


9. (SBU) We note that, as the decommissioning date
approaches, there is growing momentum within the GOL and the
local scientific community to support a new NPP. If these
plans progress, and Westinghouse really is interested, we
will work with the company and the GOL to ensure that the
construction contract bidding process related to a new NPP is
fair and transparent.
Mull