Artur Zurabyan comments on Rosatom's proposal that the Free Trade Treaty with Ukraine be partially resumed
As it appears from the draft presidential order prepared by the state corporation and posted on the regulation.gov.ru portal, Rosatom wishes to partially resume the Free Trade Zone Treaty between Russia and Ukraine in respect of certain NPP equipment. This refers to the importation from Ukraine of equipment used to manufacture steam generators, reactors, main circulation pump units, etc. Rosatom has a factory in Ukraine, Energomashspetsstal, and the state corporation does not wish to lose any money on equipment supplies from its own factory, explains a source in one of the group's companies. The installation cost of power-generating units will increase, and the majority of the new costs for Russian NPPs will fall on industrial consumers, he explained. The foreign policy aspect is even more important: this rise in price will have to be explained one way or the other to the customers from Hungary, Finland, and other countries. A Rosatom representative declined to comment.
The state corporation notes in its memorandum that the equipment production costs for one NPP will increase by more than 130 million rubles. Rosatom's portfolio of orders includes contracts to build 30 NPP power-generating units for 12 countries, with negotiations underway for 10 power-generating units, says Sergei Kiriyenko, General Director of the state corporation. Rosatom recalls that in December 2015 President Vladimir Putin already partially resumed the treaty with Ukraine when the old export customs duties on gas were restored.
Russia concluded a free trade zone treaty with Ukraine in 2011. From January 1, 2016, Putin suspended the treaty due to “exclusive circumstances affecting the economic security of Russia”. Ukraine cannot simultaneously participate in free trade zones with Russia and the EU: there is a threat of re-exportation of European goods under the guise of Ukrainian goods arising, explained Premier Dmitriy Medvedev. The Free Trade Zone Treaty between Russia and Ukraine contemplates abolishment of import duties, explains Aleksander Knobel, Director of the International Trade Research Center of the Russian Presidential Academy of National Economy and Public Administration. Following the suspension of the treaty, the import duties, according to his estimate, returned to total 5% to 15% depending on the commodity or higher in individual cases.
The duty is paid by the importer, i.e., most likely, the Ukrainian company, explains Artur Zurabyan, the Head of ART DE LEX Settlement of Disputes and International Arbitration Practice. The lawyer recalls that Rosatom is a state corporation, but state financing is provided for exclusively within the budgets (programs) for the relevant year and cannot be adjusted just like that. He concludes that in such situation, it may be more expedient to resume the Free Trade Treaty for those commodity groups than wheedle compensation subsidies out of the budget.
130 million rubles of additional costs per NPP is not a great sum, but Rosatom is not building one or two power-generating units, and the total overpayment may amount to billions of rubles, estimates Sergei Pikin, Director of the Energy Development Fund. He concludes that Rosatom's proposal is correct given the focus on cost cutting. But even if the President does not support the state corporation, there will be no major problems with the foreign buyers: the contracts entered into by the state corporation total 2 to 4 billion euros and Pikin believes it to be unlikely that the customers will notice 1.5 to 2 million euros of additional costs in this context.
