12 Chernobyl Nuclear Power Plant
| (a)
(25839)
11544/04
+ ADD 1
COM(04) 481
(b)
(27610)
10669/06
COM(06) 305
|
Third Progress Report on the implementation of the Chernobyl Shelter Fund December 2003 and Working Document
Draft Council Decision on the First Instalment of the Third Community Contribution to the European Bank for Reconstruction and Development for the Chernobyl Shelter Fund
|
| Legal base | (a) —
(b) Article 308 EC together with Article 203 of the Euratom Treaty; unanimity
|
| Document originated | (b) 15 June 2006
|
| Deposited in Parliament | (b) 23 June 2006
|
| Department | (a) Trade and Industry
(b) International Development
|
| Basis of consideration | (a) Minister's letter of 18 July 2006
(b) Explanatory Memorandum of 4 July 2006
|
| Previous Committee Report | HC 38-iv (2004-05), para 4 (19 January 2005) and HC 42-xxx (2003-04), para 5 (9 September 2004)
|
| To be discussed in Council | To be determined
|
| Committee's assessment | Politically important
|
| Committee's decision | (a) Not cleared; further information requested
(b) Cleared
|
Background
12.1 Following the accident of 26 April 1986, the shelter enclosing
the remains of the Chernobyl Nuclear Power Plant Unit 4 was constructed
rapidly and under extremely hazardous conditions. It was not intended
to be a permanent solution, is increasingly unstable and has deteriorated
such that rainwater gets in. There is a risk of collapse, which
would lead to further radioactive contamination of the surrounding
area.
12.2 In 1997 international experts finalised a multidisciplinary
construction management programme, designated the Shelter Implementation
Plan (SIP). The SIP envisaged remedial work directed towards making
the Shelter physically stable and environmentally safe. Under
the management of the European Bank for Reconstruction and Development
(EBRD), the Chernobyl Shelter Fund (CSF) was constituted to finance
and implement the SIP. The SIP project started effectively in
1998 with the setting up of the Project Management Unit. There
are five major goals:
- reduce the potential for collapse
of the Shelter;
- reduce the consequences of the Shelter's collapse,
should one occur;
- improve the nuclear safety of the Shelter;
- improve the safety of workers and environmental
protection at the Shelter; and
- make the site environmentally safe.
12.3 The Commission presented a first progress report
in October 1999. A second report was presented in September 2001,
which the then Committee cleared on 17 October 2001.[26]
A third report updated the information provided in the previous
ones, based mainly on the progress communicated by the EBRD at
the December 2003 CSF Contributors Assembly in London. There,
the EBRD reviewed the current situation and presented revised
cost estimates for the New Safe Confinement (NSC), as the final
project is called. The estimated $1059 million cost ($995 million
plus $64 million for potential additional work) was the first
to be based on actual design work, and replaced the original SIP
estimate (approximately $768 million). This was due to the inclusion
of necessary works not foreseen in the initial budget, the potential
additional works and what the EBRD regarded as conservative escalation,
risk and contingency assumptions, rather than increases in baseline
costs. A better cost estimate would only become available once
bids for the largest element — the NSC — had been
received.
12.4 The two previous reports illustrated steady
progress in the early stages of a costly long-term programme.
But this third progress report (which our predecessors considered
on 15 January 2005) highlighted some major challenges at what
was clearly a crucial stage — significant cost increases,
funding uncertainties and suggestions of inadequate responses
on the part of the Ukrainian authorities. Nor was it clear from
the Explanatory Memorandum from the then Parliamentary Under-Secretary
for Construction, Small Business and Enterprise at the DTI (Nigel
Griffiths) what the prospects were for their successful resolution.
While, as he pointed out, the UK would not have to contribute
further to the Chernobyl Shelter Fund when the next pledging round
took place, it was clear that others would not be free of such
obligations. Our predecessors wondered, especially if the final
estimates were, as intimated in the report, even higher, whether
they would be likely to fulfil them, once potential suppliers
had actually quoted for the NSC. It was also unclear what steps
were being taken to ensure that the authorities in Ukraine played
their part, without which, as the Minister made clear, successful
completion of the project — which on best estimates was
four years away — would be jeopardised. They therefore asked
the Minister to provide his views on these unresolved issues,
and continued to hold the document under scrutiny.[27]
The then Minister's letter
12.5 In his letter of 11 October 2004 (which did
not reach the Committee until 10 January 2005) the then Minister
said that, the CSP being a unique civil engineering project involving
untried processes on an unprecedented scale, a number of major
challenges were inevitable at this stage, and the "apparent
significant increase" in the final costing had occurred due
to the inclusion of additional work, not identified as necessary
in the original 1997 SIP estimate. In addition, the EBRD's "deliberately
conservative approach" of including a sizable contingency
provision had been adopted to ensure that, as far as possible,
this was the last time donors would need to be asked for additional
funding. The G7 countries had agreed to increase their funding
to that which was necessary for the EBRD to sign contracts and
were committed to completing the project, especially since failure
to fulfil their obligations "would have a strongly adverse
impact on the reputation of the international community".
The UK had led the way in persuading other donors to address the
funding shortfall, and was also working closely with the rest
of the Chernobyl donor community and the EBRD in order to keep
the (then) Ukrainian Government co-operating "as efficiently
and transparently as possible". There had been a number of
direct demarches to then President Kuchma, including from President
Chirac and Dr Hans Blix, Chairman of the Chernobyl Shelter Assembly
of Donors. While he still had concerns, the Minister believed
that with the international community working together to maintain
pressure on the Ukraine Government, these difficulties could be
overcome and a successful conclusion to this highly important
project achieved.
12.6 Although reassured on the costing and funding
issues and noting the high-level representations made to former
President Kuchma, our predecessors also noted that, since the
Minister wrote, there had been the subsequent turbulence of the
presidential elections. This meant that the current status of
the then Ukrainian Parliament's "Temporary Investigation
Commission" into control of the project, and precisely which
individuals and which Ministry was in charge, was unclear. They
therefore asked the Minister to report again when these uncertainties
had been clarified and, they hoped, his concerns had been allayed,
and in the meantime continued to keep the document under scrutiny.[28]
The Minister's further letter
12.7 This report has finally been provided by the
Minister for Energy (Malcolm Wicks) in his letter of 18 July 2006,
in which he says, regretfully, that "the New Safe Confinement
at the Chernobyl site has encountered serious delays and setbacks".
Recalling the establishment of the Chernobyl Shelter Fund at the
G7 1997 Denver Summit and its structure (managed by the EBRD,
28 national Donors and the European Commission), he says that
last year Russia was persuaded to re-engage in Chernobyl and join
the Fund, which currently stands at €850m, of which €250m
was raised at a third pledging event co-chaired by the UK last
year. A re-evaluation of the expected out-turn costs made during
2005 by the Programme Management Unit indicated a figure for completion
of $1.1bn (€850m), after which the EBRD, with the consent
of the Donors and Ukraine, launched an open international competitive
tender to identify a contractor to design and construct the New
Safe Confinement over the existing Chernobyl sarcophagus.
12.8 Two compliant bids were received — from
a French Joint Venture called Novarka and a US/Ukrainian consortium
led by CH2MHill — which, he says, were evaluated against
the tender requirements and subjected to due diligence and technical
reviews under EBRD procurement procedures, and a preferred contractor
identified. Donors thus expected to receive a considered recommendation
from the EBRD as to the preferred contractor at the Donor Assembly
held on 14 February 2006, and to be able to approve the proposed
grant agreement with the Ukrainian authorities shortly thereafter.
"However, the process was derailed as a result of three separate
but linked problems":
— the
losing contractor has challenged the tender process claiming that
the EBRD has breached its own rules, which has led to a formal
investigation under established EBRD procedures. The Minister
expects the report on the handling of the tender process to issue
shortly;
— the Ukrainian Government have indicated
dissatisfaction with the management of the EBRD Project Management
Unit and requested a series of amendments to fundamental aspects
of the proposed project management. In the Minister's view, these
proposals "seriously adversely impact on the ability of the
EBRD to manage the project and of the donors to ensure sufficient
oversight is maintained for international funds";
— both bids turned out to be between €50m
and €70m more expensive than estimated by experts prior to
the tender process, which "means previous international pledging
events have not raised enough money, and that there is every likelihood
that further international funding will be required".
12.9 He concludes his letter as follows:
"As you will appreciate, the situation remains
deeply unsatisfactory and very turbulent. Negotiations on the
way forward have not been helped by the fact they have been held
against the backdrop of a caretaker Government in Ukraine, with
the possibility that there will be a reorganisation of roles and
responsibilities for the project within Ukraine once the new Government
is in place. My officials are remaining in close touch with the
Ukrainian authorities, the EBRD and other donors in the hope that
we can overcome these difficulties and achieve a successful conclusion
to this highly important project. The G8 group of nations issued
a statement on Chernobyl at the recent Summit in St Petersburg
both reasserting international commitment to pledges made in respect
of the Chernobyl site and calling on the Ukrainian authorities
to ensure effective and sustainable mechanisms are put in place
for satisfactory implementation of the project."
The draft Council Decision
12.10 It is against the background that this proposal
asks for a Council Decision to pay the first instalment of the
€49.1 (£33.6) Third Community Contribution to the CSF,
amounting to €14.4 (£9.8) million. In his 4 July 2006
Explanatory Memorandum, the Parliamentary Under-Secretary of State
at the Department for International Development (Mr Gareth Thomas)
says that the Community pledge forms part of a further €173
(£118.6) million that major donors have so far pledged and
is intended to be paid over 2006-09. He explains that it would
be committed and paid from the dedicated CSF line in the 2006
EU budget; that the balance (€34.7, £23.8 million) would
be paid over 2007-09 and would be subject to a new Council Decision;
and that the UK share of the Community contributions is 17.5%.
The Government's view
12.11 The Minister says that the Government is an
important donor to the CSF and strongly supports this proposal
for Community funding. He describes work funded by the CSF as
essential, new and extremely challenging and says that implementation
of the range of tasks to be executed over a period of approximately
10 years under the SIP "will require tight management to
prevent further cost and time over-runs". He describes the
EBRD as "a strongly performing organisation that works to
high environmental standards" and is "confident that
it is well placed to manage funding for this complex issue".
He ends by noting that the EBRD keeps donor countries informed
through the CSF Assembly of Contributors.
Conclusion
12.12
It is disturbing that, 18 months after the Minister's predecessor
wrote to us, the picture remains very much as it was then, with
continuing uncertainties about costs, funding and the contribution
of the Ukrainian authorities.
12.13 We nonetheless accept the importance of
upholding the Community's commitments towards a self-evidently
important project, and accordingly clear the decision.
12.14 But we should also like the Minister to
let us know, before the end of this year, the outcome of the three
"separate but linked problems" that he has outlined,
and the consequences for costs and funding, both generally and
for the UK, and for his assessment then of the contribution of
the Ukrainian authorities. In the meantime, we shall keep the
Third Progress Report under scrutiny.
26 HC 152-ii (2001-02), 17 October 2001, page cxxxvii. Back
27
HC 42-xxx (2003-04), para 5 (9 September 2004). Back
28
HC 38-iv (2004-05), para 4 (19 January 2005). Back
|
