Background

The "K2R4 project" was the project which aims at the completion of the Khmelnitsky 2 and Rovno 4 units under construction to an internationally acceptable safety level. Since 1994, the European Commission provided extensive support to this project through the Tacis programme. In this context a Project management Group (PMG) was set up in Kiev in cooperation with the Ukrainian Nuclear utility Energoatom (EA).

Given the complexity of the deal and the unique mixture of skills needed to put it together, it was the Commission's view that Energoatom would benefit from the services of a professional advisor who would assist in lining up the required finance and assisting the company in the negotiations with actual and potential lenders.

The present project was intended to provide this assistance.
Project Aims

On the basis of the K2R4 modernization plan developed by Energoatom (EA) with EU support (PMG), Financial Assistance provided support for:

- The establishment of an optimal comprehensive and realistic financing plan for the project and
- The preparation of a strategy for negotiations with the possible funding sources.
Project Results

The project was carried out according to the objectives stated above. Specifically:

• Drawing on PMG work done so far, reviewing cost structure, including:
- constraints on origin of goods and services
- expenditure profile (amounts and timeschedule)
- potential competition between suppliers
• Investigating possible (declared and other.․) funding sources and associated rules of operation and g.
• Identifying difficulties resulting from constraints of potential funding sources.
• Identifying the domestic Ukranian approval procedure for lean contracts and the associated time schedules.
• Preparing a financing plan for the project.
• Establishing strategy / Drawing up recommendations for negotiations with funding sources.
• Reporting to the Commission as Contracting Authority

The key strategic decisions recommended and managed to put in place included the following:
- Side-lining the issue of project cost pending further discussions with the General Contractor;
- Obtaining Ukrainian support for the project in its full scope by convincing them of the absence of any other alternative and of the possibility of obtaining compensatory financing for the so-called "fuel gap";
- Advising the Commission and the UK chair to put K2R4 on the agenda of the December 1998 G7 Sherpa meeting;
- In parallel, getting the Ukrainian President to express his full support for the project, as he did in his letter to Prime Minister Blair;
- Engineering a high level negotiation in Kiev in May 1999 at which an Aide Memoire was signed (substantial portions of which had been negotiated and drafted by the Advisor). This served to solidify the commitment of the Ukrainians to the project and to demonstrate to the international community prior to the European and the G7 Summits of June 1999 that concrete progress had been achieved. It also enabled to resolve some of the more contentious issues.