Russia's economic crisis and Rooppur

Russia is suffering from an economic and financial crisis. The average growth rate of its GDP over 1995 to 2014 averaged 0.86%. The crisis in Ukraine and the subsequent sanctions by the western world began to hurt its economy badly. Its energy sector constitutes 20%-25% of its GDP, 65% of its export and 30% of its annual budget. Naturally, the recent fall in the price of oil has dealt a severe blow to its economy. Crude oil was selling above $100 per bbl in last July. At present, crude is selling at $45/bbl. Russia prepared its current budget expecting a steady oil price around $100/bbl. The government has now decided to freeze spending.

Under economic pressure, its currency ruble lost 40% of its value against US$. The Russian central bank hiked the interest rate five times last year to boost the ruble. Afraid of devaluation, Russians are selling rubles and buying US dollars. Russian economy got another shock recently after Standard & Poor's had downgraded the country's credit rating. The rating cut will make it harder and more expensive for Russia to borrow money from the European market.

Russia planned to expand the role of nuclear energy for its domestic market and also for export. There are now 33 operating reactors in Russia with a generating capacity of over 24,000 MWe. They had a plan to supply 23% of their electricity from nuclear energy by 2020 and to export over 20 nuclear power reactors to China, India, Vietnam, Iran, Belarus, Turkey and Bangladesh among other countries.

Russia agreed to build two nuclear power reactors at Rooppur and committed to finance 85%-90% of the total cost of the project. Even though Russia has not attached any price tag for the reactors, it is estimated that each reactor will cost at least $5 billion. It was reported that Russia would borrow this money from the European financial market to finance the Rooppur project. 

Because of present financial crisis, Russia may not be able to sustain its ambitious nuclear power programme, both at home and abroad. A slowdown is, therefore, expected very soon. In addition, they may find it increasingly difficult to borrow money from the European market to finance the Rooppur project in view of the cut in the credit rating and also the imposed sanctions. Even if they get the loan, the rate of interest may be too high. Nuclear power plants are highly capital intensive. A high rate of interest will hike the cost of generation of electricity to make the nuclear plant uneconomic. Under such circumstances, it would be advisable for us to wait and not buy a white elephant in a hurry.

The writer is a senior nuclear engineer.