Official Transcripts
Interview by Deputy Secretary of Energy Clay Sell with Yuriy Pogorelyi, Interfax Wire Service
Moscow, Russia
March 14, 2007
YURIY POGORELYI, INTERVIEWER: When will the agreement about the peaceful uses of nuclear energy be signed?
DEPUTY SECRETARY SELL: I was here in January of last year in an effort to propose a great broadening of the nuclear relationship between the United States and Russia, specifically on areas of advanced nuclear energy technology. When I was here, Director Kiriyenko asked me when we were going to get going on the peaceful uses of nuclear technology agreement. We decided thereafter to begin working in aggressive time scale that would allow us to bring out the issues and get them resolved so that we could come to an agreement. In my judgment we have made substantial progress over the course of the last year, and we are now in receipt of a most recent draft response from RosAtom or the Ministry of Foreign Affairs. We think it is pretty close; there are some translation issues that we are trying to get through because we want to make sure we fully understand it. But I think that we are quite close, and I am hopeful that we will be in the position to in fact sign it and send it to the Congress within the next few months. So that is the short answer to your question: in the next few months.
POGORELYI: How many months is a few months?
DEPUTY SECRETARY SELL: Three months.
POGORELYI: The United States is going to build new nuclear plants which is a major change.
DEPUTY SECRETARY SELL: That is correct.
POGORELYI: Will the U.S. somehow work on this with Russia?
DEPUTY SECRETARY SELL: I believe we will work on it with Russia. Six years ago, when President Bush came to office, no one seriously considered new nuclear power as key part of our energy strategy going forward. When he called for the expansion of nuclear power in 2001, it was actually quite a newsworthy event. With the passing of time and progress, it is now assumed that the sector will enjoy a new round of construction; the question is how much and how quickly. Two years ago there was more talk but there were no commitments to build new plants.
Today we have roughly 30 commercial nuclear reactors on the drawing boards from ten or fifteen different companies. Not all of those will be built, but we are confident that some of them will be built and that we are going to have a substantial nuclear renaissance in our country. The reactors that are on the drawing board to be built is a reactor designed by Westing House, which is a U.S.-Japanese consortium, an Areeba reactor from the French nuclear consortium, and two different reactors from the U.S. company General Electric. The next phase of construction in our country will be based on those technologies.
Once we get our peaceful uses of nuclear technology agreement in place I think there is a great growth opportunity for the Russian sector in the United States market and vise versa. Even today, over half of the nuclear fuel consumed in our country comes from Russia. One in ten light bulbs is powered by Russian nuclear fuel which actually comes from former nuclear weapons. It is an important success story and a comment on our good relationship. We are in discussions with the Russians to resolve the anti-dumping issue. Our government, led by the Department of Commerce, is in discussions on how we can resolve that and chart the future post-2013 for the Russian enrichment sector in the United States market. It is a good relationship, and I think our collaboration will grow substantially.
POGORELYI: Do you think there is a possibility of lifting these anti-dumping measures after this agreement on nuclear warheads ends or before it, or Russian slice will be somehow limited?
DEPUTY SECRETARY SELL: I will not get into the details of the discussions, and the key party in the U.S. Government is not the Department of Energy, it is the Department of Commerce. We generally understand the terms under which this can be worked out: we have two key principles that we need to protect. One, we want to protect and ensure the completion of the HEU agreement through 2013. Secondly, we are in the process of building out the next generation of enrichment technology in our country, advanced centrifuge technology. We have an interest in ensuring that the U.S. sector can get built out, that the capital can be raised. We have some sense of protecting that part of our industry. But certainly within that there is a broad opportunity for increased Russian participation in the enrichment sector post 2012, and perhaps more before then.
POGORELYI: Will the U.S. insist access to Russian enrichment technology?
DEPUTY SECRETARY SELL: If we can get a peaceful uses agreement, there may well be forthcoming a decision from Russia to invest in the U.S. market. I don't know.
POGORELYI: You met Mr. Khristenko as far as I understand.
DEPUTY SECRETARY SELL A: I did.
POGORELYI: Russia adopted major new laws on Western investment in the Russian subsoil sector, and now it's clear that foreign companies are going to be minority shareholders in major oil fields and gas fields. Do you think U.S. companies are ready to be minority shareholders?
DEPUTY SECRETARY SELL: Yes. That is not a remarkably strange model; other countries have pursued similar models where, in particular strategic sectors, they insist on domestic entities owning 50% of any enterprise. If that's the way Russia wants to proceed, I think that is an acceptable way for them to proceed. Our great desire is to get it established, to get it certain. You suggest in your question that it had been finalized, and it's our view is that it has not been finalized. There is still forthcoming a definition of what will constitute strategic industries. There is a need to pass legislation on the subsoils law which has not happened. There is a certainty that is necessary in the investment climate that I think will allow American companies and other foreign companies to come in on whatever terms Russia wants to bring them in -- we just want understand what the rules of the game are.
POGORELYI: This year there will be a new tender for Sakhalin-3. Will the American companies participate in new tender?
DEPUTY SECRETARY SELL: We will have to see the terms. There is a good success story with Sakhalin-1 where ExxonMobil has a dominant interest in that project and it's been quite successful. It is a very difficult and technically challenging field to recover and the technology that Exxon brought to that project quite frankly is world-class and that is now operating to the benefit of the Russian energy sector. That's a good model as how things can work. Sakhalin-2 I think has proved to present greater challenges. But as I understand, there is now a deal in the works principally between the Dutch-British firm Shell and Gazprom where there is a potential work out which will keep Shell in the project – albeit at a minority position -- but terms that are acceptable to them going forward. There are signs of progress but we need more certainty. On the Sakhalin-2 case that is a situation where the arbitrary application of an uncertain regulatory regime, specifically as it relates to the alleged ecological problems with that project. They were presented, they caused substantial problems for Shell. There is now an agreement that they are going to sell a substantial part of their interest to Gazprom, and it appears that many of those concerns and problems have gone away. It's that kind of event which has a chilling effect on foreign investment in the Russian sector and I would argue that it is quite frankly contrary to the long-term interest and development of the Russian energy sector.
POGORELYI: There is a lot of talk about American companies-- like Chevron -- participating in the sale of Yukos assets. Do you know of any plans of American companies to buy Yukos assets?
DEPUTY SECRETARY SELL: I do not know of any plans. The U.S. Government has spoken before on this matter and we have raised concerns about the arbitrary enforcement of particular laws and regulations in a way which has a very chilling effect on the oil and gas sector that is independent from the government.
POGORELYI: After Russia you will visit Georgia and Ukraine. There are always reports of American officials backing a new on an oil and gas pipeline bypassing Russia. Why do American officials always back these projects?
DEPUTY SECRETARY SELL: I don't think the premise of your question is accurate. What we have said is that the market should determine the rout of those pipelines, and the market values the diversity of access points. There is value to the European market in having access directly to the Caspian Basin. The market should make those judgments as to where the pipelines should go.
POGORELYI: What major fields of cooperation do you see between Russia and U.S.? More nuclear or oil and gas?
DEPUTY SECRETARY SELL: I gave remarks at Carnegie this morning, and I outlined the major fields of collaboration in the energy sector. We have a long and very successful track record of progress in the area of non-proliferation that started 15 years ago. We have spent a lot of money in partnership with various Russian agencies in order to address the threat of loose nukes and other nonproliferation efforts. That's a great success. There is still a lot of work to do, but it has been a foundation for a good relationship. That has now been extended with great promise into the nuclear energy sector in general, in civilian nuclear power. I think success in those areas will build towards success and broader collaboration and partnership in the hydrocarbon sector. But there are things that need to happen in the hydrocarbon sector. We need more certainty as far as what the investment regime will be. We continue to have concerns about the arbitrary application of rather unclear regulations in ways that are hostile to foreign investors, and seem to operate to benefit of Russian government consolidation in the sector. But at the same time we can point to clear success cases: the ConocoPhillips and Lukoil collaboration; Chevron's billion dollar-size investment with GazpromNeft; the effort in Sakhalin-1; and other efforts by smaller players throughout the sector. It's a work in progress, but we have a good foundation in the nuclear and the non-proliferation area which we are trying to build upon more broadly in energy sector.
POGORELYI: There is a huge electricity reform in Russia. Are there any American investors in Russian power generation?
DEPUY SECRETARY SELL: I expect there will be, I don't know. The reform of the electricity sector that is underway is very encouraging. The move towards market based pricing, the separation of generation from transmission from retail, are all steps which will produce much greater energy efficiency in the Russian economy, and will result in much greater investment. We have learned that lesson from our own efforts as we set to mature our energy sector. I site the example when we finally deregulated natural gas prices in the U.S. in the late 1970's, we saw two very significant things occur. There was a dramatic increase of energy efficiency in the natural gas sector and a huge increase in investment. And that is a lesson that has been proven and I think will again prove itself out with the successful reforms in Russian electricity sector.
POGORELYI: Thank so much for your time.
DEPUTY SECRETARY SELL: Thank you, it was a real pleasure.