An atomic city divided by isotopes

06.12.2012 — Analysis

The Rosatom corporation is trying to retain its market share for uranium-enrichment services by fundamentally restructuring the way the industry works. The company is cutting staff, changing its production structure and management, and introducing new equipment. Employees at the firm's all-important Ural Electrochemical Integrated Plant, OJSC have a skeptical opinion of the restructuring: the market for enriched uranium is clearly shrinking and the hurried upgrade is undermining the company's potential. This columnist for RusBusinessNews has determined that UEIP's commercialization may eventually sound the death knell for the plant’s hometown of Novouralsk.

UEIP, OJSC (part of the TVEL fuel company, which is a subsidiary of the state-owned  Rosatom corporation) is the world's largest uranium enrichment facility. According to the management of the plant, it controls about 20% of the global market. It can claim this market niche because the facility is able to separate uranium isotopes using a centrifuge, a technology it has been using since 1962, so there is a long history of reliability and efficiency. The European Urenco consortium is the only company other than UEIP to use gas centrifuges for the large-scale production of uranium isotopes.

But the world keeps changing, and now USEC, an American enrichment company, is quite close to mastering its own gas-centrifuge technology. To retain its position at the forefront of the market, UEIP has upgraded its centrifuges and placed its bets on optimizing production and effective management. A New Image program has been adopted, which jettisoned all non-core assets and outsourced some of the services. The intended goal was proclaimed as entirely worthwhile: to increase the plant's labor productivity and financial stability and to ensure benefits and high wages for the employees.

The program's main provisions were put in place between 2009 and 2011. Management reported that labor productivity jumped from 15 to 50% in various divisions. The number of total staff at UEIP has dropped from 15,000 to 5,000, and, according to Gennady Lomakov, a former laboratory technician, there are plans to shrink it further to 1,500. The savings from just the 2011 reforms is estimated at 4.5 billion rubles.

Ilyas Paderin, the director of the Urals Technology Transfer Center, is convinced that this sharp reduction in staff and the introduction of ninth-generation centrifuges will make it possible for UEIP to remain competitive in the global market. But Gennady Lomakov still expects 2013 to be a very difficult year for the plant: the Germans and Japanese are turning away from nuclear power, projects have been halted in India and Bulgaria, and China can fend for itself. That leaves only the CIS countries still in need of new nuclear power plants. In view of this, UEIP's future looks a bit murky, given the development of alternative energy sources.

In addition, the introduction of more efficient centrifuges will obviously lead to further staff cuts. The economy of Novouralsk will be unable to absorb several thousand newly unemployed professionals. At one time Rosatom was promising to open an instrument-manufacturing facility in the closed city, as well as set up a technological cluster, launch operations at the Russian-Kazakh Uranium Enrichment Center, and create a number of other companies. But the restructuring is almost complete, and Gennady Lomakov claims that the cluster exists only on paper - there is more profiteering than actual business taking place around the Uranium Enrichment Center. And it won't create any new jobs anyway: the facilities in the Urals will enrich uranium from Kazakhstan.

UEIP is converting its non-nuclear divisions into subsidiary firms, but their development isn't exactly taking off. Vladimir Matrenin, the acting director of the electrochemical conversion plant, says that the restructuring won't involve job cuts and that salaries will be paid - the company has a future but it needs cash. Investors seem ready to invest in the promising fuel cells, but there have been no results as yet, because there's no ... money. Big funds are needed, which obviously is making investors hesitate. Thus, the plant is operating in fits and starts: it works when there's money but stops when there's not.

The management of TVEL hopes that the local and regional authorities will help find work for those laid off from UEIP. Vladimir Mashkov, the municipal head of Novouralsk, notes that the city has in place a short-term and a medium-term program of socioeconomic development. A strategy for the development of Novouralsk until the year 2040 has been finalized. It's been established that a cluster will be created at the Medsintez pharmaceutical plant, an industrial park will be built, and a program set up for the construction of housing. In addition, the AMUR automotive plant might begin assembling subway cars for Bombardier Inc. Rosatom is proposing to resolve the unemployment problem by growing the small-business sector. All proposals will be reviewed before New Year's and approved by the Novouralsk Duma.

Ilyas Paderin believes that it will be very difficult to establish new production facilities in this atomic city. The law will have the final say: the city is closed, everything is controlled by Rosatom, and property issues are unresolved. Under these circumstances one cannot count on investors, and the nuclear scientists who have been employed by the state their whole lives, while earning good money, have no desire to go to work for themselves. It should be noted that commercial real estate in Novouralsk can be leased very inexpensively, and the business incubator is not full. Those laid off from UEIP are primarily going to Nizhny Tagil and Ekaterinburg.

Denis Sizov, a deputy with the Sverdlovsk region Duma, claims that since 2008 the population of Novouralsk has decreased by 6,000. Young people are leaving and older people with nowhere to go are trying to land government jobs. The number of people on the public payroll has grown in recent years from 17 to 23%. But the state cannot afford to hire everyone.

Squandering taxpayer money, given the already-bloated public sector and the acute jobs shortage, could end up playing a cruel joke on the city of Novouralsk. It's clear to experts that all available funds are needed in order to consolidate and invest in the creation of new high-tech production facilities that are primarily associated with the nuclear industry. And this is what's needed if the city is to retain a critical mass of engineering expertise. At one time, Novouralsk attracted the best minds, which made it possible to establish a highly efficient level of production at UEIP.

Today, claims Gennady Lomakov, this commercial approach to renovation had resulted in in the loss of more than just the least-qualified staff, they are attempting to apply the Japanese "kaizen" system, which has a successful history only at Toyota, to nuclear production, which is not done on an assembly line. The laid-off workers are primarily those who are trying to make a critical assessment of Rosatom's industry reforms, in other words, the most proactive and responsible employees. Such an attitude to human capital is like a ticking bomb under the city of Novouralsk.

Experts at the North-West Center for Strategic Research believe that the redistribution of power among TVEL's technology centers will result in a high degree of dependence on world markets, generating competition between the atomic cities. That competition has already begun: for example, for the privilege of being the first to install ninth-generation centrifuges.

As part of the reorganization of the fuel-enrichment cluster, Novouralsk may lose some of the links in the technological chain. The shutdown of complex, science-based facilities and the brain drain of highly skilled professionals, coupled with the budget deficits, will turn Novouralsk into an ordinary, single-industry city that will be unlikely to escape the demise suffered by most Russian factory towns.

Vladimir Terletsky