Russian aggression in Ukraine has led the British government to reconsider its policy of encouraging Rosatom to enter the UK's nuclear power market. Meanwhile, in Prague…






New best friends no more: David Cameron & Dmitry Medvedev at the signing of a strategic partnership between Rolls-Royce and Rosatom in 2011.

The UK signed a pact with Russian state firm Rosatom in 2013 aimed at helping the firm enter the UK nuclear power market. (see here) This nuclear co-operation agreement is now being reconsidered by the British government because of Russian aggression in Ukraine. (see here)

But you would hardly know it in Prague. British economic diplomacy in the Czech Republic remains firmly committed to helping Rolls-Royce’s civil nuclear division deepen its ties with the country’s nuclear power industry. In the Czech context, this means helping Rosatom as well.

At the end of last year, the British government agency, UK Trade & Investment (UKTI) staged the British-Czech Nuclear Forum, aimed at helping British companies take advantage of what it called, in a triumph of wishful thinking, ‘the resurgence in civil nuclear power across central Europe’.

On 22 October, UKTI is staging what it calls The Great Energy Summit at Prague Castle. The event will include a presentation by the consulting company A.T.Kearney on the stupendous macroeconomic impacts of building two new Russian reactors at Temelin nuclear power plant. The research was commissioned by Rosatom, and is served up with tedious predictability at nuclear energy events by Anton Poriadine, head of utilities in the Moscow office of A.T. Kearney. (see here)

Such events are dressed up in ‘low carbon future’ rhetorics but, when all is said and done, British diplomatic efforts in Prague boil down to persuading the Czech government to build two nuclear reactors in southern Bohemia using subsidies extracted from the pockets of the Czech taxpayer, with Rolls-Royce providing the safety instrumentation and control systems, and its strategic business partner, Rosatom, providing the reactors.

Naturally, Westinghouse is always invited to the diplomatic ball, but we are left in no doubt over who Rolls-Royce prefers to dance with in the region. Rolls-Royce has been closely cooperating with Rosatom since 2011. (see here) In the UK, it is working with Rosatom to ensure that Russian reactors meet British regulatory standards. And in Prague, Rolls-Royce is working with Rosatom in the MIR.1200 consortium to ensure that two Russian reactors are installed at CEZ’s Temelin nuclear power plant.

Rolls-Royce has been working with CEZ since 2000. In 2011, it was awarded a contract to provide long-term, safety-critical services to CEZ’s Dukovany nuclear power plant. (see here) Rolls-Royce's potential market in the region is enormous: there are some 58 Soviet-era reactors that would benefit from its services.

To help it capture this market, in mid-2013, Rolls-Royce appointed the Czech political veteran Vladimir Dlouhy (Dlouhy served in several governments, both pre- and post-1989) to its international advisory board, presumably to lobby regional governments on its behalf. Like the great majority of Czech political and business leaders, Rolls-Royce's new advisor, who was recently elected president of the Czech economic chamber, is an outspoken critic of EU sanctions against Russia.

But as Russia prepares for war (see this chilling analysis by the editor of Business New Europe, Ben Aris, who has lived in Moscow for the last twenty years), perhaps it is time to ask to what extent Rolls-Royce’s commercial goals in central Europe have started to conflict with the interest of Britain and her NATO allies in containing Russian expansionism.

To put it bluntly: Has Rolls-Royce become a proxy for Russian efforts to regain influence over the region’s nuclear sector?

The new reticence in British government policy towards Rosatom, at least in Whitehall, begs another tiresome question: If Rosatom is no longer considered an appropriate partner for the UK’s nuclear power sector, is it appropriate for British diplomats, albeit indirectly, to continue to support Rosatom’s bid to build new reactors for their NATO ally in Prague?

Shouldn’t Rolls-Royce withdraw from the MIR.1200 consortium, and in this way remove any possibility of a conflict between its interest in the success of Rosatom in central Europe and the national interest of Britain, whose fleet of nuclear submarines is propelled by Rolls-Royce's mini nuclear reactors?


Brits in bed with Swedes in Prague

At this point, it is worth recalling an earlier example of how the short term goals of a British blue chip company came into conflict with Britain’s longer term interests in Prague (if you wish to carry straight on with Rolls-Royce, please skip to the next section titled ‘Rolls-Right’).

In 2004, British economic diplomacy in Prague helped close a contract worth $1 billion US for Saab, the Swedish manufacturer of the Gripen fighter jet. 35 per cent of Saab at the time was held by Britain’s BAE Systems.

The lease contract for 14 Gripens signed between Saab and the Czech government in 2004 was the culmination of a seven year lobbying campaign led by BAE. Saab assigned BAE to lead the Gripen push in the Czech Republic because of the British firm’s credentials as a major supplier to NATO member states. Sweden, of course, is not a NATO member and at that time, no NATO member flew Gripens.

In 2002, the Czech parliament refused to authorize the government’s request for funding to buy 24 of the Swedish jets –by just one vote. Two years later, the government opted instead to lease 14 jets for a period of ten years at a total cost of $1 billion US.

In 2004, BAE’s worldwide sales reached some $13 billion US. Assuming BAE’s share was 35 per cent or $350 million US spread over ten years, the result of British economic diplomacy was to boost BAE’s annual revenue by less than 0.3 per cent in 2004, and even less thereafter –negligible in other words.

But the goodwill, I hear you say! Even that was soon wiped out by five long years of widely publicised scandal, culminating in a settlement in 2010 with the Britain’s Serious Fraud Office in which BAE had to cough up some $450 million US in fines, allowing it to avoid a court case and settle claims that it had paid bribes to win arms deals in the Czech Republic and elsewhere.

The costs to BAE’s reputation and to British diplomatic clout in Prague are incalculable.


Rolls-Right

Back to the reputation of Rolls-Royce. Two years ago, Rolls-Royce was considering investing in VUJE, Slovakia’s former state nuclear research institute privatised (to its management) in 2004. Rolls-Royce’s interest in VUJE has never been publicly acknowledged by either company.

It is a remarkable fact, and one which Rolls-Royce is neither willing to confirm nor to deny (its nuclear division press officer declined to comment in response to my request for confirmation of its past interest in VUJE, dismissing the question as 'market speculation'), that a multinational enterprise with a 2013 order book worth $100 billion US, subject to the UK Bribery Act, was quietly contemplating investing in a company whose own order book is filled, almost without exception, by nominally independent institutions under the control of Slovak politicians and their business associates: institutions such as the Slovak National Nuclear Fund, the body that accumulates and disburses the country’s nuclear decommissioning budget, much of which ends up in VUJE.

Readers have heard of Slovakia’s Gorila files (see here), named after a Slovak secret service wiretap file from 2005 leaked to the press in 2011 which appears to show politicians, officials and businessmen discussing kickbacks in return for state contracts. The authenticity of the file has never been acknowledged by the authorities.

VUJE’s majority owner, Zoltan Harsanyi, makes a fleeting appearance in the Gorila files. In a taped conversation between Jaroslav Hascak of the financial group, Penta, and Anna Bubenikova, the head of the Slovak National Property Fund, Hascak is heard offering the post of head of the National Nuclear Fund to Bubenikova, who responds: “But VUJE will object”. Hascak replies: “We don’t anticipate any pressure from Harsanyi, he’s a normal guy”.

Owning Slovakia’s key nuclear research establishment would have put Rolls-Royce in a privileged position with the country’s government, at least for as long as it was willing to leave undisturbed these ‘normal’ relations between VUJE and its most important customer.

But as a British company subject to the UK Bribery Act, Rolls-Royce could not have left these relations undisturbed. And once disturbed, how quickly do you think VUJE’s order book would have emptied?

Rolls-Royce wisely backed away from the deal, thereby avoiding the risk of future scandal, an indication that the appetite for foreign risk among British corporate executives has diminished under the tough new regime imposed upon them by the British bribery law. If such a deterrent had been in place fifteen years ago, British diplomacy might have been spared the humiliation of the Gripen scandal.

But we are still left with the nagging question of why these same diplomats continue to support Rolls-Royce’s partnership with the Russian nuclear lobby across central Europe, when Her Majesty's government says it no longer knows if state-owned Rosatom is the kind of company it would like to do business with.