Rosatom chief outlines commercial vision

Russia's Rosatom aims to become one of the three most successful global technology companies by the beginning of the 2040s, transformed from the state-backed nuclear power corporation it is today, according to its new director-general. "I know some will be sceptical about this, as if it's a fantasy, but I believe it's possible," Alexey Likhachov said in an interview for the company's weekly newspaper Strana Rosatom.

Russia's Rosatom aims to become one of the three most successful global technology companies by the beginning of the 2040s, transformed from the state-backed nuclear power corporation it is today, according to its new director-general. "I know some will be sceptical about this, as if it's a fantasy, but I believe it's possible," Alexey Likhachov said in an interview for the company's weekly newspaper Strana Rosatom.

Alexey Likhachov (Image: Rosatom)

The former deputy minister of economic development and trade, Likhachov took over the helm of Rosatom in October last year, when Russian President Vladimir Putin appointed Sergey Kirienko as first deputy head of the Presidential Administration. Kirienko had been in charge of Rosatom since December 2007, after leading the Russian Federal Atomic Energy Agency for two years.

Likhachov said the Russian nuclear industry had enjoyed a "revival" over the past 10 years, for which Kirienko deserved credit. "When he was appointed head of the Federal Agency for Atomic Energy, there was no a priori readiness from the state to invest significant funds in the development of the nuclear industry, and sceptical attitudes towards the possibility of a revival were quite common. Kirienko formed a team that in a short time developed and presented to the President a plan for the development of the nuclear industry, and was able to enlist his support."

Putin's "active and deep participation" in the implementation of this plan was a "decisive factor", Likhachov said. "The federal program for the construction of nuclear power plants in the country with ambitious deadlines was adopted and funding flowed to the industry and the separate enterprises were merged into a corporation." The nuclear sector was thus able to "breathe" again.

"The industry, which 10 to 15 years ago was still in a semi-disassembled state, turned into a state corporation and became one of the leaders of the Russian economy and the international market," he said. It is important, he added, that Kirienko is chairman of Rosatom's supervisory board.

Strategic objectives

But the state's ability to support the nuclear industry is not unlimited, especially in the current economic climate, Likhachov said, and by 2020, state support for the construction of nuclear power plants will "be completed".

"In this situation, commercial projects will be the driver of the corporation's progress and of its research, innovation and technological renewal. In other words, we must learn how to earn money independently. At the same time, if we want to be a truly global company, we must learn how to earn money in the world market. Moreover, the domestic market alone won't be enough to ensure development, or even to maintain the current size of the corporation," he said.

In 2014, Rosatom set three long-term strategic goals out to 2030: to increase its share in international markets; to reduce the cost and schedule of production; and to create new products for the Russian and international markets. These goals determine the priorities when choosing management solutions for the development of Rosatom, Likhachov said.

"I'm aware that these strategic goals are often perceived simply as slogans that do not directly affect the daily lives of people. To overcome this misunderstanding, we need to do two things. First, turn strategic declarations into medium-term and totally concrete plans of action that are understandable to each and every employee. And secondly, to realise the seriousness of the challenge that is thrown at us: either we achieve the goals set out in the strategy, or we lose and return to that uncertain state in which the Russian nuclear industry found itself 15 to 20 years ago," he said.

"We praise ourselves a lot and deservedly so. Within 10 years we've gone from a consortium of disparate enterprises - very often disadvantaged, deeply unprofitable, losing staff and skills - to a vertically integrated corporation with a single strategy, a common logic for development as well as solid production and financial indicators. We are much stronger than before. But, honestly, we understand that the decisive reason for this success was a large-scale program of state support, or, if we give it its proper name, a program for the revival of the nuclear industry. This does not detract from the merits of each employee, because that assistance still needed to be made use of, to be turned into success, and Rosatom coped with this task 100%.

"But, looking back and acknowledging the success of the stage that is now behind us, we must recognise that we are only at the very start of the journey. Making success irreversible and justifying the state's investment in the nuclear industry will take a lot of work."

The Rosatom chief warned that competition in the market for construction of nuclear power plants abroad will get tighter. "New, rapidly developing and potentially powerful players with large financial resources and the considerable support of projects at the inter-governmental level are emerging. It is expected that South Korea will achieve a reference for its [latest technology] as soon as this year, while China will follow one year after that. Toughening global competition is a huge challenge for Rosatom," he said.

To respond to this - "continue to receive orders and transform these into profits" - Rosatom needs to move towards achieving its second strategic goal - increasing the efficiency of its production processes.

Global leadership

On the world stage, the "leaders and outsiders are rapidly changing places", he said. "In the global market, there is no place for triumphalism, and this is clearly demonstrated by the history of our closest competitors. France's Areva was the undisputed world leader just 15 years ago, but today 75% of its nuclear power plant construction business is absorbed by EDF, and the state is forced to pull the reactor designers out of a financial hole with billions in cash injections. It is hard to imagine what French nuclear scientists can do to restore their reputation," Likhachov said. "In the world market, no one is guaranteed a place under the sun forever. Including us."

Rosatom is often compared with a large ship, he said, and this is now in the open ocean where a storm is raging. "As Eastern wisdom says, when the wind blows, it's necessary to build not windshields but windmills. In our case - wind turbines. Today we must answer the question, what technologies will become the basis of our competitiveness in 20-30 years. The nuclear industry has long cycles of development and implementation of innovations. If we want to preserve and increase what has been accumulated, then we need to start building for the future today, ideally even before today."

Likhachov referred to Rosatom's 'Proryv', or Breakthrough, project to enable a closed nuclear fuel cycle. The ultimate aim of this is to eliminate production of radioactive waste from nuclear power generation. "We took a punt on the Breakthrough project, on fast reactor technologies, and today we are leading in this field. It's necessary to make this leadership absolute and to deprive our competitors of their hopes of overcoming the gap in the technological race," he said.

"Is this enough to form the future image of Rosatom for 2040-2050? Obviously not. We need several equally ambitious projects, based on the best competencies of the industry. The search for these is the main challenge for the corporation's management," he added.

"A lot has been said about the fourth industrial revolution. Additive technologies, artificial intelligence, robotics, flexible control systems. We are obliged to participate in this trend and we are participating." For example, he said, VNIIEF (the All-Russian Scientific Research Institute for Experimental Physics) is successfully developing supercomputer technologies; the Alabuga Fibre facility Rosatom established in 2015 has "created from scratch" the production of carbon fibre; and mobile laser technological systems have been created at the Troitsk Institute for Innovation and Fusion Research (TRINITI).

"A lot has been done and it's worked out really well, but the speed and scale of change among our global competitors is incomparably higher. For example, GE and Siemens have set a course for digitalisation of their business and are now experiencing the largest transformation in their history," he said. "GE develops the printing of jet engine parts on 3D printers, uses artificial intelligence technologies in the production of aircraft engines, while optimising technical indicators and the location of wind parks. By 2021, GE plans to enter the top 10 of the world's software developers with revenues of more than $15 billion."

Appetite for change

Rosatom needs to change in order to keep pace, he said. "We have everything we need for this: the highest qualified personnel, the production facilities and the technology. The only things missing are the speed and ability to adapt quickly to change."

The corporation has "plenty of examples of success" in increasing its efficiency. Since 2011, Rosatom has managed to reduce the cost of electricity production at Russian nuclear power plants by 36%. "This is a good result, but let's look at the competitors to nuclear energy. In terms of the present value of electricity, mature alternative technologies are already on a par with gas generation. In 2015, world investments in renewable energy were about 13 times higher than in nuclear energy," he said.

An equally important aspect of competitiveness is construction time, he said, since being just one month behind schedule leads to a 1% increase in the cost of an investment. "During the development of the nuclear industry in the Soviet era, it was possible to achieve indicators with which our competitors are now only catching up," he said. Unit 5 of the Zaporozhe nuclear power plant in Ukraine was built in 48 months, he noted, and "this is best practice today". In China, there are examples of record construction times, he added. Unit 1 of the Qinshan III nuclear power plant project in Zhejiang province was built in 51 months, and unit 3 of the Ling Ao II project in Guangdong province was completed in 53 months, he said. South Korea is committed to completing units 3 and 4 of the Barakah nuclear power plant in the United Arab Emirates in 43-48 months, he added.

Rosatom needs to work on the development of serial production for its nuclear power plant projects. "We need to learn how to build quietly, confidently, quickly and technologically, in a conveyor way. Working in the mode of heroism, of emergency, of overcoming permanent crises during construction, has to become a thing of the past," he said.

Efficiency

Likhachov referred to a story he had heard from Russian power engineering company Atomenergomash, which is "extremely indicative" of efficiency challenges. "About half of the customers there are from the nuclear industry and half are from the gas industry, from energy, from defence enterprises, etc. Within the framework of a single project, they measured the work hours of employees who deal with counterparties and discovered an amazing fact. It turns out that these specialists spend only 10% of their time working with external contractors. For the same work with intra-industry counterparties it's 90%! It should be the other way around, but in energy, the working time of well-paid specialists is spent on understanding each other.

"Disputes they have between themselves sometimes last for years. Two of our organisations spent one-and-a-half years trying to agree the price of design work for one foreign project. One-and-a-half years! Did they, during this time, earn a single kopeck for Rosatom? No, they didn't. But the work was on a gigantic scale and everyone involved was incredibly tired. How does this happen? Because often organisations that are part of Rosatom are fighting for their own profits and don’t care about the corporation's consolidated results."

Rosatom's subsidiaries need to lose their "small-town thinking" and focus on the revenue and profit of the corporation as a whole, he said. Moreover, having a "narrow specialism" in traditional products makes the corporation "strategically unstable and critically exposed to changes in market conditions and global political risks".

He said: "Ten years ago, everyone was talking about a nuclear renaissance and looked with optimism at the prospects for the development of nuclear energy and related markets, primarily in the nuclear fuel cycle and nuclear engineering. After Fukushima, that optimism declined and now we understand that in the coming decades, on a global scale, nuclear power indicators will remain about where they are today. We are successfully fighting to expand our share in the global market, but the market itself is not growing. This is a serious strategic constraint, but even if there was no such restriction, building a strategy based on a single market is like standing on one leg."

Rosatom needs to create new products and businesses for the Russian and international markets, he said. "But it's obvious that in choosing new directions, we can't deal with everything in a row. There are three criteria. First, we must have the appropriate competencies. Secondly, we must be able to work in the markets for which we produce new products and understand how these markets are arranged. The third criterion, the most important one, is potential profitability. We do not need projects with zero or low profitability. This makes no economic sense. We need profit."

Work on new products requires a "change in psychology", he said, to "persistence and a desire to make money". And individual responsibility is essential, he added. "Responsibility can't be spread out; every project must have a surname, a first name and a patronymic."

Rosatom has achieved some success, he said, in increasing the share of revenue from its new businesses - by 30% at the end of last year.

Change in mentality

"The ability to change in response to new challenges in the world is probably the most important quality of a viable organisation and a critical condition for its long-term success. The domestic nuclear industry from its earliest days possessed this quality - strategic flexibility, repeatedly demonstrating a readiness to change and adopting organisational and technological innovations.

"Ten years ago, the organisational structure of the corporation and the management system were created for a specific task - gathering the industry together and overcoming the anarchy and disunity of the 1990s. The task was completed and today we are a global company. But the world has changed, the tasks have changed and we have changed. And what helped us to grow in the beginning, is now starting to hold us back and prevent us from developing. So, we again need to change."

The "imminent" changes, he said, will be to the corporation's management system, which should be "ahead of the curve by taking into account tomorrow's demands and securing our entry into the future".

"We must move from a policy of harmonising the interests of many players with the integrated management of the main products. Already now we see that simplicity and clarity of the management system, where this has been achieved, make it possible to reduce bureaucracy and destroy intra-departmental barriers that are a legacy of the time when the industry was fragmented.

"Optimisation of the management system should become the main theme of 2017," he said, and this "requires the full mobilisation" of the potential of the corporation's personnel.

"I know that a number of leaders have a model in their heads where the upper levels of management are the bearers of the correct strategy of transformation, and the workers simply have to follow directions and change according to the overhead templates. This is a mistake. The correct strategy and correct tactics for its implementation can only be the result of teamwork."

The corporation's work collectives are the director-general's "main partners" in improving the management system, he said. Transformation and innovation should not become a "dead bureaucratic thing".

"Some enterprises carry out an overhaul and the walls of the director-general's corridor are pasted with fresh posters. It's not clear who we are deceiving here; people are well aware of those kind of tricks."

The Russian nuclear industry needs to have an "honest and responsible" conversation in order to adapt to changes and work towards increasing efficiency, he said.

"Participation in the development of the corporation and making a real contribution to its success should be rewarded with career growth and good pay. Much has already been done in this direction, but the work should continue. If we want to be among the global technological leaders, then both the working conditions and the level of compensation should not be worse. But we can achieve this only when the productivity of labour at our enterprises is the same and even better than at our competitors.

"I'm convinced that most of the corporation's employees are ready for real and involved participation in the changes. We have great human capital. We have retained and are developing a well thought out system of training. And we managed to stop the brain drain from our industry. But we are unlikely to achieve a breakthrough without excitement, without the audacity and keenness of thinking that the founders of the nuclear industry showed and during altogether different times, I should say. We need their example, their passion, today more than ever before."

Researched and written
by World Nuclear News