A case study in the cost of sanctions for the Russian nuclear industry
Prohibitive configuration management costs may justify investment in alternative acquisition schemes
Rosatom’s acquisition practices generally prohibit restricting procurements to specific manufacturers to encourage competition. However, Rosatom acquisition regulation allows exclusions driven by design considerations and the need to ensure compatibility with equipment already in operation. Such exclusions must be justified and regulation requires providing justification along with procurement documentation. With sanctions imposed after Russia invaded Ukraine, many Western manufacturers can no longer sell to Russia. This creates challenges in maintaining and replacing equipment made with Western components and drives the need to replace original components or find alternative acquisition routes.
NPO Centrotech, one of Rosatom’s subsidiaries that manufactures uranium enrichment centrifuges and other equipment for the nuclear industry, on August 22, 2024, announced the procurement of Analog Devices (ADI) microelectronic components. The procurement includes over 26,000 items across 28 articles. The procurement ceiling price is 9039482,66 Russian Rubles (~$100000). Components must be supplied within ten weeks after the contract is signed. As of September 2, 2024, no winning bid is announced. According to published technical specifications, components are intended for manufacturing the new equipment. The information available in the specifications, such as the expected service life of the equipment, operating environment, and a large number of similar components, suggests that these components are intended for manufacturing the uranium enrichment centrifuges.
According to technical specifications, supplying alternatives from other manufacturers is not allowed. Further, technical specifications provide justification for this.
Equipment is manufactured according to design documentation developed and approved by multiple stakeholders, including TVEL, Rosatom’s holding company that manages Russian nuclear fuel cycle enterprises. Revision of the design documentation to allow the use of alternatives requires configuration management steps that include type testing to validate parameters of the modified equipment and durability testing in conditions modeling actual operation. The minimum duration of durability testing is one month.
Following this configuration management process requires labor involved in developing the type testing program, conducting type testing, conducting durability testing, and revising design documentation. In addition to labor costs, this process incurs manufacturing overhead costs. This process and appropriate expenses must be applied to each component replaced with an alternative and each set of design documentation for equipment where these components will be used. Still, applying this process does not guarantee that alternatives will be allowed.
NPO Centrotech evaluates configuration management costs at 528907 Russian Rubles (~$5800) per article per equipment item. According to the technical specification, purchased components are intended for use in five different equipment items. The total cost of configuration management would be $5800*5*28 = $812000, i.e., eight times greater than the price of the original components.
Legal sales of ADI components to Russia are not possible. According to the ADI statement, “following Russia’s invasion of Ukraine and in compliance with U.S. and EU sanctions, Analog Devices ceased business activities in Russia and promptly instructed all of its distributors to halt shipments of our products into Russia” and “any post-sanctions shipment to Russia would be in direct violation of ADI’s express instructions.” However, there is multiple evidence that electronic components are delivered to Russia via third countries. The configuration management cost of replacing original components with analogs, e.g., from China, suggests that substantial investments in alternative acquisition schemes might be well justified.
A similar approach to evaluating the sanction cost can be applied in other cases, e.g., the currently unfolding replacement of Siemens equipment for Akkuyu NPP with a Chinese analog.