Finnish energy company Fennovoima has terminated its contract with Russian state firm Rosatom to build a nuclear power plant on Finland's west coast.
The company cited significant delays and Rosatom's "inability to deliver the project", and added that the war in Ukraine has further exacerbated the risks of the project.
In a statement on Monday, Fennovoima CEO Joachim Specht said that the termination of the contract would have "a significant employee impact" for Fennovoima, its supply chain companies and the Pyhäjoki region. It may also spawn costly, complex lawsuits.
"Our main objective is to support our employees by keeping them informed and [to] work in close cooperation with both our employees and employee representatives," he said.
Fennovoima, a consortium of Finnish industrial firms and mostly municipal energy companies, signed a turnkey contract with Rosatom subsidiary RAOS Project in 2013.
That followed the withdrawal of the original minority shareholder, Germany's E.ON. The plant was initially to have been built by either Toshiba or Areva, which recently completed the long-delayed Olkiluoto 3 nuclear reactor.
The Hanhikivi 1 plant in Pyhäjoki, Northern Ostrobothnia, was to have been Finland's third nuclear power plant, and its first entirely new one since the 1970s.
A construction license has not been granted for the plant, but preliminary construction work at the site has continued despite the war.
It remains unclear whether Fennovoima will still seek to find a new supplier.
In his statement, Specht said that the company will "focus on preserving the site," without providing more details.
Municipalities eager to quit project
Some of the Finnish stakeholders in the Fennovoima project, including the cities of Vantaa and Turku, have been trying to pull out of the project for a long time. However there have been no buyers for their shares. As a result, many municipalities may suffer significant losses due to the collapse of the venture.
From the point of view of Finnish owners, continuing cooperation with Rosatom became even more untenable after the company took control of the Zaporizhzhia nuclear power plant, which was captured by Russian forces in Ukraine.
In February, shortly after Russia invaded Ukraine, Fennovoima said it was "very sad" about the attack and that it posed "a major risk" to the Hanhikivi project. "For the time being, we continue executing our project," it added.
Minister of Economic Affairs Mika Lintilä (Cen) in effect suspended the project, telling Parliament on 25 February that he would not present Fennovoima's construction permit application to the government.
Fennovoima's building permit has been pending at the Ministry of Economic Affairs and Employment since mid-2015.
It has not progressed due to a lack of approval from the Radiation and Nuclear Safety Authority (Stuk). The nuclear watchdog says it has been unable to issue a statement because it has not received the required safety reports from Fennovoima, despite repeated demands for them.
However, construction work has continued because the contract between the Finnish and Russian owners has prevented employees from leaving the project.
According to RAOS Project, hundreds of people have been carrying out work in the area, including the excavation of the planned nuclear reactor trench, cabling and the development of marine hydraulics infrastructure.
Fennovoima's Finnish owners are represented through Voimaosakeyhtiö SF, whose CEO, Matti Suurnäkki, told Yle in late March that "there is a high risk that the project will not be able to materialise in its current form".
The heart of the power plant, the reactor pressure vessel, was to have been built in Kramatorsk, eastern Ukraine, while some welding work was to have been done in Russia.
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Ministry welcomes cancellation
Soon after Fennovoima's announcement, the Ministry of Economic Affairs released a statement praising the decision.
"The Ministry of Economic Affairs and Employment sees the manner in which the owners have acted with regard to the plant supply contract as justified and consistent. The termination of the contract is an understandable measure in this situation," it said on Monday morning.
According to the ministry, it will "evaluate in the near future on the basis of new information" what the termination of the contract means in practice.
Lintilä also welcomed the cancellation.
"Russia has violated all international agreements by taking over another state's nuclear power plant. I consider it completely impossible for a permit to be granted in such a situation," he said.
Lintilä was informed of Fennovoima's decision on Friday, when the company held an extraordinary general meeting.
He declined to speculate as to whether Russia would react to Fennovoima's decision.
"Of course that's possible. However, the main factor in the owners' decision was that the operator was unable to meet its obligations. If that causes retaliation, then they aren't directly related to this decision, but are matters related to the war," Lintilä told Yle.
The minister said the decision would likely be discussed at a meeting of EU energy ministers in Brussels later on Monday.
Rosatom: "Extremely disappointed" by "inexplicable" decision
Rosatom released a statement saying it was "extremely disappointed" by Fennovoima's decision, which it described as "completely inexplicable".
The Russian energy giant asserted that the cancellation was made "without any detailed consultation with the project’s shareholders" Rosatom subsidiary RAOS Voima is the largest shareholder, with a 34 percent stake.
"We reserve the right to defend our interests in accordance with applicable contracts and laws," Rosatom added.
Massive lawsuits possible
It remains unclear whether the Finnish or Russian parties to the project will demand compensation for cancelling the project.
Claims for compensation could add up to tens of billions of euros, as in addition to the completed design and construction work, compensation could be claimed for the loss of electricity that is not produced by the plant for decades to come.
Voimaosakeyhtiö SF's biggest stakeholder is steelmaker Outokumpu, which operates one of Europe's largest stainless-steel mills in Tornio, some 200 km north of Pyhäjoki.
A long and winding road
Fennovoima was founded fifteen years ago, with E.ON chosen as its main partner.
Two years after its establishment, the company submitted an application to the government for a decision-in-principle for the construction of one or two nuclear power plants in Finland. The plant supplier would be either the French Areva or the Japanese Toshiba.
After the vote, Pyhäjoki municipal council approved the construction of a power plant in its area. In 2010, Parliament issued a decision in principle for the plant.
Japan's Fukushima nuclear accident in 2011 dealt a severe blow to attitudes towards nuclear power, and the following year E.ON announced that it was abandoning the project altogether.
The search for a new plant supplier began and it was finally decided to conclude a turnkey agreement with Rosatom, which is closely controlled by the Kremlin.
In 2014, Russia annexed Ukraine's Crimea peninsula. Nevertheless, later that year Parliament decided to confirm Fennovoima's decision-in-principle.
According to original schedule, the plant was to start up in 2018. That year the target date for completion was pushed back to 2024, a date which was looking increasingly unlikely even before the war.
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14.17: Lintilä comments, more details added.
16:12 Rosatom reactions added.