Wednesday, July 25, 2007

Meanwhile, Back at Bushehr

Iran's nuclear power plant at Bushehr (Reuters)

A few months ago, we noted a rift between Iran and Russia over the nuclear power plant at Bushehr, which is being built by Russian contractors. In March of this year, Russian spokesman announced that the reactor's start-up date (then scheduled for September) would be delayed, due to payment issues with Iran.

According to the Russian firm in charge of the project, Tehran was paying only a "fraction" of the $25 million monthly bill, forcing contractors to slow work on the facility, and delay fueling of the reactor. Iran claimed that it was making the required payments on the $1 billion project, and blamed the impasse on western pressure, directed at Russian involvement in Tehran's nuclear program.

Flash forward five months, and it looks like the Bushehr complex remains stuck on the slow track. A Reuters report from Moscow indicates that Tehran remains behind in its payments, and the reactor won't be finished until Autumn 2008 (at the earliest), one year behind schedule. An earlier round of high-level talks apparently failed to resolve the dispute, and another Iranian team is currently in Moscow, negotiating with Russian contractors.

We're not surprised that Russia is still having problems with its partner, given Tehran's long history of slow, incomplete or non-existent payments on high-profile projects. In some cases, the payment problems can be traced to a dissatisfied cleric or bureaucrat, whose palm wasn't sufficiently greased in arranging the deal. Or, the Iranians may believe that Russia has too much invested in the Bushehr project, allowing them to put the squeeze on Moscow, and obtain a finished, fueled and operating reactor for less than the negotiated price.

Iran's economic woes may be another reason for the limited payments. The economy is in such shambles that the Tehran government imposed gas rationing last month--in the world's #2 oil-exporting nation. That move prompted riots across the country, and millions of Iranians are also upset about recent hikes in food and housing prices. They view the government as woefully inefficient and corrupt; in return, the ruling mullahs (and President Mahmoud Ahmadinejad) have attempted to increase subsidies on key goods--including gasoline--in an effort to placate the public. Increased support for the public sector could prompt cutbacks in other programs, including the nuclear power plant.

But the delays at Bushehr should not be viewed as a major impediment to Iran's nuclear weapons program. In reality, the nuclear power plant is expected to have only a tertiary role in Tehran's development program, providing spent fuel that could be re-processed for used in nuclear weapons. However, there are lingering concerns that the Bushehr deal may be used as an umbrella for illegal transfers of technology and materials.

Located on the Persian Gulf, the Bushehr complex is the most visible symbol of Iran's nuclear program, but it is not the most important element. Those can be found at Esfahan (where yellow cake uranium is produced) and Natanz, where uranium is being enriched in centrifuges. Eventually, those facilities will yield sufficient quantities of feedstock and enriched uranium to produce nuclear weapons. That's why activity (and construction) at those sites continue unabated. Even in tough economic times, Tehran has ensured that both Esfahan and Natanz receive full-funding, even if it means slowing the pace at Bushehr.

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