NUPHOENIX

Case Study 3 – Hanhikivi 1

During my second spell in Finland, I worked on the Hanhikivi 1 NPP for the project Owner Fennovoima Oy. Fennovoima Oy is a Finnish nuclear power company established by the Russian state’s nuclear company Rosatom and a consortium of Finnish state-ownedpower and industrial companies. On 21 December 2013, Fennovoima and Rosatom Overseas (ROAS),
a subsidiary of Rosatom, signed a plant supply contract (EPC). The plant was planned to be commissioned by 2024.

Oversight in Main Supplier Selection
From the outset, the project clearly had severe supply chain and delivery problems. These major issues were the main reason why, in May 2022, the entire project was cancelled.
It is questionable why Fennovoima decided to open a plant contract with a Russian entity, they had received offers for alternative technologies from Areva (France) and Toshiba (Japan). However, the Russian VVER pressurised water reactors were already constructed in Finland, and the updated AES-2006 version of the reactor won the contract. However, the consequence of this decision was that ROAS were incapable of delivering the project on time, at the point of termination the project had accumulated ten years delay and had not moved from the design and licencing phase.
Further, like Framatome ROAS were not able to meet the Finnish nuclear safety standards imposed by the nuclear regulator (STUK). It became obvious that these standards are less stringent in Russia thus, ROAS could not understand why their design and engineering documents were constantly rejected by Fennovoima and STUK.

Complex Supply Chain
The complicated supply chain set up by ROAS had a large number of suppliers, predominately situated in the Russian Federation, but also in mainland Europe and the UK. Therefore, the quality and safety assurances required by STUK were inadequate and consequently, this contributed to a fragmented supply chain and Fennovoima had to divert a large number of its own project and procurement management personnel in an attempt to improve the safety and quality issues.
The obvious cultural and language difficulties was another factor in the futile attempts to implement an integrated supply chain. The bureaucracy imbedded in the Russian culture hampered any chance of effective communication along the supply chain.
These problems resulted in an increasingly strained relationship between Fennovoima and ROAS and the conflict between Russia and the Ukraine in 2022 compounded the significant risks to the project. The geopolitical situation meant that neither Fennovoima nor ROAS could mitigate the new risks and the relationship between the parties broke down completely.

Outcome
The significant delays and the fact that ROAS were not capable of delivering the project, led to Fennovoima terminating the project in 2022. This termination led to a major dispute between the parties and is currently subject to an arbitral hearing.

Conclusion
As discussed in various publications (Dainty et al., 2001), (Vrijhoef and Koskela, 2000), (Yeo and Ning, 2002), when involved in an EPC megaproject, the main contractor must find and assess an equilibrium between risks, which can be amplified if the project crosses borders (Olkilouto 3 (OL3) and Hanhikivi 1) as this may have implications with longer lead times, greater uncertainty with delivery synchronising, multiple supplier languages and currencies, and still maintaining a profit.
This difficult balance will be positively or negatively impacted by establishing either a fragmented or integrated supply chain. If for example the main contractors project management and procurement teams which included many consultants as nuclear experts, can effectively manage materials and equipment costs together with any logistical problems as an integrated unit, then the risks can be managed or mitigated and the profit margin can be safe however, as with the three projects detailed above, if the project management and procurement teams become fragmented and work in silos, this will lead to a badly managed project from a project management and procurement standpoint.

Common Causes of Fragmentation	Unique Contextual Challenges	Lessons Learned
Operational Fragmentation	Increased Costs, Reduced Efficiency and Delays	Diversification and Redundancy
Geographic Fragmentation	Lengthened Lead Times and Delays	Government Interventions and Regulations
Supplier Fragmentation	Quality Control Issues	Strategic Integration
Technological Fragmentation	Miscommunication between departments and suppliers	Increased Transparency and Data Sharing Technological Solutions
Organisational Fragmentation	The creation of departmental and intersupplier silos	Collaboration and Partnerships

Obviously, these inherent complications are a major cause that show the success of an EPC project hinges on having a project and procurement management teams and a supply chain who collectively can effectively establish and manage cooperative relationships as one integrated unit. The danger of working in fragmented silos is a widespread problem, historical and current projects such as HS2, Olkilouto 3 (OL3) and Hanhikivi 1 are currently and have been in the past, beset with poor relations not only between the main contractor and the project owners, but also between the main contractors and their suppliers. This breakdown in contractual relationships has led to project completions being delayed, cost overruns and questionable quality. Consequently, this has given rise to a plethora of disputes, claims and counter claims, not only has this happened on megaprojects such as HS2, Olkilouto 3 (OL3) and Hanhikivi 1, but it is an historical and worldwide problem (Yeo and Ning, 2002). Nevertheless, it is proven by past findings on the project and procurement management on other EPC projects (Beach et al., 2005), (Larson, 1995) that by the main contractor implementing an integrated approach in establishing a harmonious working relationship with the supply chain does in fact produce better all-round results. Benefits of this way of working include significant reduction in costs, improved relations with the project owner and other stakeholders, timely project completion, greater customer satisfaction and public value, a higher level of technical competence and of course fewer disputes and contractual claims. Research Citations (Cheng et al., 2010) (Tana Johnson and Johannes Urpelainen, 2012) (Burgelman and Doz, 2001) (New Civil Engineer, Oct 25) (World Nuclear News, Mar 18) (Dainty et al., 2001) (Vrijhoef and Koskela, 2000) (Yeo and Ning, 2002) (Beach et al., 2005) (Larson, 1995).