Samarskoje Obozrenije
July,17 2006
The economical upturn is traditionally followed by the power consumption growth. At present most of the regions sustain shortage of power generating capacity. Vasily Nikonov, the General Director of Volga Territorial Generation Company, told “SO” about the problems of the power industry, strategy of its development, ways of investment in power industry, etc.
- Currently the power industry functions in the conditions of vigorous growth of power consumption. Moreover, it is influenced by the wear of the country’s power utilities. Is it correct to say that the power industry suffers troubles associated with the abovementioned?
- Indeed, at the present day the historical maximum of power consumption that was observed in 1990, has been already exceeded in 14 constituent entities of the Russian Federation. Moscow, St-Petersburg, Tumen, Yekaterinburg are among these regions. Whereas five years ago the substantial abundance of capacities was observed, currently power generation systems of big cities overload their capacities or work at the maximum output. In other words, it is high time for principal renovation of the industry, construction of new efficient power stations, substations, grids. This was the topic of the meeting of the RF President with the RAO UES of Russia CEO and subsequent government of RF session on June 7. The decisions that actually form the strategy of Russian power industry for the coming 2.5 years were made at these two crucial meetings.
- What is the essence of this strategy of power industry development?
- The word “investments” is the determinative here. The industry reforming has entered the final phase, which can be called the phase of investments. This phase is the logical continuation of all preceding transformations, because the electric power industry reform was conceived in order to attract investments to it. As far as the generation is concerned, private investments should be attracted to this competitive sector of power industry. As for the natural monopolistic sectors – electric grids and dispatching, budgetary investments can and must come there.
- Does the necessity of large-scale investments attraction mean that the industry brunch was not sufficiently financed before?
- Yes, it does, and one of the basic reasons for insufficient financing of the electric power industry is the politically motivated system of tariff regulation. However we should not forget that during last three years RAO UES of Russia has been increasing the tariffs slower than the inflation level. But in the conditions of growing demand for the electric power it is impossible to proceed with this tariff policy. Currently the investment constituent is lacking in the tariffs that endangers the power supply reliability. The industry development requires conversion to new tariff policy, which will guarantee investor the payback on investments. The president and the government support such approach. In 2007 the tariffs for electric power will grow a little faster than the inflation – by 10%. But in respect of profound renovation of the power facilities, the tariff will not be able to provide the adequate level of investments. In case only tariff is considered the investment source, it would have grown 100% each year. Of course it is unacceptable.- In that case, what will be the sources of investments into power industry in the nearest future?
- The RAO UES of Russia’s program of investment attraction is based on four basic components – four mechanisms of private investments attraction to heat generation. First mechanism – the most significant and massive one – is issue and distribution of shares of new companies, OGCs and TGCs. This year, on June 23 the board of directors of power holding made the decision to perform IPO of five generation companies - OGC-3, OGC-4, OGC-5, TGC-3 («Mosenergo») and TGC-9. The second method is investments support mechanism. It was approved by the RF government regulation in December 2005. It is a certain procedure, aimed at investments stimulation in cases when new facilities introduction is necessary, but it requires large expenses. The essence of the investment support mechanism is as follows. The investor is determined based on the results of tender. This investor will build new facilities and all market participants will compensate him a difference between the market price of the electric power and the price necessary for the project payout. The third mechanism is direct and private investments. And the fourth one is the classical project financing. In respect of Volga TGC we anticipate to use both traditional sources – depreciation and profit, and the new ones for us – borrowed funds, in the form of bonds or other instruments of project financing, or to issue additional shares of the company.- What are the priority areas to be financed?
- The Board of Directors of Volga TGC approved the company’s technical policy. On the basis of this policy we are currently developing the investment portfolio, which involves implementation of ten large-scale projects before 2011; six of them are of high priority. In particular, the executive board of TGC-7 approved medium-term program, aimed at the reliability and efficiency increase of the generating equipment and thermal grids, renovation of the generating equipment, expansion of heat sales markets along with TPPs power efficiency increase in term of, for example, new thermal grid objects construction. As far as the increase of power equipment reliability is concerned, I would like to note upgrade of six turbine units with high pressure cylinders replacement, one power boiler and one turbine unit replacement. Among the measures aimed at thermal power sales increase it is necessary to emphasize construction of the fourth heating duct from Togliatti TPP to the Avtozavodsky district of the city. That will help to meet the growing demand of Avtozavodsky district of Togliatti for thermal power. The heating main Nî 8 from Saratov TPP-5 and the third heating duct from Engels TPP-3 are also planned for construction.- How much does Volga TGC is planning to invest in these projects?
- According to our estimate more than 16 billion rubles will be spent for Volga TGC investment program implementation in all regions of our presence till 2011. Currently a number of large projects are under development. I am talking, for example, about technical retrofitting of Novokuibushevsk TPP-1 with installation of 200 MW gas-steam cycle turbine unit, projects of 32 MW gas-steam cycle turbine unit at Samara GRES power station and PGU-TPP-200 gas-steam unit construction at Syzran TPP. These are all the elements of our company’s development strategy. Efficiency increase of our thermal market business is the priority in this strategy. By the way, the basic aspects of this strategy have already been approved by RAO UES. The basic vector of our movement can be expressed by the phrase: movement from “interregional immensity” to “local interests” – priorities shift to cooperation with the local authorities, end consumers of thermal power. It has to be mentioned, that our investment activity is more intensive in the regions and cities, the authorities of which express desire for close long-term cooperation.- What other major transformations are expected in the power industry in the nearest future?
In fact there are a lot of them and they will strongly influence the industry brunch development and interrelation between the power producers and consumers. For example, before August 1, the RF Government regulation has to be issued that will cover the new rules of electric power wholesale market, norms of retail market and changes in pricing.
From August 1, 2006 the so called “spot market” will start operating. Of course, it will develop in future, but we do not expect any more large-scale transformations comparable to the ones that will take place during the changeover period. Thus, just in two weeks the prototype of a new power wholesale market will start operating, the market we talked so much about and that was, to a great extent, the cause of the reforms.
One more decision will be implemented this August. It is the introduction of bilateral agreements between the power sellers and buyers on the wholesale market. In the past the power was sold upon consumption, but since now the buyers and sellers will have to plan and contract the future volumes of power production and consumption. This process will be strictly controlled by the government. The agreements will be short-term so far, but this is just the beginning of the process.
Among the coming transformations, initiated by RAO UES, IPO process launching is considered important – start of trading of generation companies’ shares at the stock exchanges. The first “cosmonaut corps” has been formed, consisting of OGC-3, 4 and 5, Mosenergo and TGC-9. I believe, by the end of 2006 the second group of companies will be formed that will follow the first one in additional shares issue. And Volga TGC has the chance to be included in the second group.
The parent company, RAO UES of Russia, will also be reorganized. It is planned to be completed before the end of the year. One or two generation companies are anticipated to be demerged from the RAO UES of Russia in the course of reform.
Since January 1, 2007 the liberalization of the wholesale market in the field of bilateral agreements will start. The range of annual liberalization, i.e. share of bilateral agreements between the power sellers and buyers that will not be regulated by the government will constantly grow. To begin with, in 2007 the share of such agreements will come up to 5%.
The validity of bilateral agreements will also change – they will be valid for two or three years.
And, finally, the retail power market will start operating to full extent in 2007. It is first of all important for such sales companies, as Samaraenergo or Saratovenergo. Since that moment Samaraenergo will be able to deliver power for the free market price to some of the consumers. But it should be noted that tariffs for public will still be regulated by the government.
