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Russia is putting a lot of effort into pretending to conserve resources

Russia is putting a lot of effort into pretending to conserve resources

25.04.2012 — Analysis

The Russian economy is stubbornly refusing to operate efficiently. As the participants in the All-Russia Conference on Energy Conservation (held in Ekaterinburg) noted, entrepreneurs are merely making a show of trying to reduce their consumption of resources. In reality, it all comes down to playing with the numbers. Experts from RusBusinessNews believe this chicanery can be explained by the fact that saving gas and electricity is not a matter of life and death for the country.

Russia became interested in saving energy resources twenty years ago. Some regions adopted programs to reduce consumption and established institutions to draft plans for the nation's energy balance. The federal government recognized the problem of resource squandering only ten years later, by passing the law "On Conserving Energy and Improving Energy Efficiency" in 2009. But two years later, it became clear that the state policy had no effect on the real economy.

According to Aleksandr Terekhov, the acting general director of the Federal State Unitary Enterprise the Federal Energy Service Company, the passage of the law unleashed a frenzy on the market. Russia soon boasted more energy auditors than any other country in the world. Some technical and technological work was done and a number of regulations took effect. But the gains in actual energy efficiency were not as impressive. In the corporate sector the process is limping along, but there are no energy-conservation plans in the public sector at all.

By the conservative estimate of Yuri Katz, the first vice president of Gazprombank, OJSC, reducing energy consumption by 40%, as required by the government program, would cost one trillion rubles. State coffers are only prepared to allocate 7% of that sum, and the remaining funds must come from commercial sources. But banks are not willing to finance any energy-conservation measures in the public sector, because of the poor credit history of the municipalities.

Funds can only be provided if they are backed by the state, but regional officials have to stretch public money pretty far. Nikolai Smirnov, the minister of energy and utilities, notes that in the Sverdlovsk region, 2,500 elevators in apartment buildings will reach the end of their service lives in 2012 alone. The following year - another 1,000. Under current Russian law, it is the owners of the residences who are responsible for replacing them. But few urban residents can afford that kind of investment, so the regional government was forced to absorb 90% of the costs.

Banks are willing to lend money for energy-conservation measures in industrial companies, but even here - it's one step forward, two steps back. Only two companies in the Sverdlovsk region have energy service contracts. Nikolai Smirnov reported that the program plans to encourage companies to transition to energy-saving technology on one hand, and on the other - to punish those who consume energy in excess of the limits. However, as the minister himself acknowledged, attracting non-government investment is made difficult because of the absence of regulations clarifying the law "On Conserving Energy and Improving Energy Efficiency." Therefore, the few existing energy service contracts in the Sverdlovsk region are being put into practice not because of the policy of the federal officials, but in spite of it.

Evgeny Gasho, an adviser at the Analytical Center under the Government of the Russian Federation, believes that it is necessary to pass only four documents and to return a section on consumer protection to the law on conserving energy, so the regional officials can finance energy-saving measures. It is also necessary to develop several versions of energy data sheets, because there is no single approach that will work for a school, a factory, and a combined heat and power plant. They have mentioned this repeatedly to the Russian Ministry of Energy, but it stubbornly refuses to take note of the problem.

Nor has the government succeeded in financing programs for renewable energy, which could be used to provide electricity to the country's more remote outposts. The banks in those areas are not helpful. Their interest rates make it impossible to build new, efficient sources of energy. Nor are energy producers eager to save. Switching from expensive fuel to something cheaper is pointless in the current Russian model of the energy market.

Evgeny Gasho claims the energy conservation campaign is fragmented, not organic, focused on the wrong objectives, and furthermore being torn apart by interdepartmental squabbling. The work cannot be carried out systematically because of significant differences between the regions of this vast country, and reformers often do not understand the true causes of economic inefficiency. According to him, the completely predictable and utter failure of energy reform suggests that the existing inconsistencies in the efforts cannot be written off as merely the result of theft in the industry, an insufficient regulatory framework, or even the overall immature economy. The energy industry in Russia does not want to be market-based. And perhaps it can't be in such a very cold, enormous country.

Sergei Ledovsky, the general director of the Karat research and production company, believes that Russia has no underlying macroeconomic reasons to explain why energy-conservation work was set up as a business model. ESCOs arose in the West in the late 1970s during the severe energy shortage there that made conservation a matter of life or death. But there is no shortage of resources in Russia.

Sergei Ledovsky notes that the introduction of sophisticated metering and monitoring is yielding real results, but the losses in the networks, never small to begin with, are increasing. And so, efficiency is achieved by the usual manipulation of the numbers. The roles in the energy-conservation industry have not yet been assigned, and so the accounting is controlled by the one who has paid the for conservation measures. That entity simply names the amount of savings that it needs - which has nothing to do with energy efficiency. Energy conservation can take place only when efficiency is being assessed by independent inspectors.

Vladimir Terletsky

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