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Foreigners Working up Appetite at Russia’s Energy Feast

Foreigners Working up Appetite at Russia’s Energy Feast

14.09.2009 — Analysis

The consumption of electric power in the Sverdlovsk Oblast has dropped by 16% in the first seven months of 2009. The regional ministry for energy predicts a further fall in consumption next year too and this forces Russian investors to postpone the commissioning of new power generating capacities. The RusBusinessNews observer found out that this development contributes to foreign sellers domineering at the domestic market.

The Sverdlovsk Oblast government had calculated in 2006 that to satisfy the regions electricity needs new capacities of 5,500 MW have to be commissioned by 2015. The investment programme for the reconstruction of existing power plants and the construction of new facilities had been developed according to these calculations.

The State owned corporation Rosatom had planned to commission the 800 MW fourth block of the Beloyarsk Nuclear Power Station by 2012. The Joint Stock Company "Territorial Generating Company № 9" had decided to build the 1000 MW Novo-Bogoslovsk heat power plant in the North of the Sverdlovsk Oblast. The shortage of power which would have inevitably grown with the construction of the new alumina plant in this industrial region had prompted the "Wholesale Generating Company № 2" (WGC-2) owned by Gazprom to make the decision to build two new units at the Serov SDPP (State District Power Plant) with the total capacity exceeding 600 MW. The WGC-5 controlled by the Italian company Enel had started the installation of a new 400 MW combined cycle gas turbine unit at the Sredneuralsk SDPP. The Joint Stock Company WGC-1 had announced the plans for the commissioning of a new 330 MW coal powered unit at the Verkhniy Tagil SDPP in 2010.

The "spotlights" have dimmed in the autumn 2009 when it became clear that the only company which is going to fulfil its promises is the Enel WGC-5. According to Vasiliy Zakharov, the Deputy Director of the company on International Relations, the combined cycle unit will be commissioned on time, i.e. in the end of 2010. 8 billion roubles out of twelve needed for the implementation of the project has already been spent. The company is not stopping the construction, the drop in power consumption and excessive generating capacity appearing in the region notwithstanding. Fulvio Conti, the Director General of Enel, explained that the new unit is needed for the modernization of the existing power units whose successful work would enable the company to extend its share in the Russian electricity market.

Other investment projects are much less clear. According to the data from the ministry for energy of the Sverdlovsk Oblast, the fourth block of the Beloyarsk NPS is 19% complete. It is planned to spend 13.2 billion roubles in 2009 but the funding may be cut - in seven months the federal budget only paid 5.3 billion. The deadline for the commissioning of the new unit has been postponed to 2014.

Moreover, the money for the reconstruction of the existing BN-600 unit is late and the "best before" date for it expires in April 2010. Rosatom had planned to spend 3.7 billion roubles on the extension of the lifespan of the unit. So far only 2.1 billion roubles has been received.

Gazprom is in no rush to spend money on power generation either. All deadlines for the start of works at the Serov SDPP had passed and the project is still at the stage of being approved. When asked why the construction is delayed the press service of WGC-2 preferred not to comment.

Igor Chikrizov, the Deputy Minister for Energy of the Sverdlovsk Oblast, thinks that Gazprom is delaying the beginning of the work because of serious doubts in the fast payback of the investments into the Serov SDPP. The rapid drop in the production at the Bogoslovsk Aluminium Smelter and the scrapping of the plans to build a new alumina plant in the Sverdlovsk Oblast by RUSAL rendered the additional power generating units redundant.

The 330 MW unit construction plans have also been postponed indefinitely at the Verkhniy Tagil SDPP; instead of the serious Novo-Bogoslovsk HPP which has turned out unwanted by the metallurgy, local authorities suggested that the Territorial Generating Company № 9 should build two units of 400 and 600 MW capacity. The project has been approved but no actual work has been done so far. Russian investors are waiting for the capacity market to begin working.

Vladimir Begalov, the acting Director of the Institute for Energy Saving, reckons that delays in the construction are not critically important for the Sverdlovsk Oblast. According to him, the possible 2% growth of energy requirements in 2011 might be compensated through energy saving.

Undoubtedly the region needs additional capacities as the crisis in metallurgy and machine building will be overcome sooner or later. But even these new capacities will not be enough if the existing worn out equipment is not replaced. The tired energy sector will not be ready for the economic growth. This is why, in the expert’s opinion, we need to modernise the existing capacities todaty. The energy sector is the industry which is the foundation for other industries, and this is why fast returns cannot be expected here. It is usual for a project to pay back in 10 to 12 years.

In this sense the Italians are playing the win-win scenario – having modernised the capacities they gain the vast savings of the primary resources. Vladimir Begalov  is convinced that fuel in the foreseeable future will cost much more as the exploration of new gas and oil fields is either suspended or carried out very slow. The owners of the outdated power generated capacities will, therefore, be forced out from the Russian market.

Gazprom need not worry, however, it will get its profits selling overpriced gas. Metallurgists controlling power generating companies will suffer much more. Expensive energy generated at outdated plants might endanger both their core and non-core business.

Vladimir Terletski



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