Interview with Evgeniy Fyodorov, CEO of OAO Irkutskenergo and OAO EuroSibEnergo
CEO of OAO EuroSibEnergo Evgeniy Fyodorov told Reuters that billionaire Oleg Deripaska’s power holding EuroSibEnergo is turning to bank financing to fund its first Siberian project worth USD 2 billion with Yangtze Power as it strives to become a driving force of the big export to China and is preparing for rivalry over the assets in Mongolia.
Last autumn EuroSibEnergo reached an agreement with the largest Chinese public hydroelectric company Yangtze Power to construct facilities with the total capacity of 10 GW in Siberia creating the possibility of export to China. The first to be constructed is Lenskaya gas power plant with capacity of 1.2 GW in the Irkutsk region (2014-2018), after 2018 it will be followed by two hydroelectric power stations with the capacity of 2 GW.
Fyodorov has estimated the construction costs of Lenskaya PP at no less than USD 2 billion: “We are contemplating project financing. We have an agreement with the Chinese Exim Bank… There are quite a few serious European and Asian financial facilities interested in financing our project”.
The project’s business case will be completed in the first quarter 2012, and then the company will move on to structuring its financing.
According to Fyodorov, Lenskaya power station is already in great demand: it will meet the needs of Bodaybo, a mining town in the Irkutsk region, of the Udokan copper deposit in Transbaikal territory, of the Chiney polymetallic ore deposits and cover power deficit in the BAM regions.
“At least two blocks of three which account for 800 MW are consumers who are not able to realize their projects without the power plant” says Fyodorov confidently.
EuroSibEnergo is the largest private electric power company in Russia holding the fifth place with the capacity of 19.5 GW. Its main assets are Irkutskenergo and Krasnoyasrkaya hydroelectric power plant.
As the company was not spun off from the monopoly OAO RAO UES of Russia, unlike most other electric power companies, it did not get the right to sign power supply agreements (PSA) to ensure the return of investments in new constructions.
Fyodorov said that EuroSibEnergo would file an application to include Lenskaya TPP in the list of projects to be implemented on the same principle as PSA.
Officials are contemplating the idea to hold tenders for construction of electric power facilities in the regions with power deficit aiming at any kind of investors. Thus the latter will be able to cover the expenses of currently unprofitable constructions.
The company is also trying to file an application to commission a new unit of 400 MW on the Avtozavodskaya TPP.
EuroSibEnergo aspires to become a leader in the large-scale export of electrical power to China and has called for partnership with the Chinese electric power transmission and distribution company SCGG to build facilities with the capacity of up to 10 GW in the Eastern Siberia.
“Obviously, before RAO UES was restructured Russia could not get involved n such large-scale projects as it would not be right towards the future owners. Now it’s finally the time … when Russia’s prospects in terms of facility construction are clear for the next 10-15 years.”
In 2006 ex-monopoly RAO UES signed an agreement with SGCC to supply up to 60 billion kWh annually, and for this purpose it was going to construct a power facility of 11 GW and grids in the Far East and Eastern Siberia. The project passed on to Inter RAO UES which will export to China 1.2 billion kWh in 2011and is planning to further increase its export volumes.
Fyodorov denied that EuroSibEnergo was carrying on negotiations with Inter RAO about its program or was opposed by the authorities.
“There are no current negotiations. Inter RAO does not exercise monopoly in the electrical power export. I do not see any limitations on export. In the long run, this project might interest others but now we are taking the lead and playing the role of a driving force”.
“In China energy consumption is growing at such a rapid pace that undoubtedly 20 GW and even 30 GW will be in demand.”
EuroSibEnergo is aspiring to build a coal Ulan-Bator TPP – 5 with the capacity of up to 500 MW in Mongolia, which might become the company’s first asset abroad.
“We are participating in a tender initiated by the Mongolian government. The situation will have clarified by the end of the year as the first round is to be finished in December. This project is going to be the second in Mongolia after Tavan Tolgoi which is the world’s largest undeveloped coking coal deposit”.
Fyodorov maintains that the project will attract other Russian and Chinese investors as well as local business with foreign ownership.
… WHILE THE STOCK MARKET IS KEEPING SILENCE.
According to Fyodorov, EuroSibEnergo is ready to place an initial public offering (IPO), however no decisions concerning its form and deadlines have been taken yet.
The holding planned to place IPO in Hong Kong at the end of 2010, expecting to raise USD 1.1- 1.5 bln, but postponed it until 2011 waiting for cornerstone investor Yangtze, and after that postponed it once again, this time indefinitely because of high volatility.
Deripaska intended to place IPO in 2012, while CEO of EuroSibEnergo talked about putting on the market a larger company after the transaction with Russian RusHydro. The latter can trade assets worth of USD 2 billion as of the market value for a blocking interest in EuroSibEnergo.
RusHydro’s management has been expecting the IPO of EuroSibEnergo to take place in the next 2-3 years.
“Within half a year after the decision is taken we will be able to place IPO, in case that the market is ready” – said Fyodorov.
“We have the capacity to finance the whole investment program in the current and projected scope on account of debt financing. IPO is not the only way, as we are considered by the banks to be reliable debtors”.
As of this year the investment program is estimated at RUB 15 billion and it will increase up to RUB 20 billion in 2012.
EuroSibEnergo’s CEO has refused to give any parameters of the transaction with RusHydro which must be finished by the end of 2011. As part of the deal EuroSibEnergo’s dividend policy will be accepted.
“WE DO NOT SEE THE CRISIS”
Fyodorov does not see any signs of the crisis or economic downturn: “We can only judge by the demand on electricity. We have been monitoring the situation for the last 2-3 months and have not seen any significant changes.
He has also responded to the speculations that Deripaska’s companies are preparing for the new crisis and are starting to cut down the number of staff.
“We have a permanent process of personnel optimization and reduction of the power production costs. We cannot say that any special measures are being taken before the crisis.
At the same time EuroSibEnergo is expecting demand in Siberia to shrink 2011 and power production to decrease by 4 billion kWh which accounts for 4.6 % as compared to the output in 2010. Fyodorov has attributed this drop it to the high water level and massive output in 2010, opposing to the warm winter and lower water level in the Yenisey and the Angara River this year.
11 November, 2011
November 11, 2011