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Interview of Vyacheslav Solomin, CEO of OJSC EuroSibEnergo

 

Vyacheslav Solomin has been appointed new CEO of OJSC EuroSibEnergo starting from June 1; he joined the company back in 2007. In his interview to Interfax, the new head of the company has told about EuroSibEnergo’s development prospects and cooperation with China.

- You have been the head of EuroSibEnergo for almost a year; what has been achieved during this time?

- As acting CEO I focused on improving the Group’s operational efficiency. Besides, more attention was given to new areas of development: utilities, RES projects.

- You were nominated by En+; what tasks did the shareholder set you?

- To improve the performance and reliability of our assets, make them more sustainable given the complicated rules of the market, including improving the Group’s investment attractiveness to our Russian and foreign partners in core and non-core development projects.

- Will there be reshuffles following your appointment?

- There may be some rotation in any case, but only among those who already work for the company. Currently, there are no plans to hire new specialists. When our projects enter an active phase, we may hire new people. But at the moment we have sufficient human resources.

- Russia’s shift of focus to the East has been a burning issue in recent months. EuroSibEnergo must be interested first and foremost in projects in Asia, at least due to geographical proximity. You have repeatedly announced that you are negotiating with certain Chinese companies. What is the status of joint projects at the moment?

- First of all, we continue negotiations we started earlier; I mean a joint venture of En+ and China Yangtze Power. We are also negotiating with other major power companies in China. Further impetus for entering power markets may come from grid construction and development of the export business. We also see considerable potential in engineering projects to be implemented jointly with China.

- Could you name specific joint projects where the biggest progress has already been made?

- Currently we are considering several projects, including construction of HPPs on the Angara River. We plan to initiate the start of preparation of a feasibility study for the construction of the power plants and an environmental impact assessment. But we do not yet have a full understanding of the payback mechanism of these projects. We need the Chinese to provide assistance in mobilizing cheap resources on favorable terms. Besides, state funding is an absolute necessity.

- Have you discussed the issue of state funding with the government?

- The context of the discussion is the Angara-Yenisei cluster. There are already certain established rules. Areas of interest traditionally include roads, the power transfer plan, the reservoir bed, hydraulic structures. In other words, infrastructure. But in order to join the project, you have to start designing. And in order to start designing, we need to understand our Chinese partners more clearly, to understand how they can help us to obtain funding. The Chinese are not the easiest people to negotiate with; so, when dealing with them, the main thing is not to rush. At present, they only offer two alternatives: either we work on their terms, or there will be nothing at all. At the same time, we have our own interests too.

- What exactly do they want? Are we now talking about the joint venture?

- Yes. And they are ready to invest in the project depending on their stake in the JV.

- What will the HPPs you have mentioned be like?

- At the moment, there are two promising projects on the Angara River: the planned capacity of the Nizhneangarskaya HPP is to total about 1.1 GW, while that of the Nizhneboguchanskaya HPP will amount to 600 MW. At the moment, there are only dam sites where the potential power plants will be located; we are dealing with the necessary paperwork, cooperating with local governments and the public, holding an ongoing dialogue with ecologists. Of course, it is too early to speak of the actual start of the projects before all necessary expert assessments have been made, including environmental, economic and social ones.

- What is the possible cost of the projects?

- Until the feasibility study has been done, I can only name approximate figures. In the former case it is a little over RUB 100 bln, and in the latter case it will total about RUB 50 bln.

- What other partners apart from the Chinese may you engage in these projects?

- It will all depend on how China will help us: by providing engineering services, assisting in obtaining funding on favorable terms.

- Have you already started negotiating with Chinese banks?

- We have established a direct contact, but there are certain subtleties: Chinese banks very rarely grant loans directly, without fronting Russian banks or Chinese partners participating in projects. Besides, there is a question of the currency in which the loans will be denominated. Therefore, our Chinese partners should work out some kind of a plan together with us.

- So, does this mean that it is totally impossible to receive funding from China unless Chinese companies participate in the project itself?

- I wouldn’t say that it is totally impossible, but it takes a long time. The same is true of the Japanese. With them, negotiations can also go on for decades. For instance, Japanese banks in Russia do not grant loans directly, either, not because they are afraid to, but simply because they have never done it yet. It would be enough to grant loans to someone once, and then it will get easier for others. The question is, who will be that pioneer?

- Who can become the customer of the HPPs?

- The projects are targeted at domestic consumption. The Chinese say that on the whole, they are more willing to participate in projects that focus on the Russian market rather than those that are exclusively export-oriented. Consumers will include aluminum smelters and steel plants. These projects will be profitable; they will generate additional cash flow for us. We do not discuss exports yet. Rather, we are waiting for an improvement in market conditions with regard to grid infrastructure.

- Can RUSAL’s companies become consumers?

- Certainly.

- Will it be possible to get power supply agreements for these projects?

- Perhaps it is, but this would be difficult. Someone has to pay for them. Are consumers ready to enter into new power supply agreements?

- Does liberalization of the market for HPPs help?

- As far as new HPPs are concerned, such as the Boguchanskaya HPP, the freeze and tariff-setting do not apply to them anyway. At present, we see a positive effect produced by old HPPs due to liberalization; while with regard to new ones, one has to understand their payback mechanism from the very beginning. If there are no power supply agreements, it means that there is a need for state funding and direct contracts with consumers.

- When did you last meet your Chinese partners?

- We met with China Yangtze Power during the Saint Petersburg Forum, and it was precisely our joint projects that we discussed. We have a good track record in dealings with this company. They would visit our facilities, and we would visit theirs. They understand the economics of the industry better than anyone else; probably this is the reason why negotiations with them take so long, but they already have a real understanding.

- Do you discuss opportunities for exporting electricity to China?

- The issue of exports is still largely unexplored; we’ll see what happens next. It should have received impetus following negotiations in Shanghai; but there is nothing specific at the moment. For the time being, we cannot build anything that would specifically target China because no decisions have been made on power lines either on their side or on ours. And this is critical. You have to look at the big picture. That is why we negotiate not only with the Chinese. And we are not the only ones; RusHydro and Inter RAO also hold talks. The Chinese are in talks with everyone simultaneously.

- But are you the only private company ready to tackle this issue? What obstacles can a private company encounter in the sphere of exports?

- We are a private company, but we are fairly well known both in Russia and in China. There is only one obstacle, the economics: there will be projects once the impact is clear. - Is there a possibility of joint projects with China in the sphere of engineering and what projects can there be?

- These might be deliveries of equipment from China. We already have experience with autotransformers; they are quite competitive. In fact, we are now compiling a list of equipment which we might be interested in applying across the Group. We are planning a trip to China, meetings with suppliers, and probably we will engage the Chinese in construction and installation. For the time being, all work is done by Russian staff. The question is: can we achieve any increase in operational efficiency by relying on the Chinese expertise? This isn’t 100% clear, but this is an option that has to be carefully considered.

- Are you considering a possibility that EuroSibEnergo might build power plants in China?

- We are open to all kinds of interesting projects; this topic is also discussed with our Chinese partners. But projects in Russia are our priority.

- Is there a possibility of engaging Transstroy Corporation (also controlled by Oleg Deripaska - IF) in projects to construct power plants in the Far East and Siberia in cooperation with China?

- We will engage the services of all highly professional companies: we are willing to use new and advanced technologies.

- Let us now discuss the project to construct the Lenskaya TPP, which EuroSibEnergo has already been mentioning for several years. What is its current status?

- The progress is slow, but we are ready to launch it practically at any time. The problem is that those consumers that it has been targeted at are starting to change the schedules of their investment projects and to postpone things. As for us, we proceed from demand. There is no point in building capacities without taking into account the region’s economy. We will not just start from nothing. Alternatively, the market might offer other incentives.

- En+ has recently reached agreement with Rosneft on gas supplies totaling 16 bln cubic meters. Which facilities need this gas?

- Our power plants in European Russia.

- Who was your previous supplier?

- Gazprom. There are several suppliers. Supplies are provided partly by Gazprom, partly by Novatek; part of supplies will be provided by Rosneft. And Rosneft will have the biggest share.

- What are your plans concerning the development of gas-fueled power generation?

- We are actively working on a project to upgrade the Avtozavodskaya CHPP in Nizhny Novgorod, where we plan to implement a large-scale project involving construction of a 400 MW combined cycle gas turbine unit. We have also approved a program to develop small-scale distributed generation in European Russia; we are about to start building a small power plant in the Krasnodar Territory, and are considering other projects.

- Irkutskenergo will probably get the Ondskaya HPP, which is the head power plant in the entire Vygsky cascade. How do you intend to manage cooperation in regulating the cascade as a whole?

- This entails responsibility for the operation of the entire cascade. We are considering the ways to serve the interests of downstream power plants with regard to access to the control room. There are various options. But we have an extensive experience of cooperation with the System Operator, including on Irkutskenergo.

- Will there be dismissals or changes in the management structure of the Ondskaya HPP?

- I do not think that there will be major structural changes. However, the deal has not been concluded yet, and the Group has not yet gained control over the power plant. It is still too early to talk about it. For the time being, we are studying the potential and the economics of the HPP.

- Why have you decided to refrain from participating in the competition of RES projects for power supply agreements this year?

- We already have one project in the sphere of solar power generation. We also want to develop expertise in wind power generation. We are trying. But there are some things in this sphere that are not yet entirely clear to us concerning local content requirements for equipment.

- Which oil and gas companies may participate in the development of the Kupsky gas field as part of a joint venture?

- We have not yet started actively negotiating on the JV, but preliminary negotiations have begun with both Russian and foreign companies. Foreign companies, especially the Chinese, are generally willing to invest in resources. But first it is necessary to confirm reserves, and only then we’ll be able to discuss it properly.

- What are your financial projections about the Group for this year?

- I will not name any specific figures, but they will be better than last year. At the moment it is impossible to give an accurate forecast because the impact of liberalization is not yet clear. It is still too early to give forecasts for the water level too. But we have positive expectations for all of our companies.

Finmarket

June 27, 2014
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