with Anatoly Loginov , CEO and President, BPC GROUP
Russia has never traditionally been a technologically driven country. What made you feel that the time was right in 1995 to establish BPC within the high technology sector?
In 1995 BPC started as a system integration and software development company in the retail payment industry. Before founding the company, I had worked in Moscow for Digital Equipment Corporation, an American company. It was whilst I was there I realised that there was an opportunity in Russia to develop a business dealing with payment cards and payment card infrastructure, ATM software, PoS software, and eventually host software to manage all ATM and PoS transactions and settlements.
BPC began at the time when the Russian banking industry was beginning to boom. However, these banks were primarily concerned with wholesale and corporate banking. The retail segment was not present at all, and at Digital, I worked in the retail segment, and having worked on services for companies in other European countries, it was clear that there was potential to develop this market in Russia. Being a very small company at that time, BPC had to choose a line of business where it could add high value, but would still not be too academic. The company has always looked for new technology, but with real practical and commercial implications.
In the beginning, BPC played the role of partner in Russia, with an American partner that was selected after extensive market research. For three or four years BPC was focused on reselling and system integration projects based on the software of this company. Eventually, BPC outgrew the company, both by number of customers and revenues. We also realised that we could better cater to the Russian market with our own software.
Whilst developing our software, and ever since, it has been very important at BPC that we were aware of what other companies across the world were doing. Many Russian scientists and developers do not do this: they feel like innovators and developers and do very creative things, but things that cannot be commercial successes. That’s the biggest problem we have at the moment in Russia.
BPC envisioned its role as the company to find great technology and bring it to Russia. We succeeded in this because of our experience, our understanding of Russian companies and technology, and from working with western partners.
Since that time, BPC has done very well with the financial side of its business, but it has also expanded into the power and chemical sectors. On first reflection, the three sectors don’t necessarily seem to complement one another that well, so perhaps you could explain to our readers the thinking behind bringing these three things together.
The company evolved simply by following the market. BPC was building software for payment card processing centres, which are usually owned by banks in Russia, many of which at that time were part of financial industrial groups. A lot of these groups were also involved in the energy sector.
BPC was looking for a larger scale market, and by chance my ex-Digital colleague had gone to work for a start-up between ABB and Volvo, who came up with the idea of building a unique new technology called micro-turbines. When talking to BPC’s customers, Gazprombank, owned by Gazprom, Alpha Bank, who are now partners in TNK-BP, and Lukoil, we realised that it might be a good idea to explore this technology.
Unfortunately, the ABB and Volvo JV did not produce anything commercial, but BPC liked the idea, and started to look around and see who had managed to succeed. We found a company called Capstone and spent a year and a half negotiating in order to become their partner in Russia.
How much of your business today comes from the power generation sector, as a group?
The power business is much larger in volume. Our banking business today is a mature one. BPC makes around $20-25 million USD in the banking sector, and $50-70 million USD, aiming for $100 million USD, in the power sector.
These figures are possible because BPC is not just a reseller: the company does a lot of value-added work. BPC Power Systems is also an engineering company and an EPC company. Russia is a huge market and, at the moment, it’s more dynamic than others in terms of distributed power generation. We went outside of Russia with banking software not just because we were curious to look at other markets, but because we had done almost everything we could in Russia. We are far from this in our other divisions.
90% of BPC’s business this year came from its EPC activity. The company did turnkey projects using either Capstone or other suppliers. We understood that it would be much more beneficial if we could play the role of an IPP. Capstone’s equipment is fantastic, but it is completely new technology. The energy market is very conservative, something the company expected coming from an IT background. In IT, people always ask for new things and no one is afraid to try something unproven. BPC has always had to play a missionary role.
The IPP business would make our life easy, and we have started to play with this, but on the other hand, Russia is a market very much unprepared for this: there is no legislation, no investment protection; and very few credit-worthy customers.
At the same time, we see that distributed generation is a hot topic in Russia, because people are starting to talk about efficiency, perhaps for the first time ever in the oil and gas industry in Russia. Is that something that is bringing you back to micro turbines over IPP?
Again, it depends on how we view our future growth. Thinking about the longer term, it seems more efficient to have a steady income from an installed base of turbines.
In most of its projects, and throughout its history, BPC has been a bootstrap company. It has expanded from project to project. To consider building a large network, you have to have a large investor or financial organisation, and then you have to translate financial risk from the company to the end users. There are not so many end users nowadays that look credit worthy in the eyes of financial organisations. Despite this, BPC currently has close to $10 million USD of its own investments in IPP, with selected customers that it knows very well.
However, you cannot build a large IPP business through self-financing. In order to grow this side of the business, BPC needs both financing and investors and is considering steps to bring capital to this type of business.
Our readers are predominantly from the oil and gas sector. With BPC’s power division, you have done a lot of work for oil and gas companies in Russia. Perhaps you could tell our readers about one project that you are most proud of that demonstrates your abilities here in Russia.
Each project has elements that BPC can be proud of, either from technology, or the speed of implementation. With Lukoil, BPC has the longest history: Lukoil was the first customer with whom we began our presence in the oil and gas sector. They came to us looking for a solution to their power generation issues, and we completed our first project very rapidly in the far north of Russia, in the Komi Republic. This project was completed quickly, and also worked well in difficult conditions, built in a place with zero infrastructure, which is one of the benefits of BPC’s equipment. There are no requirements for site preparation.
In our second project for Lukoil, BPC built a small 100KW power plant at a small oil well, consuming its associated gas. This technology is massively important for oil and gas companies – a well’s associated gas utilisation can make it completely efficient, and removes the need for both energy infrastructure and a method to transport associated gas to a centralized location.
I understand that you are looking to manufacture here in Russia. Is that an attempt to make the business more cost effective?
This is not an attempt to completely replicate BPC’s business development in the software sector: we still have a lot of things to learn from Capstone. Manufacturing is a much more investment consuming business. Capstone spent around $200 million USD developing their technology, and is still investing in its development today. BPC is not in a position to invest that kind of capital. Still, we see the big potential of the Russian market, but there are some points to be improved in the total package. Capstone has IPR for its turbines, but there are many other simple things which, if they are not done in the right way, can be painful on the customer side, and we can have better control by manufacturing them in Russia. BPC is not the only one doing this. Capstone’s Japanese partners also do the same using OEM agreements to produce complete power stations using Capstone turbines as a building block. It’s BPC’s short to mid-term goal to do the same.
Our publication goes to the general managers and CEOs of oil and gas companies here in Russia, some of whom will know your company already, but many of whom will not. As a final message, what would you like to say to our readers about BPC group, and about what they could expect if they do business with you?
I would emphasise the potential of distributed power generation and micro-turbines as a technology. Oil and gas companies should start to look beyond the traditional paradigm of centralised power generation. Many people believe that larger power generating stations are more cost-effective, but this is simply not the case. Compact power plants can be built with a minimum required investment, with capacity as much as you need. One of BPC’s slogans is ‘we deliver power when and where you need it’.