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Interview

with Evgeny Fedorov, Chief Executive Officer, EuroSibEnergo

08.04.2013 / Energyboardroom

You were appointed CEO of EuroSibEnergo in 2010. What was the mission you had to embark upon at that time, and what key priorities did you set yourself to start the journey?
It was a very important time for the company, as the market was going through a period of liberalization. As new rules were being implemented, it was important for the sector to move towards full liberalization.
A second very important aspect for developing our company has been the supply of energy to new consumers, especially factories who consume roughly 25 billion kilowatt-hour and thus create great volumes for our company. Our main objective has been to satisfy their demand.
Our third task existed in managing expenses and optimizing activities. A new company –Rus Sib Coal– was acquired. In addition to our generation assets, we now also had the additional task to start managing coal assets.

Coming back to your second task –new customers– we understand that Rusal is your main customer today. Is this new task linked to diversifying your risk profile to decrease your dependency on one big customer? What exactly was the vision behind this decision?
In the long run, we aim to sustain our advantage of operating in the Irkutsk region– the region with the lowest electricity tariffs in Russia. For us, it is therefore important to keep these tariffs low for new factories too. Such low tariffs are a very important impetus for industrial development.

EuroSibEnergo currently accounts for nine percent of all electricity generated in Russia. What economic significance do you see for EuroSibEnergo in Russia’s less developed eastern regions in particular?
Our current production level within the whole of Russia indeed stands at nine percent, but in Siberia our share is even much higher: close to 40 percent. I would therefore like to reiterate that we have the strategic task to develop energy-intense factories in Siberia. The relatively low prices probably make Siberia the best region in the world to do so. Our prices are an important stimulus for the economic development of Siberia in the long run, especially since many other factors –such as a limited population and immense distances– restrain such development.

However, as a profit-seeking entity, what drives EuroSibEnergo to keep its prices this low?
One can make money in two ways: increasing the price or maintaining high sales volumes. For us and for Siberia, the second option works best. We see ourselves increasing revenues without augmenting tariffs.
This model is particularly applicable to the economic structure of Siberia. As there are so many energy-intensive industries, they would lose their competitive advantage and close down in the case where prices would rise. Our main task is to not let this happen, and to sustain Siberia’s competitive advantage.

If one looks at volumes, the immense potential of the Chinese market –a neighbor of Siberia– cannot be ignored. How are you looking at such exports today and under what framework do you see them taking place?
China is an opportunity that is being developed in the long term, in parallel with our domestic demand. We are obviously speaking about a market with immense volumes but exporting to such market is not easy.
There are different aspects to take into account and work on, the first being linked to technological constraints in supply. One of the other main topics of dispute between Russia and China is the price. Nonetheless, we must first resolve technological restrictions to supply energy in the big quantities that China needs.

The Chinese government plays a very important role in subsidizing tariffs in China. How competitive can you be in such market?
This is one of the many aspects that persist. It is my understanding that the government closely follows all the advantages and disadvantages of exports.

Where do you see the future of EuroSibEnergo then: are you going to be a domestic supplier or an exporter? Moreover, if you are going to be perceived as a significant exporter, what investments will be required?
First and foremost, we are and will remain a company that supplies energy to Russian consumers. The export business is an additional aspect to develop our company further, but our main focus will remain on Russia –and more particularly– Siberia. There is an enormous potential for growth in Chinese exports, but such developments need to take place step by step. We currently estimate a growth potential of ten percent in the long run which goes hand in hand with investments in capacity.

The En+ Group –your parent company– has forecasted future investments of more than USD 20 billion in the next 15 to 20 years. How much of this will trickle down to EuroSibEnergo and what will the money be spent on?
It is our main task to supply these industries at competitive prices. Of these USD 20 billion, a significant share will go to electricity. Our main task is to ensure demand satisfaction. We know how to do it, so next we need to look at the framework.
As all companies, we are not isolated which is why our task is to create incentives and opportunities to develop Russian industries and support a so-called second industrialization of Siberia. There are many projects that are ready to be implemented, so now it will be a matter of synchronizing business plans with investment projects.

What do you see as your mid-term dream, perhaps something you would like to achieve with the Group in the next five years?
In five years from now, I would like to be able to look back at a number of projects that we will have completed by then, more particularly the many projects that are already or will soon be implemented in Siberia.

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