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Interview

with Igor Mironov, Council of Power Producers, Council of Power Producers

26.09.2012 / Energyboardroom

One of the objectives of the CPP is to increase competitiveness and promote the overall attractiveness of Russia’s power sector to investors. In your perspective, how attractive is the sector for investors today?

Our partnership has been created five years ago, when the investors decided that an organization was needed to voice their shared interests. This applied to both infrastructure organizations -such as the NP Market Council- as well as governmental organizations. This is how our organization came into existence. The start of our work coincided with the global financial crisis, which has created one additional hurdle. However, today we are already seeing results and are looking at a growth path that is set to continue in the next few years.

As for investment attractiveness, one of the key successes in our first two years has been the Treaty of Energy Capacity. Still now, we are working on finalizing this document and having it signed and approved. So far, this Treaty has been our greatest achievement as it constitutes a compromise between both the power producers and -consumers. This document -referred to as the ‘modernization program’- identifies several technical aspects and technological advancements required to renew the Russian energy sector in the future.

One of the most important aspects of this modernization program is the economic model that will need to be put in place to allow for new investment. Russia’s power market is semi-regulated; the government still plays an important role in price formation. Although there is not much freedom in that regard, we understand that the country is still in a transition period. The government is trying to control and regulate the relatively ‘wild’ market we have here.

At the same time, we are also working on a new market model with the aim to enhance the integration of our sector within the global market. This will include price formation based on the laws of supply and demand, rather than through government interference. I hope to see this new model launched by the end of next year.

More recently, the CPP also received the right to conduct an independent examination on corruption in the sector. Why was this additional mandate needed?

By Russian law, all of our regulatory legislative acts are required to be registered at the Ministry of Investment, and they are the ones carrying out the expert examinations.

Our sector, however, is severely complex and requires a significant amount of expertise. We therefore decided that we needed to be accredited as an organization, able to carry out such examinations. Moreover, one of our interests is to ensure government to remain minimally invasive in this sector.

In my opinion, to have every regulatory legislative as well as decisions of government to influence our sector is a situation that cannot be allowed. All the laws, orders and regulations must remain clear and transparent to everyone.

The CPP also represents international investors such as E.ON, Enel and Fortum. Can you elaborate on the importance of these international companies within your member list, and indicate whether they raise different issues than the Russian companies you represent?

The Council of Power Producers does not differentiate between the interests of international and Russian investors. As any Russian investor, international companies want to regulate the rapid development of their companies in this market.

There were however times where we had to ask the foreign investors to talk to the government, most particularly when we were working on the aforementioned Treaty. At that time, the international companies were still new players on the market.

The situation today has stabilized: all investors are equal and they all take part in the market processes. In our Partnership, we say: ‘one company, one voice.’ Our platform provides every company with the possibility to influence decisions we all agree upon.

Foreign investors are experiencing slightly better times today, as they can more easily and more cheaply attract capital.

Coming back to the modernization plans laid out in the Treaty you spoke of, can you provide further insights into what this Treaty will say about the future role of the government within the sector?

The modernization program analyzes the current situation in the sector with regards to new and old infrastructure, as well as new equipment needed. The program will need to be passed by the government and needs to become a representative document.

Another aspect is the economic program, which relates to the capacity needed in this market. If we cannot attract investment, we will need the government to allow for regulatory changes and ensure mechanisms to support investment.

The government’s Energy Strategy 2030 already foresees the need for up to USD 888 billion by 2030. In your view, is this an ambitious figure within such a short time span?

This is an ambitious target indeed, but from an investment point of view, the Energy Strategy document is mainly directed towards the development of the sector. The money for these investments does need to come from somewhere, however, and today’s markets do not allow for such sizeable amounts.

The government needs to take it step by step and decide on its priorities. This is a critical issue because we do not expect to see a very high increase in consumption in the next few years. We need to look at modernization in a realistic manner, and either provide companies with a way to make profits on the market that can be reinvested, or alternatively provide economic mechanisms to invest in modernization. We have already handed in a proposal for a modernization program to the Minister of Energy, but no decisions have been made so far.

In an ideal world, we would be in favor of a free market. We understand however that a certain extent of control in such an important sector, especially with regards to price formation, cannot be avoided. To be honest, a certain degree of control exists in every country in one way or another. Therefore, we must identify these mechanisms to attract investment to the sector.

Last year, CPP organized the 10th Professional Conference ‘New Russia. New Energy Technologies’ in Sochi. What can you tell our readers about the key conclusions made by its participants?

The CPP has traditionally organized these conferences as any other: an event that served as a communication platform and networking opportunity, where everyone was welcome. This format, however, never led to any tangible results for the participating companies.

In the last two years, we have therefore no longer invited the media and the different government officials to this conference. Instead, the event focused mainly on the members that were part of our partnership. A platform emerged that enabled the different participants to discuss and solve their own specific problems.

When two stations were in close proximity of one another, for instance, facing the same problems, the participants could more readily learn from each other’s experiences. The conference has therefore become more of a reunion of all the energy producers of the Russian Federation that come together to discuss all the different problems they may face, from management to personnel, production, and so forth. When people come together more freely, they communicate more openly and achieve better results together.

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