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Interview

with Jean-Louis Stasi, CIS Senior Vice-President & Country President Russia, Schneider Electric Russia

09.11.2012 / Energyboardroom

Mr. Stasi, you have been with Schneider Electric for over 20 years serving in various part of the world, including Europe, Africa and the CIS region. How important is Russia for the Group globally, both from a market as well as an investment perspective?

Historically, Russia has always been quite high on the agenda for Schneider Electric, ever since we first started developing our activities in Central Europe. In fact, Russia was already considered as a new frontier for the Group 30 years ago. While it was common for the Group to enter new markets through acquisitions, we decided to enter the Russian market through partners. A very important partnership in this regard was the joint-venture with Gazprom. This allowed us to introduce our technology to the Russian market without too much risk.

Gazprom itself was the best promoter of our technologies by using them within their own activities. Still today, this relationship and technology transfer is very active and highly successful. To succeed in a market like Russia –which in certain aspects is as challenging as India or China– one can better enter with a partner that knows the market, the economy and the rules of the game. The relationship with Gazprom was a very strong enabler to keep control of our investment. Even today, there are still some elements that prevent a real insider view in this market. The Russian economy had been closed for a long time and is still very state-controlled today. The rules, processes and operating ways are therefore very different here and cannot simply be taught overnight.

Russia is clearly a very large country requiring strong infrastructure. From this angle, we also developed a partnership with the City of Moscow and one other company. Roughly 15 years ago, we helped the city modernize its electrical network. Thanks to this partnership, we have been able to implement our technology to an extent that –today– almost every building in the city is connected to the grid through our products. This has been the second very important step in this market.

Then of course there were the crises, one in 1998 and the other in 2008. In between, we have experienced very strong growth by primarily developing our business in the Western part of Russia –the so-called European part– mainly around Moscow and St. Petersburg. To a certain extent, we have also made some inroads into the construction market in the Urals around Ekatherinburg and in Tatarstan.

In Russia, we are a leader in what is referred to as ‘life space,’ an area in which we have invested between 1998 to 2008 in terms of production and sales. Thanks to the acquisition of the Wessen brand, we have been able to really reinforce our market share in Russia and build a very strong relationship with our distributors.

Even during the crises, we have always kept investing. This has been an important signal of Schneider Electric towards the Russian authorities. We did so by opening two factories: one in Kazan (2008) and a second one in St. Petersburg (2010). This illustrates the fact that it is very important to be a local manufacturer in Russia, especially for equipment targeting the public sector & utilities markets.

Now, in 2012, we are a bit over 3,000 people across the Russian territory. We maintain a strong focus on the European part of Russia and still have a lot of territory to cover.

The grid is one of the backbones of the Russian economy and an area wherein Schneider Electric has significant experience, for example in smart grid technologies. The most recent plant you opened in the town of Kommunar, near St. Petersburg, was erected to contribute to this particular business segment. What role will Schneider Electric play in modernizing the Russian grid?

Since the last crisis, the Russian government has prioritized the transformation of its economy. The country has very well understood that it could no longer rely on the ever rising prices of oil or gas. For gas in particular, this has already become very clear. The objective is to transform the economy to become more independent of activities related to commodities. To do so Russia has set out modernization plans in infrastructure, education, health care, and so forth. These roadmaps currently stand very highly on the President’s agenda.

On the grid side, Schneider Electric already plays a very important role and intends to keep doing so. The market itself is not yet fully formed, in the sense that attempts have been made to privatize power generation and regional distribution in the country. The different regions have their own regulations and governments, which makes that there is no unified process to modernizing the electrical grid. At the same time, on November 22, 2012, the President has signed a decree renaming the Interregional Distribution Grid Companies Holding (IDGC Holding) into OJSC “Russian Grids.” We are developing our presence in this market first by leveraging the factories we already have. Second, we have entered into a partnership by acquiring 50 percent of a company in Samara – the leader in medium voltage in Russia and a strong supplier of regional utilities– while we are now looking into acquiring the other half too. Together, we are working in many areas to develop a smart grid in Russia.

Just last year –in 2011– the Group has also acquired the company Telvent in the USA. One of the latest additions to our portfolio, the company has strong activities in the USA and Europe, as well as some activities in Russia. Telvent is a leader in network management and transport management systems. Such capabilities have the potential to make grids smarter and more automated. They can make the network more digital, while connecting different utilities in the city, including transport, electrical and water management for instance. The idea there is to move towards so-called ‘smart cities.’ Together with Telvent and our partner in Samara, Schneider Electric is probably the best equipped supplier for medium- and low voltage needs in Russia. We are now developing these concepts in Moscow, St. Petersburg and Irkutsk.

Meanwhile we also participate in a pilot project with the Skolkovo Center of Innovation in Moscow. Energy efficiency is one of the five areas in which Skolkovo focuses its innovation on. With them, we are studying best in class infrastructure within the future of Russia. In Sochi, we are also doing the same thing. We are working together with the local utilities and the organization committee of the Olympic Games to prepare the design of the grid in order to provide safe, reliable and green solutions. The way Russia is being modernized today very much occurs by attracting a number of important projects, such as the Sochi Winter Olympics, the FIFA World Cup, G8 & various other interregional cooperation meetings, and so forth.

The signing of the cooperation agreement with Skolkovo was a significant event that was also attended by Jean-Pascal Tricoire, the Group’s global President and CEO. What possibilities do you foresee to take the ‘Russian innovative capabilities’ globally?

Russia has a tremendous potential for innovation, primarily because of its people. The education levels are very high in the software area in particular, where we see unmatched skills. Many have emigrated to countries such as Israel and the USA, but the country still has many resources. We mainly want to localize software capabilities in Skolkovo to develop smart grid.

With the acquisition of Telvent, a very large research center –roughly 5,000 people– in Belgrade, Serbia, has been added to the Group. We intend to have a subsidiary of this company here in Skolkovo, which will look at developing specific modules for Russia. However, we also believe these developments can contribute to the rest of the group. Russia also has significant experience in extreme climate conditions and the oil and gas sector in particular, which may be very well suited for markets such as Norway and Canada.

Russia has vast natural resources indeed, which has also generated limited results in creating energy efficiency. Schneider Electric’s motto is ‘to promote the rational use of energy,’ but is this really applicable in Russia? Can this work here?

Can they make the journey? Russia declares it can because of four reasons. A first reason is the fact that whatever can be saved upon, can be exported. Taking into account that the export price of gas is twice higher than the domestic one, it is economically rational to save and export.

Secondly, the main export of Russia today still lies in commodities such as copper, coal, and so forth. In the cost structure of these products, 50 percent is energy. Considering that most of these companies’ markets are outside of Russia, they have to be able to compete on globally with very efficient and competitive giants such as ArcelorMittal. Companies such as TNK-BP have been investing tremendously in energy efficiency in Russia. And although not all companies are doing so today, additional education in energy efficiency will drive the industry. Companies like Schneider Electric –together with international and Russian banks– contribute to enhancing such awareness.

A third reason lies in the fact that the government is currently in a position where it needs to modernize the country, not only in electricity but also in heating and water. The Russian government realizes the importance of keeping tariffs low in these areas, in order to serve all layers of the population. It is now balancing the cost of efficiency and modernization with the tariffs. A new framework is needed to bring in new investors without having to raise tariffs. However, energy efficiency as a mean to modernize and a very strong driver provided that the right legislative framework is in place. A number of French companies –roughly 15– also have an association in place to support these ambitions: the French-Russian Center of Energy Efficiency, created together with the Russian Ministry of Energy. We partner in different regions of Russia, such as Kaluga and Moscow. For example, we are now looking at taking the lessons learned from greater Paris to develop the greater Moscow region.

The fourth and last reason is related to the fact that Russia now has a global agenda: it is a member of G20, G8, the WTO, etc. When one has got such negotiation power, one also needs to be able to bring something to the table. Russia, in this regard, can be a partner to mitigating climate change. Russia already has a Siberian forest serving as the largest carbon pit in the world. Moreover, leaded by the President’s law from 2009, Russia has committed to reducing its energy consumption and carbon emissions by 40 percent (20 percent state and 20 percent private). This already started to be implemented and a detailed roadmap has been developed.

You mentioned earlier how you have mainly focused on ‘European Russia’ to date. What is going to be your focus in the future? Will we see you traveling to Siberia more often?

This will definitely be much more the case compared to the past. Most of the investments are now happening in Siberia and East of the Urals. Significant investments are being made into oil & gas. Russia has been relying on a legacy of oil production from the Soviet years, which is now depleting very rapidly. The country has committed to maintain the level of production and has realized the need to attract a great number of foreign investors to do so. Apart from oil & gas, the mining sector is very strong in this area today.

More and more, Russia is also looking at rebalancing its trade towards the East. Because of our partnership, the more Eastern site of Samara will become our largest manufacturing site in Europe and fourth largest in the world –with 9,000 employees in place.

On a final and more personal note; many of the international companies in Russia have put a Russian CEO in place to run the operations. What is your perspective on how to be a successful foreign manager to head such sizeable operations?

Apart from knowing the language, a lot of success will firstly depend on the quality of one’s team. Another very important aspect is stability. Very few leaders in Russia have been successful on a short-term agenda. They have been successful because they have stayed a very long time. Relationships and trust are essential in Russia and we try to integrate this within our strategy.

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