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Interview

with Kenzo Shimayama, General Manager, Hitachi Ltd. Moscow Office.

13.03.2013 / Energyboardroom

The content for this interview has been provided by:

Kenzo Shimayama, General Manager
Toshiyuki Tsuge, Deputy General Manager
Alexander Chistyakov, Manager Power & Industrial Systems
Dmitriy Litovskikh, Head of Group Business Development in Russia and CIS

Mr. Shimayama, can firstly introduce Hitachi Group?
K.Z.: Hitachi, Ltd. was established in Japan in 1910 and is a parent company for 950 subsidiaries. The Group is one of the biggest Japanese manufacturers of industrial equipment, electronics and high-functional materials. Hitachi produces a wide variety of products including energy equipment (for both generation and transmission), IT systems, high speed trains, medical equipment, automotive components, water treatment facilities, transport systems, and others which have high potential in the Russian market. Historically Hitachi has tight and kind relations with Russia.
Hitachi tends to develop various types of cooperation, including scientific and technological. In November 2011, Hitachi Construction Machinery began the construction of its Russian factory, which will start production in 2013 with an annual capacity of 2000 excavators. Hitachi believes the new factory will support future business expansion in the Russian market.
In terms of figures, the Group’s revenues currently stand at USD 117.9 billion with an income of USD 5 billion. The Group’s headcount is currently 320,360 and spread over 950 subsidiaries, 598 which are located outside of Japan.

How does the Group’s footprint in Russia compare to these global figures?
K.Z.: In May 2012, Hitachi celebrated the 30th anniversary of its doing business in the Russian Federation as Hitachi Ltd. Moscow Office was established in May 12, 1982. Its original function was to pioneer the market and create new business. Since that time, a number of Hitachi Group Companies have established their own offices in Russia and CIS countries. Others are doing business through their distributors, which they manage from Japanese or European headquarters. Now we have four legal entities, five representative offices, one branch office & one joint-venture.
The overall objective of Hitachi Ltd., Moscow Office is to develop business opportunities for Hitachi group companies using three methods:
1) To communicate with Hitachi’s group companies which are already established in Russia. We periodically have a “Hitachi group strategy meeting in Russia” in order to exchange information with each other.
2) To expand/develop Hitachi’s product line. Hitachi group consists of 950 companies in the world, but at present time only 2% of companies are doing business in Russia. It means that we have very good potential to expand Hitachi’s products line in Russia.
3) To make territorial expansion in seeking to expand the geographical scope of the business activities, Hitachi’s initial focus is on the Kazakhstan market. In 2011 Hitachi therefore appointed a representative person in Kazakhstan to support an ongoing H25 gas turbine project and to create the basis for new Hitachi’s businesses there. This year we will also start studying the Azerbaijan market.
It is also worth elaborating on our so-called ‘infrastructure systems business concept.’ In the world –and as well in Russia– Hitachi focuses on social innovations. Social innovations includes: Complex solutions for social infrastructure, development and production of key industrial and infrastructural equipment and system engineering, based on our corporate credo of “Contributing to society through the development of superior, original technology and products.” Hitachi is working behind scenes using the latest technology to keep this social infrastructure functioning. Hitachi takes pride in this role, and it will remain our company’s mission. This is important because the systems that provide the foundation of society’s infrastructure must continue to evolve. Innovation in this area is critical as we search for ways to protect the global environment by reducing CO2 emissions and achieving even greater energy efficiency.
Electric power systems are the subject of growing expectations because of their potential to help reduce emissions of CO2, a cause of global warming, and create a low-carbon society. In response to these needs, Hitachi is utilizing the skills and experience it has built up over many years to develop highly efficient thermal, nuclear, and renewable energy power systems with a low impact on the environment, while also extending its global business operations by strengthening its presence outside Japan, particularly in Europe, Asia and the Americas.
Coal-fired thermal power is the primary source of the world’s electricity supplies and, in addition to helping reduce CO2 emissions by supplying generations technology with world-class levels of efficiency, Hitachi is also working on the development of clean coal technologies.
A.C.: Although Hitachi’s product line in the power generation sector is rather wide, from wind turbines to nuclear power plants, Hitachi Ltd. Moscow Office is mainly focused on gas turbine projects and gas-firing equipment. Our product line for this field is more limited, where we have three different models of gas turbines to offer the Russian market: the 17 MW H15 Gas Turbine, 32 MW H25 Gas Turbine and the 98 MW H80 Gas Turbine that has been newly introduced in 2012. Because of this limited portfolio, we have 4 units in operation on Sakhalin Island, but we are working towards increasing this figure.
Nevertheless, the Moscow office covers more than the Russian market alone. In the CIS countries, for instance, we also have four H25 units in operation in Kazakhstan, while another H15 unit has been contracted. We consider ourselves as one of the main players for gas turbine power generation in the Kazakh market. For this reason, we have also deployed a permanent representative in this market. Other Central Asian countries such as Turkmenistan and Uzbekistan are also interesting, but are areas where we are not yet in operation.

Will we see this –still limited– product line expanding in the future?
A.C.: Due to the product range limit, we will continue to focus a certain niche of medium-size power plants, more specifically on co-generation and combined cycle power plants. In doing so, we mainly target oil and gas companies as well as industrial sites interested in independent heat and electric power sources. Therefore, it is not our goal to pursue a dramatic increase of this portfolio.

How do these different entities of Hitachi Group interact and what synergies exist between them?
D.L.: Hitachi is a rather innovative and smart company that aims to promote a total solution concept beyond individual equipment. Specifically in the power industry, we promote smart grids and the –even larger– smart city concepts. Smart city concepts are comprised of smart grids, smart water, smart transport and other smart solutions.
Hitachi is an equipment manufacturer which has the capacity to produce its own materials too, through its companies Hitachi Metals and Hitachi Chemicals. These companies can develop highly innovative materials that can form the base for different types of highly interesting equipment. At present, we particularly focus on energy-saving and energy-efficient equipment, such as gas insolated switchgear, transformers, amorphous metal transformers, and so forth. For these types of new equipment, we can consequently create so-called systems solutions through our ‘total systems engineering’ capabilities. Our infrastructure systems business concept relies on exactly these three pillars: core components, solutions and services, and engineering. Our company is a very interesting case of an equipment, IT and engineering company in one.
The revenues of the Social infrastructure business of Hitachi Group can be divided according to our different companies. A first is the ‘Infrastructure Solutions Business,’ which includes smart cities, smart grids, smart mobility and intelligent water systems. Second, we have the ‘Plant Systems Business,’ the so-called hardware and equipment which includes water treatment, transportation, oil and gas, chemical plants and electric control systems for steel plants. Third, we have our ‘Components Business,’ which develops materials to build innovative equipment. Within our Group, we can manage every process. Because of this reason, we can reach high levels of efficiency and international cooperation between different departments and subsidiaries.

The Group also promotes so-called ‘Ideal Social Infrastructure.’ What does this entail?
D.L.: This represents our concept of an ideal social infrastructure for the future. We believe that the infrastructure should be based on information technology first. This comprises different information control and coordination systems such as Community energy management systems (CEMS), wide area EMS, Meter Data Management (MDM) with smart meters, Geographic Information Systems, and so forth. Subsequently, this data needs to be utilized for which we need high capacity data storage systems, servers, etc.
At a next level, we foresee sophisticated infrastructure facilities, which should have different types of sensors and controllers to send and receive data. This is what is referred to as the smart city concept. The top layer then consists of systems such as smart grids, smart industries, factories and buildings, financial & governmental systems, smart mobility, intelligent water systems, and so forth.
Using a unique approach, Hitachi Group aims to create an interconnection between different areas. We ask questions such as ‘How will the transport system influence the power system?’ and ‘How can the water treatment system influence the power system?’ Water treatment systems are huge power consumers that –when optimized– can have a big impact on overall power consumption.
Smart grids, in turn, consist of power generation and power consumption systems. The role of the smart grid management system is to optimize both sides – consumption and generation, integrating concepts such as electrical cars, solar power generation, etc.
Another element worth mentioned is the so-called ‘manageable controllable consumers.’ In Japan, when there is peak demand, we can work together with the consumers to decrease their consumption under certain conditions. This can be done by sending signals from Community energy management systems (CEMS). Different types of technologies can be used within this frame, several of which we try to implement in Russia. We cooperate with the Federal Grid Company (FSK), one of Russia’s most innovative companies in the power sector.
In order to stimulate energy efficiency projects in the private industry, we first ask the state-owned companies to be pioneers in this area. They are carrying this flag and show how energy efficiency and increased reliability can be achieved. FSK is one of those pioneers in the Russian market and is implementing various projects and technologies around renewable power, smart grid systems, and so forth.
Hitachi provides solutions and products for a number of global Smart Grid / Smart City projects, not only in Japan –such as the Mega Solar System at Kanagawa prefecture – but at a worldwide level. There are several examples of projects in UK, Spain, India, China, and the USA. While Hitachi is basically a technology provider, it is also capable of offering consultancy services on smart city planning as a technology adviser to the project owners like municipalities and developers and also to the development master planners at the early stages of the planning.

What factors will determine the feasibility of similar projects in Russia?
D.L.: A first factor is the quality of the power grid: Is it already smart or rather old? In our discussions with FSK, we do not offer to replace all the equipment by expensive sophisticated management systems. We look for the optimal configuration between the existing older equipment and new technologies and systems. We first aim to minimize the expenses of our customers, which is particularly important in a huge country like Russia.

Russia faces a high degree of energy intensity. Is it a challenge to market efficiency towards consumers here?
D.L.: The Russian government has come up with target points to increase consumer efficiency in the country. Two particular elements can be discussed in greater detail here. A first is to decrease power losses in current buildings. Russian buildings are rather old and generate significant heat losses – from the walls, windows, etc. This is a point where municipal house repair and construction companies will play a role. Another aspect here is how to optimize heating and electric infrastructure. Heating panels in Russian houses produce heat at a fixed level. As a result of excessive heat inside the houses, many citizens open their windows during winter. Therefore, we can have a look at smart measuring systems to regulate temperatures better. Such systems would not cost much compared to a complete overhaul of the equipment itself. A second element is the fact that the government already requires some of the state-owned companies and factories to increase their energy efficiency.

From a business-cultural point of view, what bridge do you see between Japan and Russia?
K.Z.: When our colleagues from Europe or Japan visit Russia, I first always explain them why we must do business in this country. During the Soviet era of the 1950s to 1970s, considerable investments were made into new infrastructure. As from the 1990s, however, GDP decreased considerably: by 40 percent between 1991 and 2000. Equipment and infrastructure have a life cycle of 30 years on average. Due to the economic conditions, the newly formed Russian Federation could not pursue such renewals during the 1990s.
From 2000 onwards –with President Putin coming to power and an increasing oil price – new resources became available to replace the old infrastructure. Hitachi’s main business is to provide social infrastructure. This is why we should recognize the major potential to contribute in this renewal.

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