with Sergey Pogosov, chief executive officer, Kaskad Holding
Kaskad Holding comprises nine different companies. Can you first of all introduce this structure and provide us with a brief background?
The idea behind the creation of this company went hand in hand with the restructuring program of former RAO UES of Russia. At that time, we studied the new federal laws very carefully and saw an opportunity to create a company. We started the holding with only three companies: a grid company, a generation company and an equipment company.
We first entered the market in 2005 and have been growing step by step since then. We have become increasingly competitive over the years and have gradually entered more specific areas, such as energy efficiency, energy saving and advanced technologies. When we first started, we could build on the existing assets and activa from the Tashir Group of Companies, our parent company.
During these first years, it was still very expensive for companies to connect to the grid. From a competitive point of view, we entered the market under different and more attractive conditions. From the start, we have been working with different expense structures than our competitors. Foreign investors interested in developing their businesses in Russia could turn to us for the same services at very different conditions.
You work with a module called ‘Energy Service Contracts.’ The first big contract for Kaskad was in the City of Engels, Russia. How do you define such contracts and how successful was the Engels job?
Engels is a Russian city of 240,000 inhabitants where the entire heat and water supply is done by the Engels Heat Company. When we signed the contract with them, the Engels Heat Company was facing high debt and depreciation levels of 70 percent; their boilers and facilities were old.
To better understand the company’s situation, we performed an audit and set up a program for energy efficiency and equipment modernization. We invested RUB 0.5 billion in the placing of new boilers and automated equipment and technologies, comparable to those deployed in Europe. Our return on investment will be between five and seven years.
What has been the response of the Engels Heat Company as well as the Engels municipal and regional authorities?
A project like ours is unique in Russia and the local authorities have been very satisfied with our work. During the winter preparatory meetings, Engels was highlighted as the only city that was really ready for winter while many other cities across Russia were facing more difficult situations.
With respect to energy-savings, the new boilers create savings of 52% in energy, 25% water and 17% in electricity. In terms of headcount, the company has been able to reduce its staff from 900 to 400 thanks to the use of new technologies. Once we are fully ready with the technological upgrades, only 202 people will be needed to run these facilities.
That’s good from a technological point of view, but doesn’t it create social tensions due to job losses in the local community?
Not exactly! These people have been moved to other areas, such as construction for example. We have redistributed the workforce and have in fact been able to keep 70 percent of these people employed.
You have previously addressed the press by saying that an energy-efficient city in Russia is not a utopia. Has there been a perception change in Russia towards energy efficiency, both at public as well as political level?
Perceptions are changing, but it is taking time. I believe that we need to show what can be done in one city, and then expand this concept across the country. For this reason, we are supporting pilot projects such as the one in Engels. We want to show the government what we can do.
The Sochi Winter Olympics are also approaching. Are you taking part in any projects there?
The Sochi project does not require private investors as the infrastructure is being financed by the government. However, we are present there to support the construction of a port through our parent company.
When Kaluga mayor Nikolay Polezhayev and the regional Governor Anatoly Artamonov visited your facilities, you spoke of intentions to expand your operations. Can you elaborate on these plans?
Our Corporation Tashir Group of Companies has three business lines: real estate, financial markets and the power industry. The management is currently particularly looking at the power industry as a major source of growth for the Group. We therefore want to take part in large new projects.
For example, we have rented out both our substations and cables in Moscow for ten years to Moscow City Transports. All of the Moscow trams are powered by our facilities. This is one example of how we are actively moving forward with our company.
In a next step, we plan to go deeper into the complete modernization of entire cities, both in the areas of power and heating. We also want to take part in tenders that will be organized by the cities and towns to attract investment in these areas. At present, we are looking at conducting such projects in parallel, in different cities of the Russian Federation.
Another contract we can highlight is that of the city lighting of Kaluga. This project has already been completed. In just six months, we have been able to change the power lines and very soon from now the city will start saving money through this investment. We can do the same in any other city. At present, the target is for every company to reduce their energy usage by three percent every year.
What do you see yourself achieving with the company over the next five years then?
I would like to see Kaskad Holding as one of the biggest energy companies in Russia that did not come forth out of the big monopolies or through the privatization of government assets. We have created the basis for doing so and now need the full support of the government to contribute as much as possible. This is not always easy in a sector that remains dominated by state monopolies, which often do not like to see private companies succeeding. We are sometimes seen as intruders in their territory.