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with Armen Badalov, Director Office of the European Programs, Pace Global

31.05.2010 / Energyboardroom

Pace Global is a leading international consulting firm that provides strategic energy and carbon management services to energy, industrial, manufacturing, large commercial companies as well as public and institutional entities with headquarters in the US. What market factors made the company decide that 2002 was the right year to establish operations in Russia?

Armen Badalov: The major driver for us was the market opportunities, and the potential for Pace Global’s international expansion to such a large developing market. Energy plays a huge role in economies of both Russia and the CIS, and the energy sector in this region is undergoing massive transformation. This is the perfect location for a company like Pace Global to be present: the services that the company provides around the globe fit perfectly into what the Russian and CIS economies need at this stage of their development.

Russia is a unique oil and gas market. In some respects, far more liberalised than many of the OPEC countries, but at the same time, many international companies struggle to gain market share here. What message does Pace Global want to send to American readers about doing business in Russia today?

Vyacheslav Mischenko: There is a perception, perhaps lingering from the Cold War attitude and old confrontations, that today Russia is still neither fully democratic, nor a fully functioning market economy. In the oil and gas sector, there are worries over stability of ownership and capital investments.. However, it is critical to remember that such situations may occur in many types of markets, no matter how developed they are. When considering Russia, companies should instead focus on the wealth of opportunities available in the country for doing business on the long-term basis.

The experiences of European companies in Russia shall be taken as an example for American businessmen to examine and follow. Companies from Germany, Italy, France, and Scandinavia are active in the Russian market today. High level decisions were made that helped these national businesses to overcome their fears of Russia, which turned out to be a positive decision. Fifteen years ago, the Russian market was unique in terms of the opportunities that it offered. Companies like Total, E.On, Wintershall, ENI, and Statoil took advantage of this opportunity, and as a result gained stable positions in Russia. They were not dissuaded from continuing their involvement here as a result of negative events. Russia has proved itself to be an attractive market, and, which is more important, a reliable partner.

For forty years, Gazprom has been supplying Russian gas to European markets. This supply has never been interrupted by political circumstances, such as the collapse of the Soviet Union, but succeeded in maintaining stable, regular business, despite political changes and transit issues. In this way, Gazprom and Russia have proven themselves to be reliable and stable suppliers of energy resources to global markets.

This can also be seen in Russia crude oil exports, which have always been continuous and stable. The Russian oil market developments and capital investments over the last two decades has led to more independency of Russia from transitory supply routes, which is indeed adding more stability to global supply, and should be taken as a signal to the international community that Russia is a reliable business partner.

Mr. Badalov, you have been with Pace Global since the company established operations in Russia in 2003. How have market developments since that time impacted on the way that Pace Global operates within Russia today?

AB: The Russian market has undergone a number of transformations. They were not radical, but the change was constant. A good example is the development of the Russian gas industry. Russia made significant steps forward in advancing its international footprint through LNG development, new pipeline construction, and marketing and trading operations in Europe and the United States, and Pace Global has been supporting gas companies through this process. This period has also seen the transformation of the Russian power sector. All these matters helped to change Pace’s service offering in Russia: today, the company is working to support a newly liberalised market on behalf of both power producers and the power consumers.

The most recent example of this kind of transformation is the shift towards energy efficiency, which is an important part of Pace Global’s international offering. Today, the company is seeing a lot more interest from Russian companies, as well as international corporations operating in Russia, who wish to focus more on their energy intensities and operational improvements, and we are efficiently supporting that activity.

Who are Pace Global’s major clients in the Russian market today? Is it Russian players that are looking to develop their international strategies, or international players that want to approach Russia?

AB: Pace works both for international corporations active in Russia and CIS and with Russian companies that entertain strategies for expansion abroad. On top of this, Pace is advising Russian clients on the local markets matters., which his is an important step for an international consultancy like Pace. The company is gaining more knowledge and expertise in the local market on a daily basis, in local regulation and market structure. Pace is also involved in bringing new technologies, techniques and experience to Russian companies.

LNG development has been a major aspect of the transformation of the Russian gas sector, and has been an important focus for Gazprom in recent years. Pace Global helped Gazprom as they were looking into the potential of the US market. With the recent developments in global gas markets, what opportunities are there for Pace Global to step in and advise again on this new situation in Russia?

AB: It is no secret that LNG development is high on the agenda of the Russian gas industry, and there have been no steps to abandon their strategy for LNG exports to the United States and other parts of the world. Pace Global advising clients on these recent global trends, such as the growth in demand for spot markets, and the shale gas situation in the US. In this challenging conditions, our clients require an independent and constructive advice.

What is Pace Russia’s strategy for attracting new clients today? How are you marketing the company here in Russia?

VM: Pace is well placed in many parts of the Russian energy value chain. The company has projects in upstream, midstream and downstream oil and gas sectors, as well as in the power generation industry. In addition to the energy supply side we work extensively with the energy consumers. We manage a number of projects in industrial sectors, including metal and mining companies. Given our energy supply and demand side expertise we are in position to provide comprehensive and integrated solutions to our clients.

Energy efficiency is something that on an international level is a very important topic. In Russia, however, it does not seem to be so high on the list of priorities. As a consultancy that deals with energy efficiency and carbon reduction, how do you find the situation in the Russian market?

AB: In Russia, the general understanding of the need and benefits for carbon reduction and energy efficiency is just evolving. We currently see insufficient governmental support for this type of activity. Right now, industrial consumers are focusing on energy consumption reduction simply because of rising energy costs. Pace deals with some companies in Russia that are very well progressed in their energy strategies as a direct result of this need to lower costs.

Pace is working in Russia to educate its clients on the benefits of energy efficiency. In many cases, energy efficiency as it is regarded on an international level is not enough for Russian companies, because of the dated infrastructure and industrial assets. Energy efficiency must come at the same time as a broader modernization of their assets. However, this involves large investments in new technology. Sometimes companies are not ready for that right away, so Pace markets its services starting small, and moving gradually. When we show our clients the benefits of short-term “low handing fruits” energy efficiency improvements, they want to have more. Some clients choose have self-generation, others co-generation; some of our Russian clients are asking for help with renewable energy projects, which is a huge breakthrough that has only taken place over the last two or three years.

Mentalities are changing in the marketplace, and from this, demand is increasing. Right now, Pace is focused on serving the smartest, more forward thinking clients. There are quite a few of these in the market, but we would like to see more in the years to come.

It’s interesting to see a Russian leading an American company with its operations in Russia and Europe. How have you managed to mix Russian and American business culture, and what do you think you bring to Pace Global’s activities in Russia?

AB: All of the people that work in the Pace Global office in Russia possess strong international experience and education, and so understand both the US and European mentality very well. Vyacheslav has been focused more on Europe and the UK; I have experience of working in the United States. On top of this we all have the experience of working and living in Russia, which adds to our value to the clients we serve.

We all understand that ff you desire to work efficiently with Russian clients, you must have Russian staff and local expertise, because otherwise you run into difficulties of interacting with clientele. Our team is also involved in projects and business development outside of Russia, when Russian, European and CIS experience is needed in other parts of the world.

Since the company was founded 34 years ago, Pace has done a lot of work to build up US-Russia relations. At times it seems as if you are working as an ambassador for the two countries. What role do you hope to play in that regard, and what would you like to send as a final message to our international readers about US-Russian cooperation?

AB: Pace’s CEO, Tim Sutherland, is doing an excellent job in mediating the Russian-US relationships, especially in the energy sector. He works a lot with Russian executives, and with US executives, and US government officials, to promote the interests of both sides. This is one of the key factors for our success here in Russia, because we indeed try to understand the Russian market, the Russian clients and what they need, and marry that with US interests in the energy sector.

US companies need to look into new opportunities in Russia in the energy sector, not only in oil and gas, but also in many other sectors: power, coal or renewables, equipment, energy efficiency and technology. There are many opportunities here, for both Russian companies and international companies in Russia.

VM: American companies should be present in Russia because of the size of the market, its attractiveness, the opportunities that it provides with all this, and plus because of the need for significant investment in the energy sector. Russia is rich in terms of oil and gas reserves, but it needs capital to develop those reserves and commercialise them. It needs technology, consultancy, professionals and investments. America is one of the largest investors in the world. It should be here. Of course, it should be done step by step, and Pace is here to help, as a bridge to these opportunities, and marrying these commercial interests.



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