with Dmitry Serant, CEO, COTES Group
The President of Russia has made it clear that significant resources will need to be invested into the modernization of Russian energy facilities. From a private industry point of view, is this also reflecting in more opportunities? How optimistic are you about the current market conditions?
It is worth noting that in the last few years, Russia has been linked to so-called production capacity agreements. Today, much of the required capacity has been built according to the requirements set forth by the government’s plans to restructure the Russian power sector. The companies that have contributed most have been the sector’s three prominent foreign investors in power generation assets: E.On, Enel and Fortum.
Today, we mainly work with these companies to complete their projects. Any new work will mostly be related to the modernization and reconstruction of energy assets, rather than the construction of new generation assets. The main characteristic of the power sector in its current condition is the fact that many of the facilities are ageing and in need of modernization, most particularly to improve their levels of energy efficiency and take into account environmental concerns.
For example, we have been working on a third block of a 250 MW heat and gas facility in Chelyabinsk for Fortum. We have replaced the old capacity completely. In fact, such projects rarely happen in Russia where it is more common to keep modernizing and upgrading existing assets for 30 to 40 years.
Going forward, the main potential will exist in either the replacement or modernization of existing capacity.
Not exactly the same as building a plant from scratch. Do such jobs require a different project management approach from your point of view?
In this specific example, we particularly like Fortum’s position. By buying this new generation block, they are building the most modern facility. In this heat and gas facility, their coefficient of efficiency is 55 percent. Soon, the Chelyabinsk facility will be one of the most efficient plants in Russia using the most modern technologies. We obviously welcome an approach to close down old inefficient capacity and replace it by new and efficient capacity.
At a conference in Siberia last year, you spoke of revenue growth for 2011 of 30 percent. Does such strong performance create a certain pressure for this year’s results –and, are such levels still feasible?
Growth cannot always be vertical and such rates are tough to maintain in absolute terms. I deem it more important to comply with market requirements by providing quality products that match the most modern requirements in efficiency and environment. We support our growth ambitions but are aware that sustaining such high growth rates will be unlikely now. This is mainly linked to the fact that the market for modernization and reconstruction is much more difficult than the one for new capacity.
Why is this so?
Renewing or rebuilding assets is more difficult because such projects require an intensive study of the existing capacity. All the changes that need to be done to existing blocks must be linked to working equipment in other parts of the asset. One therefore needs to be very careful and take all the existing equipment into account.
You mentioned foreign companies investing more in modernization. Why hasn’t this been the case for Russian generation companies?
Russian generation companies have also tried to invest in modernization, but the foreign investors have been more reliable. The program for the creation of new capacity was distributed among both Russian and foreign companies. However, it happened that some companies did not comply with some of the obligations and contract terms. In this regard, foreign companies have generally been more reliable.
They are your target group?
Today, we have ten key clients among which we also have the three foreign investors. They are among our most important clients today. Another reason why we prefer to work with them is the fact that we have a very strong partnership with the Finish company Pöyry. We try to develop partnership relations to become more attractive as a company. We do not only represent Russia but also our own partners.
Can you elaborate on the match you saw between Pöyry and COTES?
We met Pöyry by chance, at the Power Gen conference. Since then, our relationship has developed step by step. Two years ago, we signed a strategic partnership to work together in Russia and Kazakhstan. Today, we are cooperating on several joint projects, some of which have been completed already.
One of the main clients of Pöyry is Fortum. When we tendered for the Chelyabinsk plant a few years back, Pöyry was supporting us during the process. Thanks to their support, we managed to obtain this joint contract. From our side, we provide Pöyry with local resources on their many consulting projects. This is also far more cost-effective than attracting foreign talent, which is very important in order to remain competitive on the Russian market. We support each other.
Your home is the world’s biggest country. Yet you work in Kazakhstan, Turkey, Bosnia and Poland amongst others. Why is it still important to go there?
Having contracts on the international markets, beyond Russia, is a further guarantee and a sign of reliability. Several years ago, in 2008, we faced a severe crisis in Russia. At that time, our projects in Kazakhstan –a country that remained largely unaffected by the global economic downturn– were far more successful.
Our biggest market certainly is Kazakhstan at an international level. The country has an investment program for new energy facilities and the upgrading of existing power plants, supported through special investment tariffs. We take part in this rapid development and engage in a lot of work there.
Other important markets for us are located in Eastern Europe, more particularly in Former Yugoslavia, such as Bosnia-Herzegovina, Croatia, and so forth.
What do you see as a healthy future balance, domestic versus international projects?
I would like to see around 70 to 75 percent of our project volume coming from our domestic market, Russia.
You’ve turned COTES Group into a success story and have received the Award of Top Manager in Russia in 2007. What advice would you give to your colleagues in the industry?
We work in a very creative business which results in the creation of energy facilities. The most important aspect in order to be successful is to have a team of people that is passionate about the energy sector. They need to be willing to give everything, difficulties notwithstanding.
Apart from that, it is also essential to have the right organizational structure. For this reason, we have project management systems accompanied with professionals of roughly ten different specialties in different departments, whose work is managed by project managers who, in turn, are vertically integrated into a matrix structure. For every project, we create a project team where everybody works under the supervision and coordination of the project manager. Their goal is to complete the project while complying with all the time and quality requirements.
Another important aspect is to remain aware and up to date of the most recent achievements and technological developments in the sector, which is one of the reasons why we always take part in as many exhibitions as we possibly can, such as the Power Gen conferences. When my colleagues and I go to these exhibitions, we speak with everyone and try to implement all their latest technologies into our projects.